20FR12G 1 form20-f.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 20-F

 

(Mark One)

 

[X] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

[  ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended __________________

 

OR

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______ to ______

 

OR

 

[  ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of event requiring this shell company report

 

Commission file number

 

SCYTHIAN BIOSCIENCES CORP.

(Exact Name of Registrant as Specified in Its Charter)

 

Not Applicable

(Translation of Registrant’s Name into English)

 

Province of Ontario, Canada

(Jurisdiction of Incorporation or Organization)

 

200-366 Bay Street, Toronto, Ontario, Canada M5H 4B2

(Address of Principal Executive Offices)

 

Jonathan Gilbert

200-366 Bay Street

Toronto, Ontario

Canada M5H 4B2

Email: Jgilbert@scythianbio.com

Phone: 212-729-9208

 

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

Copies to:

 

Harvey J. Kesner, Esq.

Sichenzia Ross Ference Kesner LLP

61 Broadway, 32nd Floor

New York, New York 10006

(212) 930-9700

(212) 930-9725 (fax)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class Name of each exchange on which registered
Common Shares, no par value TSX Venture Exchange
Common Shares, no par value NASDAQ Stock Market LLC
Rights to Purchase Common Shares NASDAQ Stock Market LLC

 

Securities registered or to be registered pursuant to section 12(g) of the Act: None.

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None.

 

Indicate the number of outstanding shares of each of the issuer’s class as of the close of the period covered by the annual report. Not Applicable.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes [  ] No [  ]

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [  ] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [  ] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer [  ] Accelerated filer [  ] Non-accelerated filer [X]
    Emerging growth company [X]

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to us the extended transition period for complying with any new or revised financial accounting standards † provided pursuant to Section 7(a)(2)(B) of the Securities Act. [  ]

 

† The term “new or revised financial accounting standard” refers to any updates issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP [  ] International Financial Reporting Standards as issued by the International Accounting Standards Board [X] Other [  ]

 

If “Other” has been checked in response to previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 [  ] Item 18 [  ]

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [  ]

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 of 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [  ] No [  ]

 

 

 

   
 

 

TABLE OF CONTENTS

 

Glossary of Certain Terms 3
Introduction 5
Currency Translation 5
Forward-Looking Statements 6
Item 1. Identity of Directors, Senior Management and Advisers 7
Item 2. Offer Statistics and Expected Timetable 7
Item 3. Key Information 7
Item 4. Information on the Company 24
Item 4A. Unresolved Staff Comments 35
Item 5. Operating and Financial Review and Prospects 35
Item 6. Directors, Senior Management & Employees 39
Item 7. Major Shareholders and Related Party Transactions 49
Item 8. Financial Information 51
Item 9. The Offer and Listing 51
Item 10. Additional Information 54
Item 11. Quantitative & Qualitative Disclosures About Market Risk 66
Item 12. Description of Securities Other Than Equity Securities 66
PART II    
Item 13. Defaults, Dividend Arrearages and Delinquencies 67
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds 67
Item 15. Control and Procedures 67
Item 16A. Audit Committee Financial Expert 67
Item 16B. Code of Ethics 67
Item 16C. Principal Accountant Fees and Services 67
Item 16D. Exemptions from the Listing Standards for Audit Committees 67
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers 67
Item 16F. Change in Registrant’s Certifying Accountant 67
Item 16G. Corporate Governance 67
Item 16H. Mine Safety Disclosure 68
PART III    
Item 17. Financial Statements 68
Item 18. Financial Statements 68
Item 19. Exhibits 68

 

 2 
 

 

GLOSSARY OF CERTAIN TERMS

 

The following is a glossary of certain terms used in In this registration statement, unless the context otherwise requires:

 

  ACMPR” refers to the Access to Cannabis for Medical Purposes Regulations (Canada);
     
  Agency Agreement” means the agency agreement entered into among Scythian, SBI and the Agents on March 13, 2017, in connection with the Private Placement Financing;
     
  Agency Agreement Amendment” means the amendment to the terms of the Agency Agreement to allow for the SBI Consolidation;
     
  Amalgamation” refers to the amalgamation of SBI and Subco pursuant to the CBCA on terms set forth in the Business Combination Agreement;
     
  Articles of Amalgamation” refers to the articles of amalgamation filed with Corporations Canada in order to effect the Amalgamation;
     
  Business Combination” refers to the business combination among Scythian, SBI and Subco under which the business assets of Scythian were combined with those of SBI, as a reverse takeover of Scythian by SBI, to form the Resulting Issuer;
     
  Business Combination Agreement” refers to the agreement dated June 6, 2017, between Scythian, SBI and
     
  CBCA” refers to the Canada Business Corporations Act, as amended from time to time;
   
  CDSA: refers to the Controlled Drugs and Substances Act (Canada);
     
  Common Shares,” “Scythian Shares,” “common shares,” “our shares” and similar expressions refer to our common shares, no par value per share;
     
  Company,” “Resulting Issuer,” “we,” “us,” “our,” “Scythian” refers to Scythian Biosciences Corp. (formerly known as Kitrinor Metals Inc.), a company incorporated under the Business Corporations Act (Ontario);
     
  Consolidation” refers to the SBI Consolidation and the Scythian Consolidation in connection with the Business Combination;
     
  DSU” and the “DSU Plan” refer to a deferred share unit and the deferred share unit plan of Scythian, respectively;
     
  Financings” refers to, collectively, the Private Placement Financing and the Non-Brokered Private Placement;
     
  Go Green” refers to Go Green B.C. Medicinal Marijuana Ltd., a company incorporated under the laws of the Province of British Columbia, and a wholly-owned subsidiary of SBI;
     
  MMAR” refers to Marihuana Medical Access Regulations, as amended from time to time;

 

 3 
 

 

  MMPR” refers to Marihuana for Medical Purposes Regulations, as amended from time to time;
     
  Name Change” refers to the Company’s name change from “Kitrinor Metals Inc.” to “Scythian Biosciences Corp.”
     
  NASDAQ” refers to the NASDAQ Capital Market.
     
  Non-Brokered Private Placement” refers to the non-brokered private placement offering of SBI Shares completed on March 20, 2017, and March 31, 2017, pursuant to which SBI issued 29,659,460 (370,743 post-consolidation) SBI Shares at $0.10 ($8.00 post-consolidation) per share for aggregate gross proceeds of $2,965,946;
     
  OBCA” refers to the Business Corporations Act (Ontario), as amended from time to time;
     
  Private Placement Financing” refers to, the sale by SBI of SBI Subscription Receipts in accordance with the terms of the Agency Agreement at a price of $0.40 ($8.00 post-consolidation) per SBI Subscription Receipt for gross proceeds of $13,085,000 completed March 13, 2017, together with the second tranche closing completed March 31, 2017, for gross proceeds of $200,000 through the issuance of an aggregate of 33,212,500 (1,660,625 post-consolidation) SBI Subscription Receipts;
     
  Non-Brokered Private Placement” refers to the non-brokered private placement offering of SBI Shares completed on March 20, 2017, and March 31, 2017, pursuant to which SBI issued 29,659,460 (370,743 post-consolidation) SBI Shares at $0.10 ($8.00 post-consolidation) per share for aggregate gross proceeds of $2,965,946;
     
  SBI Shares” means the issued and outstanding Class A common shares in the capital of SBI;
     
  SBI Subscription Receipts” means, subject to the SBI Subscription Receipt Amendment, the subscription receipts issued by SBI pursuant to the Private Placement Financing with each converting for no additional consideration into one SBI Post-Consolidation Share and subsequently shall be automatically exchanged at the Effective Time, without additional consideration therefor, for 0.05 Scythian Shares;
     
  SBI Subscription Receipt Agreement” means the subscription receipt agreement dated March 13, 2017, as amended, by and among Scythian, SBI, TSX Trust, and Clarus Securities Inc., Haywood Securities Inc. and Cannacord Genuity Corp.,as set forth in the Agency Agreement;
     
  SBI Subscription Receipt Amendment” means the amending agreement dated June 8, 2017 to the terms of the Private Placement Financing to amend the conversion of SBI Subscription Receipts into 0.05 Scythian Shares;
     
  SBI” refers to Scythian Biosciences Inc., a company incorporated under the Canada Business Corporations Act, as amended from time to time;
     
  SBI Consolidation” refers to the consolidation of SBI Shares, on the basis of one (1) new Scythian SBI Share for every eighty (80) SBI Shares issued and outstanding prior to the completion of the Amalgamation;
     
  Scythian Consolidation” refers to the consolidation of the Scythian Shares, on the basis of one (1) new common share for every twenty (20) common shares issued and outstanding prior to the completion of the Amalgamation;
     
  Subco” refers to 10188760 Canada Inc., a corporation incorporated pursuant to the Canada Business Corporations Act, as amended from time to time, and a wholly-owned subsidiary of Scythian before the Amalgamation.
     
  TSXV” or the “Exchange” refers to the TSX Venture Exchange Inc.

 

 4 
 

 

INTRODUCTION

 

On June 6, 2017, we entered into a business combination agreement (the “Business Combination Agreement”) with Scythian Biosciences Inc. (“SBI”) and our wholly-owned subsidiary, 10188760 Canada Inc. (“Subco”) for the purpose of acquiring 100% of the issued and outstanding common shares of SBI (the “Business Combination”). The Business Combination Agreement contemplated, among other things, the amalgamation of SBI and Subco, such that upon completion, SBI will become our wholly-owned subsidiary (the “Amalgamation”).

 

Effective August 1, 2017, 2017, we filed a Certificate of Amendment to our Articles of Incorporation to change our name from “Kitrinor Metals Inc.” to “Scythian Biosciences Corp.” (“Scythian”) in connection with the Business Combination. On August 1, 2017, 2017, we filed articles of amalgamation with Corporations Canada in order to effect the Amalgamation. For

 

Scythian Biosciences Corp. was incorporated under the laws of the Business Corporations Act (Ontario) on January 28, 2005. The principal market to purchase our common shares, no par value per share, is the TSX Venture Exchange, or TSXV, under the symbol “SCYB”. We are filing this registration statement on Form 20-F in anticipation of the listing of our common shares on the NASDAQ Capital Market under the symbol “SCYB”. We intend to appoint an agent to act as our share registrar and transfer agent to register and deliver our common shares in the United States for the NASDAQ Capital Market.

 

All references in this Form 20-F to “the Company”, “Scythian”, “we”, “us”, or “our” refer to Scythian Biosciences Corp. and the subsidiaries through which it conducts its business, unless otherwise indicated or the context requires otherwise.

 

The financial statements appearing in this registration statement on Form 20-F are prepared in Canadian dollars and in accordance with the International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. None of the financial statements contained herein were prepared in accordance with generally accepted accounting principles in the United States.

 

CURRENCY TRANSLATION

 

Unless otherwise indicated, all references to “dollars” or the use of the symbol “$” are to Canadian dollars, and all references to “U.S. dollars” or “US$” are to United States dollars. See “Exchange Rate Data” under Item 1 for relevant information about the rates of exchange between Canadian dollars and United States dollars.

 

EMERGING GROWTH COMPANY STATUS

 

We are an “emerging growth company” under the U.S. Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and will continue to qualify as an “emerging growth company” until the earliest to occur of: (a) the last day of the fiscal year during which we have total annual gross revenues of US$1,000,000,000 (as such amount is indexed for inflation every 5 years by the SEC) or more; (b) the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common shares pursuant to an effective registration statement under the Securities Act; (c) the date on which we have, during the previous 3-year period, issued more than US$1,000,000,000 in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer”, as defined in Rule 12b–2 of the Securities Exchange Act of 1934, or the Exchange Act.

 

Generally, a company that registers any class of its securities under Section 12 of the Exchange Act is required to include in the second and all subsequent annual reports filed by it under the Exchange Act, a management report on internal control over financial reporting and, subject to an exemption available to companies that meet the definition of a “smaller reporting company” in Rule 12b-2 under the Exchange Act, an auditor attestation report on management’s assessment of the company’s internal control over financial reporting. However, for so long as we continue to qualify as an emerging growth company, we will be exempt from the requirement to include an auditor attestation report in our annual reports filed under the Exchange Act, even if we do not qualify as a “smaller reporting company”. In addition, Section 103(a)(3) of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, has been amended by the JOBS Act to provide that, among other things, auditors of an emerging growth company are exempt from any rules of the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the company.

 

 5 
 

 

Any U.S. domestic issuer that is an emerging growth company is able to avail itself of the reduced disclosure obligations regarding executive compensation in periodic reports and proxy statements, and to not present to its shareholders a non-binding advisory vote on executive compensation, obtain approval of any golden parachute payments not previously approved, or present the relationship between executive compensation actually paid and our financial performance. So long as we are a foreign private issuer, we are not subject to such requirements, and will not become subject to such requirements even if we were to cease to be an emerging growth company.

 

As a reporting issuer under the securities legislation of the Canadian provinces of Ontario, British Columbia, and Alberta, we are required to comply with all new or revised accounting standards that apply to Canadian public companies. Pursuant to Section 107(b) of the JOBS Act, an emerging growth company may elect to utilize an extended transition period for complying with new or revised accounting standards for public companies until such standards apply to private companies. We have elected not to utilize this extended transition period.

 

FOREIGN PRIVATE ISSUER STATUS

 

We are also considered a “foreign private issuer” pursuant to Rule 405 under the Securities Act of 1933, as amended, or the Securities Act. In our capacity as a foreign private issuer, we are exempt from certain rules under the Securities Exchange Act of 1934, as amended, or the Exchange Act, that impose certain disclosure obligations and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of our ordinary shares. Moreover, we are not required to file periodic reports and financial statements with the U.S. Securities and Exchange Commission, or SEC, as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. In addition, we are not required to comply with Regulation FD, which restricts the selective disclosure of material information.

 

We may take advantage of these exemptions until such time as we are no longer a foreign private issuer. We would cease to be a foreign private issuer at such time as more than 50% of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies: (1) the majority of our executive officers or directors are U.S. citizens or residents; (2) more than 50% of our assets are located in the United States; or (3) our business is administered principally in the United States. We are required to determine our status as a foreign private issuer on an annual basis at the end of our second fiscal quarter.

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain matters discussed in this prospectus, including matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended, or the Securities Act, and the Securities Exchange Act of 1934, as amended, or the Exchange Act, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by such forward-looking statements. The words “anticipate,” “believe,” “estimate,” “may,” “expect” and similar expressions are generally intended to identify forward-looking statements. Our actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation, those discussed under the captions “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this registration statement, as well as other factors which may be identified from time to time in our other filings with SEDAR or the Securities and Exchange Commission, or in the documents where such forward-looking statements appear. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements.

 

Such forward-looking statements include, but are not limited to, statements about:

 

  fluctuations in the market price of our securities;
  our dual-listing on the TSXV and NASDAQ, assuming our listing application is approved;
  potential dilution to the holders of our securities as a result of future issuances of our securities;
  fluctuations in our results of operations;
  the accuracy of our financial forecasts and the uncertainty regarding the adequacy of our liquidity to pursue our complete business objectives;
  the costs involved in prosecuting and enforcing patent claims and other intellectual property rights;
  government regulatory and industry certification approvals for our products; and
  other risks and uncertainties described in this prospectus.

 

The forward-looking statements in this registration statement represent our views as of the date of this registration statement. We anticipate that subsequent events and developments may cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. Therefore, these forward-looking statements do not represent our views as of any date other than the date of this prospectus.

 

 6 
 

 

PART I

 

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

A. Directors and Senior Management.

 

For the names, business addresses and functions of our directors and senior management, see “Item 6. Directors, Senior Management and Employees – A. Directors and Senior Management” and “Item 6. Directors, Senior Management and Employees – C. Board Practices.”

 

B. Advisers.

 

Our legal advisors are Gowling WLG (Canada) LLP, with a business address at 1 First Canadian Place, 100 King Street West, Suite 1600, Toronto, Ontario M5X 1G5 Canada, and Sichenzia Ross Ference Kesner LLP, with a business address at 61 Broadway, 32nd floor, New York, NY 10003.

 

C. Auditors.

 

Our auditor is MNP LLP, with a business address at 111 Richmond St. W, #300, Toronto, Ontario M5H 2G4, Canada.

 

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not Applicable

 

ITEM 3. KEY INFORMATION

 

A. Selected Financial Data

 

The following tables set out certain selected financial information of Scythian Biosciences Corp., or Scythian, for the years ended December 31, 2016, 2015 and 2014 prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. The selected financial information has been derived from our audited financial statements for the years ended December 31, 2016, 2015 and 2014.

 

Selected Financial Data

Scythian Biosciences Corp.

 

Statement of Loss Data 

Year Ended

December 31, 2016

(audited)

  

Year Ended

December 31, 2015

(audited)

  

Year Ended

December 31, 2014

(audited)

 
Total Expenses   (83,007)  $(125,470)  $(194,487)
Net Income (loss)   (72,074)  $(125,470)  $(194,487)

 

Balance Sheet
Data
 

As at
December 31, 2016

(audited)

  

As at
December 31, 2015

(audited)

  

As at
December 31, 2014

(audited)

 
Cash and Cash Equivalents   2,874    280    1,859 
Total Assets   7,748    3,327    10,512 
Total Liabilities   22,614    444,119    325,834 
Shareholders’ Equity   (14,866)   (440,792)   (315,322)

 

The following tables set out certain financial information of Scythian Biosciences Inc., or SBI, for the periods ended December 31, 2016 and 2015, and the years ended March 31, 2017, 2016, and 2015, prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. The selected financial information has been derived from SBI’s audited financial statements for the periods ended December 31, 2016, and 2015, and the years ended March 31, 2017, 2016, and 2015.

 

 7 
 

 

Selected Financial Data

Scythian Biosciences Inc.

 

 

   

 

Year ended

March 31, 2017

   

Year ended

March 31, 2016

   

Period From
July 9, 2014 to

March 31, 2015

 
Total revenue   $ -     $ -     $ -  
                         
Net loss     (2,976,064 )     (3.058.535 )     (887,387 )
                         
Loss per share, basic and fully diluted(1)     (3.82 )     (7.58 )     (3.74 )
                         
Total assets     2,732,335       1,204,421       886,690  
                         
Long-term liabilities     -       -       -  
                         
Working capital (deficiency)     41,336       (456,430 )     673,134  
                         
Dividends             -       -  

 

 

(1) All per share numbers have been presented on a post consolidated basis for consistency.

 

Selected Pro Forma Consolidated Financial Information

 

  

As At

March 31, 2017

 
Current Assets  $13,884,170 
      
Total Assets  $14,643,852 
      
Current Liabilities  $1,923,793 
      
Long-term Liabilities   - 
      
Total Shareholders’ Equity  $12,720,059 
      
Total Liabilities and Shareholders’ Equity  $14,643,852 
      
Dividends   - 

 

Our audited and unaudited interim financial statements are presented in Canadian dollars and have been prepared in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board.

 

You should read the summary historical consolidated financial data in conjunction with our consolidated financial statements and related notes, as well as our pro forma financial information and related notes, included in this registration statement beginning on page F-1 and with the information appearing in “Item 5. Operating and Financial Review and Prospects”. Our historical results do not necessarily indicate our expected results for any future periods.

 

Exchange Rate Data

 

The following table sets forth, for each period indicated, the high, low and average exchange rates for Canadian dollars expressed in United States dollars, provided by the Bank of Canada. The exchange rates set forth below demonstrate trends in exchange rates, but the actual exchange rates used throughout this registration statement may vary. The average exchange rate is calculated by using the average of the closing prices on the last day of each month during the relevant period. On August 9, 2017, the noon exchange rate for 1 Canadian dollar expressed in United States dollars as reported by the Bank of Canada, was Cdn$1.00 = US$0.7871.

 

 8 
 

 

$1 Canadian dollar equivalent in U.S. dollars  High(1)   Low(1)   Average 
Year ended December 31, 2012  1.0371   0.9576   1.0010 
Year ended December 31, 2013  1.0188   0.9314   0.9662 
Year ended December 31, 2014  0.9444   0.8568   0.9021 
Year ended December 31, 2015  0.8562   0.7141   0.7756 
Year ended December 31, 2016  0.8002   0.6821   0.7564 
Year ended December 31, 2017 (through March 31)  0.7683   0.7400   0.7555 
             
January 2017  0.7675   0.7443   0.7580 
February 2017  0.7683   0.7548   0.7630 
March 2017  0.7517   0.7400   0.7470 
April 2017  0.7533   0.7320   0.7439 
May 2017  0.7437   0.7276   0.7350 
June 2017  0.7706   0.7405   0.7521 
July 2017  0.8034   0.7703   0.7883 

 

Notes:

 

  (1) The high and low exchange rates are intra-day values rather than noon or closing rates.

 

B. Capitalization and Indebtedness

 

Prior to completion of the Business Combination, on August 1, 2017, we effected a consolidation of our common shares on the basis of one-for-twenty (1-for-20). On August 1, 2017, SBI effected a consolidation of its common shares on the basis of one-for-eighty (1-for-80). Immediately following the completion of the Business Combination, on August 1, 2017, each common share of SBI were exchanged for one (1) validly issued, fully paid and non-assessable common share of Scythian following the Business Combination.

 

Share Capital & Liabilities  Amount
Authorized
   As of the date of this Registration Statement 
Common Shares   Unlimited    5,257,943 
Shareholders’ (deficit) equity(1)   -   $12,720,059 
Long-term Debt   -   $Nil 
Options   10% of issued and outstanding Common Shares    165,050 
Warrants   -    719,394 
DSUs   Maximum of 200,000, combined with the Options not to be greater than 10% of issued and outstanding Common Shares    143,750 

 

(1) Based on the pro-forma financial statements

 

C. Reasons for the Offer and Use of Proceeds

 

Not Applicable.

 

 9 
 

 

D. Risk Factors

 

The following information sets forth material risks and uncertainties that may affect our business, including our future financing and operating results and could cause our actual results to differ materially from those contained in forward-looking statements we have made in this annual report. The risks and uncertainties below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we believe to be immaterial may also adversely affect our business. Further, if we fail to meet the expectations of the public market in any given period, the market price of our common shares could decline. We operate in a highly competitive environment that involves significant risks and uncertainties, some of which are outside of our control.

 

Risks Related to Business and Financial Condition

 

We have incurred substantial operating losses since our inception.

 

You should consider our prospectus in light of the risks and difficulties frequently encountered by development stage companies. We have incurred operating losses since our inception and expect to continue to incur operating losses for the foreseeable future. We have not yet commercialized any of our drug candidates or technologies and cannot be sure we will ever be able to do so. Even if we commercialize one or more of our drug candidates or technologies, we may not become profitable. Our ability to achieve profitability depends on a number of factors, including our ability to complete our development efforts, consummate out-licensing agreements, obtain regulatory approval for our drug candidates and technologies and successfully commercialize them.

 

We expect to continue to incur losses for the foreseeable future, and these losses will likely increase as we:

 

  initiate and manage pre-clinical development and clinical trials for our current and new product candidates;
     
  seek regulatory approvals for our product candidates;
     
  implement internal systems and infrastructures;
     
  seek to license additional technologies to develop;
     
  hire management and other personnel; and
     
  progress product candidates towards commercialization.

 

If our product candidates fail in clinical trials or do not gain regulatory clearance or approval, or if our product candidates do not achieve market acceptance, we may never become profitable. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our inability to achieve and then maintain profitability would negatively affect our business, financial condition, results of operations and cash flows. Moreover, our prospects must be considered in light of the risks and uncertainties encountered by an early-stage company and in highly regulated and competitive markets, such as the biopharmaceutical market, where regulatory approval and market acceptance of our products are uncertain. There can be no assurance that our efforts will ultimately be successful or result in revenues or profits.

 

We will require substantial additional financing to continue to fund our operations to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit, reduce or terminate our product development or commercialization efforts.

 

As of March 31, 2017, we had approximately $3,207 in cash, cash equivalents and bank deposits, working capital of approximately $(27,304) and an accumulated deficit of approximately $(4,791,627). On March 13, 2017 and on March 31, 2017, prior to the Business Combination, SBI, completed a multi-tranche private placement offering (the “Offering”) of 1,660,625 subscription receipts (the “Subscription Receipts”) at a price of $8.00 per Subscription Receipt, for total gross proceeds of $13,285,000. On March 20, 2017 and March 31, 2017, SBI completed a non-brokered private placement offering (the “Financing”) of 370,743 of its common shares (the “SBI Shares”) at a price of $8.00 per SBI Share, for total gross proceeds of $2,965,946.

 

 10 
 

 

As of the date of this registration statement, we have sufficient cash and cash commitments to fund operations based on existing business plans for at least the next twelve months if we do not raise additional capital. We have expended and believe that we will continue to expend significant operating and capital expenditures for the foreseeable future developing our product candidates. These expenditures may include, but are not limited to, costs associated with funding our University of Miami Research Agreement (See “Item 4. Information on the Company”), research and development, manufacturing, conducting preclinical experiments and clinical trials, contracting CMOs and CROs, hiring additional management and other personnel and obtaining regulatory approvals, as well as commercializing any products approved for sale. Because the outcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates and any other future product. In addition, other unanticipated costs may arise. As a result of these and other factors currently unknown to us, we may require additional funds in the future, through public or private equity or debt financings or other sources, such as strategic partnerships and alliances and licensing arrangements. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. A failure to fund these activities may harm our growth strategy, competitive position, quality compliance and financial condition.

 

Our future capital requirements depend on many factors, including:

 

  the number and characteristics of products we develop;
  the scope, progress, results and costs of researching and developing our product candidates and conducting preclinical and clinical trials;
  the timing of, and the costs involved in, obtaining regulatory approvals;
  the cost of commercialization activities if any are approved for sale, including marketing, sales and distribution costs;
  the cost of manufacturing any product candidate we successfully commercialize;
  our ability to establish and maintain strategic partnerships, licensing, supply or other arrangements and the financial terms of such agreements;
  the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;
  the costs of in-licensing further patents and technologies.
  the cost of development of in-licensed technologies
  the timing, receipt and amount of sales of, or royalties on, any future products;
  the expenses needed to attract and retain skilled personnel; and
  any product liability or other lawsuits related to existing and/or any future products.

 

Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for our product candidates or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize our product candidates or any future products.

 

Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

 

We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing shareholders will be diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt, making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us. If we are unable to raise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

 

 11 
 

 

We will incur significant increased costs as a result of the listing of our securities for trading on NASDAQ and thereby becoming a public company in the United States as well as in Canada, and our management will be required to devote substantial time to new compliance initiatives as well as compliance with ongoing U.S. and Canadian requirements.

 

Upon the listing of securities on NASDAQ, we will become a publicly traded company in the United States. As a public company in the United States, we will incur additional significant accounting, legal and other expenses that we did not incur before the listing. We also anticipate that we will incur costs associated with corporate governance requirements of the SEC and NASDAQ. We expect these rules and regulations to increase our legal and financial compliance costs, introduce new costs such as investor relations, stock exchange listing fees and shareholder reporting, and to make some activities more time consuming and costly. The implementation and testing of such processes and systems may require us to hire outside consultants and incur other significant costs. Any future changes in the laws and regulations affecting public companies in the United States, including the rules and regulations adopted by the SEC and NASDAQ, for so long as they apply to us, will result in increased costs to us as we respond to such changes. These laws, rules and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, our board committees, if any, or as executive officers.

 

Risk Factors Relating to our Business Following the Business Combination

 

We recently changed our business plan from operating as a junior mining exploration company to operating as a life sciences company, and there can be no certainty that we will achieve our business objectives.

 

Upon completion of the Business Combination, we became a life sciences company, continuing the business of SBI. We are engaged in the research, development and commercialization of cannabinoid-like compounds. Our current operations are subject to risks incidental to the nature of the business, the legal and economic climate in which SBI has operates and consequently in which we operate. Our development and actual operating results may be very different from those expected as at the date of this registration statement.

 

Our business objectives are to grow and realize value from our current business. We are currently focused on the development of drug products, primarily the Combination Therapy, which is the proprietary methodology forming the basis of our patent application and which utilizes a combination of two drugs to inhibit both inflammation as well as other aspects of the immune response in the brain that occurs following a concussion or other traumatic brain injury. Our patent application focuses on using two or more alternative therapies in combination in order to combat the injury resulting from such inflammation and immune systems response. We are also focused on pursuing the licensing and operation of our production facility in order to internally manufacture and/or seek a strategic partner to undertake the manufacturing and marketing in the event our drug candidates are successfully developed.

 

In order for us to achieve our business objectives, we believe it is important that we achieve the following milestones:

 

  The completion of a pre-clinical study over the next 1 to 2 years, with an estimated cost of US$3-4 million;
  The completion of a successful clinical study over the next 5 years, with an estimated cost of US$7-10 million.
  The successful grant of the Combination Therapy drug’s patent application over the next 3-7 years, with an estimated cost of US$35,000.
  The grant of our producer licensing application and the build out of our production facility to comply with the licensing requirements over the next 2 years, with an estimated cost of $700,000 to $1.5 million.

 

There can be no certainty that we will be successful in reaching our milestones, or that we will be able to implement successfully the strategies set out in this registration statement. No representation is or can be made as to our future performance and there can be no assurance that we will achieve our milestones or objectives.

 

 12 
 

 

We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit, reduce or terminate our product development or commercialization efforts.

 

We are in the research and development stage of our business operations. We will likely operate at a loss until one of our lines of business becomes established and therefore will likely require additional financing in order to complete our R&D and to fund our ongoing and future operations. The failure to raise such capital could result in the delay or indefinite postponement of our current business objectives or our going out of business. Our ability to secure any required financing to sustain our operations will depend in part upon prevailing capital market conditions, as well as our business success. There can be no assurance that we will be successful in our efforts to secure any additional financing or additional financing on terms satisfactory to the our management. If additional funds are raised through issuances of equity or convertible debt securities, existing shareholders could suffer significant dilution, and any new equity securities issued could have rights, preferences and privileges superior to those of holders of common shares. In addition, from time to time, we may enter into transactions to acquire assets or the shares of other corporations. These transactions may be financed wholly or partially with debt, which may temporarily increase our debt levels above industry standards. Neither our articles nor our by-laws limit the amount of indebtedness that we may incur. Our level of indebtedness from time to time could impair our ability to obtain additional financing in the future on a timely basis to take advantage of business opportunities that may arise.

 

We have a limited operating history and as a result there is no assurance we can operate on a profitable basis.

 

Our operations are mainly conducted through our wholly-owned subsidiary, Scythian Biosciences Inc., or SBI. SBI was incorporated under the under the Federal laws of Canada on July 9, 2014 under the name “Valens Agritech Canada Inc.” On April 16, 2015, Valens filed a Certificate of Amendment changing its name to Spartan Cannabis Corp. On October 20, 2015, Spartan Cannabis Corp. filed a Certificate of Amendment changing its name to Scythian Biosciences Inc.

 

Following completion of the Amalgamation, we are now subject to all of the business risks and uncertainties associated with any early-stage enterprise, including under-capitalization, cash shortages, limitations with respect to personnel, financial and other resources, and lack of revenues.

 

SBI has incurred significant operating losses since inception and substantially all losses have resulted from expenses incurred in connection with research and development and general and administrative costs associated with operations. We may not be able to achieve or maintain profitability and may continue to incur significant losses in the future. In addition, we expect to continue to increase operating expenses as it implements initiatives to continue to grow its business. If we cannot produce revenue to offset these expected increases in costs and operating expenses, we will not be profitable. There is no assurance that we will generate revenue and be successful in achieving a return on shareholders’ investments and the likelihood of success must be considered in light of the early stage of operations.

 

We have had a history of losses, we expect to continue to incur further losses, and we may be unable to achieve or sustain profitability.

 

SBI has not generated revenues as of the date of this registration statement. The ability to generate revenue depends upon the ability to successfully commercialize its intellectual property or other product candidates that we develop or acquire in the future. As of the date of this registration statement, there is no expectation to generate revenue in the foreseeable future.

 

There is no assurance that if regulatory approval is achieved for the product candidates, revenues will be generated. The ability to generate revenue further depends on additional factors, including:

 

  successful completion of development activities, including the additional preclinical studies and planned clinical trials for the product candidates;
  completion and submission of New Drug Applications to the FDA and Marketing Authorization Applications to the European Medicines Agency;
  obtaining regulatory approval from the FDA and European Medicines Agency for indications for which there is a commercial market;
  obtaining regulatory approval from Health Canada;
  completion and submission of applications to, and obtaining regulatory approval from, other foreign regulatory authorities;
  raising substantial additional capital to fund operations;
  securing and maintaining strategic collaborations with partners to test, commercialize and manufacture product candidates;
  manufacturing approved products in commercial quantities and on commercially reasonable terms;
  developing a commercial organization, or finding suitable partners, to market, sell and distribute approved products;
  achieving acceptance among patients, clinicians and advocacy groups for any developed products;
  the successful grant of patents for drugs under development;
  obtaining coverage and adequate reimbursement from third parties, including government payors; and
  setting a commercially viable price for any approved products.

 

 13 
 

 

The success of our business is dependent on the expertise of our senior management, and the loss of any member of senior management could have a material adverse effect on our business, operating results or financial condition.

 

Our success is dependent upon the ability, expertise, judgment, discretion and good faith of our senior management. While employment agreements are customarily used as a primary method of retaining the services of key employees, these agreements cannot assure the continued services of such employees. Any loss of the services of such individuals, or an inability to attract, retain and motivate sufficient numbers of qualified senior management could have a material adverse effect on our business, operating results or financial condition.

 

Our failure to effectively manage the growth of our business could have a material adverse effect on our business, financial condition and results of operations.

 

We may be subject to growth-related risks including capacity constraints and pressure on its internal systems and controls. Our ability to manage growth effectively will require it to continue to implement and improve its operational and financial systems and to expand, train and manage its employee base. Our inability to deal with this growth may have a material adverse effect on our business, financial condition, results of operations and prospects.

 

Risks Relating to the Regulations and Regulatory Approval

 

Failure to maintain regulatory compliance and failure to obtain the requisite licenses or approvals from various regulatory authorities to conduct operations may have a materially adverse effect on our business, results of operations and financial condition.

 

Our business activities are subject to regulation by governmental authorities, particularly in the United States and other jurisdictions where we intend to test and, if approved, market its product candidates. Achievement of our business objectives is contingent, in part, upon compliance with regulatory requirements enacted by governmental authorities and obtaining all regulatory approvals, where necessary, for the sale of our products. We cannot predict the outcome of the FDA, European Medicines Agency or Health Canada’s regulatory approval process. Similarly, we cannot predict the time required to secure all appropriate regulatory approvals for our products, or the extent of testing and documentation that may be required by governmental authorities. Any delays in obtaining, or failure to obtain regulatory approvals may significantly delay or impact the development of markets, products and sales initiatives and could have a material adverse effect on our business, results of operations and financial condition.

 

Current products under development contain controlled substances as defined in the US federal Controlled Substances Act of 1970. Containing a controlled substance would subject the product candidates to a high degree of regulation and/or the possibility that the product might not be approved for use due to the application of these regulations.

 

We will incur ongoing costs and obligations related to regulatory compliance. Our failure to comply with regulations may result in additional costs for corrective measures, penalties or restrictions of our operations. In addition, changes in regulations, more vigorous enforcement thereof or other unanticipated events could require extensive changes to our operations, increased compliance costs or give rise to material liabilities, which could have a material adverse effect on our business, results of operations and financial condition.

 

Failure to obtain regulatory approval for product candidates from the various regulatory authorities would have a material adverse effect on our business, financial condition and operating results.

 

Our ability to successfully produce the product candidates is dependent on extensive ongoing regulatory compliance and reporting requirements by the Drug Enforcement Agency, FDA, European Medicines Agency, Health Canada and other foreign regulatory authorities (“Reporting Requirements”). Failure to comply with the requirements and terms of the Reporting Requirements could have a material adverse impact our business, financial condition and operating results. There is no assurance that continuous regulatory approval will be given for the product candidates. Should regulatory approval not be continued, our business, financial condition and operating results would be materially adversely affected.

 

Even if we receive regulatory approval for our product candidates, this approval may carry conditions that limit the market for the product or put the product at a competitive disadvantage relative to alternative therapies. For instance, a regulatory approval may limit the indicated uses for which we can market a product or the patient population that may utilize the product, or may be required to carry a warning on its packaging. Once a product candidate is approved, we remain subject to continuing regulatory obligations, such as safety reporting requirements and additional post-marketing obligations, including regulatory oversight of promotion and marketing.

 

 14 
 

 

The laws, regulations and guidelines governing the Medical Marijuana industry is evolving and subject to change, which may have an adverse effect on our business and ability to maintain regulatory compliance.

 

The commercial Medical Marijuana industry is a new industry and we anticipate that such regulations will be subject to change as the US Federal Government monitors licensed producers in action. Our operations are subject to a variety of laws, regulations, guidelines and policies relating to the manufacture, import, export, management, packaging/labelling, advertising, sale, transportation, distribution, storage and disposal of the product candidates but also including laws and regulations relating to drugs, controlled substances, health and safety, the conduct of operations and the protection of the environment. To the best of our knowledge, we are currently in compliance with all such laws, and any changes to such laws, regulations, guidelines and policies due to matters beyond our control may cause adverse effects on our operations.

 

On October 19, 2015, the Liberal Party of Canada (the “Liberal Party”) was elected and obtained a majority government in Canada. The Liberal Party has made electoral commitments to legalize, regulate and tax recreational cannabis use in Canada. On April 13, 2017, the Liberal Party tabled legislation that will legalize the recreational use of marijuana across Canada. It is not yet clear what, if any, negative impact the Cannabis Act might have on the Medical Marijuana industry as a whole.

 

There can be no assurance that we will receive regulatory approval for any of our product candidates, which is necessary before they can be commercialized for pre-clinical testing and clinical trials, and the failure to receive such approval would have a materially adverse impact on our business, results of operations and financial condition.

 

Prior to obtaining regulatory approval for sale of our product candidates, we must conduct preclinical testing and clinical trials. The results of the preclinical testing and clinical trials are uncertain and a product candidate can fail at any stage of clinical development. The historic failure rate for product candidates is high due to scientific feasibility, safety, efficacy, changing standards of medical care and other variables.

 

If we do not successfully complete preclinical and clinical development, we will be unable to market and sell products derived from our product candidates and generate revenues. Even if clinical trials are successfully completed, those results are not necessarily predictive of results of additional trials that may be needed before a new drug application, may be submitted to the FDA.

 

The testing process can take many years and may include post-marketing studies and surveillance, which would require the expenditure of substantial resources. As a result, we cannot assure that pre-clinical or clinical trials will begin or be completed on schedule, as the commencement and completion of clinical trials can be delayed for various reasons. A clinical trial may be suspended or terminated by us, the FDA, Institutional Review Board, ethics committees, data safety monitoring boards or other foreign or U.S. regulatory authorities overseeing the clinical trial at issue due to a number of factors, including, among others: failure to conduct the clinical trial in accordance with regulatory requirements; inspection of clinical trial sites by regulatory authorities which requires corrective action by us, including the imposition of a clinical hold; unforeseen safety issues; adverse side effects or lack of effectiveness of the product candidates; and changes in government regulations or administrative actions.

 

Pre-clinical or clinical trials may also be delayed, suspended or terminated due to a lack of effectiveness of product candidates during clinical studies; adverse events, safety issues or side effects relating to the product candidates or their formulation; inability to raise additional capital in sufficient amounts to continue clinical trials or development programs, which are very expensive; the need to sequence clinical studies as opposed to conducting them concomitantly in order to conserve resources; our inability to enter into collaborations relating to the development and commercialization of product candidates; failure by us or our collaborators to conduct clinical trials in accordance with regulatory requirements; our inability or the inability of its collaborators to manufacture or obtain from third parties materials sufficient for use in preclinical and clinical studies; governmental or regulatory delays and changes in regulatory requirements, policy and guidelines, including mandated changes in the scope or design of clinical trials or requests for supplemental information with respect to clinical trial results; failure of Scythian’s collaborators to advance its product candidates through clinical development; delays in patient enrolment, variability in the number and types of patients available for clinical studies, and lower-than anticipated retention rates for patients in clinical trials; difficulty in patient monitoring and data collection due to failure of patients to maintain contact after treatment; a regional disturbance where we or our collaborative partners are enrolling patients in our clinical trials, such as a pandemic, terrorist activities or war, or a natural disaster; and varying interpretations of data by the FDA and similar foreign regulatory agencies.

 

There is also the risk of a delay in the project due to the unavailability of the pharmaceutical components of the drug regimen or the willingness or availability of test subjects. The components of the drug regimen are experimental drugs which have limited manufacturers. These drug components may be or become unavailable. The drugs are also derivatives of cannabis and are subject to strict regulatory controls which could also impact or interfere with the Company’s ability to obtain a supply of the drugs for its testing program.

 

 15 
 

 

We are heavily dependent on third parties for our pre-clinical testing and clinical trials, and the failure of third parties to maintain compliance with applicable regulatory requirements could have a materially adverse effect on our costs and results of operations.

 

We rely on contract research organizations, particularly the contract with the University of Miami, clinical data management organizations and consultants to design, conduct, supervise and monitor preclinical studies due to a lack of internal resources to perform these functions. Outsourcing these functions involves risk that third party providers may not perform to our standards, may not produce results in a timely manner or may fail to perform at all. If any contract research organization fails to comply with applicable regulatory requirements, the clinical data generated in the clinical trial may be deemed unreliable to regulatory authorities. Additional clinical trials may be required before approval of marketing applications will be given. We cannot provide assurance that all third party providers will meet the regulatory requirements for clinical trials. Failure of third party providers to meet regulatory requirements could result in repeat preclinical and clinical trials, which would delay the regulatory approval process or termination of preclinical and clinical trials. Reliance on third party providers could result in a material adverse effect on our costs and results of operations.

 

There can be no assurance that positive results of preclinical testing will be predictive of the results of planned clinical tries, and the failure to produce positive results in clinical trials of the product candidates could have a materially adverse effect on our business.

 

The results of our preclinical testing may not necessarily be predictive of the results from the planned additional clinical trials in humans. We may encounter significant setbacks in clinical trials after achieving positive results in preclinical and early clinical development. Significant setbacks can be caused by, among other things, preclinical findings made while clinical trials were underway or safety or efficacy observations made in clinical trials, including adverse events. Preclinical and clinical data is susceptible to varying interpretations and analyses, and there is the potential that product candidates that performed satisfactorily in preclinical studies and clinical trials fail to obtain U.S. Food and Drug Administration and European Medicines Agency approval. Failure to produce positive results in clinical trials of the product candidates could result in a material adverse effect to our development timeline, regulatory approval, commercialization prospects and business and financial prospects.

 

Our ability to generate revenue is based on our ability to market our product candidates in multiple jurisdictions in which we have limited experience, failure to successfully market our product candidates could have a material adverse effect on our business, results of operations and financial condition.

 

We will focus its financial and managerial resources on research programs relating to the use of the cannabinoid combination therapy for the prevention and treatment of concussions and traumatic brain injury. There is a risk of product failure if the combination therapy proves to be unsafe, ineffective or inadequate for clinical development or commercialization. The combination therapy may also fail to exceed the efficacy of the individual component therapies separately. We may forego or delay pursuit of opportunities with other product candidates that could potentially prove to have commercial potential. Our resource allocation decisions could result in failure to capitalize on viable commercial products or profitable market opportunities.

 

If product development is successful and regulatory approval is obtained, our ability to generate revenue depends on the acceptance of the product candidates by physicians and patients. Factors which affect market acceptance include the indication statement and warnings approved by regulatory authorities on the product label, continued demonstration of efficacy and safety in commercial use, physicians’ willingness to prescribe the product candidates, reimbursement from third-party payors such as government healthcare systems and insurance companies, the price of the product, the nature of any post-approval risk management plans mandated by regulatory authorities, competition, and marketing and distribution support. Factors preventing market acceptance of the product candidates could have a material adverse effect on our business, results of operations and financial condition.

 

Our ability to generate revenue is based on its ability to market the product candidates in multiple jurisdictions where the we have limited experience. This risk could have a material adverse effect on our business, results of operations and financial condition.

 

 16 
 

 

The use of any of our product candidates could result in product liability or similar claims that could be expensive, damage our reputation and harm our business.

 

If we obtain regulatory approval for our product candidates, as a manufacturer and distributor of products designed to be ingested by humans, we face an inherent risk of exposure to product liability claims, regulatory action and litigation if its products are alleged to have caused significant loss or injury. In addition, the manufacture and sale of marijuana products involve the risk of injury to consumers due to tampering by unauthorized third parties or product contamination. Previously unknown adverse reactions resulting from human consumption of marijuana products alone or in combination with other medications or substances could occur. We may be subject to various product liability claims, including, among others, that our products caused injury or illness, include inadequate instructions for use or include inadequate warnings concerning possible side effects or interactions with other substances. A product liability claims or regulatory action against us could result in increased costs, could adversely affect the reputation with our clients and consumers generally, and could have a material adverse effect on our results of operations and financial condition. There can be no assurances that we will be able to obtain or maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not be available in the future on acceptable terms, or at all. The inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of our products.

 

We rely on third party manufacturers for the research and development of its product candidates, and there can be no assurance that such manufacturers will supply satisfactory qualify or be delivered in a timely manner.

 

Our ability to compete and grow will be dependent on it having access, at a reasonable cost and in a timely manner, to skilled labour, equipment, parts and cannabidiol (“CBD”) and other cannabinoid components. No assurances can be given that we will be successful in maintaining its required supply of skilled labour, equipment, parts and components.

 

We rely on third parties to supply the materials for and manufacturer the research and development of the product candidates. We cannot provide assurance that the supply of research and development, preclinical and clinical development drugs and other materials will not be limited, interrupted, restricted in certain geographic regions, be of satisfactory quality or be delivered in a timely manner. For the purposes of conducting clinical human trials, the constituent products of the combination therapy must be produced by a Good Manufacturing Practices (“GMP”) manufacturer. If we are unable to obtain constituent parts of the combination therapy produced by a GMP manufacturer, we may be restricted from conducting or completing clinical trials which would have a materially adverse effect on our business and operations.

 

Manufacturers of therapeutic products and their facilities are subject to review and periodic inspections by the FDA, the European Medicines Agency and other comparable regulatory authorities for compliance with regulations. Manufacturers of controlled substances must obtain and maintain necessary Drug Enforcement Agency and state registrations and registrations with applicable foreign regulatory authorities. Manufacturers of controlled substances must establish and maintain processes to ensure compliance with Drug Enforcement Agency and state registrations and requirements of applicable foreign regulatory authorities governing, among other things, the storage, handling, security, record keeping and reporting for controlled substances. If there are issues with the facility where our product is manufactured, a regulatory agency may impose restrictions on that product, the manufacturing facility or on us, including requiring a recall or withdrawal of the product from the market or suspension of manufacturing. The occurrence of problems with a facility may inhibit our ability to commercialize the product candidates and may otherwise have a material adverse effect on our business, financial condition and results of operations.

 

Security breaches and other disruptions could compromise our information, expose us to liability and harm our reputation.

 

Our information technology and internal infrastructure is susceptible to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Significant disruption to the availability of information technology and internal infrastructure could cause delays in research and development work. We would incur liability and development of product candidates would be delayed if any disruption or security breach were to result in a loss of, or damage to, the Resulting Issuer’s data.

 

Failure to obtain or maintain import or export licenses for our product candidates would have a material adverse effect on our business, results of operations and financial condition.

 

Our shipment, import and export of the product candidates and the active pharmaceutical ingredients used to manufacture our proprietary cannabinoid-based combination drug therapy for the treatment of concussions and traumatic brain injury requires import and export licenses. The import and export process requires the issuance of import and export licenses by the relevant controlled substance authority in both the importing and exporting country. The granting and maintenance of these licenses is uncertain. Any failure to obtain or maintain an import or export license would have a material adverse effect on our business, results of operations or financial condition.

 

 17 
 

 

In the event licenses are granted, we may depend on fast and efficient courier services to distribute its product, and specific restrictions might be placed on distribution methods and logistics due to the regulated nature of the cannabinoid based products. Any prolonged disruption of this courier service may result in the product batches being stored outside required temperature ranges. Inappropriate storage may damage the product shipment resulting in delays in clinical trials or, upon commercialization, a partial or total loss of revenue from one or more shipments of active pharmaceutical ingredients or the product candidates. A delay in a clinical trial or, upon commercialization, a partial or total loss of revenue from delays in shipment could have a material adverse effect on our business, results of operations or financial condition. Rising costs associated with the courier services used by the us to ship our products may also adversely impact our business and our ability to operate profitably.

 

Our success may also be impacted by interstate trade barriers to the transportation and marketing of cannabinoid products. If we are unsuccessful in obtaining authorization to transport or market the product candidates across interstate lines it will materially adversely affect our business and operations.

 

If we fail to adequately expand our sales, marketing and distribution capabilities, we may not be able to grow our business effectively.

 

If our product candidates are approved by regulatory bodies, we will need to acquire sales, marketing and distribution capabilities to commercialize the product candidates. This process is expensive and time-consuming. If we are not successful in commercializing any product candidate approved, either through internal processes or through third parties, our business, financial condition and results of operations could be materially adversely affected.

 

Failure to maintain adequate internal controls over financial reporting and our proprietary information would negatively impact our overall business, results of operations and financial condition.

 

We are exposed to the risk of employee fraud and other misconduct. Employee fraud includes intentional failure to comply with regulations, intentional failure to provide accurate information to regulatory authorities and intentional failure to comply with manufacturing standards. Other misconduct includes failure to report financial information accurately, failure to disclosure unauthorized activities to us, and the improper use of information obtained in the course of clinical trials. Employee misconduct resulting in legal action, significant fines or other sanctions could result in a material adverse effect to the Resulting Issuer’s business, results of operations or financial condition.

 

The Medical Marijuana industry is highly competitive, and increased competition by larger and more financed companies could have a material adverse effect on our business, financial condition and operating results.

 

There is potential that we will face intense competition from other companies, some of which can be expected to have longer operating histories and more financial resources and manufacturing and marketing experience than us. Increased competition by larger and better financed competitors could materially and adversely affect our business, financial condition and results of operations.

 

There currently are public companies working in the cannabis therapeutic area. These companies, and other types of drugs for the treatment of traumatic brain injury, may have an advantage in marketing approved products and may obtain regulatory approval of the product candidates before we are able to. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in more concentrated resources among a smaller number of competitors. To remain competitive, we will require a continued level of investment in research and development, marketing, sales and client support. We may not have sufficient resources to maintain research and development, marketing, sales and client support efforts on a competitive basis which could materially and adversely affect our business, financial condition and results of operations.

 

The use of any of our product candidates could result in product liability or similar claims that could be expensive, damage our reputation and harm our business.

 

We may become party to litigation from time to time in the ordinary course of business which could adversely affect our business. Should any litigation in which the we become involved be determined against us, such a decision could adversely affect our ability to continue operating, the market price for our common shares, and could use significant resources. Even we are successful in defending ourselves in any litigation for which we are a party, litigation can significantly redirect the Resulting Issuer resources. Litigation may also create a negative perception of the Resulting Issuer’s brand.

 

 18 
 

 

If we are unable to obtain and maintain effective patent rights for our product candidates, we may not be able to compete effectively in our markets.

 

The success of our business depends in part on its ability to protect its ideas and technology. Our commercial success will depend on its ability to obtain and maintain patent and other intellectual property protection with respect to proprietary technology and products in all jurisdictions it operates. The ability to obtain and maintain patent and other intellectual property protection is uncertain. In October 2015, we submitted two patent applications in the United States and subsequently internationally for approval of combination therapies to treat both traumatic brain injury (“TBI”) and gastro-inflammatory illnesses. Both applications are still in their early stages and are awaiting action by the patent regulators.

 

Although these patent applications have been submitted in connection with the drug formulation of our combination drug products, there is no guarantee that such application will be granted or that a determination might be made that the product infringes on another patent that has already been issued.

 

Even if we move to protect its technology with trademarks, patents, copyrights or by other means, we are not assured that competitors will not develop similar technology, business methods or that we will be able to exercise our legal rights. Other countries may not protect intellectual property rights to the same standards as does Canada. Actions taken to protect or preserve intellectual property rights may require significant financial and other resources such that said actions have a meaningfully impact to our ability to successfully grow our business.

 

We do not intend to pay dividends on our Common Shares in the foreseeable future and, therefore, unless our traded securities appreciate in value, our investors may not benefit from holding our securities.

 

Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, financial results, cash requirements, contractual restrictions and other factors that the board of directors may deem relevant. As a result, investors may not receive any return on an investment in the common shares unless they sell our common shares for a price greater than that which such investors paid for them. We have no earnings or dividend record and may not pay any dividends on its common shares in the foreseeable future. Dividends paid by us could be subject to tax and, potentially, withholdings.

 

We depend on attracting and retaining clients for its products, and failure to acquire and retain clients would have a negative impact on our business, operating results and financial condition.

 

Our success depends on its ability to attract and retain clients. There are many factors which could impact our ability to attract and retain clients, including but not limited to our ability to continually produce desirable and effective product and the continued growth in the aggregate number of patients selecting the product candidates as a treatment option. Our failure to acquire and retain patients as clients would have a material adverse effect on our business, operating results and financial condition.

 

The Canadian Medical Marijuana industry in its infancy is highly regulated, very competitive and rapidly evolving. We may incur additional costs to maintain regulatory compliance, and failure to maintain regulatory compliance could have a materially adverse effect on our business, results of operations and financial condition.

 

The Canadian Medical Marijuana industry is still in its infancy, is highly regulated and is a market which is very competitive and rapidly evolving. Our indirect subsidiary, Go Green B.C. Medicinal Marijuana Ltd. (“Go Green”), a wholly-owned subsidiary of SBI, has applied to become a licensed cannabis producer under the Access to Cannabis for Medical Purposes Regulations (Canada) (“ACMPR”). There is potential that Go Green will face intense competition from other companies, some of which can be expected to have more financial resources, industry, manufacturing and marketing experience. Additionally, there is potential that the industry will undergo consolidation, creating larger companies that may have increased geographic scope. Increased competition by larger, better-financed competitors with geographic advantages could materially and adversely affect our business, financial condition and results of operations. Sometimes new risks emerge and management may not be able to predict all of them, or be able to predict how they may cause actual results to be different from those contained in any forward-looking statements.

 

The Medical Marijuana industry is in its early development stage and restrictions on sales and marketing activities imposed by Health Canada, various medical associations, other governmental or quasi-governmental bodies or voluntary industry associations may (in the event Go Green in successful in its application for licensing under the ACMPR) adversely affect Go Green’s ability to conduct sales and marketing activities and could have a material adverse effect on our business, operating results and/or financial condition.

 

 19 
 

 

Should Go Green be successful in its application for licensing under the ACMPR it will incur ongoing costs and obligations related to regulatory compliance. Failure to comply with regulations may result in additional costs for corrective measures, penalties or restrictions of our operations. In addition, changes in regulations, more vigorous enforcement thereof or other unanticipated events could require extensive changes to operations, increased compliance costs or give rise to material liabilities, which could have a material adverse effect on our business, results of operations and financial condition. The Medical Marijuana industry is subject to extensive controls and regulations, which may significantly affect the financial condition of market participants. The marketability of any product may be affected by numerous factors that are beyond our control and which cannot be predicted, such as changes to government regulations, including those relating to taxes and other government levies which may be imposed. Changes in government levies, including taxes, could reduce our earnings and could make future capital investments or its operations uneconomic.

 

The failure to become licensed by Heath Canada for the production of medical marijuana production would negatively impact our business, financial condition and operations.

 

Go Green has applied to Health Canada to become a licensed producer under the ACMPR that would enable it to cultivate and sell Medical Marijuana to patients across Canada. Go Green has not yet received the licenses and there is no guarantee that it will become a licensed producer. Health Canada has received many applications and only a small fraction have been approved to date. Furthermore, the timing and success of Go Green at the various steps in the licensing process is beyond its control and the sole discretion thereof lies with Health Canada. Go Green’s ability to grow, store and sell Medical Marijuana in Canada is dependent on receiving a cultivation license and a sales license from Health Canada and there can be no assurance that Go Green will obtain such licenses.

 

Even if Go Green is successful in obtaining a cultivation license or a sales license, such licenses will be subject to ongoing compliance and reporting requirements. Failure to comply with the requirements of the licenses or any failure to maintain the licenses, if granted, would have a significant impact on our business, financial condition and operating results. Although Go Green believes that we will meet the requirements of the ACMPR, there can be no guarantee that Health Canada will grant these licenses. Should Health Canada not grant the licenses, our business, financial condition and operating results would be adversely affected. To the extent such licenses are not obtained, we may be curtailed or prohibited from its proposed production of Medical Marijuana or from proceeding with the development of its operations as currently proposed.

 

Risks Related to the Ownership of our Common Shares

 

The market price of our securities has been and may continue to be highly volatile.

 

The market prices for securities of biopharmaceutical companies, including ours, have historically been volatile. Prior to the date of this registration statement, there has not been a public market in the United States for our Common Shares. We have applied to list our Common Shares under the symbol “SCYB” on NASDAQ.

 

A number of factors could influence the volatility in the trading price of our common shares, including changes in the economy or in the financial markets, industry related developments, the results of product development and commercialization, changes in government regulations, and developments concerning proprietary rights, litigation and cash flow. Our quarterly losses may vary because of the timing of costs for manufacturing, preclinical studies and clinical trials. Also, the reporting of adverse safety events involving our products and public rumors about such events could cause our share price to decline or experience periods of volatility. Each of these factors could lead to increased volatility in the market price of our common shares. In addition, changes in the market prices of the securities of our competitors may also lead to fluctuations in the trading price of our common shares.

 

The market price of our Common Shares is likely to be volatile. Companies trading in the stock market have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of the Common Shares, regardless of our actual operating performance.

 

 20 
 

 

In the event our common shares are dual-listed on NASDAQ and the TSXV, the dual listing may adversely affect the liquidity and trading prices for our common shares on one or both of the exchanges as a result of circumstances that may be outside of our control.

 

Our common shares have been trading on the TSXV under the ticker symbol “KIT” since November 13, 2012. Trading of our common shares on the TSXV was halted on February 16, 2017, pending final approval of the Business Combination by the TSXV. We received final approval of the Business Combination on August 4, 2017, and our common shares resumed trading on the TSXV under our new ticker symbol “SCYB” on August 8, 2017. We have applied to list our common shares on NASDAQ. Assuming that our common shares are listed for trading on NASDAQ, our common shares will be listed on more than one exchange.

 

Although we believe the dual listing of our common shares will be beneficial for the liquidity of our common shares, permitting a broader base of investors to purchase our common shares in secondary trading, such listings may also adversely affect liquidity and trading prices for our common shares on one or both of the exchanges as a result of circumstances that may be outside of our control. Listing on both the TSXV and NASDAQ may increase share price volatility because trading will be split between the two markets, resulting in less liquidity on both exchanges. In addition, different liquidity levels, volume of trading, currencies and market conditions on the two exchanges may result in different prevailing prices. For example, transfers by investors of our common shares from trading on one exchange to the other could result in increases or decreases in liquidity and/or trading prices on either or both of the exchanges. In addition, investors could seek to sell or buy our common shares to take advantage of any price differences between the two markets through a practice referred to as arbitrage. Any arbitrage activity could create unexpected volatility in both the trading prices of our common shares on either exchange and the volumes of our common shares available for trading on either exchange.

 

Securities class action litigation has been brought against companies following periods of volatility in the market price of their securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and damages and divert our management’s attention and resources, which could adversely affect our business, results of operations or financial condition. Any adverse determination in litigation against us could also subject us to significant liabilities.

 

In the event our common shares are dual-listed and trade in U.S. dollars on NASDAQ and in Canadian dollars on the TSXV, the trading price of our common shares on the TSXV and the value of dividends, if any, paid on our common shares to investors who elect to receive dividends in Canadian dollars may be materially adversely affected by fluctuations in the exchange rate between U.S. dollars and Canadian dollars.

 

In the event our common shares are dual-listed, we may choose to have our common shares trade in U.S. dollars on NASDAQ and in Canadian dollars on the TSXV. Fluctuations in the exchange rate between U.S. dollars and Canadian dollars may affect the value of our common shares. We currently incur a significant portion of our expenses only in Canadian dollars. To date, we have not used forward exchange contracts to hedge exposures denominated in currencies or any other derivative instrument for trading, hedging or speculative purposes. Specifically, as the value of the U.S. dollar relative to the Canadian dollar declines, each of the following values will also decline (and vice versa):

 

  the Canadian dollar equivalent of the U.S. dollar trading price of our common shares on NASDAQ, which may consequently cause the trading price of our common shares on the TSXV to also decline; and

 

  the Canadian dollar equivalent of cash dividends paid in U.S. dollars on our common shares if investors holding our common shares on the TSXV request dividends to be paid in Canadian dollars.

 

We will incur significantly increased costs and devote substantial management time as a result of operating as a public company.

 

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. For example, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the rules and regulations of the Canadian Securities Administrators, or CSA, and will be required to comply with the applicable requirements of Sarbanes-Oxley and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations subsequently implemented by the SEC, the NASDAQ Global Market, or NASDAQ, and the TSX Venture Exchange, or the TSXV, including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. We expect that compliance with these requirements will increase our legal and financial compliance costs and will make some activities more time consuming and costly. In addition, we expect that our management and other personnel will need to divert attention from operational and other business matters to devote substantial time to these public company requirements. In particular, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of Sarbanes-Oxley and NI-52-109, which involve annual assessments of a company’s internal controls over financial reporting. Such requirements will increase when we are no longer an emerging growth company, as defined by the JOBS Act. We will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and may need to establish an internal audit function. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs.

 

 21 
 

 

Holders of our Common Shares who are U.S. citizens or residents may be required to pay additional income taxes.

 

There is a risk that we will be classified as a passive foreign investment company, or PFIC, for certain tax years. If we are classified as a PFIC, a U.S. holder of our Common Shares will be subject to special federal income tax rules that determine the amount of federal income tax imposed on income derived with respect to the PFIC shares. We will be a PFIC if either 75% or more of our gross income in a tax year is passive income or the average percentage of our assets (by value) that produce or are held for the production of passive income in a tax year is at least 50%. The risk that we will be classified as a PFIC arises because cash balances, even if held as working capital, are considered to be assets that produce passive income. Therefore, any determination of PFIC status will depend upon the sources of our income and the relative values of passive and non-passive assets, including goodwill. A determination as to a corporation’s status as a PFIC must be made annually. We believe we may be a PFIC during 2014 and although we have not determined whether we will be a PFIC in 2015, or in any subsequent year, our operating results for any such years may cause us to be a PFIC. Although we may not be a PFIC in any one year, the PFIC taint remains with respect to those years in which we were or are a PFIC and the special PFIC taxation regime will continue to apply.

 

In view of the complexity of the issues regarding our treatment as a PFIC, U.S. shareholders are urged to consult their own tax advisors for guidance as to our status as a PFIC.

 

As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of applicable SEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to domestic issuers.

 

As a foreign private issuer, we will be permitted to follow certain home country corporate governance practices instead of those otherwise required under NASDAQ for domestic issuers. For instance, we may follow home country practice in Canada with regard to, among other things, composition and function of the audit committee and other committees of our Board of Directors and certain general corporate governance matters. In addition, in certain instances we will follow our home country law, instead of the NASDAQ, which requires that we obtain shareholder approval for certain dilutive events, such as an issuance that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company. We comply with the director independence requirements of the NASDAQ, including the requirement that a majority of the Board of Directors be independent, and make the required affirmative determination thereunder upon filing the listing application with NASDAQ. Following our home country governance practices as opposed to the requirements that would otherwise apply to a United States company listed on NASDAQ may provide less protection than is accorded to investors under NASDAQ applicable to domestic issuers.

 

In addition, as a foreign private issuer, we will be exempt from the rules and regulations under the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as domestic companies whose securities are registered under the Exchange Act.

 

We may lose foreign private issuer status in the future, which could result in significant additional costs and expenses to us.

 

We may in the future lose our foreign private issuer status if a majority of our common shares are held in the United States and we fail to meet the additional requirements necessary to avoid loss of foreign private issuer status, such as if: (i) a majority of our directors or executive officers are U.S. citizens or residents; (ii) a majority of our assets are located in the United States; or (iii) our business is administered principally in the United States. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer will be significantly more than the costs incurred as a Canadian foreign private issuer eligible to use the multijurisdictional disclosure system, or MJDS. If we are not a foreign private issuer, we would not be eligible to use the MJDS or other foreign issuer forms and would be required to file periodic and current reports and registration statements on U.S. domestic issuer forms with the SEC, which are generally more detailed and extensive than the forms available to a foreign private issuer. In addition, we may lose the ability to rely upon exemptions from NASDAQ corporate governance requirements that are available to foreign private issuers. Further, if we engage in capital raising activities after losing foreign private issuer status, there is a higher likelihood that investors may require us to file resale registration statements with the SEC as a condition to any such financing.

 

 22 
 

 

We are an emerging growth company as defined in the JOBS Act and the reduced disclosure requirements applicable to emerging growth companies may make the common shares less attractive to investors and, as a result, adversely affect the price of the common shares and result in a less active trading market for the common shares.

 

We are an emerging growth company as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. For example, we have elected to rely on an exemption from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act relating to internal control over financial reporting, and we will not provide such an attestation from our auditors for so long as we qualify as an emerging growth company.

 

We may avail ourselves of these disclosure exemptions until we are no longer an emerging growth company. We cannot predict whether investors will find the common shares less attractive because of our reliance on some or all of these exemptions.

 

We will cease to be an emerging growth company upon the earliest of:

 

  the end of the fiscal year in which the fifth anniversary of our initial public offering occurred;
  the end of the first fiscal year in which the market value of our common shares held by non-affiliates exceeds US$700 million as of the end of the second quarter of such fiscal year;
  the end of the first fiscal year in which we have total annual gross revenues of at least US$1 billion; and
  the date on which we have issued more than US$1 billion in non-convertible debt securities in any rolling three-year period.

 

Any failure to maintain an effective system of internal controls may result in material misstatements of our consolidated financial statements or cause us to fail to meet our reporting obligations or fail to prevent fraud; and in that case, our shareholders could lose confidence in our financial reporting, which would harm our business and could negatively impact the price of our common shares.

 

Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. If we fail to maintain an effective system of internal controls, we might not be able to report our financial results accurately or prevent fraud; and in that case, our shareholders could lose confidence in our financial reporting, which would harm our business and could negatively impact the price of our common shares. While we believe that we have sufficient personnel and review procedures to allow us to maintain an effective system of internal controls, we cannot provide assurance that we will not experience potential material weaknesses in our internal control. Even if we conclude that our internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with IFRS as issued by the IASB, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our results of operations or cause us to fail to meet our future reporting obligations.

 

If we fail to timely achieve and maintain the adequacy of our internal control over financial reporting, we may not be able to produce reliable financial reports or help prevent fraud. Our failure to achieve and maintain effective internal control over financial reporting could prevent us from complying with our reporting obligations on a timely basis, which could result in the loss of investor confidence in the reliability of our consolidated financial statements, harm our business and negatively impact the trading price of our common shares.

 

Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholders vote.

 

Our board of directors will have the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares, including common shares issuable upon the exercise of outstanding warrants and options. Issuances of additional shares would reduce your influence over matters on which our shareholders vote.

 

 23 
 

 

Risks Relating to Operations in Canada

 

Canadian law differs from the laws in effect in the United States and may afford less protection to holders of our securities.

 

We are incorporated in Ontario and are governed by the Business Corporations Act (Ontario), or OBCA, which differs in some material respects from laws generally applicable to U.S. corporations and shareholders, including, among others, differences in shareholder suits, insider transactions, duties of officers and directors, shareholder rights. Accordingly, holders of our shares may have more difficulty protecting their interests than would holders of shares of a corporation incorporated in a jurisdiction of the United States.

 

It may be difficult to enforce a U.S. judgment against us, our officers or our directors or to assert U.S. securities law claims in Canada.

 

Service of process upon us, since we are incorporated in Canada, and upon our directors and officers, who reside outside the U.S., may be difficult to obtain within the U.S. In addition, because substantially all of our assets and most of our directors and officers are located outside the U.S., any judgment obtained in the U.S. against us or any of our directors and officers may not be collectible within the U.S. There is a doubt as to the enforceability of civil liabilities under the Securities Act or the Exchange Act pursuant to original actions instituted in Canada. Subject to particular time limitations and provided certain conditions are met, executory judgments of a U.S. court for monetary damages in civil matters may be enforced by a Canadian court.

 

Your rights and responsibilities as a shareholder will be governed by the laws of the Province of Ontario and the laws of Canada applicable therein which may differ in some respects from the rights and responsibilities of shareholders of U.S. companies.

 

We are incorporated in Ontario and are governed by the OBCA. The rights and responsibilities of the holders of our common shares are governed by our Articles of Incorporation, as amended, and the OBCA. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in typical U.S.-based corporations. In particular, a shareholder of a Canadian company has a duty to act in good faith toward the company and other shareholders and to refrain from abusing its power in the company, including, among other things, in voting at the general meeting of shareholders on matters such as amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and acquisitions and interested party transactions requiring shareholder approval. In addition, a shareholder who knows that it possesses the power to determine the outcome of a shareholder vote or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness toward the company. There is limited case law available to assist us in understanding the implications of these provisions that govern shareholders’ actions. These provisions may be interpreted to impose additional obligations and liabilities on holders of our Common Shares that are not typically imposed on shareholders of U.S. corporations.

 

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

 

We may be adversely affected by foreign currency fluctuations. To date, we have been primarily funded through issuances of equity, proceeds from the exercise of warrants and stock options and from interest income on funds available for investment, which are all denominated both in Canadian and U.S. dollars. Also, a significant portion of our expenditures are in U.S. dollars, and we are therefore subject to foreign currency fluctuations which may, from time to time, impact our financial position and results of operations.

 

ITEM 4. INFORMATION ON THE COMPANY

 

A. History and Development of the Company

 

Name, Address and Incorporation

 

We were incorporated under the Business Corporations Act (Ontario) on January 28, 2005 under the name “Canexco Resources Ltd.” On February 25, 2005, we filed a Article of Amendment to change our name to “Norcanex Resources Ltd.” On June 6, 2011 we filed a Article of Amendment to change our name to “Kitrinor Metals Inc.” On November 13, 2012, we became a reporting issuer in the Provinces of British Columbia, Alberta and Ontario and our common shares began trading on the TSXV under the symbol “KIT”. On December 2, 2016, we amended our Articles of Incorporation to consolidate our common shares on the basis of one (1) post-consolidation common share for every ten (10) pre-consolidation common shares held.

 

 24 
 

 

On August 1, 2017, pursuant to the Business Combination discussed below, we amended our Articles of Incorporation to consolidate our common shares on a basis of one (1) post-consolidation common share for every twenty (20) pre-consolidation common shares held. On August 1, 2017, we filed a Certificate of Amendment to change our name to “Scythian Biosciences Corp.” to better reflect the nature of our business, and on August 8, 2017, our common shares resumed trading on the TSXV under the symbol “SCYB”. On August 1, 2017, we filed Articles of Amalgamation with Corporations Canada in order to effectuate the Amalgamation.

 

Our wholly-owned subsidiary, Scythian Biosciences Inc., or SBI, was incorporated under the Federal laws of Canada on July 9, 2014. Its principal offices are located at 200-366 Bay St., Toronto, ON, M5H 4B2. Our indirect subsidiary, wholly-owned subsidiary by SBI, is Go Green B.C. Medicinal Marijuana Ltd. (“Go Green”), was incorporated under the laws of the Province of British Columbia on December 1, 2013 and is currently in the process of applying to become a licensed producer under the Access to Cannabis for Medical Purposes Regulations (“AMPR”).

 

We are a company domiciled in Ontario, Canada. Our head office and registered office is located at 1 First Canadian Place, 100 King Street West, Suite 1600, Toronto, Ontario, M5X 1G5, Canada. Our telephone number is (212) 729-9208.

 

Intercorporate Relationships

 

As of the date of this registration statement, we have one direct wholly-owned subsidiary and one indirect wholly-owned subsidiary. Our direct wholly-owned subsidiary is Scythian Biosciences Inc., or SBI, which was incorporated on July 9, 2014, under the Federal laws of Canada. Our indirect subsidiary, Go Green, which is wholly-owned by SBI, was incorporated under the laws of the Province of British Columbia on December 1, 2013.

 

General Development of the Business

 

We are a pre-clinical research and development company that is developing a proprietary cannabinoid-based method for the treatment of concussions and traumatic brain injury.

 

Until January 2017, we operated as a junior mining exploration company engaged in the acquisition, exploration and development of mineral resource properties in Canada.

 

After divesting ourselves of our mineral properties, we shifted our focus on identifying and evaluating businesses and assets that would enhance shareholder value.

 

The Business Combination and the Amalgamation of Scythian Biosciences Inc.

 

On August 1, 2017, we acquired 100% of the issued and outstanding common shares of SBI pursuant to the terms and conditions of a business combination agreement, dated June 6, 2017 the (“Business Combination Agreement”). Upon satisfying the conditions of the Business Combination Agreement, SBI became our wholly-owned subsidiary by way of a three-cornered amalgamation under the federal laws of Canada (the “Business Combination”).

 

Consolidation

 

In connection with the Business Combination and in accordance with the terms of the Business Combination Agreement, on August 1, 2017, we effected a consolidation of our common shares, on the basis of one (1) new common share for every twenty (20) common shares issued and outstanding (the “Scythian Consolidation”). Further in connection with the Amalgamation, on August 1, 2017, SBI effected a consolidation of its common shares, on the basis of one (1) new common share for every eighty (80) common shares issued and outstanding (The “SBI Consolidation”). Immediately following effectiveness of the Business Combination, each common share held by either our shareholders or SBI shareholders were exchanged for one (1) validly issued, fully paid and non-assessable common share of Scythian following the Business Combination.

 

 25 
 

 

Financing

 

In connection with the Business Combination, on March 13, 2017 and on March 31, 2017, SBI completed a multi-tranche Private Placement Financing of Subscription Receipt and issued an aggregate of 1,660,625 subscription receipts (the “Subscription Receipts”) at a price of $8.00 per Subscription Receipt, for total gross proceeds of $13,285,000 (the “Offering Proceeds”). The SBI Subscription Receipts automatically converted into post-consolidation shares of Scythian without any additional consideration in accordance with the terms of the Business Combination Agreement. On March 20, 2017 and March 31, 2017, SBI completed a non-brokered private placement offering (the “Financing”) of 370,743 of its common shares (the “SBI Shares”) at a price of $8.00 per SBI Share, for total gross proceeds of $2,965,946.

 

The Offering Proceeds were released upon satisfaction of the escrow release conditions set forth in the Subscription Receipt Agreement, including, but not limited to, the conditional approval of the Business Combination by the TSXV.

 

Mining Exploration Operations

 

Prior to the Business Combination, we operated under the name Kitrinor Metals Inc. as a junior mining exploration company engaged in the acquisition, exploration and development of mineral resource properties in Canada. In January 2017, we divested ourselves of our mineral properties and had been focusing on identifying and evaluating businesses and assets with a view to completing a transaction to enhance shareholder value. In August 1, 2017, we effectuated the Amalgamation whereby SBI became our wholly-owned subsidiary, and we began operating as a life sciences company engaged in the research, development and commercialization of cannabinoid-like compounds. Our indirect subsidiary, Go Green, is currently pursuing its application to become a licensed producer under the ACMPR.

 

Mineral Properties

 

The following is a summary of the mineral properties we held in the last three years.

 

Caley Lake Property

 

We staked mining claims that were located in the Patricia Mining Division south west of Pickle Lake, Ontario. On July 15th, 2010, we optioned the Caley Lake Property to a third party providing them an undivided 80% right, title and interest in and to the claims in consideration for completion of certain work costs during the option period expiring on July 15th, 2015 such that the cumulative sum of all work costs totals $250,000 or the sum of all work costs and a direct cash payment made by the optionee totals $250,000. We retained a 2% net smelter return/royalty, of which the optionee had the exclusive right and option to purchase one half of the royalty (1%) at any time for $750,000.

 

On June 25, 2015, the conditions, as above, necessary for title to pass to the optionee had been met and we transferred title according to the agreement and retained a 20% interest.

 

On January 20, 2017 we entered into an assignment agreement to assign all of its remaining right, title and interest in the option agreement. We assigned the net smelter return and royalty pursuant to the assignment agreement on January 20, 2017.

 

Culroc Property

 

On September 27th, 2011 we entered into a mining claim acquisition agreement (the “Acquisition Agreement”) whereby we acquired 100 percent (100%) interest in a property (“Culroc Property”) located in the Township of Sothman in the Porcupine mining division of Ontario. Under the terms of the Acquisition Agreement, we paid $10,000 upon the execution of the Acquisition Agreement. We were required to pay to the vendors a three percent (3%) Net Smelter Return (“NSR”) production royalty from the production or sale of gold or other minerals from the Culroc Property. We had the sole and exclusive right and option to purchase 1% of the royalty (such that the remaining royalty would be reduced to 2% of NSR) for a price equal to the reduction price of $1,500,000.

 

On December 18, 2012 we entered into a Memorandum of Understanding (the “MOU”) with the Mattagami First Nation (“MFN”) in order to promote a cooperative ongoing discussion between the parties with regards to the exploration and development of our mining claims located in the traditional territory of the MFN (the “Project”). The MOU established the general framework for these discussions by setting out, among other things, business, employment and training opportunities for members of the MFN to participate in the exploration and development in connection with the Project.

 

Pursuant to the terms of the MOU, we had: (i) paid 2% of all drilling and exploration costs incurred to date with respect to the exploration program on the Project; (ii) issued to the MFN 50,000 options to acquire our common shares at an exercise price of $0.25; and (iii) issued 50,000 of our common shares.

 

 26 
 

 

We were also required to pay the MFN’s legal costs associated with negotiating the MOU of $2,500, and pay up to a maximum of $15,000 per year to the MFN’s Elders Committee. Additionally, we were required to enter into negotiations to come to terms on an Impact Benefit Agreement (“IBA”), which was to be negotiated before the completion of any feasibility study, covering such matters as education and training; employment opportunities; workplace conditions; business opportunities; financial participation and/or compensation; environmental protection, litigation, monitoring and reporting; and access to the project area. Under the MOU we were also required to pay the MFN’s reasonable costs of negotiating the IBA.

 

On November 24, 2016 we entered into a Mining Claim Acquisition Agreement pursuant to which we sold one hundred percent (100%) of our interest in the Culroc Property for a cash payment of $500.

 

Feather River Property

 

In March 2011 and amended on February 18, 2014, we entered into an option agreement (the “Option Agreement”) whereby we were granted the sole, exclusive and irrevocable right and option to acquire up to an undivided 100% interest in St. Germain Township, Sault Ste. Marie Mining Division, Province of Ontario (“Feather River Property”) in the Mishibishu Lake area west of Wawa. Under the terms of the Option Agreement, we were required to pay to the vendors an NSR production royalty form the production or sale of gold or other minerals from the Feather River Property. The production royalty rate was two percent (2%). We had the sole and exclusive right and option to buy back the entirety of the royalty (2%) in increments of $500,000 per 0.5% each for a total of $2,000,000. We were required to make such payment on March 1, 2015.

 

As of the date of this registration statement, we are in default of this payment but we have yet to receive a notice of termination of the Option Agreement. However, due to our failure to fulfill our obligations under the Option Agreement, we no longer have the exclusive and irrevocable right and option to acquire up to an undivided 100% interest in the Feather River Property.

 

Bayview Property

 

We staked the Bayview Property, which was contiguous to Feather River. Our ability to obtain a mineral interest in Bayview Property was contingent upon our satisfying our obligations under our Option Agreement for the Feather River Property.

 

On February 16, 2017 we entered into a mining claim acquisition agreement whereby we sold 100 percent interest in the Bayview Property for a cash payment of $100.

 

Capital Expenditures

 

Set forth below is a chart of capital expenditures during the last three years for each of Scythian and SBI prior to completion of the Business Combination.

 

As discussed above, Scythian operated as a junior mining exploration company prior to divesting itself of its mineral properties in January 2017. During the last three years, and the three month period ended March 31, 2017, we incurred minimal expenditures as follows:

 

Expenditures  Quarter ended March 31, 2017   December 31, 2016   December 31, 2015   December 31, 2014 
Exploration Gains  $100   $500   $Nil   $(17,919)

  

During the last three years, SBI incurred the following expenditures:

 

   March 31, 2017   March 31, 2016   March 31, 2015 
R&D Expense  $1,038,000   $Nil   $Nil 
Investment in Production Facility  $Nil   $1,150,000(1)  $Nil 

 

(1) Investment in Production Facility relating to corporate acquisition of Go Green, which consisted of $743,925 in leasehold improvements and $406,075 in machinery and equipment.

 

 27 
 

 

B. Business Overview

 

Until January 2017, we operated as a junior mining exploration company engaged in the acquisition, exploration and development of mineral resource properties in Canada. In January 2017, we divested ourselves of our mineral properties and had been focusing on identifying and evaluating businesses and assets with a view to completing a transaction to enhance shareholder value.

 

Upon completion of the Business Combination, we now operate as a life sciences company, continuing the business of Scythian Biosciences Inc. Currently, we engage in the research, development and commercialization of cannabinoid-like compounds and, via Go Green, will continue to pursue our application to become a licensed producer under the ACMPR.

 

Overview

 

SBI was incorporated under the name Valens Agritech Canada Inc. for the purpose of applying for licensing to grow and sell medical marijuana in Canada under the newly enacted ACMPR regulations. SBI acquired Go Green on June 11, 2015, which had previously submitted an application for licensing under the Marihuana for Medical Purposes Regulations (the “MMPR”) on January 18, 2014. The licensing application is currently pending and Go Green is in the Security Phase of the licensing process.

 

In mid-2015, we decided to add a new business focus including the entry into the research and development of cannabis related pharmaceutical products. On October 16, 2015, after management conducted research into the potential applications of Cannabidiol (“CBD”) to the treatment of concussion and Traumatic Brain Injury (“TBI”), we submitted two patent applications in the United States (and then subsequently internationally) for the approval of combination therapies to treat both TBI and gastro-inflammatory illnesses. Both applications are in their early stages and are awaiting action by the patent regulators. In July 2016, we entered into a research agreement with the University of Miami (the “University of Miami Research Agreement”) to conduct pre-clinical and clinical testing on its TBI combination therapy. The pre-clinical testing is currently underway.

 

Treatment of Traumatic Brain Injury

 

We are a pre-clinical research and development company that is in the process of developing drug therapies. The first project underway is the development of a proprietary cannabinoid-based combination drug therapy for the treatment of concussions and traumatic brain injury. In addition to this primary line of research and development, we also intend to develop other potential cannabinoid and non-cannabinoid based pharmaceutical products, including one that is in development for treatment of gastro-inflammatory disease.

 

Cannabinoids are a class of molecules found in both plants and animals. Cannabinoids are most commonly derived from cannabis plants. The two primary cannabinoids contained in cannabis are CBD and delta-9-tetrahydrocannabinol (“THC”). THC is the constituent compound that has psychoactive effects while CBD does not have such effects during routine consumption. Extensive scientific studies have been performed to explore the anti-inflammatory properties of CBD. CBD also crosses the blood brain barrier and targets a specific brain receptor, the cannabinoid receptor type 2 (“CB2 receptor”), involved in the immune and inflammatory response in the brain. This makes it an ideal compound for potential development in respect of the treatment of traumatic brain injury. Interest in cannabinoid therapeutics has increased significantly over the past several years as preclinical and clinical data has emerged highlighting the potential efficacy and safety benefits of cannabinoid therapeutics.

 

Proprietary Methodology

 

On October 16, 2015, we filed US Provisional Patent Application No. 62-242-457 Methods for Treating Traumatic Brain Injury. The proprietary methodology forming the basis of our patent application utilizes a combination of two drugs to inhibit both inflammation and other aspects of the immune response in the brain that occur following a concussion or other traumatic brain injury (the “Combination Therapy”). This immune response and inflammation is a significant contributing cause of brain tissue damage following a head trauma. Our patent application focuses on using two or more alternative therapies in combination in order to combat the injury resulting from such inflammation and the immune systems response.

 

More generally, a concussion causes injury and damage to the brain in three ways. First, the initial physical impact and the force exerted cause a direct impact to, and/or acceleration of, the brain resulting in direct brain tissue damage. Following the force of the initial impact, brain tissue begins to swell. The result of such inflammation is increased intracranial pressure due to the limited amount of space surrounding an individual’s brain in the skull cavity. As the individual’s brain expands with inflammation, the brain presses against the skull with increasing pressure and can cause extensive damage. Other components of the immune response trigger a cascade of chemical processes, including the release of cytokines and the infiltration of white blood cells (leukocytic and macrophage infiltration). Changes in calcium and potassium concentrations also disrupt cell function. Our therapy is designed to disrupt or reduce the extent of these processes.

 

 28 
 

 

Our Strategy

 

Our treatment strategy has been to target multiple receptors on parallel pathways that each affect these immune processes. Our patent proposes multiple drugs in each class as alternative treatments; however, the pre-clinical trial is focusing on two specific drugs. We have not created new drugs but rather have found a way to apply several pre-existing drugs in a way not previously done before.

 

In order to advance the development of our proprietary treatment methodology, we have established a relationship with the University of Miami’s “UConcussion Treatment & Management Program” (the “UConcussion Program”), a renowned center for research on brain and spinal cord injuries. Pursuant to a research agreement dated July 25, 2016, as amended February 10, 2017, the UConcussion Program will conduct and coordinate the Company’s research, including pre-clinical and clinical trials, to expand upon our current patent pending methodology in the treatment of concussions and traumatic brain injury.

 

Proprietary Treatment Methodology

 

Our patent application utilizes a combination of approaches to inhibit both the inflammation and the immune system response to combat injury due to concussion or other traumatic impact. The patent application focuses on using two or more alternative therapies in combination, with the application covering several possible combinations of drugs. Although the patent covers multiple combinations, the research being conducted by the University of Miami will utilize an N-methyl-D-aspartate (“NMDA”) receptor antagonist plus a cannabinoid receptor type 2 CB2 receptor agonist as a combined drug regimen. Among other things, the activation or inhibition of these receptors affects the cannabinoid pathway to ultimately increase levels of Anandamide with a resulting decrease in 2-arachidonoyl glycerol (“2-AG”). The result of this chemical effect is to reduce inflammation and to inhibit gliosis (and the immune cascade).

 

There is a long history of the study of cannabinoids for use as anti-inflammatory agents, including in particular, CBD. Research on the use of THC, CBD and other cannabinoids as a possible treatment for various inflammatory disorders has been ongoing for no less than 25 years. However, over the last 10-15 years, this research has picked up extensively.

 

In addition to the Combination Therapy, our patent application also covers an additional approach utilizing a Fatty Acid Amide Hydrolase inhibitor (“FAAH”) to trigger a different chemical pathway to achieve regulation of Anandamide and 2-AG. FAAH inhibitors reduce the level of 2-AG through upregulation of Anandamide levels without acting on the CB2 receptor. Thus, the use of a FAAH inhibitor would create an anti-inflammatory effect through an alternate mechanism without binding or effecting the CB1 or CB2 receptors. This alternative approach remains an additional possible approach at a later point in the study.

 

The University of Miami Miller School of Medicine

 

The research is being conducted at the University of Miami Miller School of Medicine, a leading institution in Traumatic Brain Injury and Concussion Treatment, Management and Prevention. The primary investigator of the project, Gillian A. Hotz, PhD, is a leading expert in neurotrauma, Professor of Neurological Surgery at the University of Miami MILLER School of Medicine & UM’s The Miami Project to Cure Paralysis. She is the Director of the UConcussion Program for the past twenty years, part of University of Miami Health System Sports Medicine, and the KIDZ Neuroscience Center, at The Miami Project to Cure Paralysis. Dr. Hotz is nationally recognized as a behavioral neuroscientist and expert in pediatric, adult neurotrauma and concussion prevention and management. Dr. Hotz has put together a core team of leading experts at UM in neuroscience, neurosurgery, neurology, neuropsychology and injury prevention, including:

 

  Dalton Dietrich, PhD Scientific Director, The Miami Project to Cure Paralysis, Senior Associate Dean for Discovery Science, Professor of Neurological Surgery, Neurology, Biomedical Engineering and Cell Biology;
     
  Helen Bramlett, PhD Professor of Neurological Surgery, The Miami Project to Cure Paralysis;

 

 29 
 

  

  Michael Hoffer, MD Professor Otolaryngology and Neurotology;
     
  Bonnie Levin, PhD Professor of Neurology and Director of the Division of Neuropsychology, Department of Neurology;
     
  Tatiana Rundek, MD Professor of Clinical Neurology;
     
  Steve Olvey, MD Associate Professor of Clinical Neurology & Neurosurgery;
     
  Mohan Kottapally, MD Assistant Professor of Clinical Neurology Neurocritical Care Division; and
     
  Kester Nedd, DO Associate Professor of Clinical Neurology.

 

University of Miami Research Agreement

 

Pursuant to a collaborative research agreement dated July 25, 2016, as amended February 10, 2017 (the “UM Agreement”) the University of Miami’s UConcussion Program has committed to conduct our pre-clinical and clinical research studies, including any necessary animal or preliminary testing, clinical testing, from inception through Phase 3 testing and to develop for commercial application, certain targeted therapeutics identified or otherwise contemplated by the UM Agreement (the “Purpose”). Pursuant to the UM Agreement we have agreed to pay a 5% royalty of net profits from the commercialization, including licensing, or any inventions or discoveries made during the term of the UM Agreement, as well as from the commercialization of the specific drug regimen being tested under the UM Agreement and as set out in our patent. Any intellectual property developed during the course of the testing program remains and/or becomes our property.

 

The initial term of the UM Agreement ends January 30, 2022, and may be extended. The UM Agreement may be terminated by either party on 90 days’ written notice upon an uncured material breach; upon the filing for creditor protection under the United States Bankruptcy Code or the appointment of a bankruptcy trustee or receiver; or, upon either party determining in its sole judgment that the Purpose of the UM Agreement will not achieve a positive outcome.

 

The first phase of the program will focus on the pre-clinical studies, piloting phase of the proposed outcome measures, and the translational project, the latter providing the transition from pre-clinical to the clinical study beginning in Year 3. Significant efforts will be directed towards narrowing and refining the most sensitive outcomes from domains shown to be, in varying degrees and combinations, significantly impacted in mild to moderate traumatic brain injury: cognitive, behavioral, psychosocial, sleep, pain, sensory/motor, cardiovascular, inflammatory biomarkers, and imaging parameters. During this phase, the program will seek to clarify and address methodological shortcomings in existing literature, design novel outcomes that circumvent these shortcomings, pilot the outcome measures on normal, and two groups of traumatic brain injury patients (acute and chronic), and propose a study methodology to begin in Year 3 to test the Combination Therapy product. A significant target for year two of the study is to carry out the translational component of the study which will require a close collaboration between preclinical and clinical investigators, with the goal of gathering critical data in the piloting phase in order to inform and insure direct application from the experimental studies to the fully powered clinical trial beginning in Year 3 of the study.

 

Operations

 

We are currently subcontracting out research and development through the University of Miami. In the event that drug candidates are successfully developed, we will either outsource manufacturing, raise capital to build a production facility in order to internally manufacture, and/or seek a strategic partner to undertake manufacturing and marketing. We have not yet addressed the logistics or cost of these alternative options but will do so after obtaining initial data on the pre-clinical and/or clinical trial results.

 

Market

 

We expect the cannabinoid therapeutics market will grow significantly in the coming years due to softening public and political views toward the use of medical marijuana and the potential benefits cannabinoid products may provide over existing therapies. Interest in cannabinoid therapeutics has increased over the past several years as preclinical and clinical data has emerged highlighting the potential efficacy and safety benefits of cannabinoid therapeutics. Studies have been conducted on the application of cannabinoids in the treatment of various diseases such as diabetes, neoplasms, inflammatory diseases, neurological conditions, chronic pain and chemotherapy induced nausea and vomiting.

 

 30 
 

 

We will initially be seeking FDA approval for its products in the United States (see “Future Developments”, below). Once FDA approval has been obtained, we will market our products and seek approvals equivalent to FDA approval in as many countries as is commercially feasible.

 

We believe there is a large serviceable market for the treatment of concussion/TBI injury. According to the Mayo Clinic, sports related concussions range from 3.5 to 4 million cases per year. According the Center for Disease Control, between 2001 and 2012 the number of emergency department visits for sporting related injuries with a diagnosis of concussion or TBI, alone or in combination with other injuries, more than doubled among children aged 19 or younger. Currently there are very few treatments available for concussion/TBI and no standard medically accepted drug protocol.

 

Competitors

 

Our competitors include multinational pharmaceutical companies and specialized biotechnology companies, as well as universities and other research institutions who are conducting research in both cannabinoid products, as well as those focusing on a treatment therapy for TBI/concussion. This notwithstanding, there is currently no medically accepted standard drug protocol for TBI.

 

More established companies may have a competitive advantage over us due to their greater size, capital resources, cash flows and institutional experience. Compared to us, our competitors may have significantly greater financial, technical and human resources at their disposal. As a result of these factors, competitors may have an advantage in marketing their approved products and may obtain regulatory approval of their product candidates before we can, which may limit our ability to develop or commercialize its product candidates. Competitors may also develop drugs that are safer, more effective, more widely used and less expensive, and may also be more successful in manufacturing and marketing their products. These advantages could materially impact our ability to develop and commercialize our Combination Therapy.

 

Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific, management and commercial personnel, establishing clinical trial sites and subject registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

 

Future Developments

 

Our Combination Therapy is currently in pre-clinical study and is undergoing animal testing. During the pre-clinical phase, we will apply to the FDA for an investigational new drug (“IND”) which, if granted, would permit us to begin human testing. Depending upon the results of the pre-clinical trials and the data collected, the FDA could grant the IND or it could reject the IND application.

 

In the event that the IND is granted, we will commence the clinical trial phase of the testing, which will include testing on human subjects. This testing process if broken into various phases, with the first phase, Phase 1, focusing on safety; with Phase 2 and 3 thereafter focusing on efficacy issues.

 

We are also preparing to move forward on other drug candidates including for the treatment of gastro-intestinal inflammatory issues using the our existing drug combination. We filed US Provisional Patent Application No. 62-242-469 Methods and Compositions for Treating Gastrointestinal Inflammation on October 16, 2015. Our patent application utilizes a drug combination approach to treating gastrointestinal inflammation and/or immune responses associated with gastrointestinal inflammation. Under our patent application, some methods and compositions include the use of CBD, which acts as a CB2 receptor agonist and presents a broad range of anti-inflammatory and immune inhibitory effects. In addition to the use of CBD, our patent application, allows for multiple combinations some of which allow for the administration of a second composition comprising of an NMDA receptor antagonist and/or a FAAH inhibitor as a combined drug regime.

 

Proprietary Protections

 

On October 16, 2015, we filed US Patent Application No. 62-242-457 Methods for Treating Traumatic Brain Injury. The proprietary methodology forming the basis of our patent application utilizes a combination of approaches to inhibit both the inflammation and the immune system responses that are initiated by the body upon the occurrence of a concussion or other traumatic brain injury. Our patent application focuses on using two or more alternative therapies in combination in order to combat the injury resulting from such inflammation and the immune systems response. See also above “Proprietary Methodology”.

 

 31 
 

 

Pursuant to the terms of the University of Miami Research Agreement, any inventions and discoveries conceived and reduced to practice, and any application for patent or patent granted therefore, is exclusively our property.

 

On October 16, 2015, we filed US Provisional Patent Application No. 62-242-469 Methods and Compositions for Treating Gastrointestinal Inflammation. The proprietary methodology forming the basis of our patent application utilizes a combination of methods and compositions for treating gastrointestinal inflammation in subjects suffering from a range of gastrointestinal ailments, such as gastritis, esophagitis, and/or colitis, inflammatory bowel disease, Crohn’s disease, ulcerative colitis, and irritable bowel syndrome.

 

MEDICAL MARIJUANA PRODUCTION

 

In addition to our principal line of business, being the development of a proprietary cannabinoid-based method for the treatment of concussions and traumatic brain injury (and efforts to develop other drugs), our indirect wholly-owned Canadian subsidiary, Go Green, is in the process for applying to Health Canada to become a licensed producer under the ACMPR. This license would allow Go Green to grow, sell and potentially distribute medical marijuana within Canada. Go Green’s application to become a licensed producer was submitted on January 18, 2014. The ACMPR licensing process includes multiple stages (although the process is periodically changed as the regulatory structure develops or is altered), including: preliminary screening, enhanced screening, security clearance, review, pre-license inspection and licensing. Go Green’s application is currently at the security stage.

 

The principal purpose and benefit to us of a potential license to produce under the ACMPR is to provide us with a secondary stream of revenue, if successful, and to provide us with direct access to a supply of marijuana in furtherance of our future research and development objectives. Companies that have obtained licenses have also had a significant sale/acquisition value in the past.

 

License Application

 

Go Green’s licensing application has been pending in excess of 2 years and Go Green is awaiting security approval of its application, which is necessary prior to moving to the next step in the licensing process. At this time it is not known how long Go Green’s licensing process will take or whether or when Go Green’s license will ultimately be granted. Notwithstanding, Go Green has not received a negative decision from Health Canada on its application and the application remains pending. Go Green is optimistic that it has complied with all of the licensing requirements.

 

Production Facility

 

On or about June 11, 2015, Go Green, our indirect subsidiary, acquired a lease to the 7554 square foot production facility located in Kelowna, British Columbia (the “Production Facility”). The Production Facility is currently being subleased to a licensed producer under the Marihuana Medical Access Regulations (the “MMAR”). We have the right to terminate the sublease and retake possession of the premises upon three months’ notice. In the interim, we have passed along all operating and maintenance costs of the Production Facility to the subtenant.

 

In the event that the ACPMR licensing is granted to Go Green, we will need to complete various improvements at the Production Facility to comply with ACPMR operating requirements. We estimate that these improvements will cost between $700,000 to $1.5 million to complete.

 

Agreements relating to Research and Development

 

Other than our collaborative research agreement dated July 25, 2016, as amended February 10, 2017, with the University of Miami’s UConcussion Program, we are not a party to any other agreements for research and development purposes or the development of the gastrointestinal business.

 

Medical Marijuana

 

Medical Marijuana (meaning the use of cannabis to treat disease or improve symptoms such as pain, muscle spasticity, nausea and other indications) can be administered using a variety of methods including, but not limited to, vaporizing or smoking dried buds, capsules, and oral/dermal sprays, and can also be ingested as oil or cannabis edibles. Unlike the pharmaceutical options, individual elements within Medical Marijuana have not been isolated, concentrated and synthetically manipulated to deliver a specific therapeutic effect. Currently, the most common means of administering Medical Marijuana in Canada is by smoking dried buds.

 

 32 
 

 

Sativa and Indica are the two main types of cannabis, and hybrid strains can be created when the genetics of each are crossed. Within these different types of cannabis there are many different varieties, within which there are many different cannabinoids, with the most common being THC, the psychoactive ingredient, and CBD, which is responsible for many of the non-psychoactive effects of Medical Marijuana.

 

Under the current regulatory framework in Canada, medical marijuana can be legally obtained by a patient with a doctor’s prescription, with such prescriptions being placed with one of the licensed suppliers.

 

Licensed Producers and Patients

 

As of the date of this registration statement, Health Canada has issued approximately 52 licenses to produce cannabis under the ACMPR. As of March 31, 2017, there were a total of 167,754 patients registered with the licensed producers, indicating a growth rate of approximately 31% quarter over quarter. According to Health Canada, the total number of patients in the ACMPR or successor programs is expected to reach approximately 450,000 by 2024. A full list of licensed producers can be found on Health Canada’s website at www.canada.ca/health-canada.

 

Regulatory Process

 

Securing final regulatory approval for the manufacture and sale of human therapeutic products in the U.S., Europe, Canada and other commercial territories, is a long and costly process that is controlled by that particular territory’s national regulatory agency. The national regulatory agency in the United States is the Food and Drug Administration (“FDA”), in Canada it is Health Canada (“HC”), and in Europe it is the European Medicines Agency, or EMA. Other national regulatory agencies have similar regulatory approval processes, but each national regulatory agency has its own approval processes. Approval in U.S., Canada or Europe does not assure approval by other national regulatory agencies, although often test results from one country may be used in applications for regulatory approval in another country.

 

U.S. Approval Process

 

In the U.S., the FDA, a federal government agency, is responsible for the drug approval process. The FDA’s mission is to protect human health by ensuring that all medications on the market are safe and effective. The FDA’s approval process examines potential drugs and only those that meet strict requirements are approved.

 

The U.S. food and drug regulations require licensing of manufacturing facilities, carefully controlled research and testing of products, governmental review and approval of test results prior to marketing of therapeutic products, and adherence to cGMP. The drug approval process begins with the discovery of a potential drug. Pharmaceutical companies then test the drug extensively. A description of the different stages in the drug approval process in the U.S. follows.

 

Stage 1: Preclinical Research. After an experimental drug is discovered, research is conducted to help determine its potential for treating or curing an illness. This is called preclinical research. Animal studies are conducted to determine if there are any harmful effects of the drug and to help understand how the drug works. Information from these experiments is submitted in an IND application to the FDA for review, to decide if the drug is safe to proceed for study in humans.

 

Stage 2: Clinical Research. In Stage 2, the experimental drug is studied in humans in clinical trials. Clinical trials are carefully designed and controlled experiments in which the experimental drug is administered to patients to test its safety and to determine the effectiveness of an experimental drug. The four general phases of clinical research are described below.

 

Phase I. Phase I includes the initial introduction of an investigational new drug into humans. Phase I studies are typically conducted in patients or healthy volunteer subjects. These studies are designed to determine the metabolism and pharmacologic actions of the drug in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness. During phase I, sufficient information about the drug’s pharmacokinetic and pharmacological effects is obtained to permit the design of well-controlled, scientifically valid, phase II studies. Phase I studies also include studies of drug metabolism, structure-activity relationships, and mechanism of action in humans, as well as studies in which investigational drugs are used as research tools to explore biological phenomena or disease processes.

 

 33 
 

 

Phase II. Phase II includes the controlled clinical studies to evaluate the effectiveness of the drug for a particular indication or indications in patients with the disease or condition under study and to determine the common short-term side effects and risks associated with the drug.

 

Phase III. Phase III studies are expanded controlled and uncontrolled trials. They are performed after preliminary evidence suggesting effectiveness of the drug has been obtained, and are intended to gather the additional information about effectiveness and safety that is needed to evaluate the overall benefit-risk relationship of the drug and to provide an adequate basis for physician labeling.

 

Phase IV. Phase IV studies are undertaken after the drug or treatment has been marketed to gather information on the drug’s effect in various populations and any side effects associated with long-term use.

 

Stage 3: FDA Review for Approval. Following Phase III, the pharmaceutical company prepares reports of all studies conducted on the drug and a complete dossier on the manufacturing of the product and submits the reports to the FDA in a New Drug Application, or NDA or BLA. The FDA reviews the information in the NDA/BLA to determine if the drug is safe and effective for its intended use. If the FDA determines that the drug is safe and effective, the drug will be approved.

 

Stage 4: Marketing. After the FDA has approved the drug, the pharmaceutical company can make it available to physicians and their patients. A company may also continue to conduct research to discover new uses for the drug. Each time a new use for a drug is discovered, the drug is once again subject to the entire FDA approval process before it can be marketed for that purpose.

 

Manufacturing and Supply

 

Our ability to compete and grow cannabis is dependent on our having access, at a reasonable cost and in a timely manner, to skilled labor, equipment, parts and CBD components. There can be no assurance that we will be successful in maintaining our required supply of skilled labor, equipment, parts and components.

 

We rely on third parties to reply the materials for and manufacturer the research and development of our product candidates. We cannot provide assurance that the supply of research and development, preclinical and clinical development drugs and other materials will not be limited, interrupted, restricted in certain geographic regions, be of satisfactory quality or be delivered in a timely manner. For the purposes of conducting clinical human trials, the constituent products of the Combination Therapy must be produced by a Good Manufacturing Practices (“GMP”) manufacturer. If we are unable to obtain constituent parts of the Combination Therapy produced by a GMP manufacturer, we may be restricted from conducting or completing clinical trials which would have a materially adverse effect on our business and operations.

 

Manufacturers of therapeutic products and their facilities are subject to review and periodic inspections by the FDA, the European Medicines Agency and other comparable regulatory authorities for compliance with regulations. Manufacturers of controlled substances must obtain and maintain necessary Drug Enforcement Agency and state registrations and registrations with applicable foreign regulatory authorities. Manufacturers of controlled substances must establish and maintain processes to ensure compliance with Drug Enforcement Agency and state registrations and requirements of applicable foreign regulatory authorities governing, among other things, the storage, handling, security, record keeping and reporting for controlled substances. If there are issues with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product, the manufacturing facility or us, including requiring a recall or withdrawal of the product from the market or suspension of manufacturing. The occurrence of problems with a facility may inhibit the our ability to commercialize the product candidates and may otherwise have a material adverse effect on the business, financial condition and results of operations.

 

Seasonality

 

We have not had revenue in since our inception. We do not expect our business to be affected by seasonality. The amount and timing of expenditures and therefore liquidity and capital resources vary substantially from period to period depending on the number of research and development programs being undertaken at any one time, the stage of the development programs, the timing of significant expenditures for manufacturing, toxicology and pharmacology studies and clinical trials, and the availability of funding from investors and prospective commercial partners.

 

 34 
 

 

Raw Materials

 

At the current stage, the Company does not hold or purchase any raw materials. As required for its research, the University of Miami will procure raw materials.

 

Plan of Operations

 

Over the next 12-18 months, our primary focus is to continue our research through the University of Miami and to conduct research and development of other possible drug candidates. We also will continue to pursue Go Green’s licensed producer application through the ACMPR, and when deemed appropriate, work on the build out of the Production Facility so that it complies with the operating requirements of the ACMPR.

 

C. Organizational Structure

 

We have one wholly-owned subsidiary, SBI, which was incorporated under the Federal laws of Canada on July 9, 2014 under the name “Valens Agritech Canada Inc.” On April 16, 2015, SBI filed a Certificate of Amendment to change its name to “Spartan Cannabis Corp.” On October 20, 2015, SBI filed a Certificate of Amendment to change its name to “Scythian Biosciences Inc.” SBI is the entity through which we conduct our business operations. The office address of SBI is 200-366 Bay St., Toronto, ON, M5H 4B2.

 

We have one indirect subsidiary, Go Green, which was incorporated under the laws of the Province of British Columbia on December 1, 2013. Go Green is the wholly-owned subsidiary of SBI, which SBI acquired on June 11, 2015.

 

D. Property, Plant and Equipment

 

We perform research and development in the University of Miami facility through our research agreement. We incur capital expenditures mainly for laboratory equipment, office equipment, computer equipment and leaseholds in the operation of our business. Through our indirect subsidiary Go Green, we own leasehold improvements and other machinery and equipment that upon receipt of license will be used in the production of Medical Marijuana. If Go Green passes its enhanced security clearance under the ACMPR, we may build out the Production Facility as to ensure compliance with the operating requirements of the ACMPR to continue to work towards becoming a fully licensed producer. We estimate this to cost $700,000 to $1.5 million.

 

ITEM 4A. UNRESOLVED STAFF COMMENTS

 

Not Applicable.

 

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

The following discussion, prepared as of April 20, 2017, should be read in conjunction with our consolidated financial statements and related notes thereto, as well as our pro forma financial statements and related notes thereto, included in this Registration Statement on Form 20-F. This discussion contains “forward-looking statements” made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act and the Private Securities Litigation Reform Act of 1995. These statements are not historical in nature and involves risks and uncertainties. Forward-looking statements are not guarantees as to the Company’s future results as there are inherent difficulties in predicting future results. Accordingly, actual results could differ materially from those expressed or implied in the forward looking statements.

 

Our financial statements included in this Registration Statement were prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

All figures are in Canadian dollars unless stated otherwise.

 

See “Item 17. Financial Statements” and the notes to the financial statements included as part of this registration statement for a discussion of the significant accounting policies and significant estimates and judgments required to be made by management.

 

Scythian Biosciences Corp.

 

Prior to the Business Combination, Scythian operated under the name “Kitrinor Metals Inc.” as a junior mining exploration company in the acquisition, exploration and development of mineral resource properties in Canada. In January 2017, we divested ourselves of our mineral properties and had been focusing on identifying and evaluating businesses and assets with a view to completing a transaction to enhance shareholder value.

 

 35 
 

 

On August 1, 2017, we effectuated the Business Combination whereby SBI became our wholly-owned subsidiary, and we began operating as a life sciences company engaged in the research, development and commercialization of cannabinoid-like compounds. Our subsidiary, Go Green, is currently pursuing its application to become a licensed producer under the ACMPR.

 

Overall Performance

 

As at December 31, 2016, we had a working capital deficiency of $14,866 (2015 – $440,792). For the year ended December 31, 2016, our cash and cash equivalent position increased by $2,594 to $2,874 from $280 as compared to December 31, 2015.

 

For the year ended December 31, 2016, our exploration and evaluation expenditures decreased by $472,477 from December 31, 2015, due to the write down of the Culroc Property for a cumulative total of $448,085.

 

A. Operating Results

 

Review of Operations

 

Three Month Periods Ended March 31, 2017 and 2016

 

We incurred a net loss of $12,438 or $0.00 a share for the three month period ended March 31, 2017, compared to $13,561 or $0.00 a share for the same period ended March 31, 2016.

 

Legal and audit fees were $3,500 for the three months ended March 31, 2017, as compared to $2,500 for the three month period ended March 31, 2016. The increase is related to the fees incurred for proposed transaction. These fees relate to routine professional services such as legal advice and the accrual audit fees.

 

General and administrative expenses for the three months ended March 31, 2017 were $823 as compared to $4,086 for the comparable period. The change is due to the accrual of interest on the loan payable in the previous year period and an adjustment in bank service charged in error in the current year period.

 

Year Ended December 31, 2016 and 2015

 

We incurred a net loss of $72,074 or $0.015 a share for the year ended December 31, 2016, compared to $125,470 or $0.052 a share for the same period ended December 31, 2015.

 

Legal and audit fees were $33,307 for the year ended December 31, 2016, as compared to $16,166 for the year ended December 31, 2015. The increase is related to the fees incurred for proposed transaction. These fees relate to routine professional services such as legal advice and the accrual audit fees.

 

General and administrative expenses for the year ended December 31, 2016 were $17,175 as compared to $25,554 for the comparable period. The change is due to a write-down of uncollectible receivables in the previous year period and an increase of the accrual of interest on the loan payable in the current year period. The Company continues to curtail their expenses.

 

Management and consulting fees for the year ended December 31, 2016 were $NIL as compared to $60,000 for the comparable period. The Company has discontinued the accrual of management fees.

 

Total exploration and evaluation decreased by $472,477 from December 31, 2015 due to the write down of the Culroc Property for a cumulative total of $448,085.

 

 36 
 

 

Summary of Quarterly Results

 

The following table shows selected results by quarter for the last eight quarters.

 

   2017   2016   2015 
   Q1   Q4   Q3   Q2   Q1   Q4   Q3   Q2 
Total expenses  $12,438   $34,497   $8,966   $15,050   $13,561   $29,474   $30,523   $35,740 
Net earnings (loss)  $(12,438)  $(34,497)  $(8,966)  $(15,050)  $(13,561)  $(29,474)  $(30,523)  $(35,740)
Net earnings (loss) per share - Basic   (0.00)   (0.01)   (0.00)   (0.00)   (0.00)   (0.012)   (0.01)   (0.01)

 

Risks

 

There are certain risk factors that could have material effects on our operations that are not quantifiable at present due to the nature of our industry segment and other considerations. For a discussion of risk factors, see “Item 3.D Risk Factors.”

 

Scythian Biosciences Inc.

 

Three Month Periods Ended March 31, 2017 and 2016

 

During the three months ended March 31, 2017, a net loss of $1,315,402 was incurred compared on a net loss of $813,791 for the three months ended March 31, 2016. The main reason for the increase was due to an increase in research and development costs of $581,720 as the SBI had signed the research agreement with the University of Miami. There was also an increase in professional fees of $121,523 which was a result of work associated with preparing for a go-public transaction on the TSXV.

 

Year Ended March 31, 2017 and 2016

 

During the year ended March 31, 2017, a net loss of $2,976,064 was incurred compared to a loss of $3,058,535, for the year ended March 31, 2016, which is a reduction of $82,471. The key reason for the reduction was due to a reduction in salaries and wages from $1,932,883 in 2016 compared to $1,083,941 in 2017, a reduction of approximately $848,942, as SBI focused on cutting its costs while it had limited operations.

 

SBI also had a reduction in consulting fees of from $454,554 in 2016 compared to $175,663 in 2017, a reduction of $278,891 as a result of certain one-time expenditures incurred during 2016 related to the acquisition of Go-Green. These reductions were offset by an increase in research and development costs of $1,038,020, which was a result of singing the research agreement with the University of Miami.

 

Summary of Quarterly Results

 

The following table shows selected results by quarter for the last six quarters.

 

   March 31,
2017
   December 31,
2016
   September 30,
2016
   June 30,
2016
   March 31,
2016
   December 31,
2015
 
   $   $   $   $   $   $ 
Total revenue   -    -    -    -    -    - 
Net loss   (1,315,402)   (735,766)   (461,458)   (463,439)   (721,298)   (497,884)
Income per share, basic and fully diluted   (0.74)   (1.62)   (1.06)   (1.02)   (1.63)   (1.16)
Total assets   2,732,335    869,700    921,814    1,030,135    1,204,421    1,407,279 
Long-term liabilities   -    -    -    -    -    - 
Working capital (deficiency)   41,336    (1,011,448)   (1,050,482)   (757,244)   (456,430)   (101,984)
Dividends   -    -    -    -    -    - 

 

B. Liquidity and Capital Resources

 

Since inception, we have financed our operations primarily from sales of equity, proceeds from the exercise of warrants and stock options, and from interest income on funds available for investment. Our primary capital needs are for funds to support our scientific research and development activities including manufacturing, preclinical and clinical trials, administrative costs and for working capital.

 

 37 
 

 

We currently do not generate any revenue, and we expect that we will need to raise additional funds through debt or equity financing. If additional funds are raised through the issuance of equity securities, the percentage ownership of our current shareholders will be reduced and such equity securities may have rights, preferences, or privileges senior to those of the holders of our common shares. There can be no assurance, however, that additional financing will be available, or that we can obtain such financing on terms acceptable to us or our shareholders.

 

C. Research and Development, Patents and Licenses, etc.

 

Following effectiveness of the Business Combination on August 1, 2017, we began operating as a life sciences corporation, which included the Combination Therapy and TBI preclinical programs.

 

During the year ended March 31, 2017, SBI incurred research and development expenditures of $1,038,020, all of which were related to funding the University of Miami Agreement. SBI also incurred an additional $14,290 related to the filing of patents. Prior to the year ended March 31, 2017, no research and development expenditures were incurred.

 

D. Trend Information

 

There are no trends, commitments, events or uncertainties presently known or identifiable to management that are reasonably expected to have a material effect on the Company’s business, financial condition or results of operations. The nature of our business is demanding of capital for research, development and commercialization of our product candidates. We intend to utilize cash on hand to meet these obligations and will continue to raise funds by equity financings as necessary to augment our cash position, as we currently do not generate any revenue or have any operating cash flow.

 

E. Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

F. Tabular Disclosure of Contractual Obligations

 

Other than as disclosed below, we did not have any contractual obligations relating to long-term debt obligations, capital (finance) lease obligations, operating lease obligations, purchase obligations or other long-term liabilities reflected on our balance sheet as at December 31, 2016:

 

    Payments due by period (US$) 
Contractual Obligations   Total    Less than 1
Year
    

1 to 3
Years

    

3 to 5
Years

    

More than
5 Years

 
Long-Term Debt Obligations   -    -    -    -    - 
Capital (Finance) Lease Obligations   -    -    -    -    - 
Operating Lease Obligations   -    -    -    -    - 
Purchase Obligations(1)   US$19,215,000    US$5,025,000    US$10,320,000    US$3,870,000    - 
Other Long-Term Liabilities Reflected on our Balance Sheet   -    -    -    -    - 
Total   -    -    -    -    - 

 

Notes:

 

  (1) All amounts relate to the University of Miami Research Agreement, as amended.

 

 38 
 

 

ITEM 6. DIRECTORS, SENIOR MANAGEMENT & EMPLOYEES

 

A. Directors and Senior Management

 

The following table and summary of business experience set forth the name, office held, and functions and areas of experience in the Company, principal business activities and other principal directorships of each of our Directors and senior management as of the date of this registration statement on Form 20-F. All of our directors and senior management may be contracted at our principal executive office located at 200-366 Bay St., Toronto, Ontario, M5H 4B2, Canada.

 

 

Name

Present Office Held

 

Position

  Held  Since (3)

 

Principal Business Activities and

Other Principal Directorships

Jonathan Gilbert

Director and Chief Executive Officer

 

  August 1, 2017   CEO and founder of Scythian Biosciences Inc.

Jonathan Held

Chief Financial Officer

 

  August 1, 2017  

Chartered Professional Accountant, Chartered Accountant

Director of Goldstream Minerals Inc. (NEX) and Signature Resources Ltd. (TSXV)

         

David Schrader

Chief Operating Officer

  August 1, 2017   Managing Partner Schrader & Schoenberg LLP; Partner Moritt Hock & Hamroff LLP; COO Scythian Biosciences Inc.
         

Peter Benz(1)(2)

Director

  August 1, 2017   Chairman of Viking Asset Management LLC and of Optex Systems, Inc., Director of uSell.com (OTC), (OTC), Cogint, Inc. (NASDAQ) and Lilis Energy, Inc. (NASDAQ)
         

Michael Petter(1)(2)

Director

  August 1, 2017  

CEO of Eyvo eProcurement Solutions

 

         

Roger Rai(1)

Director

  August 1, 2017  

Vice-President, Business Development of Peeks Social Ltd.

Director of Breaking Data Corp. (TSXV)

         

Gary Leong(2)

Director

  August 1, 2017  

Chief Scientific Officer of Aphria Inc., a Health Canada Licensed Producer of medical cannabis products. President of Neautrical Solutions Inc.

Director of Kalytera Therapeutics Inc. (TSXV)

 

Notes:

 

  (1) Member of our Audit Committee.
  (2) Member of our Compensation Committee.
  (3) The terms of all directors will expire on the date of the first annual meeting of the shareholders.

 

Summary of Business Experience and Functions within the Company

 

Jonathan Gilbert – Age: 46 – CEO, Chairman and Director

 

Mr. Gilbert’s professional experience spans two decades of corporate finance and technology start-up development. In addition to his position as Chief Executive Officer and director of Scythian Biosciences Inc., Mr. Gilbert is business development manager at Decision Nutrition, a multimedia nutrition consultancy company founded by his wife, Keren Gilbert. Prior to founding Scythian Biosciences Inc., served as President of New York-based Gilbert Capital Management Corp. for 14 years. Mr. Gilbert received his Bachelor of Business Administration from The George Washington University (BBA) and a Masters of Business Administration from Kennedy Western University (MBA). Mr. Gilbert lives in Roslyn Heights, NY, with his wife and their three sons.

 

 39 
 

 

Jonathan Held – Age: 32 - Chief Financial Officer

 

Mr. Held is a chartered professional accountant, chartered accountant, with CFO level experience with both private and public companies. Mr. Held has worked with a number of start-up companies in a number of sectors including technology, real estate and resources, both domestic and international. Mr. Held has been involved in numerous successful public market transactions including Initial Public Offerings, Reverse Takeovers and financings. Mr. Held holds a Bachelor of Mathematics and Masters of Accounting from the University of Waterloo.

 

David Schrader – Age 53– Chief Operating Officer

 

Mr. Schrader has been a practicing business lawyer and consultant for over 29 years and is the developer and inventor of the Company’s drug therapy. Mr. Schrader is currently a partner at the law firm of Moritt Hock & Hamroff LLP. In addition to his private legal practice, Mr. Schrader has previously been general counsel and principal for Laconia Capital, a FINRA licensed broker dealer; general counsel and V.P. of strategic management of K-Tex, LLC, a Chinese trading company. Mr. Schrader holds numerous educational credentials, including an LLM in Business Transactions from the University of Alabama School of Law; a Masters in Global Management from the Thunderbird School of Global Management; both an MBA and Masters in Strategic Management from the Kelley School of Business, Indiana University; a J.D. degree from the Benjamin N. Cardozo School of Law; and a Bachelors in Biology, emphasizing in cell and molecular biology and biochemistry, from Johns Hopkins University. Mr. Schrader’s credentials also include certification programs in Supply Chain Management (Kelley School of Business); Chief Sustainability Officer Training (SSC); Management Practices (Freeman School of Business, Tulane University); and Bioethics (Albert Einstein School of Medicine)

 

Michael Petter – Age: 53 - Director

 

Mr. Petter is the CEO of Evyo eProcurement Solutions, an international San Francisco based software development company that specializes in SaaS based supply chain management workflow tools. A native of London England, Mr. Petter has a personal background in software development and strategic management with special focus on product marketing and customer satisfaction. Mr. Petter is recognized as a leader in the field of automated supply chain management solutions and is an invited speaker at seminars and regularly consults for private and public companies and elements of the Government. Mr. Petter has been a non-executive board member of SBI since inception and also acts as a non-executive board member and mentor to founders in early stage startups. Mr. Petter has a Bachelor’s of Computer Science from London University, is a past Fellow of The Institute of Analysts & Programmers, member of the British Computer Society, Institute of Directors and is a Chartered Engineer.

 

Peter Benz – Age: 57 - Director

 

Mr. Benz is a serial entrepreneur who has founded, invested and grown numerous companies in a cross-section of industry sectors. Mr. Benz has significant experience managing and directing both private and public companies and currently serves as director and audit committee member of Cogint Inc. (Nasdaq), Lilis Energy Inc. (Nasdaq) and uSell.com Inc. (OTC). Mr. Benz is also currently involved with Viking Asset Management LLC a privately owned hedge fund sponsor investing in the public equity and alternative investment markets, where he has served as Chairman since 2002. Mr. Benz received his Bachelor of Business Administration (BBA) from the University of Notre Dame, USA in 1982.

 

Roger Rai – Age: 48 - Director

 

Mr. Rai is the Managing Director of E. S. Rogers Enterprises and President of R3 Concepts Inc. As Managing Director at E.S. Rogers, Mr. Rai advises Edward Rogers on business, revenue, partnership and talent development. Mr. Rai was previously the Vice-President of Business Development of Peeks Social Ltd., a TSXV listed company operating Keeks.com, a social networking service focusing on video content. Mr. Rai has managed and directed both private the public companies, having been a director for Sustain Co. Inc. (SMS), Pintree Capital Ltd. (PNP) and The Mint Corporation. Mr. Rai has significant experienced in the digital and telecommunications markets, having held various managerial positions. Mr. Rai is the founder and a director of the ONEXONE foundation, a charitable organization focused on global child welfare. Born and raised in Toronto, Ontario, Mr. Rai received his Bachelor of Arts (BA) from the University of Western Ontario.

 

Gary Leong – Age: 52 - Director

 

Mr. Leong is the Chief Scientific Officer of Aphria Inc., a Health Canada Licensed Producer of medical cannabis products. Mr. Leong has a personal background in quality assurance, quality control, quality system audits, international and domestic regulatory affairs and product research and development. Mr. Leong currently is the president of Neautrical Solutions Inc. located in Surrey, British Columbia. Prior to that, he was the Chief Scientific Officer at Jamieson Laboratories Limited. He began at Jamieson in the year 2000 as the Vice President of Scientific and Technical Affairs. He also held the position of Quality Control Manager at Boehringer Ingelheim Consumer Products: Quest Vitamins and Development Officer at Atomic Energy of Canada: Radiochemical Company. Mr. Leong’s educational background began with a Bachelor of Science in Chemistry and has taken him most recently to an MBA in Quality Management from City University of Bellevue Washington. Mr. Leong is currently affiliated with The Life Sciences Working Team of Windsor-Essex Economic Development Corporation. In the past, he was a member of the Natural Health Products Directorate Program Advisory Committee and a board member of the Ontario Ginseng Innovation and Research Consortium.

 

 40 
 

 

Family Relationships

 

There are no family relationships among our directors and senior management.

 

Other Arrangements

 

There are no arrangements or understanding with major shareholders, customers, suppliers or others, pursuant to which any person referred to above was selected as a director or member of senior management.

 

B. Compensation

 

Compensation of Directors

 

Prior to the Business Combination and during our last full financial year, Directors of Scythian did not receive any compensation for attending meetings of the Board, committees of the Board, and shareholders meetings. In addition, other than stock options to purchase Common Shares which were granted to the Directors from time to time, we did not have any arrangements pursuant to which directors were remunerated by us for their services in their capacities as directors, consultants or experts.

 

Prior to the Business Combination and during its last full financial year, Directors of SBI received compensation as follows:

 

Director  Fees Paid as of March 31, 2017 
Allen Cohen  $6,000 
Jerome Gilbert  $3,000 
Michael Petter  $6,000 
Total  $15,000 

 

Upon completion of the Business Combination on August 1, 2017, we granted each of our non-executive Directors 25,000 DSUs (as defined below).

 

Compensation of Named Executive Officers

 

Principles of Executive Compensation

 

The Company believes in linking an individual’s compensation to his or her performance and contribution as well as to the performance of the Company as a whole. The primary components of the Company’s executive compensation are base salary and option-based awards. The Board believes that the mix between base salary and incentives must be reviewed and tailored to each executive based on their role within the organization as well as their own personal circumstances. The overall goal is to successfully link compensation to the interests of the shareholders. The following principles form the basis of the Company’s executive compensation program:

 

  1. align interest of executives and shareholders;
  2. attract and motivate executives who are instrumental to the success of the Company and the enhancement of shareholder value;
  3. pay for performance;
  4. ensure compensation methods have the effect of retaining those executives whose performance has enhanced the Company’s long term value; and
  5. connect, if possible, the Company’s employees into principles 1 through 4 above.

 

 41 
 

 

The Board is responsible for the Company’s compensation policies and practices. The Board has the responsibility to review and make recommendations concerning the compensation of the directors of the Company and the Named Executive Officers. The Board also has the responsibility to make recommendations concerning annual bonuses and grants to eligible persons under the Stock Option Plan. The Board also reviews and approves the hiring of executive officers.

 

Base Salary

 

The Board approves the salary ranges for the Named Executive Officers. At the current stage of the Company’s development, salaries have been determined by Board discussion without any formal targeted objectives. Going forward, the base salary review for each Named Executive Officer will be based on assessment of factors such as current competitive market conditions, compensation levels within the peer group and particular skills, such as leadership ability and management effectiveness, experience, responsibility and proven or expected performance of the particular individual. Comparative data for the Company’s peer group will also be accumulated from a number of external sources including independent consultants. The Company’s policy for determining salary for executive officers is consistent with the administration of salaries for all other employees.

 

Annual Incentive

 

The Company is not currently awarding any annual incentives by way of cash bonuses. However, the Company, in its discretion, may award such incentives in order to motivate executives to achieve short-term corporate goals. The Board approves annual incentives.

 

The success of Named Executive Officers in achieving their individual objectives and their contribution to the Company in reaching its overall goals are factors in the determination of their annual bonus. The Board assesses each Named Executive Officers’ performance on the basis of his or her respective contribution to the achievement of the predetermined corporate objectives, as well as to needs of the Company that arise on a day to day basis. This assessment is used by the Board in developing its recommendations with respect to the determination of annual bonuses for the Named Executive Officers.

 

Compensation and Measurements of Performance

 

It is the intention of the Board to approve targeted amounts of annual incentives for each Named Executive Officer at the beginning of each financial year. The targeted amounts will be determined by the Board based on a number of factors, including comparable compensation of similar companies.

 

Achieving predetermined individual and/or corporate targets and objectives, as well as general performance in day to day corporate activities, will trigger the award of a bonus payment to the Named Executive Officers. The Named Executive Officers will receive a partial or full incentive payment depending on the number of the predetermined targets met and the Board’s assessment of overall performance. The determination as to whether a target has been met is ultimately made by the Board and the Board reserves the right to make positive or negative adjustments to any bonus payment if they consider them to be appropriate.

 

Long Term Compensation

 

Deferred Share Unit Plan

 

Following shareholder approval on May 31, 2017 and completion of the Business Combination on August 1, 2017, we implemented our Deferred Share Unit Plan (the “DSU Plan”). The purpose of the DSU Plan is to strengthen the alignment of interests between the DSU Participants (as defined below) and shareholders by linking a portion of annual compensation to the future value of our common shares. In addition, the DSU Plan is intended to advance our business operations and to motivate, attract and retain our officers, directors and employees of our and our subsidiaries’ directors, officers and employees. We believe that our DSU Plan will aid in attracting, retaining and encouraging director, officer and employee commitment and performance due to the opportunity offered to them to receive compensation in line with the value of our common shares.

 

Pursuant to the DSU Plan, our board of directors may, from time to time, in its discretion and in accordance with the TSXV requirements, grant to our directors, officers and full-time employees (the “DSU Participants”), DSUs representing the right of the DSU Participant to receive one previously unissued share of our common stock or cash equivalent (a “DSU Payment”) for each whole vested DSU held by such DSU Participant.

 

 42 
 

 

The maximum aggregate number of common shares that may be issued under the DSU Plan shall not exceed 200,000 provided further that the aggregate number of common shares issuable under the DSU Plan, combined with any other security-based compensation plan, including our incentive stock option plan, shall not exceed 10% of the then issued and outstanding common shares at the DSU Grant Date (defined below).

 

Subject to the terms of the DSU Plan and our compensation policies, the number of DSUs to be granted and issued to each DSU Participant on each date on which DSUs are granted (the “DSU Grant Date”) shall be calculated by reference to (i) the dollar amount of the DSU Participant’s remuneration as determined by our board of directors for the year that will be satisfied by such DSUs, and (ii) the last closing price of our common shares immediately prior to the relevant DSU Grant Date. Our Board may, subject to applicable securities laws, also make additional determinations from time to time with respect to the number of DSUs to be issued, and the DSU Grant Date of DSUs to new DSU Participants appointed or hired from time to time, as the case may be. On each DSU Grant Date, we will issue to such DSU Participant, without any further action being required by any of them, such number of DSUs as determined by our board of directors.

 

Upon a DSU Participant’s death, or retirement from, or loss of office or employment with us (the “Termination Date”), we shall satisfy the DSU Payment for such DSU Participant by either (i) issuing to such DSU Participant one of our common shares for each vested outstanding DSU held by such DSU Participant on such relevant Termination Date, or (ii) paying an amount in cash equivalent to the number of outstanding DSUs held by such DSU Participant multiplied by the last closing price of our common shares immediately prior to the Termination Date for such DSU Participant, subject to applicable deductions. Where DSUs have been granted to a DSU Participant with reference to his or her remuneration for a year, in the event such DSU Participant resigns or is otherwise no longer eligible under the DSU Plan, as the case may be, during that year, such DSUs will only partially vest and the DSU Participant will only be entitled to a pro-rated DSU Payment in respect of such DSUs.

 

The aggregate number of our common shares issuable to all DSU Participants retained to provide activities, by or on behalf of us or our shareholders, that promote or could reasonably be expected to promote the sale of our securities pursuant to the DSU Plan (or any other security-based compensation plans, including our stock option plan) must not exceed 2% of the issued and outstanding Resulting Issuer Shares in any 12 -month period, calculated at the DSU Grant Date. In addition, unless we have received disinterested shareholder approval to do so, (i) the aggregate number of our common shares issuable to insiders under the DSU Plan (or any other security-based compensation plans, including the Resulting Issuer’s stock option plan) shall not exceed 10% of our outstanding common shares at the DSU Grant Date; (ii) the aggregate number of our common shares issuable to insiders in any 12-month period under the DSU Plan (or any other security-based compensation plans, including the Resulting Issuer’s stock option plan) shall not exceed 10% of our outstanding common shares at the DSU Grant Date; and (iii) the aggregate number of our common shares issuable to any one DSU Participant pursuant to the DSU Plan (or any other security-based compensation plans, including our stock option plan) in a 12 month period must not exceed 5% of the issued and outstanding Resulting Issuer Shares, calculated on the DSU Grant Date.

 

Under no circumstances shall DSUs be considered common shares nor shall they entitle any DSU Participant to exercise voting rights or any other rights attaching to the ownership of our common shares nor shall any DSU Participant be considered a Shareholder by virtue of the award of DSUs.

 

The rights or interests of a DSU Participant under the DSU Plan are not assignable or transferable, otherwise than by will or the laws governing the devolution of property in the event of death. Further, such rights or interests are not to be encumbered.

 

Our board of directors may from time to time amend, suspend or terminate the DSU Plan in whole or in part without further shareholder approval; however, the DSU Plan sets out what our board of directors may and may not do, without obtaining the approval of Shareholders, in respect of amendments to the DSU Plan.

 

Incentive Stock Option Plan

 

Our Incentive Stock Option Plan (the “Option Plan”) is a “rolling” stock option plan. The purpose of our Option Plan is to, among other things, offer our common shares to our directors, officers, employees and persons engaged to provide ongoing management and consulting services (the “Service Providers”). The number of common shares we have reserved for issuance under our Option Plan may not exceed 10% of our issued and outstanding common shares at any given time. The options granted under the Option Plan are non-assignable and may be granted for a term not to exceed 10 years. Options may be granted under the Option Plan to our Service Providers, subject to the rules and regulations of applicable regulatory authorities and any Canadian stock exchange upon which our common shares may be listed or may trade from time to time. The exercise price of the options issuable under the Option Plan is determined by our board of directors which is no event may be less than the fair market value of our common shares at the time of the grant, subject to any discounts permitted by applicable legislative and regulatory requirements.

 

 43 
 

 

Our Option Plan contains the following restrictions as to insider and individual eligibility thereunder: (i) the maximum number of common shares which may be reserved for issuance to insiders under the Option Plan, any other employer stock option plans or options for services, shall be 10% of the common shares issued and outstanding at the time of the grant (on a non-diluted basis); (ii) the maximum number of options which may be granted to insiders under the Option Plan, any other employer stock option plans or options for services, within any 12 month period, shall be 10% of the common shares issued and outstanding at the time of the grant (on a non-diluted basis); and (iii) the maximum number of common shares which may be issued to any one optionee, together with any other previously established or proposed share compensation arrangements, within a one year period shall be 5% of the common shares outstanding at the time of the grant (on a non-diluted basis). The maximum number of options which may be granted to any one consultant under the Option Plan, any other employer stock options plans or options for services, within any 12 month period, must not exceed 2% of the common shares issued and outstanding at the time of the grant (on a non-diluted basis). The maximum number of options which may be granted to “investor relations persons” under the Option Plan, any other employer stock options plans or options for services, within any 12 month period must not exceed, in the aggregate, 2% of the common shares issued and outstanding at the time of the grant (on a non-diluted basis).

 

Compensation

 

Summary Compensation Table

 

Scythian Biosciences Corp.

 

The following table provides a summary of compensation paid, directly or indirectly, for each of the two most recently completed financial years to our named executive officers and directors, prior to the completion of the Business Combination:

 

TABLE OF COMPENSATION EXCLUDING COMPENSATION SECURITIES(1)
Name and position  Year  Salary,
consulting
fee, retainer
or
commission
($)
  Bonus
($)
  Committee
or meeting
fees
($)
  Value of
perquisites
($)
  Value of all
other
compensation
($)
  Total
compensation
($)

Patrick Mohan(2)

President, Chief Executive Officer and Director

 

2016

2015

  Nil
60,000
  Nil
Nil
  Nil
Nil
  Nil
Nil
  Nil
Nil
  Nil
60,000
                      

Harvey Johnson(3)

Chief Financial Officer

 

2016

2015

  Nil
Nil
  Nil
Nil
  Nil
Nil
  Nil
Nil
 

Nil

Nil

  Nil
Nil
                      

Arvin Ramos(3)

Chief Financial Officer

 

2016

2015

  Nil
  Nil
  Nil
  Nil
  Nil
  Nil
                      

James Fairbairn

Director

 

2016

2015

  Nil
Nil
  Nil
Nil
  Nil
Nil
  Nil
Nil
  Nil
Nil
  Nil
Nil
                      

Richard Kellam(4)

Director

 

2016

2015

  Nil
Nil
  Nil
Nil
  Nil
Nil
  Nil
Nil
  Nil
Nil
  Nil
Nil
                      

Andrew Budning(5)

Director

 

2016

2015

  Nil
Nil
  Nil
Nil
  Nil
Nil
  Nil
Nil
  Nil
Nil
  Nil
Nil

 

Notes

  (1) This table does not include any amount paid as reimbursement for expenses.
  (2) Mr. Mohan resigned as President, CEO and director effective February 28, 2017.
  (3) Mr. Johnson resigned as CFO effective October 7, 2016 and was replaced by Arvin Ramos.
  (4) Mr. Kellam resigned as director on November 22, 2016.
  (5) Mr. Budning resigned as director on November 22, 2016.

 

 44 
 

 

Scythian Biosciences Inc.

 

The following table sets forth information concerning the compensation paid or payable by SBI to its named executive officers during each of the three most recently completed fiscal years of SBI:

 

                    Non-equity Incentive Plan Compensation            
Name and
Principal
Position
  Year Ended   Salary/
Fees
  Share-
based
Awards
  Option-
based
Awards
  Annual
Incentive
Plans
  Long-
term
Incentive
Plans
  Pension
Value
  All Other
Compensation(3)
  Total (4)
Compensation

Jonathan Gilbert

CEO and Director

 

2017

2016

2015

  $281,250
$256,250
$87,500
  $10,000
Nil
Nil
 

Nil

$176,475(2) 

Nil

  Nil
Nil
Nil
  Nil
Nil
Nil
  Nil
Nil
Nil
  $38,400
$38,400
$7,800
  $329,650
$471,175
$95,300
                                     

Harvey Lalach

CFO

 

2017

2016

2015

  $162,500
$152,500
$37,500
  Nil
Nil
Nil
 

Nil

$176,475(2)

Nil

  Nil
Nil
Nil
  Nil
Nil
Nil
  Nil
Nil
Nil
  $31,200
$31,200
$7,800
  $193,700
$360,175
$45,300
                                     

Mohammad Fazil(5)

President

 

2017

2016

2015

  $242,708
$207,708
$142,599
  Nil
Nil
Nil
 

Nil

$176,475(2)

Nil

  Nil
Nil
Nil
  Nil
Nil
Nil
  Nil
Nil
Nil
  $38,400
$38,400
$30,400
  $281,108
$422,583
$172,900
                                     

David Schrader

COO

 

2017

2016

2015

  $160,000
$150,000
Nil
 

Nil

$250,000(1)

Nil

 

Nil

$176,475(2)

Nil

  Nil
Nil
Nil
  Nil
Nil
Nil
  Nil
Nil
Nil
  $31,200
$31,200
Nil
  $191,200
$607,675
Nil

 

Notes

  (1) On January 20, 2016, the SBI issued 1,000,000 common shares to David Schrader for services provided. The accounting value of these services was deemed to be $250,000.
  (2) On August 31, 2015, SBI issued 1,000,000 options to each of Jonathan Gilbert, Harvey Lalach, Mohammad Fazil and David Schrader with an exercise price of $0.25, expiring on August 31, 2020.
  (3) Includes benefits for health insurance, and car and phone allowance.
  (4) As of March 31, 2017, $1,383,873 of compensation remained accrued and unpaid. In satisfaction of the accrued and unpaid compensation, a cash payment of $45,000 and $100,000 in common shares (totaling 12,500 shares), in exchange for full settlement of the remaining balance.
  (5) Resigned as President on May 10, 2017.

 

The following table sets for information concerning the compensation to be paid or payable to our named executive officers:

 

               Non-equity Incentive
Plan Compensation
         
Name and
Principal
Position
  Year
Ended
  Salary/
Fees
  Share-
based
Awards(3)
  Option-
based
Awards(2)
  Annual
Incentive
Plans
  Long-
term
Incentive
Plans
  Pension
Value
  All Other
Compensation
  Total
Compensation

Jonathan Gilbert

CEO and Director

  2018  $250,000  $250,000  $382,633  $37,500  Nil  Nil  $19,560  $902,193

Jonathan Held

CFO

  2018  $120,000  $100,000  Nil  Nil  Nil  Nil  Nil  $220,000

David Schrader

COO

  2018  $180,000  Nil  $95,658  $27,000  Nil  Nil  $19,560  $295,164

 

Notes

  (1) Expected salary for the 12 months following completion of the Transactions or as otherwise may be determined by our board of directors for such period.

 

 45 
 

 
  (2) We may issue options to purchase common shares to our directors, officers, employees and consultants. The value of our options cannot yet be determined. On August 1, 2017, Mr. Gilbert was issued 50,000 options with an exercise price of $8.00 for a period of 5 years, and Mr. Schrader was issued 12,500 options with an exercise price of $8.00 for a period of 5 years.
  (3) Includes DSUs issued on August 1, 2017, pursuant to the DSU Plan. Mr. Gilbert was issued 31,250 DSUs valued at $8.00 per DSU, and Mr. Held was issued 12,500 DSUs valued at $8.00 per DSU.

 

Employment and Service Agreements

 

Effective August 1, 2017, we entered into an employment agreement with Jonathan Gilbert which has an initial term of three (3) years as well as automatic renewals for subsequent terms of one (1) year, and provides for his employment as Chief Executive Officer. The agreement provides for compensation with respect to Mr. Gilbert’s annual base salary of $250,000, annual bonus equal to the greater of (i) 0.5% of our gross revenue for each calendar year or portion thereof during which Mr. Gilbert is employed up to and including his employment termination date or (ii) 15% of Mr. Gilbert’s annual base salary for the concluding year, and participation in our stock option and/or equity stock ownership programs for ownership in the Company . Mr. Gilbert’s agreement provides for severance pay of 18 months’ severance compensation in accordance with the terms of the agreement.

 

Effective August 1, 2017, we entered into an employment agreement with David Schrader which has an initial term of three (3) years as well as automatic renewals for subsequent terms of one (1) year, and provides for his employment as Chief Operating Officer. The agreement provides for compensation with respect to Mr. Schrader’s annual base salary of $180,000, annual bonus equal to the greater of (i) 0.5% of our gross revenue for each calendar year or portion thereof during which Mr. Schrader is employed up to and including his employment termination date or (ii) 15% of Mr. Schrader’s annual base salary for the concluding year, and participation in our stock option and/or equity stock ownership programs for ownership in the Company . Mr. Schrader’s agreement provides for severance pay of 18 months’ severance compensation in accordance with the terms of the agreement.

 

Effective August 1, 2017, we entered into a consulting agreement with ALOE Finance Inc. for the services of Jonathan Held to act as the Chief Financial Officer. The term of the agreement is one (1) year and automatically renews for subsequent one (1) year periods unless either the Company or ALOE Finance Inc. provides a notice of non-renewal. The consulting agreement provides for a monthly retainer fee of $10,000 which is prorated for partial months of services.

 

Outstanding DSUs and Options

 

We currently have 165,050 options outstanding and 143,750 DSUs outstanding, as set forth below:

 

Group and Number of
Persons in Group
  Number of Shares Under
Options and DSUs
  Exercise Price
Per Share
   Expiry Date
All Directors, Officers and Employees of Scythian, SBI and Go Green post-Business Combination  75,000 Options  $8.00   August 1, 2022
   62,500 Options   $0.20   January 30, 2020
   143,750 DSUs   N/A   N/A
Former SBI directors and consultants and investors  16,875 Options  $20.00   August 31, 2020 and February 12, 2021
Former Scythian employees and directors  10,675 Options  $50.00   December 19, 2017

 

 46 
 

 

Below is a table detailing all recipients of our Options and details of their respective options:

 

Description of
Option holder
  Number of
Resulting Issuer
Options and DSUs
  Exercise Price of Resulting
Issuer Options (CAD$)
   Expiry Date of
Resulting Issuer
Options
Director
   100,000 DSUs   N/A   N/A
Director and Officer
   62,500 Options   8.00(1)  August 1, 2022
   43,750 DSUs   N/A   N/A
   62,500 Options   0.20   January 30, 2020
Consultant
   12,500 Options   8.00(1)  August 1, 2022
Other           
   27,550 Options   $20.00 to $50.00   November 1, 2017

 


Note:

 

(1) Exercise price to be the price securities were issued at in connection with the Financings.

 

Pension, Retirement or Similar Benefits

 

We have not set aside or accrued any amounts to provide pension, retirement or similar benefit for our directors or senior management.

 

C. Board Practices Term of Office

 

The term of office of directors expires annually at the time of the annual meeting. The directors were elected following consummation of the Business Combination on August 1, 2017. The term of office of the officers expires on the date of our first annual meeting following the Business Combination.

 

Service Contracts

 

We do not have any service contracts with directors which provide for benefits upon termination of employment.

 

Committees

 

We have an Audit Committee and a Compensation Committee. Copies of both the Audit Committee and Compensation Committee charters are appended as exhibits to this Form 20-F.

 

Audit Committee

 

Our Audit Committee is comprised of a minimum of three members, each of whom, in the determination of the Board of Directors, satisfies the independence, financial literacy and experience requirements of applicable U.S. and Canadian securities laws, rules and guidelines (including, without limitation, National Instrument 52-110 - Audit Committees, or NI 52-110), any applicable stock exchange requirements or guidelines and any other applicable regulatory rules.

 

In particular:

 

  each member shall be (a) an “Independent Director,” as defined in NASDAQ Marketplace Rule 5605(a)(2), and (b) “independent” within the meaning of Rule 10A-3 under the Exchange Act, and the determination of independence will be affirmatively made by the Board annually, provided that the Board may elect to take advantage of any exemption from such requirements provided in the rules of NASDAQ, or the Exchange Act;
     
  each member shall meet the independence and financial literacy requirements set forth in NI 52-110;

 

 47 
 

 

  each member shall not have participated in the preparation of the financial statements of ours (or any then current subsidiary of ours) at any time during the past three years;
     
  each member shall be able to read and understand fundamental financial statements in accordance with the audit committee requirements for companies listed on NASDAQ in NASDAQ Marketplace Rule 5605(c)(2)(A)(iv); and
     
  at least one (1) member shall, in the judgment of the Board, be an “audit committee financial expert” within the meaning of such term in Item 407(d) of Regulation S-K under the U.S. Securities Act of 1933, as amended.

 

Our Audit Committee members are Mr. Peter Benz, Mr. Roger Rai and Mr. Michael Petter, each of whom is a non-executive member of our Board of Directors. Our Board of Directors has determined that each of the members of the Audit Committee is financially literate and has sufficient financial expertise, and is independent within the meaning of such term in the rules of NASDAQ, the SEC and Canadian provincial securities regulatory authorities. The Board of Directors has determined that Mr. Benz is a financial expert in accordance with the rules and regulations of the SEC. For a description of the education and experience of each audit committee member that is relevant in the performance of his responsibilities as an audit committee member, see Item “6.A. - Summary of Business Experience and Functions within the Company”.

 

The purpose of the Audit Committee is to assist the Board of Directors in:

 

  overseeing the integrity of our financial statements and our accounting and financial reporting processes and financial statement audits;
    overseeing our compliance with legal and regulatory requirements;
  overseeing the qualifications and independence of our registered public accounting firm (independent auditor);
  overseeing the performance of our independent auditor; and
  overseeing the design, implementation and ongoing effectiveness of our systems of disclosure controls and procedures, risk management systems, internal control over financial reporting and compliance with ethical standards adopted by us.

 

Since the commencement of our most recently completed fiscal year and adoption of the Audit Committee charter, the Board has not failed to adopt a recommendation of the Audit Committee to nominate or compensate an external auditor.

 

Corporate Governance and Nominating Committee

 

We currently do not have a corporate governance and nominating committee.

 

Compensation Committee

 

Our Compensation Committee members are Michael Petter (Chair), Peter Benz and Gary Leong. Our Board of Directors has determined that each member of our Compensation Committee is independent within the meaning of such term in the rules of NASDAQ.

 

D. Employees

 

As of the date of this registration statement on Form 20-F, we have two full-time employees, as compared to four full-time employees for the year ended December 2016. We also engage consultants and other researchers to carry on many of our activities, including research and development at the University of Miami.

 

 48 
 

 

E. Share Ownership

 

As of August 11, 2017, our directors and senior management beneficially owned the following common shares of our Company:

 

Name and Office Held  Number of  Common Shares   % of Class(1) 
         

Jonathan Gilbert

Director and Chief Executive Officer

   93,750(2)   1.78%
           

Jonathan Held

Chief Financial Officer

   Nil(3)   n/a 
           

David Schrader

Chief Operating Officer

   12,500(4)   0.24%
           

Peter Benz

Director

   Nil(5)   n/a 
           

Michael Petter

Director

   Nil(5)   n/a 
           

Roger Rai

Director

   25,000(5)   0.48%
           

Gary Leong

Director

   Nil(5)   n/a 

 

 

Notes:

 

  (1) Based on 5,257,943 common shares issued and outstanding as of August 11, 2017.
  (2) Excludes (i) 50,000 common shares underlying options exercisable until August 1, 2022 at an exercise price of $8 per share and (ii) 31,250 DSUs.
  (3) Excludes 12,500 DSUs.
  (4) Excludes (i) 62,500 common shares underlying options exercisable until January 30, 2020 at an exercise price of $0.20 per share and (ii) 12,500 common shares underlying options exercisable until August 1, 2022 at an exercise price of $8 per share.
  (5) Excludes 25,000 DSUs.

 

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

A. Major Shareholders

 

To our knowledge, there are no persons or company who beneficially own, directly or indirectly, or exercise control or discretion over, securities carrying more than 5% of the voting rights attaches to any class of voting securities of ours as of the date of this registration statement.

 

B. Related Party Transactions

 

Other than as disclosed in this registration statement, since the beginning of our preceding three financial years, there have been no transactions or loans between us and:

 

  (a) enterprises that directly or indirectly through one or more intermediaries, control or are controlled by, or are under common control with, us;
  (b) associates, meaning unconsolidated enterprises in which we have a significant influence or which have significant influence over us;
  (c) individuals owning, directly or indirectly, an interest in the voting power of us that gives them significant influence over our us, and close members of any such individual’s family;
  (d) key management personnel, that is, those persons having authority and responsibility for planning, directing and controlling the activities of ours, including directors and senior management of us and close members of such individuals’ families; and

 

 49 
 

 

  (e) enterprises in which a substantial interest in the voting power is owned, directly or indirectly, by any person described in (c) or (d) or over which such a person is able to exercise significant influence, including enterprises owned by directors or major shareholders of us and enterprises that have a member of key management in common with us.

 

Scythian Biosciences Corp.

 

The financial statements include balances and transactions with directors and/or officers of Scythian. The company defines its key management as its CEO, CFO, Vice President of Exploration and its board of directors.

 

These expenditures are summarized as follows:

 

For the year ending December 31,  2016   2015 
Management and consulting fees  $-   $60,000 
Legal fees  $23,137   $7,466 

 

Scythian Biosciences Inc.

 

During the years ended March 31, 2017, 2016, and for the period from Inception to March 31, 2015, SBI carried out the following transactions with directors and officers of SBI:

 

Related Party   Nature of Transaction
   
Jonathan Gilbert, CEO and director   Salaries and benefits
Mohammad Fazil, President and director   Salaries and benefits
Harvey Lalach, CFO and director   Salaries and benefits
David Schrader, COO and director   Salaries and benefits
Allen Cohen, director   Directors fees
Jerome Gilbert, director   Directors fees
Michael Petter, director   Directors fees

 

Related Party Balances

 

At March 31, 2017, included in accounts payable and accrued liabilities is an amount of $1,395,150 (2016: $584,888; 2015: $180,700) owing to directors and officers of SBI in respect of unpaid salaries and benefits, directors’ fees, and reimbursable expenses. These amounts are unsecured, non-interest bearing and are payable on demand.

 

Related Party Transactions

 

During the year ended March 31, 2017, an amount of $985,658 (2016: $1,155,658; 2015: $355,300) in consulting fees, salaries and benefits was accrued or paid to directors and officers of SBI in connection with employment and consulting agreements.

 

During the year ended March 31, 2017, an amount of $15,000 (2016: $21,089; 2015: $Nil) in directors’ fees was accrued or paid to directors and officers of the Company in connection with directors’ agreements.

 

On February 16, 2017, SBI issued 50,000 common shares in exchange for $10,000 in services rendered by a director and officer of SBI, the value of which was determined based on the fair value of the shares issued as evidenced by recent private placements.

 

During the period ended March 31, 2015, SBI issued 93,750 common shares at $0.40 per share for gross proceeds of $37,500 to directors and officers of SBI, pursuant to private placement subscription agreements.

 

Compensation

 

For information regarding compensation for our directors and senior management, see the information under the heading “Item 6.B. Compensation”.

 

 50 
 

 

C. Interests of Experts and Counsel

 

Not Applicable.

 

ITEM 8. FINANCIAL INFORMATION

 

A. Financial Statements and Other Financial Information

 

See “Item 18. Financial Statements.”

 

Export Sales

 

We have no sales.

 

Legal Proceedings

 

To our knowledge, there have not been any legal or arbitration proceedings, including those relating to bankruptcy, receivership or similar proceedings, those involving any third party, and governmental proceedings pending or known to be contemplated, which may have, or have had in the recent past, significant effect our financial position or profitability.

 

Also, to our knowledge, there have been no material proceedings in which any director, any member of senior management, or any of our affiliates is either a party adverse to us or any of our subsidiaries or has a material interest adverse to us or any of our subsidiaries.

 

Policy on Dividend Distributions

 

We have not declared any dividends since our inception and do not anticipate that we will do so in the foreseeable future. We currently intend to retain future earnings, if any, to finance the development of our business. Any future payment of dividends or distributions will be determined by our Board of Directors on the basis of our earnings, financial requirements and other relevant factors.

 

B. Significant Changes

 

Not applicable.

 

ITEM 9. THE OFFER AND LISTING

 

A. Offer and Listing Details

 

Price History

 

We began trading our common shares on the TSX Venture Exchange, or TSXV, on November 13, 2012 under the ticker symbol “KIT.” Trading of our common shares on the TSXV was halted on February 16, 2017, pending conditional approval of the Business Combination by the TSXV. We resumed trading on the TSXV on August 8, 2017 upon the TSXV’s approval of the Business Combination under the symbol “SCYB”.

 

Five Most Recent Financial Years

 

The annual high and low market prices of our common shares for the five most recent full financial years on the TSXV were as follows:

 

  TSXV in $(1) 
Year ended  High  Low 
December 31, 2016   0.115  0.005 
December 31, 2015   0.01  0.005 
December 31, 2014   0.025  0.005 
December 31, 2013   0.21  0.01 
December 31, 2012   0.25  0.16 

 

Notes:

 

  (1) Our common shares began trading on the TSXVon November 13, 2012

 

 51 
 

 

Full Financial Quarters

 

The high and low market prices of our common shares for each full financial quarter for the two most recent full financial years on the TSXV were as follows:

 

   TSXV in $
Quarter ended  High  Low 
December 31, 2016   0.115  0.005 
September 30, 2016   0.03  0.005 
June 30, 2016   0.015  0.005 
March 31, 2016   0.005  0.005 
December 31, 2015   0.005  0.005 
September 30, 2015   0.01  0.005 
June 30, 2015   0.01  0.005 
March 31, 2015   0.01  0.005 

 

Most Recent Six Months

 

The high and low market prices of our common shares for each month for the most recent six months on the TSXV were as follows:

 

  TSXV in $ 
Month ended  High   Low 
July 31, 2017   -    - 
June 30, 2017   -    - 
May 31, 2017   -    - 
April 30, 2017   -    - 
March 31, 2017   -    - 
February 28, 2017 (through February 16, 2017) (1)   0.16    0.14 
January 31, 2017   0.19    0.115 

 

  (1) Trading of our common shares was halted on the TSXV pending approval of the amalgamation.

 

Transfers of Common Shares

 

Our common shares, with no par value, are in registered form and the transfer of our common shares is managed by our transfer agent, TSX Trust Company, Suite 300, 200 University Ave, Toronto, ON M5H 4H1, Canada (Tel: (416) 361-0930).

 

B. Plan of Distribution

 

Not Applicable.

 

 52 
 

 

C. Markets

 

Our common shares are traded on the TSXV under the symbol “SCYB”. We have applied to list our common shares on NASDAQ under the symbol “SCYB”. We cannot provide our investors with any assurance that our common shares will be listed on the NASDAQ Capital Market, or, if traded, that a public market in the United States will materialize. If our common shares are not quoted on the NASDAQ Capital Market, then investors in the United States may have difficulty reselling our common shares.

 

D. Selling Shareholders

 

Not Applicable.

 

E. Dilution

 

Not Applicable.

 

F. Expenses of the Issue

 

Not Applicable.

 

ITEM 10. ADDITIONAL INFORMATION

 

A. Share Capital

 

The following description of our share capital summarizes certain provisions of our Articles of Incorporation. Such summaries do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all of the provisions of our Articles of Incorporation, copies of which have been filed as exhibits to the registration statement of which this prospectus forms a part.

 

Our issued and outstanding share capital is as follows:

 

Securities  Number   Approximate % - Fully Diluted 
Common Shares          
Total Common Shares   5,257,943    83.64%
Convertible Securities          
Total Convertible Securities (including Warrants, Options and DSUs)   1,028,194(1)   16.36%
Total   6,286,137    1005 

 

(1) Excludes 40,000 common shares issuable upon exercise of warrants underlying warrants to purchase up to 40000 common shares issued on January 19, 2017.

 

Common Shares

 

Our authorized capital of an unlimited number of common shares, no par value. As at the date hereof, we have 5,257,943 common shares issued and outstanding as fully paid and non-assessable. Our common shares entitle the holders thereof to receive notice of, attend and vote at all meetings of our shareholders. Each common share carries one vote at such meetings. Holders of our common shares are entitled to dividends as and when declared by our board of directors. In the event of our voluntary or involuntary liquidation, dissolution or winding-up, after payment of all outstanding debts, any of our remaining assets available for distribution will be distributed to our shareholders.

 

Warrants

 

Our Board of Directors authorized or ratified the issuances of warrants set forth in the tables below and the issuance of one common share upon the due exercise of each warrant in accordance with its terms and the receipt by us of the designated exercise price payable in respect of the share price to the time of expiry on the designated expiry date.

 

 53 
 

 

As of the date of this registration statement, we had the following outstanding warrants:

 

Issuance Date  Number of Warrants   Number of vested Warrants   Weighted average exercise price   Expiry Date
             $    
March 1, 2017   1,751    1,751    8.00   June 12, 2019
March 13, 2017   114,493    114,493    8.00   June 12, 2019
March 20, 2017   20,746    20,746    12.00   March 20, 2020
March 31, 2017   5,206    5,206    12.00   March 31, 2020
January 19, 2017   536,948    536,948    2.00   October 11, 2019
January 19, 2017   40,000    40,000(1)   1.00   October 11, 2018
December 19, 2012   250    250    50.00   December 19, 2017
                   
Total   719,394    719,394         

 

(1) Each converts into one common share and one common share purchase warrant exercisable at $2.00

 

Options

 

Our Board of Directors authorized or ratified the issuances of options set forth in the tables below and the issuance of one common share upon the due exercise of each option in accordance with its terms and the receipt by us of the designated exercise price payable in respect of the share price to the time of expiry on the designated expiry date.

 

As of the date of this registration statement, we had the following outstanding options:

 

Grant date  Exercise price   Number of options   Expiry Date
August 31, 2015  $20.00    15,000   August 31, 2020
February 12, 2016  $20.00    1,875   February 12, 2021
January 30, 2017  $0.20    62,500   January 30, 2020
August 1, 2017  $8.00    75,000   August 1, 2022
December 19, 2012  $50.00    10,675   December 19, 2017
Total        165,050    

 

B. Memorandum and Articles of Association

 

Incorporation

 

We were incorporated under the Business Corporations Act (Ontario) on January 28, 2005 under the name “Canexco Resources Ltd.” On February 25, 2005, we filed a Certificate of Amendment to change our name to “Norcanex Resources Ltd.” On June 6, 2011 we filed a Certificate of Amendment to change our name to “Kitrinor Metals Inc.” On November 13, 2012, we became a reporting issuer in the Provinces of British Columbia, Alberta and Ontario and our common shares began trading on the TSXV under the symbol “KIT”. On December 2, 2016, we amended our articles to consolidate our common shares on the basis of one (1) post-consolidation common share for every ten (10) pre-consolidation common shares held. On August 1, 2017, we amended our articles to consolidate our common shares on the basis of one (1) post-consolidation common shares for every twenty (20) pre-consolidation common shares held.

 

 54 
 

 

Scythian Biosciences Inc. was incorporated under the Federal laws of Canada on July 9, 2014. Its principal offices are located at 200-366 Bay St., Toronto, ON, M5H 4B2. The wholly-owned subsidiary of Scythian is Go Green B.C. Medicinal Marijuana Ltd. (“Go Green”), which was incorporated under the laws of the Province of British Columbia on December 1, 2013 and is currently in the process of applying for a license under the ACMPR. On August 1, 2017, SBI filed Articles of Amalgamation, providing for the Amalgamation of SBI with Subco. On the same date, SBI filed articles of amendment to consolidate its common shares on the basis of one (1) post-consolidation common share for every eighty (80) pre-consolidation common shares held.

 

On August 1, 2017, we filed articles of amendment to change the name of our company to “Scythian Biosciences Corp.” to better reflect the nature of our business.

 

Our Ontario corporation number is 002063925 and our business number is 85399 3178. We are a company domiciled in Ontario, Canada. Our head office and registered office is located at 200-366 Bay St., Toronto, Ontario, Canada, M5H 4B2. Our telephone number is (212) 729-9208.

 

A copy of our articles of incorporation has been filed as an exhibit to this Form 20-F.

 

Objects and Purposes of Our Company

 

Our articles of incorporation do not contain and are not required to contain a description of our objects and purposes. There is no restriction contained in our articles of incorporation on the business that we may carry on.

 

Voting on Certain Proposal, Arrangement, Contract or Compensation by Directors

 

Other than as disclosed below, neither our articles nor our corporate by-laws restrict our directors’ power to (a) vote on a proposal, arrangement or contract in which the directors are materially interested or (b) to vote with regard to compensation payable to themselves or any other members of their body in the absence of an independent quorum.

 

Our corporate by-laws provide that a director or officer who: (a) is a party to; or (b) is a director or an officer of, or has a material interest in, any person who is a party to; a material contract or transaction or proposed material contract or transaction with us shall disclose the nature and extent of such director’s or officer’s interest at the time and in the manner provided by the OBCA. Any such contract or transaction or proposed material contract or transaction shall be referred to our Board of Directors or shareholders for approval in accordance with the OBCA even if such contract or proposed material contract or transaction is one that in the ordinary course of our business would not require approval by our Board of Directors or shareholders, and a director interested in a contract or transaction so referred to our Board of Directors shall not attend any part of a meeting of our Board of Directors during which the contract or transaction is discussed and shall not vote on any resolution to approve such contract or transaction except as provided by the OBCA.

 

Subject to our articles and any unanimous shareholder agreement, our directors shall be paid such remuneration for their services as our Board of Directors may from time to time determine. Our directors shall also be entitled to be reimbursed for travelling and other expenses properly incurred by them in attending meetings of our Board of Directors or any committee thereof.

 

The OBCA provides that a director who holds a disclosable interest in a contract or transaction into which we have entered or propose to enter shall not attend any part of a meeting of directors during which the contract or transaction is discussed and shall not vote on any resolution to approve the contract or transaction unless it is a contract or transaction: (i) relating primarily to such director’s remuneration as a director of the company or one of our affiliates; (ii) for indemnity or insurance for the benefit of such director in his/her capacity as a director; or (iii) with one of our affiliates.

 

A director or officer who holds a disclosable interest in a contract or transaction into which we have entered or propose to enter is not accountable to us or our shareholders for any profit or gain realized from the contract or transaction and the contract or transaction is neither void nor voidable by reason only of that relationship or by reason only that the director is present at or is counted to determine the presence of a quorum at the meeting of directors that authorized the contract or transaction, if the director or officer disclosed his or her interest in accordance with the OBCA and the contract or transaction was reasonable and fair to us at the time it was approved.

 

The OBCA provides that a director or officer generally holds a disclosable interest in a contract or transaction if either (a) the director or officer is a party to the contract or transaction with us and such contract or transaction is material to us; or (b) the director or officer is a director or an officer of, or has a material interest in, any person who is a party to a material contract or transaction or proposed material contract or transaction with us.

 

 55 
 

 

Borrowing Powers of Directors

 

Our corporate by-laws provide that, if authorized by our directors, we may:

 

  borrow money upon our credit;
    issue, reissue, sell or pledge debt obligations, including bonds, debentures, notes or other evidences of indebtedness or guarantees, whether secured or unsecured;
  give a guarantee on our behalf to secure performance of an obligation of any person; and
    mortgage, hypothecate, pledge or otherwise create a security interest in all or any currently owned or subsequently acquired real or personal, movable or immovable, property of the Company including book debts, rights, powers, franchises and undertakings, to secure any such bonds, debentures, notes or other evidences of indebtedness or guarantee or any other present or future indebtedness, liability or obligation of the Company.

 

Amendment to the borrowing powers described above requires an amendment to our corporate by-laws. Our corporate by-laws do not contain any provisions in connection with amending the by-laws. The OBCA provides that our Board of Directors may by resolution, make, amend or repeal any by-laws that regulate our business and affairs and that the Board of Directors will submit such by-law, amendment or repeal to our shareholders at the next meeting of shareholders and the shareholders may, by ordinary resolution, confirm, reject or amend the by-law, amendment or repeal.

 

Qualifications of Directors

 

Under our articles and corporate by-laws, a director is not required to hold a share in our capital as qualification for his or her office but must be qualified as required by the OBCA to become, act or continue to act as a director. The OBCA provides that the following persons are disqualified from being a director of a corporation: (i) a person who is less than 18 years of age; (ii) a person who has been found under the Substitute Decisions Act, 1992 or under the Mental Health Act to be incapable of managing property or who has been found to be incapable by a court in Canada or elsewhere; (iii) a person who is not an individual; and (iv) a person who has the status of a bankrupt.

 

Share Rights

 

Our authorized share capital consists of an unlimited number of common shares without nominal or par value.

 

The holders of common shares are entitled to receive notice of and to attend all annual and special meetings of our shareholders and to one vote per share held at each such meeting, and they are entitled to receive dividends as determined and declared by our Board of Directors.

 

Subject to the rights of the holders of any other class of our shares entitled to receive dividends in priority to or concurrently with the holders of the common shares, our Board of Directors may in its sole discretion declare dividends on the common shares to the exclusion of any other class of shares of the Company.

 

In the event of our liquidation, dissolution or winding up or other distribution of our assets among our shareholders for the purpose of winding up our affairs, the holders of the common shares shall, subject to the rights of the holders of any other class of shares entitled to receive our assets upon such a distribution in priority to or concurrently with the holders of the common shares, be entitled to participate in the distribution. Such distribution shall be made in equal amounts per share on all the common shares at the time outstanding without preference or distinction.

 

Procedures to Change the Rights of Shareholders

 

The rights, privileges, restrictions and conditions attaching to our shares are contained in our articles and such rights, privileges, restrictions and conditions may be changed by amending our articles. In order to amend our articles, the OBCA requires a resolution to be passed by a majority of not less than two-thirds of the votes cast by the shareholders entitled to vote thereon. In addition, if we resolve to make particular types of amendments to our articles, a holder of our shares may dissent with regard to such resolution and, if such shareholder so elects, we would have to pay such shareholder the fair value of the shares held by the shareholder in respect of which the shareholder dissents as of the close of business on the day before the resolution was adopted. The types of amendments that would be subject to dissent rights include without limitation: (i) to add, remove or change restrictions on the issue, transfer or ownership of shares of a class or series of our shares; and (ii) to add, remove or change any restriction upon the business that we may carry on or upon the powers that we may exercise.

 

 56 
 

 

Meetings

 

Each director holds office until our next annual general meeting or until his office is earlier vacated in accordance with our articles or with the provisions of the OBCA. A director appointed or elected to fill a vacancy on our board also holds office until our next annual general meeting.

 

Annual meetings of our shareholders must be held at such time in each year not more than 15 months after the last annual meeting, as the Board of Directors may determine. Notice of the time and place of a meeting of shareholders must be sent not less than twenty-one days and not more than fifty days, before the meeting.

 

Meetings of our shareholders shall be held at our registered office or, if our Board of Directors shall so determine, at some other place in Ontario or, at some place outside Ontario if all the shareholders entitled to vote at the meeting so agree.

 

Our Board of Directors, the Chair of our Board, our Chief Executive Officer, or our President shall have power to call a special meeting of our shareholders at any time.

 

The OBCA provides that our shareholders may requisition a special meeting in accordance with the OBCA. The OBCA provides that the holders of not less than five percent of our issued shares that carry the right to vote at a meeting may requisition our directors to call a special meeting of shareholders for the purposes stated in the requisition.

 

Under our by-laws, the quorum for the transaction of business at a meeting of our shareholders is two or more persons, present in person or by proxy and holding in aggregate not less than 33 1/3% of our issued shares entitled to vote at such meeting.

 

Limitations on Ownership of Securities

 

Except as provided in the Investment Canada Act (Canada), there are no limitations specific to the rights of non-Canadians to hold or vote our shares under the laws of Canada or Ontario, or in our charter documents.

 

Change in Control

 

There are no provisions in our articles or by-laws that would have the effect of delaying, deferring or preventing a change in control of our Company, and that would operate only with respect to a merger, acquisition or corporate restructuring involving our Company or our subsidiaries.

 

Ownership Threshold

 

Neither our by-laws nor our articles contain any provisions governing the ownership threshold above which shareholder ownership must be disclosed. In addition, securities legislation in Canada requires that we disclose in our proxy information circular for our annual meeting and certain other disclosure documents filed by us under such legislation, holders who beneficially own more than 10% of our issued and outstanding shares.

 

Upon the effectiveness of this annual report on Form 20-F, United States federal securities laws will require us to disclose, in our annual reports on Form 20-F, holders who own 5% or more of our issued and outstanding voting shares.

 

C. Material Contracts

 

There are no other contracts, other than those disclosed in this registration statement and those entered into in the ordinary course of our business, that are material to us and which were entered into in the last two completed fiscal years or which were entered into before the two most recently completed fiscal years but are still in effect as of the date of this registration statement:

 

  1. University of Miami Research Agreement and any amendments thereto
  2. Business Combination Agreement
  3. Amalgamation Agreement

 

 57 
 

 

D. Exchange Controls

 

There are no government laws, decrees or regulations in Canada that restrict the export or import of capital or that affect the remittance of dividends, interest or other payments to non-resident holders of our common shares. Any remittances of dividends to United States residents and to other non-residents are, however, subject to withholding tax. See the discussion under the heading “Item 16.E. Taxation – United States Federal Income Taxation”.

 

E. Taxation

 

Canadian Federal Income Taxation

 

We consider that the following general summary fairly describes the principal Canadian federal income tax consequences applicable to a holder of our common shares who is a resident of the United States, who is not, will not be and will not be deemed to be a resident of Canada for purposes of the Income Tax Act (Canada) and any applicable tax treaty and who does not use or hold, and is not deemed to use or hold, his, her or its common shares in the capital of our Company in connection with carrying on a business in Canada (a “non-resident holder”).

 

This summary is based upon the current provisions of the Income Tax Act (Canada), the regulations thereunder (the “Regulations”), the current publicly announced administrative and assessing policies of the Canada Revenue Agency and the Canada-United States Tax Convention as amended by the Protocols thereto (the “Treaty”). This summary also takes into account the amendments to the Income Tax Act (Canada) and the Regulations publicly announced by the Minister of Finance (Canada) prior to the date hereof (the “Tax Proposals”) and assumes that all such Tax Proposals will be enacted in their present form. However, no assurances can be given that the Tax Proposals will be enacted in the form proposed, or at all. This summary is not exhaustive of all possible Canadian federal income tax consequences applicable to a holder of our common shares and, except for the foregoing, this summary does not take into account or anticipate any changes in law, whether by legislative, administrative or judicial decision or action, nor does it take into account provincial, territorial or foreign income tax legislation or considerations, which may differ from the Canadian federal income tax consequences described herein.

 

This summary is of a general nature only and is not intended to be, and should not be construed to be, legal, business or tax advice to any particular holder or prospective holder of our common shares, and no opinion or representation with respect to the tax consequences to any holder or prospective holder of our common shares is made. Accordingly, holders and prospective holders of our common shares should consult their own tax advisors with respect to the income tax consequences of purchasing, owning and disposing of our common shares in their particular circumstances.

 

Dividends

 

Dividends paid on our common shares to a non-resident holder will be subject under the Income Tax Act (Canada) to withholding tax at a rate of 25% subject to a reduction under the provisions of an applicable tax treaty, which tax is deducted at source by our Company. The Treaty provides that the Income Tax Act (Canada) standard 25% withholding tax rate is reduced to 15% on dividends paid on shares of a corporation resident in Canada (such as our Company) to residents of the United States, and also provides for a further reduction of this rate to 5% where the beneficial owner of the dividends is a corporation resident in the United States that owns at least 10% of the voting shares of the corporation paying the dividend.

 

Capital Gains

 

A non-resident holder is not subject to tax under the Income Tax Act (Canada) in respect of a capital gain realized upon the disposition of a common share of our Company unless such share represents “taxable Canadian property”, as defined in the Income Tax Act (Canada), to the holder thereof. Once listed, our common shares generally will not be considered taxable Canadian property to a non-resident holder provided that:

 

  the non-resident holder;
  persons with whom the non-resident holder did not deal at arm’s length;
  the non-resident holder and persons with whom such non-resident holder did not deal at arm’s length; or
  partnerships in which the non-resident holder or a person with whom the non-resident holder did not deal at arm’s length holds a membership interest directly or indirectly through one or more partnerships,

 

 58 
 

 

did not own, or have an interest in, or an option in, respect of, 25% or more of the issued shares of any class of our capital stock at any time during the 60 month period immediately preceding the disposition of such shares. In the case of a non-resident holder to whom shares of our Company represent taxable Canadian property and who is resident in the United States, no Canadian taxes will generally be payable on a capital gain realized on such shares by reason of the Treaty unless the value of such shares is derived principally from real property situated in Canada.

 

United States Federal Income Taxation

 

The following is a general summary of material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership, and disposition of our common shares.

 

This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder arising from and relating to the acquisition, ownership, and disposition of common shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences to such U.S. Holder, including specific tax consequences to a U.S. Holder under an applicable tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any U.S. Holder. This summary does not address the U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences to U.S. Holders of the acquisition, ownership, and disposition of common shares. Except as specifically set forth below, this summary does not discuss applicable tax reporting requirements. Each U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and disposition of common shares.

 

No legal opinion from U.S. legal counsel or ruling from the Internal Revenue Service, or the IRS, has been requested, or will be obtained, regarding the U.S. federal income tax consequences of the acquisition, ownership, and disposition of common shares. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this summary. In addition, because the authorities on which this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the positions taken in this summary.

 

Scope of this Summary

 

Authorities

 

This summary is based on the Internal Revenue Code of 1986, as amended, or the Code, Treasury Regulations (whether final, temporary, or proposed), published rulings of the IRS, published administrative positions of the IRS, the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended, or the Canada-U.S. Tax Convention, and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date of this document. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive or prospective basis which could affect the U.S. federal income tax considerations described in this summary. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive or prospective basis.

 

U.S. Holders

 

For purposes of this summary, the term “U.S. Holder” means a beneficial owner of common shares that is for U.S. federal income tax purposes:

 

  an individual who is a citizen or resident of the U.S.;
  a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the U.S., any state thereof or the District of Columbia;
  an estate whose income is subject to U.S. federal income taxation regardless of its source; or
  a trust that (1) is subject to the primary supervision of a court within the U.S. and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.

 

 59 
 

 

Non-U.S. Holders

 

For purposes of this summary, a “non-U.S. Holder” is a beneficial owner of common shares that is not a U.S. Holder. This summary does not address the U.S. federal income tax consequences to non-U.S. Holders arising from and relating to the acquisition, ownership, and disposition of common shares. Accordingly, a non-U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences (including the potential application of and operation of any income tax treaties) relating to the acquisition, ownership, and disposition of common shares.

 

U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed

 

This summary does not address the U.S. federal income tax considerations applicable to U.S. Holders that are subject to special provisions under the Code, including, but not limited to, the following: (a) U.S. Holders that are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) U.S. Holders that are financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) U.S. Holders that are broker-dealers, dealers, or traders in securities or currencies that elect to apply a mark-to-market accounting method; (d) U.S. Holders that have a “functional currency” other than the U.S. dollar; (e) U.S. Holders that own common shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than one position; (f) U.S. Holders that acquired common shares in connection with the exercise of employee stock options or otherwise as compensation for services; (g) U.S. Holders that hold common shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment purposes); or (h) U.S. Holders that own or have owned (directly, indirectly, or by attribution) 10% or more of the total combined voting power of our outstanding shares. This summary also does not address the U.S. federal income tax considerations applicable to U.S. Holders who are: (a) U.S. expatriates or former long-term residents of the U.S.; (b) persons that have been, are, or will be a resident or deemed to be a resident in Canada for purposes of the Income Tax Act (Canada) (the “Tax Act”); (c) persons that use or hold, will use or hold, or that are or will be deemed to use or hold common shares in connection with carrying on a business in Canada; (d) persons whose common shares constitute “taxable Canadian property” under the Tax Act; or (e) persons that have a permanent establishment in Canada for the purposes of the Canada-U.S. Tax Convention. U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders described immediately above, should consult their own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and disposition of common shares.

 

If an entity or arrangement that is classified as a partnership (or “pass-through” entity) for U.S. federal income tax purposes holds common shares, the U.S. federal income tax consequences to such partnership and the partners of such partnership generally will depend on the activities of the partnership and the status of such partners (or owners). This summary does not address the tax consequences to any such partnership or partners. Partners of entities or arrangements that are classified as partnerships for U.S. federal income tax purposes should consult their own tax advisors regarding the U.S. federal income tax consequences arising from and relating to the acquisition, ownership, and disposition of common shares.

 

Passive Foreign Investment Company Rules

 

If we were to constitute a “passive foreign investment company” under the meaning of Section 1297 of the Code, or a PFIC, for any year during a U.S. Holder’s holding period, then different and potentially adverse rules will affect the U.S. federal income tax consequences to a U.S. Holder resulting from the acquisition, ownership and disposition of common shares. In addition, in any year in which we are classified as a PFIC, such holder may be required to file an annual report with the IRS containing such information as Treasury Regulations and/or other IRS guidance may require. U.S. Holders should consult their own tax advisors regarding the requirements of filing such information returns under these rules, including the requirement to file an IRS Form 8621.

 

PFIC Status of the Company

 

We generally will be a PFIC if, for a tax year, (a) 75% or more of our gross income is passive income (the “income test”) or (b) 50% or more of the value of our assets either produce passive income or are held for the production of passive income, based on the quarterly average of the fair market value of such assets (the “asset test”). “Gross income” generally includes all sales revenues less the cost of goods sold, plus income from investments and from incidental or outside operations or sources, and “passive income” generally includes, for example, dividends, interest, rents and royalties, gains from the sale of stock and securities, and gains from commodities transactions.

 

 60 
 

 

For purposes of the PFIC income test and asset test described above, if we own, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation, we will be treated as if it (a) held a proportionate share of the assets of such other corporation and (b) received directly a proportionate share of the income of such other corporation. In addition, for purposes of the PFIC income test and asset test described above, and assuming certain other requirements are met, “passive income” does not include interest, dividends, rents, or royalties that are received or accrued by us from “related persons” (as defined in Section 954(d)(3) of the Code), to the extent such items are properly allocable to the income of such related person that is not passive income.

 

In addition, under attribution rules, if we are a PFIC, U.S. Holders will be deemed to own their proportionate share of the stock of any subsidiary of ours that is also a PFIC, or a Subsidiary PFIC, and will be subject to U.S. federal income tax on their proportionate share of (a) a distribution on the stock of a Subsidiary PFIC and (b) a disposition or deemed disposition of the stock of a Subsidiary PFIC, both as if such U.S. Holders directly held the shares of such Subsidiary PFIC.

 

We believe that we were classified as a PFIC during the tax year ended December 31, 2016, and may be a PFIC in future tax years. The determination of whether any corporation was, or will be, a PFIC for a tax year depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. In addition, whether any corporation will be a PFIC for any tax year depends on the assets and income of such corporation over the course of each such tax year and, as a result, cannot be predicted with certainty as of the date of this document. Accordingly, there can be no assurance that the IRS will not challenge any determination made by us (or a Subsidiary PFIC) concerning its PFIC status. Each U.S. Holder should consult its own tax advisor regarding the PFIC status of the Company and any Subsidiary PFIC.

 

Default PFIC Rules Under Section 1291 of the Code

 

If we are a PFIC, the U.S. federal income tax consequences to a U.S. Holder of the acquisition, ownership, and disposition of common shares will depend on whether such U.S. Holder makes an election to treat us and each Subsidiary PFIC, if any, as a “qualified electing fund” or “QEF” under Section 1295 of the Code, or a QEF Election, or a mark-to-market election under Section 1296 of the Code, or a Mark-to-Market Election. A U.S. Holder that does not make either a QEF Election or a Mark-to-Market Election will be referred to in this summary as a “Non-Electing U.S. Holder.” A Non-Electing U.S. Holder will be subject to the rules of Section 1291 of the Code with respect to (a) any gain recognized on the sale or other taxable disposition of common shares and (b) any excess distribution received on our common shares. A distribution generally will be an “excess distribution” to the extent that such distribution (together with all other distributions received in the current tax year) exceeds 125% of the average distributions received during the three preceding tax years (or during a U.S. Holder’s holding period for our common shares, if shorter).

 

Under Section 1291 of the Code, any gain recognized on the sale or other taxable disposition of common shares (including an indirect disposition of the stock of any Subsidiary PFIC), and any “excess distribution” received on common shares, must be ratably allocated to each day in a Non-Electing U.S. Holder’s holding period for the respective common shares. The amount of any such gain or excess distribution allocated to the tax year of disposition or distribution of the excess distribution and to years before the entity became a PFIC, if any, would be taxed as ordinary income. The amounts allocated to any other tax year would be subject to U.S. federal income tax at the highest tax rate applicable to ordinary income in each such year, and an interest charge would be imposed on the tax liability for each such year, calculated as if such tax liability had been due in each such year. A Non-Electing U.S. Holder that is not a corporation must treat any such interest paid as “personal interest,” which is not deductible.

 

If we are a PFIC for any tax year during which a Non-Electing U.S. Holder holds common shares, we will continue to be treated as a PFIC with respect to such Non-Electing U.S. Holder, regardless of whether we cease to be a PFIC in one or more subsequent tax years. A Non-Electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above), but not loss, as if such common shares were sold on the last day of the last tax year for which we were a PFIC.

 

QEF Election

 

A U.S. Holder that makes a timely and effective QEF Election for the first tax year in which its holding period of its common shares begins generally will not be subject to the rules of Section 1291 of the Code discussed above with respect to its common shares. A U.S. Holder that makes a timely and effective QEF Election will be subject to U.S. federal income tax on such U.S. Holder’s pro rata share of (a) our net capital gain, which will be taxed as long-term capital gain to such U.S. Holder, and (b) our ordinary earnings, which will be taxed as ordinary income to such U.S. Holder. Generally, “net capital gain” is the excess of (a) net long-term capital gain over (b) net short-term capital loss, and “ordinary earnings” are the excess of (a) “earnings and profits” over (b) net capital gain. A U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such amounts for each tax year in which we are a PFIC, regardless of whether such amounts are actually distributed to such U.S. Holder by us. However, for any tax year in which we are a PFIC and has no net income or gain, U.S. Holders that have made a QEF Election would not have any income inclusions as a result of the QEF Election. If a U.S. Holder that made a QEF Election has an income inclusion, such a U.S. Holder may elect to defer payment of current U.S. federal income tax on such amounts, subject to an interest charge. If such U.S. Holder is not a corporation, any such interest paid will be treated as “personal interest,” which is not deductible.

 

 61 
 

 

A U.S. Holder that makes a timely and effective QEF Election with respect to us generally (a) may receive a tax-free distribution from us to the extent that such distribution represents “earnings and profits” of ours that were previously included in income by the U.S. Holder because of such QEF Election and (b) will adjust such U.S. Holder’s tax basis in our common shares to reflect the amount included in income or allowed as a tax-free distribution because of such QEF Election. In addition, a U.S. Holder that makes a QEF Election generally will recognize capital gain or loss on the sale or other taxable disposition of common shares.

 

The procedure for making a QEF Election, and the U.S. federal income tax consequences of making a QEF Election, will depend on whether such QEF Election is timely. A QEF Election will be treated as “timely” if such QEF Election is made for the first year in the U.S. Holder’s holding period for our common shares in which we were a PFIC. A U.S. Holder may make a timely QEF Election by filing the appropriate QEF Election documents at the time such U.S. Holder files a U.S. federal income tax return for such year. If a U.S. Holder does not make a timely and effective QEF Election for the first year in the U.S. Holder’s holding period for our common shares, the U.S. Holder may still be able to make a timely and effective QEF Election in a subsequent year if such U.S. Holder also makes a “purging” election to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above) as if such common shares were sold for their fair market value on the day the QEF Election is effective.

 

A QEF Election will apply to the tax year for which such QEF Election is timely made and to all subsequent tax years, unless such QEF Election is invalidated or terminated or the IRS consents to revocation of such QEF Election. If a U.S. Holder makes a QEF Election and, in a subsequent tax year, we cease to be a PFIC, the QEF Election will remain in effect (although it will not be applicable) during those tax years in which we are not a PFIC. Accordingly, if we become a PFIC in another subsequent tax year, the QEF Election will be effective and the U.S. Holder will be subject to the QEF rules described above during any subsequent tax year in which we qualify as a PFIC.

 

U.S. Holders should be aware that there can be no assurance that we will satisfy the record keeping requirements that apply to a QEF Election, or that we will supply U.S. Holders with information that such U.S. Holders require to report under the QEF Election rules, in event that we are a PFIC and a U.S. Holder wishes to make a QEF Election. Thus, U.S. Holders may not be able to make a QEF Election with respect to their common shares. Each U.S. Holder should consult its own tax advisor regarding the availability of, and procedure for making, a QEF Election.

 

A U.S. Holder makes a QEF Election by attaching a completed IRS Form 8621, including a PFIC Annual Information Statement, to a timely filed United States federal income tax return. However, if we do not provide the required information with regard to us or any of our Subsidiary PFICs, U.S. Holders will not be able to make a QEF Election for such entity and will continue to be subject to the rules of Section 1291 of the Code, discussed above, that apply to Non-Electing U.S. Holders with respect to the taxation of gains and excess distributions.

 

Mark-to-Market Election

 

A U.S. Holder may make a Mark-to-Market Election only if the common shares are marketable stock. Our common shares generally will be “marketable stock” if our common shares are regularly traded on (a) a national securities exchange that is registered with the Securities Exchange Commission, (b) the national market system established pursuant to section 11A of the Securities Exchange Act of 1934, or (c) a foreign securities exchange that is regulated or supervised by a governmental authority of the country in which the market is located, provided that (i) such foreign exchange has trading volume, listing, financial disclosure, and meets other requirements and the laws of the country in which such foreign exchange is located, together with the rules of such foreign exchange, ensure that such requirements are actually enforced and (ii) the rules of such foreign exchange ensure active trading of listed stocks. If such stock is traded on such a qualified exchange or other market, such stock generally will be “regularly traded” for any calendar year during which such stock is traded, other than in de minimus quantities, on at least 15 days during each calendar quarter.

 

 62 
 

 

A U.S. Holder that makes a Mark-to-Market Election with respect to its common shares generally will not be subject to the rules of Section 1291 of the Code discussed above with respect to such common shares. However, if a U.S. Holder does not make a Mark-to-Market Election beginning in the first tax year of such U.S. Holder’s holding period for our common shares or such U.S. Holder has not made a timely QEF Election, the rules of Section 1291 of the Code discussed above will apply to dispositions of, and distributions on, our common shares.

 

A U.S. Holder that makes a Mark-to-Market Election will include in ordinary income, for each tax year in which we are a PFIC, an amount equal to the excess, if any, of (a) the fair market value of our common shares, as of the close of such tax year over (b) such U.S. Holder’s tax basis in such common shares. A U.S. Holder that makes a Mark-to-Market Election will be allowed a deduction in an amount equal to the excess, if any, of (a) such U.S. Holder’s adjusted tax basis in our common shares, over (b) the fair market value of such common shares (but only to the extent of the net amount of previously included income as a result of the Mark-to-Market Election for prior tax years).

 

A U.S. Holder that makes a Mark-to-Market Election generally also will adjust such U.S. Holder’s tax basis in our common shares to reflect the amount included in gross income or allowed as a deduction because of such Mark-to-Market Election. In addition, upon a sale or other taxable disposition of common shares, a U.S. Holder that makes a Mark-to-Market Election will recognize ordinary income or ordinary loss (not to exceed the excess, if any, of (a) the amount included in ordinary income because of such Mark-to-Market Election for prior tax years over (b) the amount allowed as a deduction because of such Mark-to-Market Election for prior tax years).

 

A U.S. Holder makes a Mark-to-Market Election by attaching a completed IRS Form 8621 to a timely filed United States federal income tax return. A Mark-to-Market Election applies to the tax year in which such Mark-to-Market Election is made and to each subsequent tax year, unless our common shares cease to be “marketable stock” or the IRS consents to revocation of such election. Each U.S. Holder should consult its own tax advisors regarding the availability of, and procedure for making, a Mark-to-Market Election.

 

Although a U.S. Holder may be eligible to make a Mark-to-Market Election with respect to our common shares, no such election may be made with respect to the stock of any Subsidiary PFIC that a U.S. Holder is treated as owning, because such stock is not marketable. Hence, the Mark-to-Market Election will not be effective to eliminate the application of the default rules of Section 1291 of the Code described above with respect to deemed dispositions of Subsidiary PFIC stock or distributions from a Subsidiary PFIC.

 

Other PFIC Rules

 

Under Section 1291(f) of the Code, the IRS has issued proposed Treasury Regulations that, subject to exceptions, would cause a U.S. Holder that had not made a timely QEF Election to recognize gain (but not loss) upon transfers of common shares that would otherwise be tax-deferred (e.g., gifts and exchanges pursuant to corporate reorganizations). However, the specific U.S. federal income tax consequences to a U.S. Holder may vary based on the manner in which common shares are transferred.

 

Additional adverse rules will apply with respect to a U.S. Holder if we are a PFIC, regardless of whether such U.S. Holder makes a QEF Election. For example under Section 1298(b)(6) of the Code, a U.S. Holder that uses common shares as security for a loan will, except as may be provided in future Treasury Regulations, be treated as having made a taxable disposition of such common shares.

 

Special rules also apply to the amount of foreign tax credit that a U.S. Holder may claim on a distribution from a PFIC. Subject to such special rules, foreign taxes paid with respect to any distribution in respect of stock in a PFIC are generally eligible for the foreign tax credit. The rules relating to distributions by a PFIC and their eligibility for the foreign tax credit are complicated, and a U.S. Holder should consult with their own tax advisor regarding the availability of the foreign tax credit with respect to distributions by a PFIC.

 

The PFIC rules are complex, and each U.S. Holder should consult its own tax advisor regarding the PFIC rules and how the PFIC rules may affect the U.S. federal income tax consequences of the acquisition, ownership, and disposition of common shares.

 

 63 
 

 

Ownership and Disposition of Common Shares

 

The following discussion is subject in its entirety to the rules described above under the heading “Passive Foreign Investment Company Rules”.

 

Distributions on Common Shares

 

Subject to the PFIC rules discussed above, a U.S. Holder that receives a distribution, including a constructive distribution, with respect to an Offered Share will be required to include the amount of such distribution in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of the current or accumulated “earnings and profits” of ours, as computed for U.S. federal income tax purposes. A dividend generally will be taxed to a U.S. Holder at ordinary income tax rates if we are a PFIC. To the extent that a distribution exceeds the current and accumulated “earnings and profits” of ours, such distribution will be treated first as a tax-free return of capital to the extent of a U.S. Holder’s tax basis in our common shares and thereafter as gain from the sale or exchange of such common shares. (See “Sale or Other Taxable Disposition of Common Shares” below). However, we may not maintain the calculations of earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder should therefore assume that any distribution by us with respect to our common shares will constitute ordinary dividend income. Dividends received on common shares generally will not be eligible for the “dividends received deduction”. Provided we are eligible for the benefits of the Canada-U.S. Tax Convention, dividends paid by us to non-corporate U.S. Holders, including individuals, generally will be eligible for the preferential tax rates applicable to long-term capital gains for dividends, provided holding period and other conditions are satisfied, including that we not be classified as a PFIC in the tax year of distribution or in the preceding tax year. The dividend rules are complex, and each U.S. Holder should consult its own tax advisor regarding the application of such rules.

 

Sale or Other Taxable Disposition of Common Shares

 

Subject to the PFIC rules discussed above, upon the sale or other taxable disposition of common shares, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between the amount of cash plus the fair market value of any property received and such U.S. Holder’s tax basis in such common shares sold or otherwise disposed of. Subject to the PFIC rules discussed above, gain or loss recognized on such sale or other disposition generally will be long-term capital gain or loss if, at the time of the sale or other disposition, our common shares have been held for more than one year. Preferential tax rates apply to long-term capital gain of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gain of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code.

 

Additional Considerations

 

Additional Tax on Passive Income

 

Certain U.S. Holders that are individuals, estates or trusts (other than trusts that are exempt from tax) will be subject to a 3.8% tax on all or a portion of their “net investment income,” which includes dividends on our common shares, and net gains from the disposition of our common shares. Further, excess distributions treated as dividends, gains treated as excess distributions, and mark-to-market inclusions and deductions are all included in the calculation of net investment income.

 

Treasury Regulations provide, subject to the election described in the following paragraph, that solely for purposes of this additional tax, distributions of previously taxed income will be treated as dividends and included in net investment income subject to the additional 3.8% tax. Additionally, to determine the amount of any capital gain from the sale or other taxable disposition of our common shares that will be subject to the additional tax on net investment income, a U.S. Holder who has made a QEF Election will be required to recalculate its basis in our common shares excluding QEF basis adjustments.

 

Alternatively, a U.S. Holder may make an election which will be effective with respect to all interests in a PFIC for which a QEF Election has been made and which is held in that year or acquired in future years. Under this election, a U.S. Holder pays the additional 3.8% tax on QEF income inclusions and on gains calculated after giving effect to related tax basis adjustments. U.S. Holders that are individuals, estates or trusts should consult their own tax advisors regarding the applicability of this tax to any of their income or gains in respect of our common shares.

 

 64 
 

 

Receipt of Foreign Currency

 

The amount of any distribution paid to a U.S. Holder in foreign currency, or on the sale, exchange or other taxable disposition of common shares, generally will be equal to the U.S. dollar value of such foreign currency based on the exchange rate applicable on the date of receipt (regardless of whether such foreign currency is converted into U.S. dollars at that time). A U.S. Holder will have a basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any U.S. Holder who converts or otherwise disposes of the foreign currency after the date of receipt may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally will be U.S. source income or loss for foreign tax credit purposes. Different rules apply to U.S. Holders who use the accrual method of tax accounting. Each U.S. Holder should consult its own U.S. tax advisors regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.

 

Foreign Tax Credit

 

Subject to the PFIC rules discussed above, a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on the common shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax. Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder’s income subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year.

 

Complex limitations apply to the foreign tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S. federal income tax liability that such U.S. Holder’s “foreign source” taxable income bears to such U.S. Holder’s worldwide taxable income. In applying this limitation, a U.S. Holder’s various items of income and deduction must be classified, under complex rules, as either “foreign source” or “U.S. source.” Generally, dividends paid by a foreign corporation should be treated as foreign source for this purpose, and gains recognized on the sale of stock of a foreign corporation by a U.S. Holder should be treated as U.S. source for this purpose, except as otherwise provided in an applicable income tax treaty, and if an election is properly made under the Code. However, the amount of a distribution with respect to the common shares that is treated as a “dividend” may be lower for U.S. federal income tax purposes than it is for Canadian federal income tax purposes, resulting in a reduced foreign tax credit allowance to a U.S. Holder. In addition, this limitation is calculated separately with respect to specific categories of income. The foreign tax credit rules are complex, and each U.S. Holder should consult its own U.S. tax advisors regarding the foreign tax credit rules.

 

Backup Withholding and Information Reporting

 

Payments made within the U.S. or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable disposition of, common shares will generally be subject to information reporting and backup withholding tax, at the rate of 28%, if a U.S. Holder (a) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number (generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, certain exempt persons generally are excluded from these information reporting and backup withholding rules. Backup withholding is not an additional tax. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner.

 

Under U.S. federal income tax law and Treasury Regulations, U.S. Holders must generally file information returns with respect to their investment in, or involvement in, a foreign corporation. For example, U.S. return disclosure obligations (and related penalties) are imposed on individuals who are U.S. Holders that hold specified foreign financial assets in excess of threshold amounts. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person, any financial instrument or contract held for investment that has an issuer or counterparty other than a U.S. person and any interest in a foreign entity. U.S. Holders may be subject to these reporting requirements unless their common shares are held in an account at financial institutions meeting specified requirements. Penalties for failure to file information returns can be substantial. U.S. Holders should consult with their own tax advisors regarding the requirements of filing information returns, including the requirement to file an IRS Form 8938.

 

The discussion of reporting requirements set forth above is not intended to constitute an exhaustive description of all reporting requirements that may apply to a U.S. Holder. A failure to satisfy reporting requirements may result in an extension of the time period during which the IRS can assess a tax, and under certain c