BriaCell Therapeutics Corp

BriaCell Therapeutics Corp

NOTE 1: GENERAL AND GOING CONCERN

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X promulgated by the U.S Securities and Exchange Commission (the “SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments consisting of a normal recurring nature which are necessary for a fair presentation of the financial position, operating results, and cash flows for the periods presented.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report for the year ended July 31, 2023, filed with the SEC on October 25, 2023. The interim period results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year.

NOTE 1: GENERAL AND GOING CONCERN (Cont.)

Pursuant to the terms of the Arrangement, BriaPro has acquired the entire right and interest in and to the BriaPro Assets in consideration for the issuance by BriaPro to the Company of BriaPro common shares. Under the terms of the Arrangement, for each BriaCell share held immediately prior to closing, BriaCell Shareholders receive one (1) common share of BriaPro, and one (1) new common share of BriaCell (retiring their old share) having the same terms and characteristics as the existing BriaCell common shares. The Company will remain listed on the NASDAQ Stock Market and Toronto Stock Exchange, and BriaPro is an unlisted reporting issuer in Canada.

Immediately following the closing of the Arrangement, the Company controls 2/3rd of the BriaPro common shares representing approximately 66.6% of the issued and outstanding common shares of BriaPro.

As a result of the Arrangement, there are 47,945,178 BriaPro common shares issued and outstanding. The Company now beneficially owns or controls approximately 31,963,452 BriaPro common shares, representing 2/3rd of the issued and outstanding BriaPro common shares.

Pursuant to the Arrangement, each BriaCell warrant shall, in accordance with its terms, entitle the holder thereof to receive, upon the exercise thereof, one BriaCell Share and one BriaPro Share for the original exercise price.

Upon the exercise of BriaCell Warrants, BriaCell shall, as agent for BriaPro, collect and pay to BriaPro an amount for each one (1) BriaPro Share so issued that is equal to the exercise price under the BriaCell Warrant multiplied by the fair market value of one (1) BriaPro Share at the Effective Date divided by the total fair market value of one (1) BriaCell Share and one (1) BriaPro Share at the Effective Date (“BriaPro Warrant Shares”).

Pursuant to the Arrangement, all Briacell option holders received the same amount of BriaPro options (“BriaPro Option”) and under the BriaPro incentive plan. The exercise price of the BriaCell options was apportioned between the BriaCell options and the BriaPro options, as follows:

Each one (1) BriaPro Option to acquire one (1) Share shall have an exercise price equal to the product obtained by multiplying the original exercise price of the BriaCell Option by the quotient obtained by dividing (A) the fair market value of a BriaPro Share at the Effective Date by (B) the aggregate fair market value of a BriaCell Share and a BriaPro Share at the Effective Date.

Pursuant to the Arrangement, all BriaCell Restricted Shares Units (“RSU”) holders received the same amount of BriaPro RSU’s under the BriaPro incentive plan.

Transition Services Agreement

On August 31, 2023, the Company and BriaPro executed a transition services agreement (the “Agreement”), pursuant to which BriaCell will provide certain research and development and head office services (the “Services”) to BriaPro for a fixed monthly fee of $20,000.

Briacell and BriaPro acknowledged the transitional nature of the Services and accordingly, as promptly as practicable, BriaPro agreed to use commercially reasonable efforts to transition each Service to its own internal organization or to obtain alternate third party providers to provide the Services.

In accordance with US GAAP’s Accounting Standards Codification 505 “Equity”, the Arrangement was determined to be a spinoff of nonmonetary assets which did not constitute a business. However, since the assets were transferred to an entity under the Company’s control, the assets is being recorded on the Company’s basis (carry value) and not at fair market value.

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

a. Use of estimates:

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company’s management believes that the estimates, judgment and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities at the dates of the consolidated financial statements, and the reported amount of expenses during the reporting periods. Actual results could differ from those estimates.

b. Equity method investments:

Investments in entities over which the Company does not have a controlling financial interest but has significant influence, are accounted for using the equity method, with the Company’s share of losses reported in loss from equity method investments on the statements of loss and comprehensive loss. Equity method investments are recorded at cost, plus the Company’s share of undistributed earnings or losses, and impairment, if any, within interest in equity investees on the statements of financial position.

c. Recently issued and adopted accounting standards:

As an “emerging growth company,” the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use this extended transition period under the JOBS Act. The adoption dates discussed below reflects this election. The pronouncements below relate to standards that impact the Company.

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)

NOTE 3: INVESTMENT IN BC THERAPEUTICS INC.

On December 21, 2021, the Company and BC Therapeutics, Inc. (“BC Therapeutics” or “the Investee”) entered a share purchase agreement (“SPA”), pursuant to which the Company invested $300,000 at $1.25 per BC Therapeutics share for a 37.5% interest in the Investee. Pursuant to the SPA (“Initial Investment”), Briacell also received two options to invest an additional $225,000 per option at $1.25 per BC Therapeutics share. The first option expires on February 15, 2024 (“First BC Therapeutics Option”) and the second option expires on June 30, 2024 (“Second BC Therapeutics Options”, together, the “BC Therapeutic Options”). In accordance with ASC 321 and ASC 815, the BC Therapeutics Options were valued at $76,350 in accordance with the Black Scholes Option Price Model, using the following assumptions: Share price: $1.25, Exercise price: $1.25, Dividend yield:0%, Risk free interest rate: $4.902%, Volatility:100%.

BC Therapeutics has a board of four representatives, with two representatives appointed by BriaCell and two representatives appointed by the existing shareholders. All significant decisions related to BC Therapeutics require the approval of at least a majority of the board members.

On February 1, 2024, the Company exercised the First BC Therapeutics Option and currently holds 51.2% of BC Therapeutics. The value of the BC Therapeutics Options was updated to consider the effect of the exercise of the First BC Therapeutics Option. Consequently, the fair value of the First BC Therapeutics Option, $35,964, has been reclassified to the investment.

In accordance with ASC 810, the Company continues to account for the investment under the equity method of accounting as the Company does not exercise control over BC Therapeutics.

Changes in the Company’s equity investment in BC Therapeutics is summarized as follows:

The following amounts represent the Company’s 51.2% share of the assets of BC Therapeutics:

NOTE 4: CONTINGENT LIABILITIES AND COMMITMENTS

As detailed in note 1(f), upon the exercise of BriaCell Warrants, BriaCell shall, as agent for BriaPro, collect and pay to BriaPro an amount of up to $241,164.

The Company is currently in a 12-month commitment (ending August 31, 2024) for office and lab space in Philadelphia, PA, costing the company approximately $36,000 per month.

NOTE 5: FAIR VALUE MEASUREMENTS

The following table presents information about our financial instruments that are measured at fair value on a recurring basis as of April 30, 2024, and July 31, 2023:

The Company classifies its cash and cash equivalents and the liability in respect of publicly traded warrants within Level 1 because we use quoted market prices in active markets.

The fair value of the warrant liability for non-public warrants is measured using inputs other than quoted prices included in Level 1 that are observable for the liability either directly or indirectly, and thus are classified as Level 2 financial instruments.

NOTE 6: SHAREHOLDERS’ EQUITY

a. Authorized share capital

The authorized share capital consists of anunlimited number of common shares withno par value.

b. Issued share capital

No shares were issued during the nine-month period ended April 30, 2024.

c. Share Purchase Warrants

NOTE 6: SHAREHOLDERS’ EQUITY (Cont.)

d. Compensation Warrants

e. Warrant liability continuity

The following table presents the summary of the changes in the fair value of the warrants:

The key inputs used in the valuation of the non-public warrants as of April 30, 2024 and at July 31, 2023 were as follows:

NOTE 6: SHAREHOLDERS’ EQUITY (Cont.)

The key inputs used in the valuation of the of the BriaPro Warrant Shares as of April 30, 2024 were as follows:

NOTE 7: SHARE-BASED COMPENSATION

As of April 30, 2024 there are $1,164,462 of total unrecognized costs related to share-based compensation that is expected to be recognized over a period of up to 1 year.

NOTE 7: SHARE-BASED COMPENSATION (Cont.)

The following table summarizes the number of RSU’s granted to directors under the Omnibus plan as of April 30, 2024:

NOTE 7: SHARE-BASED COMPENSATION (Cont.)

April 30, 2024 and 2023 is comprised as follows:

NOTE 8: BASIC AND DILUTED NET LOSS PER SHARE

Basic net income (loss) per ordinary share is computed by dividing net income (loss) for each reporting period by the weighted-average number of ordinary shares outstanding during each year. Diluted net income (loss) per ordinary share is computed by dividing net income (loss) for each reporting period by the weighted average number of ordinary shares outstanding during the period, plus dilutive potential ordinary shares considered outstanding during the period, in accordance with ASC No. 260-10 “Earnings Per Share”. The company reported a loss for the three and nine month period ending April 30, 2023 and for the nine months ended April 30, 2024, leading to the exclusion of potentially dilutive ordinary shares. Conversely, for the three-month period ended April 30, 2024, the Company reported a gain. However, due to the specific characteristics and terms of the outstanding warrants and options, they were not considered dilutive for this period and, therefore, no adjustment was made to include them in the calculation of diluted net income per ordinary share.

NOTE 9: FINANCIAL INCOME (EXPENSES), NET

NOTE 10: SUBSEQUENT EVENT

The Company evaluated the possibility of subsequent events existing in the Company’s unaudited condensed consolidated financial statements through June 14, 2024, the date that the condensed consolidated financial statements were available for issuance. The Company is not aware of any subsequent events which would require recognition or disclosure in the consolidated financial statements, except as follows:

On May 17, 2024, the Company closed a registered direct offering with healthcare-focused institutional investors and a certain existing investor and a director of the Company for the purchase and sale of 2,402,935 common shares of the Company (or pre-funded warrants in lieu thereof) and warrants to purchase up to an aggregate of 2,402,935 common shares of the Company for aggregate gross proceeds of approximately $5.0 million before deducting placement agent fees and other offering expenses (the “Offering”). Each common share (or pre-funded warrant in lieu thereof) was sold together with one warrant to purchase one common share at a combined purchase price of $2.00 to the institutional investors and $2.215 to the existing investor and director of the Company. The warrants have an exercise price of $2.11 per share, will become exercisable six months from the date of issuance and expire five years from the initial exercise date.