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Psyence Biomedical Ltd.

(Formerly the carve-out of Psyence Biomed Corp.)

Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended September 30, 2024 and 2023

Expressed in United States Dollars

(USD $)

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Condensed Consolidated Interim Statements of Financial Position

As at September 30, 2024 and March 31, 2024

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Going concern (Note 1)

Subsequent events (Note 18)

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Approved on behalf of Board of Directors

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The accompanying notes are an integral part of the Condensed Consolidated Interim Financial Statements

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Condensed Consolidated Interim Statements of Net Loss and Comprehensive Loss

For three and six months ended September 30, 2024 and 2023

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The accompanying notes are an integral part of the Condensed Consolidated Interim Financial Statements

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Condensed Consolidated Interim Statements of Changes in Shareholder Equity

For the six months ended September 30, 2024 and 2023

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The accompanying notes are an integral part of the Condensed Consolidated Interim Financial Statements

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Condensed Consolidated Interim Statements of Cash Flows

For the six months ended September 30, 2024 and September 30, 2023

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The accompanying notes are an integral part of the Condensed Consolidated Interim Financial Statements

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Notes to the Condensed Consolidated Interim Financial Statements

1. Nature of operations and going concern

Psyence Biomedical Ltd. (the “Company” or “PBM”), is a life science biotechnology company traded on the Nasdaq exchange (NASDAQ: PBM) that is focused on the development of botanical (nature derived, or non-synthetic) psilocybin-based psychedelic medicines. The Company is working towards developing safe and effective, nature-derived psychedelic therapeutics to treat a broad range of mental health disorders. The Company is initially focused on mental health disorders in the context of Palliative Care. The Company is currently conducting research through clinical trials to evaluate the safety and effectiveness of natural psilocybin in treating adjustment disorder in patients with an incurable cancer diagnosis in a palliative care context (the “Clinical Trials”).

The Company’s registered office is at 121 Richmond Street West, PH Suite 1300, Toronto, Ontario M5H 2K1.

The Company listed on the NASDAQ exchange on January 25, 2024 (“listing”).

These Unaudited Condensed Consolidated Interim Financial Statements (the “Financial Statements”) provide historical financial information of PBM, reflecting PBM as if it had been historically operating the Clinical Trials conducted by Psyence Group Inc. (“PGI”) prior to the listing of PBM. The Financial Statements are carve out statements up to the date of listing of PBM.

On November 26, 2024, the Company consolidated its common shares on the basis of 75:1. As a result of the common share consolidation, figures in notes 9, 10, 11, 12 and 18 have been revised to reflect this consolidation.

Going concern

These Financial Statements are prepared on a going concern basis, which contemplates that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business. The Company’s ability to continue operations depends on its ability to secure additional financing. There is uncertainty regarding the availability of financing at acceptable terms, which could impact the Company’s ability to continue operating. These conditions indicate a material uncertainty that cast significant doubt on the Company’s ability to continue as a going concern.

These Financial Statements do not reflect the adjustments to the carrying values and classifications of assets and liabilities that would be necessary if the Company were unable to realize its assets and settle its liabilities as a in the normal course of operations. Such adjustments could be significant.

2. Basis of presentation

Statement of compliance

These Unaudited Condensed Consolidated Interim Financial Statements have been prepared in accordance with IAS 34 Interim Financial Reporting as issued by the International Accounting Standards Board (“IASB”). Accordingly, certain disclosures included in annual consolidated financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the IASB have been condensed or omitted and these Unaudited Condensed Consolidated Interim Financial Statements should be read in conjunction with the Company’s audited Consolidated Financial Statements for the year ended March 31, 2024. These Condensed Consolidated Interim Financial Statements follow the same accounting policies, estimates, and methods of application as our most recent annual financial statements.

The Unaudited Condensed Consolidated Interim Financial Statements were authorized for issue on January 21, 2024 by the directors of the Company.

Consolidated Statements of Financial Position

The Consolidated Statements of Financial Position include the assets and liabilities that are the Clinical Trial related assets and liabilities, which have been determined in the following manner:

Consolidated Statements of Net Loss and Comprehensive Loss

The comparative Condensed Consolidated Interim Financial Statements for the three and six months were presented on a carve out basis (“Carve-out Financial Statements”).

The Carve-out Financial Statements have been prepared on a carve-out basis from the PGI consolidated financial statements for the purpose of presenting the historical financial position, financial performance and cash flows of the Company on a stand-alone basis. The accounting policies applied in the Carve-out Financial Statements are, to the extent applicable, consistent with accounting policies applied in the PGI consolidated financial statements, and as a result, reflect the carrying amounts that are included in PGI’s consolidated financial statements.

In determining the perimeter of the Carve-out Financial Statements, the activities related to the Company’s clinical trials were considered to include the operations of Psyence Biomed Corp. and Psyence Australia (Pty) Ltd carried out through PGI directly as well as through legal entities of PGI as detailed above.

The Company believes the allocation assumptions applied in the Carve-out Financial Statements to be a reasonable reflection of the utilization of services provided by PGI. However, different allocation assumptions could have resulted in different outcomes. The allocations are therefore not necessarily representative of the financial position, financial performance or cash flows that would have been reported if PBM operated on its own or as an entity independent from PGI during the periods presented.

The Company believes the basis of preparation described above results in the Carve-out Financial Statements reflecting the assets and liabilities associated with PBM and reflects costs associated with the functions that would be necessary to operate independently.

Basis of consolidation

These Condensed Consolidated Interim Financial Statement incorporate the accounts of PBM and its subsidiaries performing Clinical Trials. A subsidiary is an entity controlled by PBM and its results are consolidated into the financial results of the Company from the effective date of control up to the effective date of loss of control.

Control exists when an investor is exposed, or has the rights, to variable returns from the involvement with the investee and has liability to affect those returns through its power over the investee.

The subsidiaries of PBM as at September 30, 2024 and March 31, 2024 for the purpose of these Financial Statements are as follows:

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Inter-company balances and transactions are eliminated upon consolidation.

The financial results of subsidiaries in financial period ended September 30, 2023 were presented on a carve out basis.

Functional and presentation currency

These Financial Statements are presented in United States Dollars (“USD $”), which is also PBM’s functional currency. The Company’s functional currency before the listing on the NASDAQ was Canadian Dollars. The USD $ represents the currency of the Company’s funding and is the currency of the primary economic environment in which the Company operates in, except for the Company’s Australian subsidiary which has an Australian Dollar functional currency. See change in accounting policy in Note 3 for further details on the change in the Company’s presentation currency.

3. Material accounting policies

These Condensed Consolidated Interim Financial Statements follow the same accounting policies, estimates, and methods of application as our most recent Annual audited Consolidated Financial Statements.

Change in accounting policy

Upon NASDAQ listing the Corporation decided to change the presentation currency of its consolidated financial statements from Canadian Dollars to United States Dollars.

The Board of Directors believe that US Dollar financial reporting provides more relevant presentation of the Corporation’s financial position, funding and treasury functions, financial performance and cash flows.

A change in presentation currency represents a change in accounting policy in terms of IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors, requiring the restatement of comparative information.

In accordance with IAS 21 – The Effects of Changes in Foreign Exchange Rates, the methodology followed in restating historical financial information from CDN$ to US$.

The average and closing rates used in translating the historical financial information from CDN$ to US$ for the various periods were as follows:

The closing rate used as at March 31, 2023 was $0.7389.

The average rate used for the three month period ended September 30, 2023 was $0.7455 and for the six month period ended September 30, 2023 was $0.7451.

The change in presentation currency is a voluntary change which is accounted for retrospectively. For comparative reporting purposes, historical financial information has been translated to United States dollars which is disclosed in the tables below:

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Classification of Liabilities as Current or Non-Current and Non-Current Liabilities with Covenants (Amendments to IAS 1)

In January 2020 and October 2022, the IASB issued amendments to IAS 1 Presentation of Financial Statements which were incorporated into Part I of the CPA Canada Handbook – Accounting in April 2020 and December 2022, respectively.

The amendments clarify the requirements for classifying liabilities as either current or non-current by clarifying:

Both the January 2020 and October 2022 amendments are effective for annual reporting periods beginning on or after January 1, 2024. The amendments are to be applied retrospectively. Earlier application is permitted. The amendments have been adopted and resulted in no material impact to the Condensed Consolidated Interim Financial Statements.

4. Critical accounting estimates and judgements

These Condensed Consolidated Interim Financial Statements follow the same accounting policies, estimates, and methods of application as our most recent annual financial statements.

5. Cash, restricted cash and cash equivalents

Cash and cash equivalents include the following amounts:

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6. Equipment

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7. Accounts payable and accrued liabilities

Accounts payable and accrued liabilities include the following amounts:

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Included in trade payables is an amount of $93,750 of share settled share issuance costs not yet settled. Refer Note 12.

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8. Convertible note liability

During the prior fiscal year, the Company entered into a securities purchase agreement with Harraden Circle Investments, LLC (“Investor”), relating to up to four senior secured convertible notes, obligations under which are guaranteed by certain assets of the Company. Issuable to the Investors for the aggregate principal amount of up to $12,500,000 in exchange for up to $10,000,000 in cash subscription amounts (the “Convertible Note Financing”).

The First Tranche Notes, for an aggregate of $3,125,000 principal, were delivered by the Company to the Investors on listing, in exchange for an aggregate of $2,500,000 in financing. On the original issuance date of the First Tranche Notes, interest began accruing at 8.0% per annum based on the outstanding principal amount of the First Tranche Notes and is payable monthly in arrears in cash or in common shares of the Company at the Conversion Price. The maturity date of the First Tranche Notes is January 25, 2027.

The Second Tranche Notes, for an aggregate of $1,000,000 principal, were delivered by the Company to the Investors, in exchange for an aggregate of $1,250,000 in financing. On the original issuance date of the Second Tranche Notes, interest began accruing at 8.0% per annum based on the outstanding principal amount of the Second Tranche Notes and is payable monthly in arrears in cash or in common shares of the Company at the Conversion Price. The maturity date of the First Tranche Notes is May 31, 2027.

On August 20, 2024, the Company and the Investor signed an addendum to the securities purchase agreement, which requires the Investor to convert the outstanding notes into common shares as soon as possible, within the limits of the agreement. As part of the Addendum, the Investor received 13,333 common shares and 6,667 warrants with a two-year expiry, exercisable at $37.50 per share.

The First Tranche Note was fully converted into common shares as of September 30, 2024.

Second Tranche Note: $1,087,790 of the $1,250,000 principal was converted by September 30, 2024, leaving an outstanding principal balance of $162,210.

The Company has designated the entire instrument as an FVTPL instrument.

Total proceeds received were $1,000,000. The fair value of the convertible notes was estimated using a combined discounted cash flow approach and Monte Carlo simulation with the following assumptions as of September 30, 2024.

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The fair value was calculated to be $48,281 as of September 30, 2024. A fair value gain was recognized of $4,437,063 during the period end September 30, 2024 ($nil, September 30, 2023).

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The fair value of the warrants granted was $42,528, which was calculated using the Black-Scholes pricing model with the following assumptions:

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9. Derivative warrant liabilities

The Company has two classes of warrants outstanding: Public Warrants and Private Warrants. As of April 1, 2024, there were 174,267 warrants issued and outstanding, consisting of 166,667 Public Warrants and 7,600 Private Warrants.

As at September 30, 2024, there were 165,467 warrants issued and outstanding, comprised of 157,867 Public Warrants and 7,600 Private Warrants. Each warrant is exercisable to purchase one common share at a price of $862.50 per share.

The Company completed a warrant exchange agreement with a third-party investor to purchase the Company’s common shares, at no par value per share. These warrants are currently trading on Nasdaq. Pursuant to the Warrant Exchange Agreement, the Company issued to the Holder 8,800 Common Shares in exchange for the surrender and cancellation of 8,800 Public Warrants held by the Holder.

Each warrant is exercisable to purchase one common share at a price of $862.50 per share. Due to the cashless exercise feature included in the indenture of the warrants, the Company has classified these warrants as a liability measured at fair value through profit or loss, as they do not meet the “fixed-for-fixed” criteria under IAS 32 – Financial Instruments: Presentation.

Public Warrants: The fair value of the Public Warrants is determined based on the observable market price, as they continue to be traded on the Nasdaq under the symbol “PBMWW.” Changes in fair value during the six months ended September 30, 2024, have been recognized in the statement of net loss and comprehensive loss.

Private Warrants: The Company utilizes a Black-Scholes options valuation model to value the private warrants at each reporting period, with changes in fair value recognized in the statement of net loss and comprehensive loss. The estimated fair value of the warrant liability is determined using Level 2 inputs. Inherent in a Black-Scholes pricing model are assumptions related to expected volatility of the Public Warrants, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its ordinary shares based on industry historical volatility that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates remaining at zero.

The following table provides quantitative information regarding Level 2 fair value measurements at September 30, 2024:

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At September 30, 2024 the fair value of the Public and Private Warrants was $149,184 ($0.95/warrant) (September 30, 2023 - $nil) and $nil ($nil/warrant) (September 30, 2023 - $nil), respectively. A fair value gain of $745,428 was recognized on the statement of net loss and comprehensive loss.

Warrant transactions and the number of warrants outstanding are summarized as follows:

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There were 172,134 warrants outstanding and exercisable as at September 30, 2024, with an exercise price of $862.50 and expiry date of January 25, 2029.

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10. Promissory Notes

At the beginning of the period, the Company had the following principal balances outstanding on its unsecured convertible promissory notes:

Psyence Group Inc. Note: $1,460,657

NCAC Note: $1,615,501

Both notes are designated as fair value through profit or loss (FVTPL) due to the embedded conversion features, as the conversion prices are not fixed.

NCAC Note: On September 30, 2024, the NCAC Note holder converted the entire outstanding principal balance of $1,615,501 into 43,080 common shares at a conversion price of $37.50 per share. There is a make whole provision which entitled the NCAC Note holders to a top-up in shares if the share price at January 15, 2025 was lower than the conversion price on September 30, 2024. The fair value of make whole provision of the NCAC Replacement Note is $1,252,864 as of September 30, 2024. This fair value was calculated using a Monte Carlo simulation model and the key inputs of this simulation are:

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