What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-29 compared with 2020-03-06 · 240 added, 233 removed, 276 unchanged (63% of the section changed)

4 unchanged sentences

We have audited the accompanying consolidated balance sheets of Milestone Pharmaceuticals Inc.

and its subsidiary (together, the Company) as of December 31, 2019 and 2018, and the related consolidated statements of loss and comprehensive loss, of shareholders’

equity (deficit) and convertible preferred shares and of cash flows for the years then ended, including the related notes (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and its results of operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

and its subsidiary (together, the Company) as of December 31, 2020 and 2019, and the related consolidated statements of loss and comprehensive loss, shareholders’ equity and convertible preferred shares and of cash flows for the years then ended, including the related notes (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

1 unchanged sentence

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s 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.

3 unchanged sentences

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.

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/s/ PricewaterhouseCoopers LLP

Montréal, Québec, Canada

March 29, 2021

We have served as the Company’s auditor since 2016.

(1) CPA auditor, CA, public accountancy permit No.

We have served as the Company’s auditor since 2016.

Milestone Pharmaceuticals Inc.

5 unchanged sentences

Cash and cash equivalents

Short-term investments

Short-term investments (note 3)

Research and development tax credits receivable

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Accounts payable and accrued liabilities (note 6)

Current portion of operating lease liabilities (note 3)

Income taxes payable

Current portion of operating lease liabilities

Total current liabilities

Operating lease liabilities (note 3)

Operating lease liabilities

Total liabilities

Convertible Preferred Shares (notes 1 and 6)

Shareholders’

Equity (Deficit) (notes 1 and 7)

Shareholders’ Equity (note 1, note 7)

Share capital

Common shares, no par value, unlimited shares authorized, 29,827,997 shares issued and outstanding as of December 31, 2020, 24,505,748 shares issued and outstanding as of December 31, 2019.

Pre-funded warrants - 11,417,034 issued and outstanding at December 31, 2020, nil at December 31, 2019

Additional paid-in capital

1 unchanged sentence

Accumulated deficit

Total shareholders’

equity (deficit)

Total liabilities, convertible preferred shares and shareholders’

equity (deficit)

Total shareholders’ equity

Total liabilities and shareholders’ equity

The accompanying notes are an integral part of these consolidated financial statements.

2 unchanged sentences

(in thousands of US dollars, except share and per share data)

Year ended December 31,

Operating expenses

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Interest income, net of bank charges

Loss and comprehensive loss before income taxes

Income tax (recovery) expense (note 9)

Net loss and comprehensive loss for the period

Weighted average number of shares outstanding, basic and diluted (note 1)

Loss before income taxes

Income tax recovery (note 9)

Net loss and comprehensive loss for the year

Weighted average number of shares and pre-funded warrants outstanding, basic and diluted

Net loss per share, basic and diluted (note 8)

1 unchanged sentence

Milestone Pharmaceuticals Inc.

Consolidated Statements of Shareholders’

Equity (Deficit) and Convertible Preferred Shares

Consolidated Statements of Shareholders’ Equity and Convertible Preferred Shares

(in thousands of US dollars, except share data)

1 unchanged sentence

Common Shares

Pre-funded warrants

Balance as of December 31, 2018

1 unchanged sentence

Net loss and comprehensive loss

Issuance of Class D1 preferred shares, net of share issuance costs

Issuance of Class D2 preferred shares, net of share issuance costs

Exercise of stock options (note 7)

Share-based compensation (note 7)

Balance at December 31, 2018

Initial public offering (note 7)

Preferred share conversion (note 7)

Balance as of December 31, 2019

Transactions in 2020

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Share-based compensation (note 7)

Inital public offering (note 7)

Preferred share conversion (note 7)

Private Placement (note 7)

Public Offering

Balance as of December 31, 2020

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Prepaid expenses

Operating lease right of use asset, net

Accounts payable and accrued liabilities

4 unchanged sentences

Acquisition of short-term investments

Redemption of short-term investments

Net cash (used in) provided by investing activities

Maturity of short-term investments

Net cash used in investing activities

Financing activities

Issuance of Class D1 preferred shares

Issuance of Class D2 preferred shares

Net proceeds from issuance of common shares in Initial Public Offering (note 7)

Net proceeds from issuance of common shares in Initial Public Offering

Issuance of common shares on exercise of share options (note 7)

Net proceeds from issuance of common shares in a public offering (note 7)

Net proceeds from issuance of pre-funded warrants in a public offering (note 7)

Net proceeds from issuance of pre-funded warrants in a private placement (note 7)

Net cash provided by financing activities

Net increase in cash and cash equivalents during the year

Cash and cash equivalents –

Beginning of year

Cash and cash equivalents –

Net increase (decrease) in cash and cash equivalents during the year

Cash and cash equivalents – Beginning of year

Cash and cash equivalents – End of year

The accompanying notes are an integral part of these consolidated financial statements.

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Milestone Pharmaceuticals Inc.

(Milestone or the Company) is a biopharmaceutical company incorporated under the Business Corporations Act of Québec.

Milestone is focused on the development and commercialization of innovative cardiovascular medicines.

Milestone’s lead product candidate, etripamil, is a novel, potent short‑acting calcium channel blocker that the Company designed and is developing as a rapid‑onset nasal spray to be self-administered by patients.

Milestone’s lead product candidate, etripamil, is a novel, potent short-acting calcium channel blocker that the Company designed and is developing as a rapid- onset nasal spray to be -administered by patients.

The Company is developing etripamil to treat paroxysmal supraventricular tachycardia, atrial fibrillation, and other cardiovascular indications.

Reverse Share Split

On April 26, 2019, the Company’s Board of Directors approved an amendment to the Company’s articles of incorporation to effect a 1‑for‑5.3193 reverse share split of the Company’s common shares, convertible preferred shares and the share options of the Company.

Accordingly, all common shares, convertible preferred shares, share options and per share amounts in the consolidated financial statements have been retroactively adjusted for all periods presented to give effect to the reverse share split.

The reverse share split was effected on April 26, 2019.

2 Summary of significant accounting policies

7 unchanged sentences

GAAP), including the applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding financial reporting.

The preparation of consolidated financial statements in conformity with US GAAP requires the Company to make estimates and judgments that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the year.

The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes are reasonable under the circumstances, to determine the carrying values of assets and liabilities that are not readily apparent from other sources.

Significant estimates and judgments include, but are not limited to, research and development tax credits recoverable, research and development expenses, and share based compensation.

Significant estimates and judgments include, but are not limited to, research and development tax credits recoverable, progress of activities performed by the CROs and CMOs which are used to calculate the research and development expense incurred, and share-based compensation.

Accordingly, actual results may differ from those estimates and such differences may be material.

The COVID-19 pandemic has had an impact on the Company’s business, operations and clinical development timelines.

Government orders and restrictions in order to control the spread of the disease have impacted patient recruitment, enrollment and follow-up visits at clinical sites The Company will continue to evaluate the COVID-19 pandemic impact on the development timelines of its clinical programs.

Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment.

As of the date of issuance of these consolidated financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update its estimates, assumptions and judgments.

These estimates may change as new events occur and additional information is obtained and are recognized in the consolidated financial statements as soon as they become known.

Actual results could differ from those estimates and any such differences may be material to the Company’s consolidated financial statements.

c) Segment information

The Company manages its operations as a single operating segment for the purposes of assessing performance and making operating decisions while focusing on the development and commercialization of innovative cardiovascular medicines.

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

d) Cash and cash equivalents

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e) Short term investments

Short term investments are recorded at fair value and are comprised of guaranteed investment certificates with a maturity greater than 90 days but less than one year and, as such, are classified as current assets.

Short term investments are classified as held-to-maturity, are initially recognised at fair value and are subsequently accounted for at amortized cost.

They are comprised of guaranteed investment certificates with a maturity greater than 90 days but less than one year and, as such, are classified as current assets.

f) Concentration of credit risk

Financial instruments which potentially subject the Company to concentration of credit risk consist primarily of cash and cash equivalents and investment securities classified as held to maturity.

The Company maintains deposits in federal financial institutions.

The Company maintains deposits in financial institutions.

Management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.

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Expenditures for maintenance and repairs are recorded to expense as incurred.

The Company reviews its property and equipment whenever events or changes in circumstances indicate that the carrying value of certain assets might not be recoverable and recognizes an impairment loss when it is probable that an asset’s realizable value is less than the carrying value.

To date, no such impairment losses have been recorded.

4 unchanged sentences

Leasehold improvements

over the lease-term

Effective January 1, 2019, the Company adopted ASC 842, Leases (ASC 842), using the required modified retrospective approach and utilizing the effective date as its date of initial application.

As a result, prior periods are presented in accordance with the previous guidance in ASC 840, Leases (“ASC 840”).

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement.

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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.

Right-out-use assets are subsequently accounted for as long-lived assets, including evaluating for indicators of impairment.

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.

The interest rate implicit in lease contracts is typically not readily

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

determinable.

As a result, the Company utilizes its incremental borrowing rate to discount lease payments, which reflects the fixed rate at which the Company 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.

Prospectively, the Company will adjust the right-of-use assets for

straight-line rent expense or any incentives received and remeasure the lease liability at the net present value using the same incremental borrowing rate that was in effect as of the lease commencement or transition date.

Prospectively, the Company will adjust the right-of-use assets for straight-line rent expense or any incentives received and remeasure the lease liability at the net present value using the same incremental borrowing rate that was in effect as of the lease commencement or transition date.

The Company has elected not to recognize leases with an original term of one year or less on the balance sheet.

The Company typically only includes an initial lease term in its assessment of a lease arrangement.

Options to renew a lease are not included in the Company’s assessment unless there is reasonable certainty that the Company will renew.

j) Share issuance costs

Options to renew a lease are not included in the Company’s assessment unless there is reasonable certainty that the Company will renew.

j) Pre-funded warrants

Pre-funded warrants allow the holder to pay little or no consideration to receive the shares upon exercise of the warrant.

The pre-funded warrants do not meet the definition of a derivative under ASC 815 because their fair value at issuance is equal to the fair value of the shares underlying the warrant.

As such, they have the characteristics of a prepaid forward sale of equity.

As a result, the pre-funded warrants are accounted for as equity instruments.

k) Share issuance costs

Share issuance costs applicable to the issuance of equity instruments are recorded as a reduction of the financing equity proceeds.

k) Research and development and investment tax credits

Research and development costs are charged against income in the period of expenditure.

The Company’s research and development costs consist primarily of salaries and fees paid to contract research organizations (CROs) and to contract manufacturing organizations (CMOs).

Clinical trial expenses include direct costs associated with CROs, direct CMO costs for the formulation and packaging of clinical trial material, as well as investigator and patient related costs at sites at which the Company’s trials are being conducted.

Direct costs associated with the Company’s CROs and CMOs are generally payable on a time and materials basis, or when milestones are achieved.

l) Research and development and investment tax credits

Research and development costs are charged to expense as costs are incurred in performing research and development activities.

The Company’s research and development costs consist primarily of salaries and fees paid to contract research organizations (CROs) and to contract manufacturing organizations (CMOs).

Direct costs associated with the Company’s CROs and CMOs are generally payable on a time and materials basis, or when milestones are achieved.

The invoicing from clinical trial sites can lag several months.

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The Company determines the estimates through discussions with internal clinical personnel, CROs and CMOs as to the progress or stage of completion of trials or services and the agreed upon fee to be paid for such services based on facts and circumstances known to the Company as of each consolidated balance sheet date.

The actual costs and timing of clinical trials are highly uncertain, subject of risks and may change depending upon a number of factors, including the Company’s clinical development plan.

If the actual timing of the performance of services of the level of effort varies from the estimate, the Company will adjust the accrual accordingly.

The Company recognizes the benefit of Canadian research and development tax credits as a reduction of research and development costs for fully refundable investment tax credits and as a reduction of income taxes for investment tax credits that can only be claimed against income taxes payable when there is reasonable assurance that the claim will be recovered.

l) Income taxes

m) Income taxes

The provision for income taxes is computed using the liability method.

1 unchanged sentence

Deferred tax assets and liabilities are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse.

A valuation allowance is recorded to reduce the carrying amount of deferred income tax assets when it is more likely than not that these assets will not be realized.

Tax benefits related to tax positions not deemed to meet the “more‑likely‑than‑not”

threshold are not permitted to be recognized in the consolidated financial statements.

m) Foreign currency translation and transactions

A valuation allowance is recorded to reduce the carrying amount of deferred income

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

tax assets when it is more likely than not that these assets will not be realized.

Tax benefits related to tax positions not deemed to meet the “more-likely-than-not” threshold are not permitted to be recognized in the consolidated financial statements.

n) Foreign currency translation and transactions

The functional currency of the Company is the US dollar.

1 unchanged sentence

At each consolidated balance sheet date, monetary assets and liabilities denominated in currencies other than the functional currency are remeasured using the exchange rate in effect at that date.

Non‑monetary assets and liabilities and revenue and expense items denominated in foreign currencies are translated into the functional

currency using the exchange rate prevailing at the dates of the respective transactions.

Non-monetary assets and liabilities and revenue and expense items denominated in foreign currencies are translated into the functional currency using the exchange rate prevailing at the dates of the respective transactions.

Any gains or losses arising on remeasurement are included in the consolidated statement of operations.

n) Share based compensation

o) Share based compensation

The Company has a share based compensation plan which is described in detail in note 7 and records all share-based payments, including grants of employee share options, at their fair values.

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The Black-Scholes option pricing model used by the Company to calculate option values was developed to estimate fair value.

The Company approved an employee share purchase plan in April 2019, which became effective on May 8, 2019 and is described in detail in note 7.

The Company approved an employee share purchase plan in April 2019, which became effective on May 8, 2019 and is described in note 7.

The plan provides a means by which eligible employees of the company and certain designated companies may be given an opportunity to purchase common shares.

The plan permits the company to grant a series of purchase rights to eligible employees under an employee stock purchase plan.

o) Redeemable convertible preferred shares

The Company classifies shares that are redeemable at a fixed or determinable price on a fixed or determinable date outside of permanent equity.

The redeemable convertible preferred shares are classified outside of shareholders’

deficit because the shares contain certain redemption features that are not solely within the control of the Company.

The Company records convertible preferred shares at fair value upon issuance, net of any issuance costs or discounts.

p) Recent accounting pronouncement not yet adopted

In August 2018, the FASB issued Accounting Standard Update No.

2018-13, Changes to Disclosure Requirements for Fair Value Measurements (Topic 820) (ASU 2018-13), which improved the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements.

The standard removes, modifies, and adds certain disclosure requirements.

The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

p) Recently adopted accounting pronouncements

New Accounting Policies - Financial Instruments - Credit Losses

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (ASU 2016-13).

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ASU 2016-13 will require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, which will generally result in earlier recognition of allowances for credit losses on loans and other financial instruments.

ASU 2016-13 is effective for the Company's fiscal year beginning December 1, 2020 and subsequent interim periods.

The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.

q) Recently adopted accounting pronouncements

On January 1, 2019, we adopted Accounting Standards Update No.

2016-02, Leases (Topic 842) (ASU 2016-02) using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application.

Results and disclosure requirements for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under Topic 840.

Adoption of this standard resulted in the recording of an operating lease right-of-use asset and corresponding operating lease liabilities of $0.3 million, for its headquarters located in Montréal (Québec), Canada.

The Company’s consolidated balance sheet beginning on January 1, 2019 are presented under the new guidance, while prior year amount was not adjusted and continue to be reported in accordance with previous guidance.

This lease consisted of a 36-month period lease commencing December 1, 2017 and ending on November 30, 2020 for its office located in Montréal (Québec), Canada.

It includes the possibility for the lessee to renew the term of the lease for a

further 36-month period beginning December 1, 2020 and ending November 30, 2023.

Operating lease right-of-use asset and operating lease liabilities are recognized upon the adoption date based on the present value of lease payments over the remaining lease term.

The company was not reasonably certain of renewing the lease following the initial term and recognized the right-of-use asset and operating lease liabilities over the remaining lease term.

The Company did not record an operating lease right-of-use asset and corresponding lease liability for leases with an initial term of twelve months or less and recognizes lease expense for these leases as incurred over the lease term.

Upon adoption date, the Company had only one operating lease with a remaining term of less than 12 months for its offices located in Charlotte, NC, which had a termination date of July 31, 2019, and for which the Company was not reasonably certain of renewing the lease.

The lease was extended for two months and terminated in September 2019.

The Company does not have a public credit rating and carries no debt.

As such, several factors were considered in the determination of its incremental borrowing rate used in determining the present value of lease payments.

The Company examined the Bloomberg credit ratings for similar companies;

assumed equivalency between the Canadian and US markets for collateralized debt;

factored in the cumulative dividend rate on convertible preferred shares;

and used short-term rates based on the remaining lease term of 23 months upon the standard adoption on January 1, 2019 and on 36 months for the new lease agreement entered into in September 2019.

This resulted in an incremental borrowing rate of 8%.

Lease expenses are recognized on a straight-line basis over the lease term, which is accomplished by increasing the amortization of the right-of-use asset as interest expense on the lease liability declines over the lease term.

The Company’s lease arrangements do not have lease and non-lease components which are accounted for separately.

The adoption of the accounting standard did not materially impact the Company’s consolidated statement of operations or its consolidated statement of cash flow for the twelve months ended December 31, 2019.

The Company adopted ASU 2016-13 effective January 1, 2020 and the adoption did not have at the measurement of credit losses.

q) Significant Risks and Uncertainties

The COVID-19 pandemic has had an impact on our business, operations and clinical development timelines.

Government orders and restrictions in order to control the spread of the disease have impacted patient recruitment, enrollment and follow-up visits at clinical sites With the global spread of the ongoing COVID-19 pandemic, the Company has implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on its business.

The Company anticipates that the COVID-19 pandemic will continue to have an impact on the development timelines for its clinical programs.

The extent to which the COVID-19 pandemic continues to impact its business, its clinical development and regulatory efforts, its corporate development objectives and the value of and market for its common shares will depend on future developments that remain highly uncertain and cannot be predicted

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in the U.S., Europe and other countries, and the effectiveness of actions taken globally to contain and treat the disease.

The global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.

In addition, the Company is subject to other challenges and risks specific to its business and its ability to execute on its strategy, as well as risks and uncertainties common to companies in the pharmaceutical industry, including, without limitation, risks and uncertainties associated with:

obtaining regulatory approval of its product candidate;

delays or problems in the supply of its study drug or failure to comply with manufacturing regulations;

identifying, acquiring or in-licensing product candidates;

pharmaceutical product development and the inherent uncertainty of clinical success;

and the challenges of protecting and enhancing its intellectual property rights;

and complying with applicable regulatory requirements.

r) Sources of Liquidity and Funding Requirements

Since inception, the Company incurred significant operating losses.

Prior to May 2019, the Company financed its operations primarily through sales of convertible preferred shares to accredited investors generating net proceeds of $138.8 million.

In May 2019, the Company received net proceeds of $85.4 million from its Initial Public Offering (IPO).

In July 2020, the Company received $24.8 million of net proceeds from the private placement of pre-funded warrants to existing shareholders (note 7).

In October 2020, the Company concluded an offering of common shares and pre-funded warrants for net proceeds of $48.2 million (note 7).

The Company has incurred operating losses and experienced negative operating cash flows since its inception and anticipates to continue to incur losses for at least the next several years.

As of December 31, 2020, the Company had cash, cash equivalents and short-term investments of $142.3 million and an accumulated deficit of $163.5 million.

3 Short-term investments

Short-term investments are comprised of term deposits issued in US currency, earning interest between 0.30% and 0.86%, maturing between January 29, 2021 and August 16, 2021.

These short-term investments are in scope of ASC 320, Investments - Debt Securities.

The short-term investments maturity is greater than 90 days but less than one year, and they are classified as held to maturity, recorded as current assets and are accounted for at amortized cost.

On June 3, 2019, the Company entered into a new lease arrangement for a three-year term for its office located in Charlotte, NC.

The Company recognized the operating lease right-of-use asset and operating lease liabilities at the lease commencement date on September 10, 2019.

The interest rate implicit in lease contracts is not readily determinable and the Company does not have a public credit rating and carries no debt.

As such, several factors were considered in the determination of the Company’s incremental borrowing rate used in determining the present value of lease payments.

The Company’s examined credit ratings for similar companies, assumed equivalency between the Canadian and U.S.

markets for collateralized debt and used rates over the 36-month period.

This resulted in an incremental borrowing rate of 8%.

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The company was not reasonably certain of renewing the lease following the initial term and recognized the right-of-use asset and operating lease liabilities over the 36-month period ending September 30, 2022.

The Company's two operating leases right-of-use assets are as follows as at December 31, 2019:

Right-of-use adoption date of January 1, 2019

On July 1, 2020, the Company entered into an arrangement for the lease renewal for its headquarters located in Ville Saint-Laurent, Quebec.

The 5-year lease term is from December 1, 2020 expiring on November 30, 2025.

The Company revalued the operating lease right-of-use asset and operating lease liabilities at the effective lease arrangement date of July 1, 2020.

The Company’s examined credit ratings for similar companies, assumed equivalency between the

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

Canadian and U.S.

markets for collateralized debt and used rates for the remaining lease term of 65 months.

This resulted in an incremental borrowing rate of 5.26%.

The Company is not reasonably certain of renewing the lease following the current renewal option and recognized the right-of-use asset and operating lease liabilities to November 30, 2025.

The Company's two operating office leases right-of-use assets as at December 31 were as follows:

Opening balance

New operating lease right-of-use asset

Amortization of right-of-use asset during the year ending December 31, 2019

Operating lease expenses of $277 are included in general and administrative operating expenses in the consolidated statement loss and comprehensive loss, and within operating activities in the statement of cash flows for the twelve-month period ended December 31, 2019, and are comprised of two operating lease right-of-use assets and one operating lease of less than 12 months.

Right-of-use adjustment renewal on July 1, 2020

Amortization of right-of-use asset

Closing balance

Operating lease expenses of $318 are included in general and administrative operating expenses in the consolidated statement loss and comprehensive loss, and within operating activities in the statement of cash flows for the year ended December 31, 2020 [2019 - $277], and are comprised of two operating lease right-of-use assets and one operating lease of less than 12 months.

The following table summarizes the future minimum lease payments of right-of-use assets operating lease as at December 31, 2020:

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January 1, 2023 to December 31, 2023

January 1, 2024 to December 31, 2024

January 1, 2025 to November 30, 2025

Less interest

As at December 31, 2018 in accordance with ASC 840, the Company had a lease commitment for its headquarters located in Montréal (Québec), Canada, expiring on November 30, 2020 with an option to renew for an additional three years and a commitment for its office located in Charlotte, North Carolina, which had a termination date of July 31, 2019.

The minimum lease payments as at December 31, 2018 were as follows:

Total rental expense under operating leases for the year ended December 31, 2018 was $232.

5 Property and equipment

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During the year ended December 31, 2020 and December 31, 2019, the Company did not record any write off.

For the year ended December 31, 2019, amortization expense was $38 (in 2018, amortization expense was $10) and was included in research and development expense.

For the year ended December 31, 2020, amortization expense was $97 [2019-$38] and was included in research and development expense.

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

6 Accounts payable and accrued liabilities

4 unchanged sentences

Accrued compensation and benefits payable

6 Convertible preferred shares

In May 2019, the Company completed its initial public offering ("IPO").

Upon the closing of the IPO, all outstanding redeemable convertible preferred shares of Class A1, A2, B, C, D1 and D2 (collectively known as “Convertible Preferred Shares”) converted into 17,550,802 common shares.

Prior to converting to common shares in May 2019, the Company’s convertible preferred shares allowed the holders to redeem their shares upon a change in control in the Company.

As a result, the Company classified its Convertible Preferred Shares as mezzanine equity.

The Company charged specific incremental issuance costs incurred in the offering of Convertible Preferred Shares against the gross proceeds of the Convertible Preferred Shares.

Prior to May 2019, an authorized unlimited number of:

- Class A1 preferred shares, voting based on the number of common shares into which they could have been converted, annual non‑cumulative dividend of 8% in preference to the holders of common shares calculated on their issue price.

In addition, the Class A1 preferred shares were eligible to their pro rata shares, on an as‑converted basis, to any dividend paid on common shares.

The Class A1 preferred shares are subject to a weighted average antidilution adjustment in the event of a common share issuance at a price per share lower than C$5.3193

- Class A2 preferred shares, voting based on the number of common shares into which they could have been converted, preferential non‑cumulative dividend of 8% pari passu with the Class B preferred shares and in preference to the holders of Class A1 preferred shares calculated on their issue price.

In addition, the Class A2 preferred shares were eligible to their pro rata shares, on an as‑converted basis, to any dividend paid on common shares.

The Class A2 preferred shares were subject to a weighted average antidilution adjustment in the event of a common share issuance at a price per share lower than C$5.3193

- Class B preferred shares, voting based on the number of common shares into which they could have been converted, preferential non‑cumulative dividend of 8% pari passu with the Class A2 preferred shares and in preference to the holders of Class A1 preferred shares calculated on their issue price.

In addition, the Class B preferred shares were eligible to their pro rata shares, on an as‑converted basis, to any dividend paid on common shares.

The Class B preferred shares were subject to a weighted average antidilution adjustment in the event of a common share issuance at a price per share lower than $6.1172

- Class C preferred shares, voting based on the number of common shares into which they could have been converted, preferential non‑cumulative dividend of 8% to the Class B and A2 preferred shares and in preference to the holders of Class A1 preferred shares calculated on their issue price.

In addition, the Class B preferred shares were eligible to their pro rata shares, on an as‑converted basis, to any dividend paid on common shares.

The Class C preferred shares were subject to a weighted average antidilution adjustment in the event of a common share issuance at a price per share lower than $7.2619

- Class D1 preferred shares, voting based on the number of common shares into which they could have been converted, preferential non -cumulative dividend of 8% pari passu with the Class D2 preferred shares, and in preference to the holders of the Class C, Class B, Class A2 and Class A1 preferred shares calculated on their issue price.

In addition, the Class D1 preferred shares were eligible to their pro rata shares, on an as‑converted basis, to any non‑cumulative dividend paid on common shares.

The Class D1 preferred shares were subject to a weighted average antidilution adjustment in the event of a common share issuance at a price per share lower than $9.4295.

- Class D2 preferred shares, voting based on the number of common shares into which they could have been converted, preferential non‑cumulative dividend of 8% pari passu with the Class D1 preferred shares, and in preference to the holders of the Class C, Class B, Class A2 and Class A1 preferred shares calculated on their issue price.

In addition, the Class D2 preferred shares were eligible to their pro rata shares, on an as‑converted basis, to any non‑cumulative dividend paid on common shares.

The Class D2 preferred shares were subject to a weighted average antidilution adjustment in the event of a common share issuance at a price per share lower than $12.2583.

The Company early adopted the guidance on down round features from ASU 2017‑11 with respect to the antidilution adjustments for the Class A1, Class A2, Class B, Class C, Class D1 and D2 preferred shares.

The Class A1, A2, B, C, D1 and D2 preferred shares would have automatically converted into common shares at the applicable conversion price upon (i) closing of a qualified initial public offering at a price per share based on a pre‑money valuation of the Company of at least $250,000 and resulting in gross proceeds of at least $60,000, whereby the shares would be listed on one or more Recognized Stock Exchanges;

and (ii) the election to convert by a majority of the Class A1, A2, B, C, D1 and D2 preferred shares.

The conversion rate of Class A1, A2, B, C, D1 and D2 preferred shares into common shares at the time of conversion was 1:1.

The holders of the Company’s Convertible Preferred Shares were entitled to receive non‑cumulative dividends at the rate of 8% of the purchase price per annum in preference to any dividends to the holders of the common shares, payable as and if when declared by the Board of Directors.

The holders of the Convertible Preferred Shares also were entitled to participate pro rata in any dividends paid to the holders of the common shares on an as‑converted basis.

The Board of Directors had not declared any dividends as of May 2019 when the Preferred Shares were converted and therefore no dividends were paid.

Upon the liquidation of the Company, the holders of Convertible Preferred Stock were entitled to receive, in preference to the holders of the common stock and in order of priority, an amount equal to $12.4472 per share for Series D2 Convertible Preferred Stock, $9.5747 per share for Series D1 Convertible Preferred Stock, $7.9258 per share for Series C Convertible Preferred Stock, $7.3406 per share for Series B Convertible Preferred Stock, $7.713 per share for Series A2 Convertible Preferred Stock and $8.83 per share for Series A1 Convertible Preferred Stock (the “Liquidation Preference”).

Following payment in full to the holders of preferred shares of all amounts distributable to them, the remaining assets of the Company available for distribution to holders of the Company’s share capital would have been distributed on a pro rata basis among (i) the holders of any preferred shares convertible into common shares of the Company on an as if converted basis;

and (ii) the holders of the common shares.

The holders of 70% of Class A1, A2, B, C, D1 and D2 preferred shares, voting as a single class, could have required that the Company redeem the preferred shared at the earlier of a sale or an exclusive license of all or substantially all intellectual property of the Company or all of the assets and the fifth anniversary of the closing date of the Class D preferred shares.

The redemption price would have been the higher of the liquidation preference or the fair market value of such preferred shares.

Class A1 preferred shares could have been only redeemed once Class A2, B, C, D1 and D2 preferred shares were fully redeemed.

For the year ended December 31, 2018, the Company issued the following Convertible Preferred Shares:

a) On October 17, 2018, the Company issued 6,893,236 Class D1 preferred shares for gross proceeds of $65,000.

The costs related with this share issuance were $281.

b) On October 17, 2018, the Company issued 1,223,656 Class D2 preferred shares for gross proceeds of $15,000.

The costs related with this share issuance were $65.

No convertible preferred shares were issued for the year ended December 31, 2019.

All preferred shares were converted to common share upon closing of the IPO in May 2019.

7 Shareholders’

equity (deficit)

7 Shareholders’ equity

Authorized share capital

An unlimited number of common shares, voting and participating, without par value.

In May 2019, the Company completed its initial public offering ("IPO"), whereby the Company issued in total 6,325,000 common shares at a public offering price of $15.00 per share (note 1) .

The gross proceeds received by the Company from the offering were $94.9 million.

Upon the closing of the IPO, all outstanding shares of Class A1, A2, B, C, D1 and D2 preferred shares converted into 17,550,802 common shares.

The Company's board of directors adopted and its shareholders approved the 2019 Employee Share Purchase Plan ("ESPP") in April 2019, which became effective on May 8, 2019.

The number of common shares initially reserved for issuance under the ESPP was 278,734 common shares.

The number of shares reserved for issuance will automatically increase on January 1 of each calendar year, beginning on January 1, 2020 through January 1, 2029, by the lesser of (1) 1% of the total number of shares of the Company's share capital outstanding on the last day of the calendar month before the date of the automatic increase and (2) 487,837 shares;

provided that before the date of any such increase, the Company's board of directors may determine that such increase will be less than the amount set forth in clauses (1) and

As of December 31, 2019, no common shares have been issued under the ESPP.

The first offering period has not yet been decided by the Company's board of directors.

During the year ended December 31, 2019, the Company issued a total of 33,162 common shares (in 2018, 356,797) for a total cash consideration of $44 (in 2018, $461) pursuant to the exercise of 33,162 stock options (in 2018, 356,797) at an average exercise price of $1.326 per option (in 2018, $1.287 per option).

As a result, an amount of $41 (in 2018, $350) previously included in additional paid‑in capital related to the exercised options has been credited to share capital and deducted from additional paid‑in capital.

In May 2019, the Company completed its initial public offering (IPO).

Upon the closing of the IPO, all outstanding redeemable convertible preferred shares of Class A1, A2, B, C, D1 and D2 (collectively known as Convertible Preferred Shares) converted into 17,550,802 common shares.

As of December 31, 2020, 523,821 common shares were available under the Employee Stock Purchase Plans (ESPP) and no common shares have been issued.

During the year ended December 31, 2020, the Company issued a total of 226,352 common shares [2019 - 33,162] for a total cash consideration of $300 [2019 - $44] pursuant to the exercise of stock options at an average exercise price of $1.33 per share [2019 - $1.33].

As a result, an amount of $220 [2019 - $41] previously included in additional paid-in capital related to the exercised options has been credited to share capital and deducted from additional paid-in capital.

Pre-funded warrants – Private Placement

On July 23, 2020, the Company entered into a securities purchase agreement to sell and issue in a private placement pre-funded warrants of 6,655,131 of the Company’s common shares, at a purchase price of $3.7465 per pre-funded warrant for aggregate net proceeds of $24.8 million (the Private Placement).

The Private Placement closed on July 24, 2020.

Each pre-funded warrant is exercisable for one of the Company’s common shares at an exercise price of $0.01 per share, has no expiration date, and is immediately exercisable, subject to certain beneficial ownership limitations.

The pre-funded warrants are classified and accounted for as equity.

Open Market Sale Agreement

On July 29, 2020, the Company entered into an Open Market Sale Agreement℠ with respect to an at-the-market offering program (ATM Program) under which the Company may issue and sell its common shares having an aggregate offering price of up to $50 million.

The Company has not sold shares under the ATM program as of the date of this filing.

Pre-funded warrants and common shares – Public offering

On October 22, 2020, the Company issued (i) 5,095,897 common shares, without par value, at a price to the public of $5.25 per share, and (ii) pre-funded warrants to purchase 4,761,903 common shares at an exercise price equal to $0.01 per share, at a price to the public of $5.24 per common share underlying the pre-funded warrants (the Offering).

The net proceeds to the Company from the Offering were $48.2 million.

The pre-funded warrants are classified and accounted for as equity.

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

Additional paid-in capital

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The Company's board of directors adopted and its shareholders approved the 2019 Equity Incentive Plan (the 2019 Plan) in April 2019, which became effective on May 8, 2019 in connection with the IPO.

Initially, the maximum number of the Company's common shares that may be issued under the 2019 Plan was 4,710,564 shares, which is the sum of (1) 1,923,501 new shares, plus (2) the number of shares (not to exceed 2,787,063 shares) (i) that remained available for the issuance of awards under the Company's Stock Option Plan (the "2011 Plan") at the time the 2019 Plan became effective, and (ii) any shares subject to outstanding options or other share awards that were granted under the 2011 Plan that terminate, expire or are otherwise forfeited, reacquired or withheld.

In addition, the number of the Company's common shares reserved for issuance under the 2019 Plan will automatically increase on January 1 of each calendar year, starting on January 1, 2020 through January 1, 2029, in an amount equal to 4% of the total number of the Company's capital shares outstanding on the last day of the calendar month before the date of each automatic increase, or a lesser number of shares determined by the Company's board of directors.

As of May 8, 2019, the Company's 2011 Plan was terminated and no further option grants will be made under the 2011 Plan.

On October 15, 2018, the Company amended for a third time and restated the share option plan (the 2011 Plan) whereby options to purchase common shares of the Company’s shares may be granted to directors, officers, employees, consultants and members of the scientific advisory board.

The 2011 Plan is administered by the Board of Directors.

The Board of Directors determines the number of options to be granted, the vesting period and the exercise price of new options.

It is the Company’s policy to establish the exercise price at an amount that approximates the fair value of the underlying shares on the date of grant as determined by the Board of Directors.

Under the 2011 Plan, unless otherwise decided by the Board of Directors, options vest and are exercisable as follows:

25% are exercisable from the first anniversary of grant date and 2.0833% become available at the end of each month after the first anniversary of grant date.

The 2011 Plan was terminated as of May 8, 2019 and a total of 2,364,526 options are outstanding at December 31, 2019.

As of December 31, 2019, there were 2,316,933 options available for awards under the 2019 Plan, of which 287,138 options were granted and 66,998 forfeited, leaving 2,096,793 available for future grant.

The outstanding and exercisable options at December 31 were as follows:

Outstanding at beginning of period

Under the 2019 Plan and 2011 Plan, unless otherwise decided by the Board of Directors, options vest and are exercisable as follows:

25% vest and are exercisable on the one year anniversary of the grant date and one thirty-sixth (1/36 th ) of the remaining options vest and are exercisable each month thereafter, such that options are vested in full on the four-year anniversary of the grant date.

During the year ended December 31, 2020, the Company granted stock options under the 2019 Plan that also vest and are exercisable in equal monthly installments over periods of 12 months to 48 months.

On January 1, 2020, the number of the Company’s common shares reserved for issuance under the 2019 Plan increased by 980,229 common shares.

In addition, 72,186 options forfeited under the 2011 Plan after adoption of the 2019 Plan and became available for issuance under the 2019 Plan.

As of December 31, 2020, there were 3,369,348 shares available for issuance under the 2019 Plan, of which 1,663,158 shares were available for future grants.

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

The total outstanding and exercisable options from the 2011 Plan and 2019 Plan as at December 31 were as follows:

Outstanding at beginning of year - 2011 Plan

Outstanding at beginning of year - 2019 Plan

Granted - 2011 Plan

Granted - 2019 Plan

Exercised - 2011

Forfeited - 2011

Forfeited - 2019

Outstanding - 12/31/2019

Outstanding - 12/31/2019 - Weighted average exercise price

Exercisable at end of period

Exercisable at end of period - Weighted average exercise price

As of December 31, 2019, the weighted average remaining contractual life was 7.8 years (for 2018, 8.6 years).

The weighted average remaining contractual life was 7.0 years for vested options (for 2018, 6.6 years).

For the year ended December 31, 2019, 14,099 options and 66,998 options were forfeited under the 2011 Plan and the 2019 Plan, respectively, amounting to a total of 81,097 options forfeited in 2019 (for 2018, 12,198).

Exercised - 2011 Plan

Forfeited - 2011 Plan

Forfeited - 2019 Plan

Cancelled - 2019 Plan

Outstanding at end of year

Outstanding at end of year - Weighted average exercise price

Exercisable at end of year

Exercisable at end of year - Weighted average exercise price

As of December 31, 2020, the weighted average remaining contractual life was 7.86 years [2019 - 7.8 years] for outstanding options.

The weighted average remaining contractual life was 6.91 years for vested options [2019 - 7.0 years].

There were 103,500 options forfeited in 2020 [2019 - 81,097] and there were 2,997 options cancelled in 2020 [2019 - nil]

Options granted are valued using the Black-Scholes option pricing model.

Amortization of the fair value of the options over vesting years has been expensed and credited to additional paid‑in capital in shareholders’

The weighted average fair values of options granted in 2019 was $6.649 for the 2011 Plan and $13.912 for the 2019 plan (in 2018 for the 2011 Plan, $1.463).

Share‑based compensation expense recognized for the year ended December 31, 2019 was $1,191 (in 2018, $633).

As of December 31, 2019, there was $6,464 (for 2018, $2,402) 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 2.6 years (for 2018, 3.1 years).

Non-vested share options at beginning of period

Amortization of the fair value of the options over vesting years has been expensed and credited to additional paid-in capital in shareholders’ deficit.

The weighted average fair values of options granted in 2020 was $8.98 per share [2019 - $11.81].

Share-based compensation expense recognized for the year ended December 31, 2020 was $4,945 [2019 - $1,191].

As of December 31, 2020, there was $13,012 [2019 - $6,464] 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 2.67 years [2019 - 2.60 years].

Non-vested share options at beginning of year - 2011 Plan

Non-vested share options at beginning of year - 2019 Plan

Granted - 2011 Plan

Granted - 2019 Plan

Vested, outstanding

Forfeited - 2011

Forfeited - 2019

Non-vested share options at end of period

Non-vested share options at end of period - Weighted average fair value

Vested, outstanding 2011 Plan

Vested, outstanding 2019 Plan

Forfeited - 2011 Plan

Forfeited - 2019 Plan

Non-vested share options at end of year

Non-vested share options at end of year - Weighted average fair value

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

The following table summarizes information with respect to share options outstanding as of December 31, 2020:

2 unchanged sentences

Exercise price

The intrinsic value of all outstanding options as of December 31, 2019 was $32.7 million, based on the fair value of our common shares of $16.01 per share at December 31, 2019, of which approximately $17.4 million related to vested options and approximately $15.5 million related to unvested options.

$15.01-$20.00

$21.01-$22.45

The intrinsic value of all outstanding options as of December 31, 2020 was $11.8 million, based on the fair value of our common shares of $6.70 per share at December 31, 2020, of which $7.9 million related to vested options and $3.9 million related to unvested options.

The fair value of share-based payment transaction is measured using Black-Scholes valuation model.

8 unchanged sentences

The simplified method is an average of the contractual term of the options and its ordinary vesting period.

Dividend yield is based on the share option’s exercise price and expected annual dividend rate at the time of grant.

Share‑based payment awards with performance targets attainable after the requisite service period are treated as performance conditions that affect vesting.

Dividend yield is based on the share option’s exercise price and expected annual dividend rate at the time of grant.

No compensation expense is recorded related to an award for which the transfer to the employee is contingent on the attainment of a performance target until it becomes probable that the performance target will be met.

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

The Company recognized share-based compensation expense as follows at December 31, 2020 and 2019:

3 unchanged sentences

8 Net loss per share

Basic and diluted net loss per common share is determined by dividing net loss applicable to common shareholders by the weighted average number of common shares during the period.

The outstanding convertible preferred shares and share‑based compensation have been excluded from the calculation because their effects would be anti‑dilutive.

Basic and diluted net loss per common share is determined by dividing net loss applicable to common shareholders by the weighted average number of common shares and pre-funded warrants outstanding during the period.

Share-based compensation shares have been excluded from the calculation because their effects would be anti-dilutive.

Therefore, the weighted average number of shares used to calculate both basic and diluted loss per share are the same.

The following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding as of December 31, 2020 and 2019, as they would be anti-dilutive:

Redeemable convertible preferred shares

Share options and unvested restricted share awards

Share options

Amounts in the table above reflect the common share equivalents of the noted instruments.

6 unchanged sentences

Accounting charges not deductible for tax purposes

Non‑deductible share‑based compensation

Share issue costs

Unrecorded potential tax benefits of current period losses and other tax assets

Non‑refundable investment tax credit used (earned) in the year

Tax benefits of current period losses and other tax assets

Valuation allowance for prior year adjustment

Income tax expense (recovery)/expense reported in the consolidated statements of loss and comprehensive loss

Income tax expense recovery reported in the consolidated statements of loss and comprehensive loss

The Company has incurred Canadian federal and provincial net operating losses (NOLs) from inception.

As of December 31, 2019, the Company has NOL carry‑forwards of approximately $86,591 and $86,085, respectively, for Canadian federal and Québec purposes, available to reduce future taxable income, which expire beginning in 2027 through 2039.

The Company also has scientific research and experimental development expenditures of approximately $9,377 and $11,127, respectively, for Canadian federal and Québec income tax purposes, which have not been deducted.

As of December 31, 2020, the Company has NOL carry-forwards of approximately $123,494 and $122,756, respectively, for Canadian federal and Québec purposes, available to reduce future taxable income, which expire beginning in 2027 through 2040.

The Company also has scientific research and experimental development expenditures of approximately $13,735 and $16,247, respectively, for Canadian federal and Québec income tax purposes, which have not been deducted.

These expenditures are available to reduce future taxable income and have an unlimited carry-forward period.

and development tax credits and expenditures are subject to verification by the tax authorities, and, accordingly, these amounts may vary.

Research and development tax credits and expenditures are subject to verification by the tax authorities, and, accordingly, these amounts may vary.

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

The Company has incurred NOLs for U.S.

4 unchanged sentences

The net deferred tax assets have not been recognized in these financial statements because the criteria for recognition of these assets were not met.

The Company’s deferred tax assets consist of the following for the years ended December 31, 2019 and 2018:

Net operating loss carry‑forwards

The Company’s deferred tax assets consist of the following for the years ended December 31, 2020 and 2019:

Net operating loss carry‑forwards

Tax basis of property and equipment in excess of carrying values

3 unchanged sentences

Financing costs

Change in tax rates

Total gross deferred tax assets

2 unchanged sentences

The Company files income tax returns in Canada and in the United States.

The Company is subject to Canada Revenue Agency and Revenu Québec examination for fiscal years 2014 to 2019 due to unexpired statute of limitation periods and is subject to US Federal and state income tax examination for fiscal years 2017 to 2019.

The Company is subject to Canada Revenue Agency and Revenu Québec examination for fiscal years 2015 to 2020 due to unexpired statute of limitation periods and is subject to US Federal and state income tax examination for fiscal years 2017 to 2020.

10 Government assistance

The Company incurred research and development expenditures that are eligible for investment tax credits.

The investment tax credits recorded are based on management’s estimates of amounts expected to be recovered and are subject to audit by the taxation authorities.

These amounts (expressed in thousands of US dollars) have been recorded as a reduction of research and development expenditures for an amount of $392 for the year ended December 31, 2019 (for 2018, $257).

The investment tax credits recorded are based on management’s estimates of amounts expected to be recovered and are subject to audit by the taxation authorities.

These amounts (expressed in thousands of US dollars) have been recorded as a reduction of research and development expenditures for an amount of $373 for the year ended December 31, 2020 [2019 - $392].

11 Commitments

In the normal course of business, the Company enter into contracts with clinical research organizations, drug manufacturers and other vendors for preclinical and clinical research studies, research and development supplies and other services and products for operating purposes.

In the normal course of business, the Company enters into contracts with clinical research organizations, drug manufacturers and other vendors for preclinical and clinical research studies, research and development supplies and other services and products for operating purposes.

These contracts generally provide for termination on notice, and therefore are cancellable contracts.

Therefore, as at December 31, 2019 there are no contractual commitments.

Therefore, as at December 31, 2020 there are no contractual commitments, except for office leases (note 4).

12 Currency risk

The Company is exposed to the financial risk related to the fluctuation of foreign exchange rates and the degree of volatility of those rates.

The foreign currency risk is limited to the portion of the Company’s business transactions

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

denominated in currency other than US dollars.

The following table provides an indication of the Company’s exposure to the Canadian dollar, which is expressed in US dollars as of December 31:

Short‑term investments

The following table provides an indication of the Company’s exposure to the Canadian dollar, which is expressed in US dollars as of December 31:

Accounts payable and accrued liabilities

11 unchanged sentences

Valuations based on unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions.

The Company’s fair value hierarchy for all its financial assets (by major security type measured at fair value on a recurring basis) for the year ending December 31, 2019 is nil, as there was no financial instruments measured at fair value on a recurring basis as of that date.

For the year ended December 31, 2018, the Company held a Guaranteed investment certificates at Level 1 with a fair value of $29.

The Company’s fair value hierarchy for all its financial assets (by major security type measured at fair value on a recurring basis) for the year ended December 31, 2020, the Company held a Guaranteed investment certificate at Level 1 with a fair value of $70.

For the year ended December 31, 2019 is nil, as there was no financial instruments measured at fair value on a recurring basis as of that date.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data