# InMed Pharmaceuticals Inc.: Form 10-Q for the period ended Sep 30, 2024

- Company: [InMed Pharmaceuticals Inc.](/companies/inm.md) (CIK 1728328)
- Form: 10-Q
- Filed: 2024-11-14
- Accepted by EDGAR: Nov 14, 2024, 16:15 ET
- Period: 2024-09-30
- Accession: 0001213900-24-098445
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1728328/000121390024098445/ea0219774-10q_inmed.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1728328/000121390024098445/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $1.3m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $771.2k | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-07-01 to 2024-09-30 | $493.4k | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-07-01 to 2024-09-30 | $771.2k | us-gaap:ResearchAndDevelopmentExpense |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | −$1.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | −$2.71 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | −$2.71 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 620,127 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-07-01 to 2024-09-30 | −$1.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2024-09-30 | $5.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $7.3m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $10.5m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $1.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $2.1m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-09-30 | $8.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 37,992 characters.

*This discussion and analysis contains certain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, and is subject to the safe harbor created by those sections. For more information, see “Special Note Regarding Forward-Looking Statements.” When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that impact our business. In particular, we strongly encourage you to review the risks and uncertainties described in “Risk Factors” in the 2024 Annual Report, the “Risk Factors” identified in Item 1A. of this Quarterly Report, and other filings we make from time to time with the SEC. These risks and uncertainties could cause actual results to differ materially from those projected or implied by our forward-looking statements contained in this Quarterly Report on Form 10-Q. These forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q, and we do not intend, and do not assume any obligation, to update these forward-looking statements, except as required by law.*

*The following discussion and analysis should be read in conjunction with our audited consolidated financial statements for the year ended June 30, 2024, and the related notes thereto, which have been prepared in accordance with U.S. GAAP. Additionally, the following discussion and analysis should be read in conjunction with our audited consolidated financial statements included in this Annual Report. Throughout this discussion, unless the context specifies or implies otherwise the terms “InMed,” “Company,” “we,” “us,” and “our” refer to InMed Pharmaceuticals Inc.*

### All dollar amounts stated herein are in U.S. dollars unless specified otherwise.

### Overview

We are a pharmaceutical company developing a pipeline of proprietary small molecule drug candidates that are preferential signaling ligands of the endogenous CB1 and CB2 receptors as well as other receptor targets linked to human disease. CB1 and CB2 receptors are each part of the endocannabinoid system that is found throughout the human body and is responsible for many homeostatic functions. CB1 receptors are primarily located in the brain and central nervous system, while CB2 receptors are involved in modulating neuroinflammation and immune responses. Our research efforts target the treatment of diseases with high unmet medical needs. Together with BayMedica, we also have significant know-how in developing proprietary manufacturing approaches to produce and sell bulk rare cannabinoids as ingredients for various market sectors.

InMed has sought to focus on the research and development of preferential signaling ligands of CB1 and CB2, and has produced a library of novel, proprietary drug candidates (“Product Candidates”). These Product Candidates are patentable new chemical entities (“NCEs”) for pharmaceutical development, aimed at targeting diverse clinical indications. Our current pharmaceutical pipeline consists of three programs, with drug candidates targeting Alzheimer’s disease, dry age-related macular degeneration, and Epidermolysis Bullosa. InMed’s INM-901 is a proprietary small molecule, disease modifying drug candidate being developed as a potential treatment for Alzheimer’s disease. INM-901 has multiple potential mechanisms of action as a preferential signaling agonist for both CB1 and CB2 receptors, as well as impacting the peroxisome proliferator-activated receptor (“PPAR”) signaling pathway. Combined, these mechanisms of action may offer a unique treatment approach targeting several biological pathways associated with Alzheimer’s disease. Our ocular research, based on the proprietary small molecule INM-089, indicates potentially promising neuroprotective effects in the back of the eye, which may lead to the preservation of the retinal function. Neuroprotection in dry Aged-related Macular Degeneration (“dry AMD”) remains an unmet medical need and a new treatment option may help solve this multifactorial disease.

InMed has also completed a Phase 2 clinical trial of INM-755 (cannabinol) cream studying its safety and efficacy in treating symptoms related to Epidermolysis Bullosa (“EB”). Results from the Phase 2 clinical trial showed a positive indication of enhanced anti-itch activity for INM-755 cream versus the control cream alone in an exploratory clinical evaluation. The Company is also pursuing strategic partnership opportunities for INM-755 in epidermolysis bullosa and other itch-related skin conditions.

Together with BayMedica, our manufacturing capabilities include traditional approaches such as chemical synthesis and biosynthesis, as well as a proprietary, integrated manufacturing approach called IntegraSyn. With multiple manufacturing approaches, InMed has sought to maintain enhanced flexibility to select the most cost-effective method to deliver high quality, high purity Products and Product Candidates fit for their intended use. BayMedica’s commercial business specializes in the B2B commercialization of bulk rare, non-intoxicating cannabinoids as raw materials for the Health and Wellness sector that are bioidentical to those found in nature.

### Recent Developments

### NASDAQ Delisting Notice, Determination from the Hearings Panel and Reverse Stock Split

As previously reported by the Company, on March 19, 2024, the Company received written notification from the Listing Qualifications Department of Nasdaq that the Company has been granted an additional 180-day compliance period, or until September 16, 2024 (the “Extended Compliance Period”), to regain compliance with Nasdaq’s minimum bid price requirement for the continued listing on Nasdaq, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Rule”). Nasdaq’s determination was based on the Company meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on Nasdaq, with the exception of the bid price requirement, and the Company’s written notice of its intention to consider all available options to regain compliance during the Extended Compliance Period, including, if necessary, effecting a reverse stock split. The Company was unable to regain compliance during the Extended Compliance Period and, on September 17, 2024, the Company received an additional notification from the Listing Qualifications Department stating that due to the deficiency, the Company’s securities would be delisted from Nasdaq on September 26, 2024, unless the Company appealed Nasdaq’s determination to a Hearings Panel (the “Panel”). A hearing request would stay the suspension of the Company’s securities pending the Panel’s discussion. On September 17, 2024, the Company submitted the hearing request to appeal (the “Appeal Request”) Nasdaq’s determination before the Panel. On October 31, 2024, a hearing was held before the Panel regarding the Company’s request for (i) continued listing on Nasdaq and (ii) additional time to regain compliance with the Minimum Bid Price Rule. On November 1, 2024, the Panel issued its determination (the “Panel Determination Letter”) to the Company, granting the Company’s request for the continued listing of the Common Shares on Nasdaq, but subject to the Company’s evidencing compliance with the Minimum Bid Price Rule for ten consecutive trading days as of December 2, 2024 (the “Requisite Compliance Date”), and of other conditions stipulated by the Panel Determination Letter. In order to regain compliance with the Minimum Bid Price Rule before the Requisite Compliance Date, the Company effected the Reverse Stock Split of the Common Shares at a ratio of 20-to-1. Trading of the Common Shares on Nasdaq on a split-adjusted basis began as of November 14, 2024. As a result of the Reverse Stock Split, every twenty shares of Common Shares were combined into one Common Share, and the total number of Common Shares outstanding were reduced from approximately 14,361,550 shares to approximately 718,032 shares. No fractional shares were issued if, as a result of the Reverse Stock Split, a registered shareholder would otherwise become entitled to a fractional share. Instead, shareholders who otherwise were entitled to receive fractional shares because they held a number of Common Shares not evenly divisible by the ratio of the Reverse Stock Split were automatically entitled to receive an additional Common Share. In other words, any fractional share will be rounded up to the nearest whole number.

While the Company has effected the Reverse Stock Split, there can be no assurances, however, that we will be successful in regaining compliance with the continued listing requirements, including the Minimum Bid Price Rule, and maintaining the listing of our Common Shares on Nasdaq. Delisting from Nasdaq could materially and adversely affect our ability to raise additional financing through the public or private sale of equity securities, would significantly affect the ability of investors to trade our securities and would negatively affect the value and liquidity of our securities, including our Common Shares. The actual or threatened delisting of our securities could also have other material and adverse consequences, including the potential loss of confidence by employees and other stakeholders, the loss of institutional investor interest and fewer business development opportunities, limited availability of market quotations for our securities, reduced liquidity with respect to our securities, a determination that our Common Shares is “penny stock,” which will require brokers trading in our Common Shares to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our Common Shares, and limited amount of news and analyst coverage of the Company. To the extent that our Common Shares became eligible to trade on the OTC Bulletin Board, another over-the-counter quotation system, or on the pink sheets, an investor may find it more difficult to dispose of their Common Shares or obtain accurate quotations as to the market value of our Common Shares. All Common Shares, stock options, warrants and per share information for all periods presented in the have been adjusted retrospectively to reflect this Reverse Stock Split.

### Renewal of ATM Program

As previously reported by the Company on the Company’s Current Report on Form 8-K filed on June 28, 2024, on June 27, 2024, the Company entered into an amendment (the “ATM Amendment”) to its At-the-Market Offering Agreement, dated April 7, 2022 (the “Original ATM Agreement” and together with the ATM Amendment, the “Amended ATM Agreement”), by and between the Company and H.C. Wainwright & Co., LLC (the “Agent”), as sales agent, pursuant to which the Company may offer and sell shares of our Common Shares, from time to time, in “at the market” offerings through the Agent. The Original ATM Agreement was previously filed with the Securities and Exchange Commission on April 7, 2022 on the Company’s Current Report on Form 8-K. The ATM Amendment amends the Original ATM Agreement to reflect, among other provisions, updates to certain sales settlement provisions and reimbursement terms, and to supplement the representations being made by the Company to the Agent. Our Common Shares sold under the Amended ATM Agreement will be offered and sold pursuant to the Company’s shelf registration statement on Form S-3, which was initially filed on February 4, 2022 and amended on February 9, 2022, and was declared effective by the SEC on February 11, 2022. The foregoing description of the terms of the ATM Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the ATM Amendment.

Subsequent to September 30, 2024, the Company issued 1,021,305 Common Shares for gross proceeds of $365,473, pursuant to the terms of the Amended ATM Agreement.

### Advancements to the INM-901 program

July 30, 2024 — we announced positive results from initial data sets from a long-term (7 months of dosing) in vivo preclinical Alzheimer’s Disease (“AD”) study of INM-901 which confirms previously reported findings from a short-term (3 months of dosing) pilot study. All assessments of the INM-901-treated AD groups showed a positive trend towards behavior similar to the untreated disease-free group, with most assessments demonstrating a clear dose response. Furthermore, INM-901-treated AD groups achieved a statistically significant improvement in certain behavior criteria in comparison to the placebo-treated AD groups. These results not only supported but, in several instances, improved upon the prior short-term pilot study outcomes.

August 20, 2024 — we announced the confirmation of INM-901 as an oral formulation that will be utilized in its development programs for Alzheimer’s disease. Recent preclinical studies have demonstrated that INM-901 can be administered orally and achieve therapeutic levels in the brain comparable to those obtained through intraperitoneal (“IP”) injection, which is a common route of administration for preclinical investigation of neurodegenerative diseases. The data indicates the INM-901 formulation can be administered orally and maintains a similar drug exposure levels as IP delivery over a 24-hour period in the brain. This oral delivery method offers potential advantages such as reduction in treatment delivery costs versus intravenous delivery of current disease modifying large molecule antibody therapies.

### Additional Preclinical Data for INM-901’s Pharmacological Effects

### Components of Results of Operations

#### Revenue

Our revenue consists of manufacturing and distribution sales of bulk rare cannabinoid Products, which are generally recognized at a point in time. The Company recognizes revenue when control over the products have been transferred to the customer and the Company has a present right to payment.

#### Cost of Sales

Cost of sales consists primarily of the purchase price of goods and cost of services rendered, freight costs, warehousing costs, and purchasing costs. Cost of sales also includes production and labor costs for our manufacturing business.

#### Operating Expenses

#### Research and Development and Patent Expenses

Research and development and patent expenses represent costs incurred by us for the discovery, development, and manufacture of our Products and Product Candidates, and include:

- external research and development expenses incurred under agreements with contract research organizations (“CROs”), CDMOs and consultants;
- salaries, payroll taxes, employee benefits expenses for individuals involved in research and development efforts;
- research supplies; and
- legal and patent office fees related to patent and intellectual property matters.

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We expense research and development costs as incurred. We recognize expenses for certain development activities, such as preclinical studies and manufacturing, based on an evaluation of the progress to completion of specific tasks using data or other information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of expenses incurred. Non-refundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. These amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered, or the services rendered.

External costs represent a significant portion of our research and development expenses, which we track on a program-by-program basis following the nomination of a development candidate. Our internal research and development expenses consist primarily of personnel-related expenses, including salaries, benefits and stock-based compensation expenses. We do not track our internal research and development expenses on a program-by-program basis as the resources are deployed across multiple projects.

The successful development of our Products and Product Candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing, and estimated costs of the efforts that will be necessary to complete the remainder of the development of our Product Candidates or to develop and commercialize additional Products. We are also unable to predict when, if ever, material net cash inflows will commence from our Product Candidates, if approved. This is due to the numerous risks and uncertainties associated with development, including the uncertainty related to:

- the timing and progress of preclinical and clinical development activities;
- the number and scope of preclinical and clinical programs we decide to pursue;
- our ability to raise additional funds necessary to complete preclinical and clinical development and commercialization of our Product Candidates, to further advance the development of our manufacturing technologies, and to develop and commercialize additional Products, if any;
- our ability to maintain our current research and development programs and to establish new ones;
- our ability to establish sales, licensing or collaboration arrangements;
- the progress of the development efforts of parties with whom we may enter into collaboration arrangements;
- the successful initiation and completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority;
- the receipt and related terms of regulatory approvals from applicable regulatory authorities;
- the availability of materials for use in production of our Products and Product Candidates;
- our ability to secure manufacturing supply through relationships with third parties or establish and operate a manufacturing facility;
- our ability to consistently manufacture our Product Candidates in quantities sufficient for use in clinical trials;
- our ability to obtain and maintain intellectual property protection and regulatory exclusivity, both in the United States and internationally;
- our ability to maintain, enforce, defend and protect our rights in our intellectual property portfolio;
- the commercialization of our Product Candidates, if and when approved, and of new Products;
- our ability to obtain and maintain third-party payor coverage and adequate reimbursement for our Product Candidates, if approved;
- the acceptance of our Product Candidates, if approved, by patients, the medical community and third-party payors;
- competition with other products; and
- a continued acceptable safety profile of our Product Candidates following receipt of any regulatory approvals.

A change in the outcome of any of these variables with respect to the development of any of our Products or Product Candidates would significantly change the costs and timing associated with the development of those Products or Product Candidates.

Research and development activities account for a significant portion of our operating expenses. Research and development expenses decreased in our three months ended September 30, 2024, as compared to our three months ended September 30, 2023, largely due to high costs associated with our INM-755 program during the prior year. However, we expect our research and development expenses to increase significantly in future periods as we continue to implement our business strategy, which includes advancing our drug candidates and our manufacturing technologies into and through clinical development, expanding our research and development efforts, including hiring additional personnel to support our research and development efforts, ultimately seeking regulatory approvals for our drug candidates that successfully complete clinical trials, and further developing selected research and development and commercial BayMedica activities. In addition, drug candidates in later stages of clinical development generally incur higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. Accordingly, although we expect our research and development expenses to increase as our drug candidates advance into later stages of clinical development, we do not believe that it is possible, at this time, to accurately project total program-specific expenses through to commercialization. There are numerous factors associated with the successful commercialization of any of our Product Candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development.

#### General and Administrative Expenses

General and administrative expenses consist of personnel-related costs, including salaries, benefits and stock-based compensation expense, for our personnel in executive, finance and accounting, human resources, business operations and other administrative functions, investor relations activities, legal fees related to corporate matters, fees paid for accounting and tax services, consulting fees and facility-related costs.

#### Amortization and Depreciation

Intangible assets are comprised of intellectual property that we acquired in 2014 and 2015 and trade secrets, product formulation knowledge, patents that we acquired in October 2021. The acquired intellectual property and patents are amortized on a straight-line basis based on their estimated useful lives. Equipment and leasehold improvements are depreciated using the straight-line method based on their estimated useful lives.

#### Share-based Payments

Share-based payments is the stock-based compensation expense related to our granting of stock options to employees and others. The fair value, at the grant date, of equity-settled share awards is charged to our loss over the period for which the benefits of employees and others providing similar services are expected to be received. The vesting components of graded vesting employee awards are measured separately and expensed over the related tranche’s vesting period. The amount recognized as an expense is adjusted to reflect the number of share options expected to vest. The fair value of awards is calculated using the Black-Scholes option pricing model, which considers the exercise price, current market price of the underlying shares, expected life of the award, risk-free interest rate, expected volatility and the dividend yield.

#### Other Income

Other income consists primarily of interest income earned on our cash, cash equivalents and short-term investments.

### Results of Operations

The Company has two operating and reportable segments based on the management approach which designates the internal reporting used by the CODM, the Company’s Chief Executive Officer and the senior management team, for making decisions and assessing performance as the source of the Company’s reportable segments. The CODM allocates resources and assesses the performance of each operating segment based on potential licensing opportunities, historical and potential future product sales, operating expenses, and operating income (loss) before interest and taxes. The Company has determined its reportable segments to be ‘InMed Pharma’ and ‘BayMedica Commercial’ based on the information used by the CODM.

### Comparison of the three months ended September 30, 2024 and 2023 for InMed Segment

*(in thousands)*

| Operating expenses: | Three Months Ended September 30, 2024 | 2023 | Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Research and development and patents | 763 | 1,271 | (508) | (40)% |
| General and administrative | 1,238 | 1,064 | 174 | 16% |
| Amortization and depreciation | 54 | 54 | - | -% |
| Foreign exchange (gain) loss | (19) | 48 | (67) | (140)% |
| Total operating expenses | 2,036 | 2,437 | (401) | (16)% |
| Interest and other income | 57 | 136 | (79) | (58)% |
| Net loss | $(1,979) | $(2,301) | $322 | (14)% |

#### Research and Development and Patents Expenses

Research and development and patents expenses decreased by $508,000 in our ‘InMed Pharma’ segment, or 40%, for the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. The decrease in research and development and patents expenses was due primarily to a decrease in external contractors, patent fees, and compensation. This was offset by an increase in research supplies. However, we expect our research and development expenses to increase significantly in future periods as we move closer towards clinical trials which will result in higher costs related studies, drug supplies, and increased regulatory requirements, as we continue to implement our business strategy.

#### General and administrative expenses

General and administrative expenses increased by $174,000 in our ‘InMed Pharma’ segment, or 16%, for the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. The increase results primarily from a combination of changes including higher investor relation expenses, personnel expenses, consulting fees, accounting fees, and legal. This was offset by a decrease in lower office and administrative expenses

#### Foreign exchange loss

The Company’s functional currency is the US dollar and our foreign exchange loss is predominantly due to transactions with foreign currency. Foreign exchange loss decreased by $67,000 in our ‘InMed Pharma’ segment, or 140%, for the three months ended September 30, 2024, as compared to the three months ended September 30, 2023, as a consequence of holding non-US denominated assets and liabilities combined with fluctuations in foreign exchange rates.

### Comparison of the three months ended September 30, 2024 and 2023 for the ‘BayMedica Commercial’ Segment

*(in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Sales | $1,265 | $902 | $363 | 40% |
| Cost of sales | 771 | 881 | (110) | (12)% |
| Gross profit | 494 | 21 | 473 | 2252)% |
| Operating expenses: |  |  |  |  |
| Research and development and patents | 8 | 21 | (13) | (62)% |
| General and administrative | 184 | 235 | (51) | (22)% |
| Amortization and depreciation | 1 | 1 | - | -% |
| Total operating expenses | 193 | 257 | (64) | (25)% |
| Tax expense | - | - | - | -% |
| Net Income | $301 | $(236) | $537 | (228)% |

#### Sales

Sales increased by $363,000 in our ‘BayMedica Commercial’ segment, or 40%, for the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. The increase in sales results from expanded marketing efforts and increased demand in certain cannabinoid products. BayMedica will continue to evaluate opportunities for potential structured supply arrangements and collaborations for the commercial business. Sales and marketing efforts will remain focused on products that contribute highest margins, where BayMedica continues to hold a strong competitive position.

#### Cost of Sales

Cost of goods sold decreased by $110,000 in our ‘BayMedica Commercial’ segment, or 12%, for the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. The decrease in cost of goods sold is primarily the result of decrease in write-down of inventories to net realizable value.

### Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses, generated limited revenue from product sales, and no sales from any other sources, and have negative cash flows from our operations. We have not yet commercialized any of our Product Candidates and we do not expect to generate revenue from sales of any Product Candidates for several years, if at all. We have funded our operations to date primarily with proceeds from the sale of our Common Shares.

As of September 30, 2024, we had cash, cash equivalents and short-term investments of $5.6 million.

The following table summarizes our cash flows for each of the periods presented:

*(in thousands)*

|  | Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 |
| --- | ---: | ---: |
| Net cash (used in) operating activities | $(1,826) | $(2,174) |
| Net cash provided by financing activities | 838 | - |
| Net increase (decrease) in cash and cash equivalents | $(988) | $(2,174) |

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#### Operating Activities

During the three months ended September 30, 2024, we used cash in operating activities of $1.8 million, primarily resulting from our net loss of $1.7 million combined with $328,000 used in changes in our non-cash working capital, partially offset by non-cash share-based compensation expenses and inventory write-down.

During the three months ended September 30, 2023, we used cash in operating activities of $2.2 million, primarily resulting from our net loss of $2.5 million combined with changes in our working capital and non-cash expenses contributed to net cash used in operating activities.

#### Investing Activities

During the three months ended September 30, 2024, cash used in investing activities of $0 resulted from the purchases and sale of short-term investments.

During the three months ended September 30, 2023, cash used in investing activities of $0.

#### Financing Activities

During the three months ended September 30, 2024, cash provided by financing activities of $838,000 consisted of $1.0 million in gross proceeds derived from the ATM, offset by total transaction costs of $192,000.

During the three months ended September 30, 2023, cash provided by financing activities consisted of $0.

### Funding Requirements

We expect our expenses to increase substantially in connection with our ongoing research and development activities, particularly as we continue the research and development of and the clinical trials for our Product Candidates. In addition, we expect to incur additional costs associated with operating as a US-listed public company and associated with any required investment into BayMedica’s research and development efforts targeting cannabinoid analogs. As a result, we expect to incur substantial operating losses and negative operating cash flows for the foreseeable future.

In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2014-15, *Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40)*, we have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued.

Through September 30, 2024, we funded our operations primarily with proceeds from the sale of our Common Shares. We have incurred recurring losses and negative cash flows from operations since its inception, including net losses of $1.7 million and $2.5 million for the three months ended September 30, 2024 and 2023, respectively. In addition, we have an accumulated deficit of $110.8 million as of September 30, 2024.

As of the issuance date of the consolidated annual financial statements, the Company expects its cash, cash equivalents and short-term investments of $5.6 million as of September 30, 2024 will be sufficient to fund its operating expenses and capital expenditure requirements through the end of the first quarter of calendar 2025, depending on the level and timing of realizing BayMedica revenues from the sale of bulk rare cannabinoids in the health and wellness sector, as well as the level and timing of Company operating expenses. The future viability of the Company is dependent on its ability to raise additional capital to finance its operations. The Company has concluded that there is substantial doubt about its ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued.

We expect to continue to seek additional funding through equity financings, debt financings or other capital sources, including collaborations with other companies, government contracts or other strategic transactions. We may not be able to obtain financing on acceptable terms, or at all. The terms of any financing may adversely affect the holdings or the rights of our existing shareholders.

Our funding requirements and timing and amount of our operating expenditures will depend largely on:

- the scope, progress, results and costs of discovery research, preclinical development, laboratory testing and clinical trials for our Product Candidates;
- the scope, progress, results and costs of development of our manufacturing technologies;
- the number of and development requirements for other Products and Product Candidates that we pursue;
- the costs, timing and outcome of regulatory review of our Product Candidates;
- our ability to enter into contract manufacturing arrangements for supply of materials and manufacture of our Products and Product Candidates and the terms of such arrangements;
- the impact of any acquired, or in-licensed, externally developed product(s) and/or technologies;
- our ability to establish and maintain strategic collaborations, licensing or other arrangements, including sales arrangements, and the financial terms of such arrangements;
- the sales, costs and timing of future commercialization activities, including product manufacturing, sales, marketing and distribution, for any of our Products and for Product Candidates for which we may receive marketing approval;
- the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights and defending any intellectual property- related claims;
- expansion costs of our operational, financial and management systems and increases to our personnel, including personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a dual listed company;
- the costs to obtain, maintain, expand and protect our intellectual property portfolio; and
- the level and timing of realizing revenues from the BayMedica commercial operations.

A change in the outcome of any of these, or other variables with respect to the development of any of our Products and Product Candidates, could significantly change the costs and timing associated with their development. We will need to continue to rely on additional financing to achieve our business objectives.

In addition to the variables described above, if and when any of our Product Candidates successfully complete development, we will incur substantial additional costs associated with regulatory filings, marketing approval, post-marketing requirements, maintaining our intellectual property rights, and regulatory protection, in addition to other commercial costs. We cannot reasonably estimate these costs at this time.

Until such time, if ever, as we can generate substantial revenues from either our Products or Product Candidates, we expect to finance our cash needs through a combination of equity or debt financings and collaboration arrangements. We currently have no credit facility or committed sources of capital. To the extent that we raise additional capital through the future sale of equity securities, the ownership interests of our shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common shareholders. If we raise additional funds through the issuance of debt securities, these securities could contain covenants that would restrict our operations. We may require additional capital beyond our currently anticipated amounts, and additional capital may not be available on reasonable terms, or at all. If we raise additional funds through collaboration arrangements or other strategic transactions in the future, we may have to relinquish valuable rights to our technologies, future revenue streams, Products or Product Candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate development or future commercialization efforts or grant rights to develop and market Products or Product Candidates that we would otherwise prefer to develop and market ourselves.

### Off-Balance Sheet Arrangements

During the periods presented, we did not have, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations promulgated by the SEC.

### Critical Accounting Policies and Significant Judgments and Estimates

Our significant accounting policies are described in Note 2 of the Financial Statements. The estimates will require us to rely upon assumptions that were highly uncertain at the time the accounting estimates are made, and changes in them are reasonably likely to occur from period to period. Changes in estimates used in these and other items could have a material impact on our financial statements in the future. Our estimates will be based on our experience and our interpretation of economic, political, regulatory, and other factors that affect our business prospects. Actual results may differ significantly from our estimates. For detailed information regarding our critical accounting policies and estimates, see our financial statements and notes thereto included in this Report and in our 2024 Annual Report. There have been no material changes to our critical accounting policies and estimates from those disclosed in our 2024 Annual Report.

## Market risk

As filed, 154 characters.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and, as such, are not required to provide the information under this Item.

## Controls and procedures

As filed, 2,029 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2024. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to its management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2024, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective.

### Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three-month period ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 9,778 characters.

Reference is made to Part I, Item 1A, “Risk Factors” included in the 2024 Annual Report for information concerning risk factors, which should be read in conjunction with the factors set forth in “*Cautionary Statement Regarding Forward-Looking Statements”* of this Report. There have been no material changes with respect to the risk factors disclosed in our 2024 Annual Report, except as set forth below. You should carefully consider such factors in the 2024 Annual Report, and below, which could materially affect our business, financial condition or future results. The risks described in the 2024 Annual Report and below, are not exhaustive and therefore, there are additional risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.

***Any actual or threatened delisting of our securities by Nasdaq could have a material and adverse effect on our business, operations and financial condition, and could, among other things, limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.***

As previously reported by the Company, on March 19, 2024, the Company received written notification from the Listing Qualifications Department of Nasdaq that the Company has been granted an additional 180-day compliance period, or until September 16, 2024 (the “Extended Compliance Period”), to regain compliance with Nasdaq’s minimum bid price requirement for the continued listing on Nasdaq, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Rule”). Nasdaq’s determination was based on the Company meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on Nasdaq, with the exception of the bid price requirement, and the Company’s written notice of its intention to consider all available options to regain compliance during the Extended Compliance Period, including, if necessary, effecting a reverse stock split. The Company was unable to regain compliance during the Extended Compliance Period and on September 17, 2024, the Company received an additional notification from the Listing Qualifications Department stating that due to the deficiency, the Company’s securities would be delisted from Nasdaq on September 26, 2024, unless the Company appealed Nasdaq’s determination to a Hearings Panel (the “Panel”). A hearing request would stay the suspension of the Company’s securities pending the Panel’s discussion. On September 17, 2024, the Company submitted the hearing request to appeal (the “Appeal Request”) Nasdaq’s determination before the Panel.

On November 14, 2024, the Company effected a reverse stock split of the Common Shares at a ratio of 20-to-1 (the “Reverse Stock Split”). Trading of the Common Shares on Nasdaq on a split-adjusted basis began as of November 14, 2024. As a result of the Reverse Stock Split, every twenty shares of Common Shares were combined into one Common Share, and the total number of Common Shares outstanding were reduced from approximately 14,361,550 Common Shares to approximately 718,032 Common Shares. No fractional Common Shares were issued if, as a result of the Reverse Stock Split, a registered shareholder would otherwise become entitled to a fractional share. Instead, shareholders who otherwise were entitled to receive fractional Common Shares because they held a number of Common Shares not evenly divisible by the ratio of the Reverse Stock Split were automatically entitled to receive an additional Common Share. In other words, any fractional share will be rounded up to the nearest whole number.

While the Company has effected the Reverse Stock Split, there can be no assurances, however, that we will be successful in regaining compliance with the continued listing requirements and maintaining the listing of our Common Shares on Nasdaq. Delisting from Nasdaq could materially and adversely affect our ability to raise additional financing through the public or private sale of equity securities, would significantly affect the ability of investors to trade our securities and would negatively affect the value and liquidity of our securities, including our Common Shares. The actual or threatened delisting of our securities could also have other material and adverse consequences, including the potential loss of confidence by employees and other stakeholders, the loss of institutional investor interest and fewer business development opportunities, limited availability of market quotations for our securities, reduced liquidity with respect to our securities, a determination that our Common Shares is “penny stock,” which will require brokers trading in shares of our Common Shares to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our Common Shares, and limited amount of news and analyst coverage of the Company. To the extent that our Common Shares became eligible to trade on the OTC Bulletin Board, another over-the-counter quotation system, or on the pink sheets, an investor may find it more difficult to dispose of their Common Shares or obtain accurate quotations as to the market value of our Common Shares.

Furthermore, the National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because our Common Shares are currently listed on Nasdaq, such securities will be deemed covered securities. Although the states will be preempted from regulating the sale of our securities, the federal statute does allow states to investigate companies if there is a suspicion of fraud and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. Additionally, if we were no longer listed on Nasdaq, our securities would not be covered securities and we would be subject to regulations in each state in which we offer our securities.

***The Reverse Stock Split may not increase the price of our Common Shares and have the desired effect of maintaining compliance with the Minimum Bid Price Rule.***

While the Company’s Board of Directors expects that the Reverse Stock Split will sufficiently increase the market price of our Common Shares so that we are able to regain and maintain compliance with the Minimum Bid Price Rule and the Nasdaq Listing Rules more generally, the effect of the Reverse Stock Split upon the market price of our Common Shares cannot be predicted with any certainty, and the history of similar reverse stock splits for companies in like circumstances is varied. The price per share of our Common Shares may not reflect the exchange ratio implemented by the Company’s Board of Directors and the price per share following the effective time of the reverse stock split may not be maintained for any period of time following the Reverse Stock Split. Under applicable Nasdaq rules, to regain compliance with the $1.00 minimum closing bid price requirement and maintain our listing on Nasdaq, the $1.00 closing bid price must be maintained for a minimum of ten consecutive trading days. Accordingly, the Company cannot assure you that we will be able to maintain our Nasdaq listing, even though the Reverse Stock Split has been made effected, or that the market price per share will exceed or remain in excess of the $1.00 minimum bid price for a sustained period of time.

We continue to monitor the Company’s Common Shares price, however, it is possible that the per share price of our Common Shares will not rise in proportion to the reduction in the number of shares of our Common Shares outstanding resulting from the Reverse Stock Split, and the market price per post-Reverse Stock Split share may not exceed or remain in excess of the $1.00 minimum bid price for a sustained period of time, and the Reverse Stock Split may not result in a per share price that would attract brokers and investors who do not trade in lower priced stocks. Notwithstanding the effectiveness of the Reverse Stock Split, the market price of our Common Shares may decrease due to factors unrelated to the Reverse Stock Split, and the market price of our Common Shares may also be based on other factors which may be unrelated to the number of Common Shares outstanding, including our future performance. If the trading price of our Common Shares declines, the percentage decline as an absolute number and as a percentage of our overall market capitalization may be greater than would occur in the absence of the Reverse Stock Split.

### The Reverse Stock Split may decrease the liquidity of our Common Shares.

The liquidity of our Common Shares may be harmed by the Reverse Stock Split effected by the Company on November 14, 2024 given the reduced number of Common Shares that are outstanding after the Reverse Stock Split, particularly if the Common Share price does not increase as a result of the Reverse Stock Split. In addition, investors might consider the increased proportion of unissued authorized shares of Common Shares to issued shares to have an anti-takeover effect under certain circumstances, because the proportion allows for dilutive issuances which could prevent certain shareholders from changing the composition of the Board of Directors or render tender offers for a combination with another entity more difficult to successfully complete. The Board of Directors does not intend for the Reverse Stock Split to have any anti-takeover effects.

Filed Nov 14, 2024.
Source: SEC EDGAR, the filing index for accession 0001213900-24-098445. Last ingested by Listed: Nov 5, 2026, 12:16 ET. No prices; not investment advice.