InMed Pharmaceuticals Inc.: Form 10-Q for the period ended Dec 31, 2024

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 our 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.

Outcomes from 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 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 our wholly owned subsidiary 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 Compliance

As previously reported by the Company, on March 19, 2024, the Company received written notification from the Listing Qualifications Department of Nasdaq (the “Nasdaq Staff”), 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”). 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 Nasdaq Staff 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”). The Company subsequently timely requested the Hearing before the Panel to appeal the determination by Nasdaq and present its plan to regain and sustain compliance with the Minimum Bid Price Rule. On October 31, 2024, the 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. On November 14, 2024, the Company effected the Reverse Stock Split in order to regain compliance with the Minimum Bid Price Rule, and on December 2, 2024, the Company received a written notification from the Nasdaq Staff that (i) it had regained compliance with the Minimum Bid Price Rule prior to the Requisite Compliance Date, and (ii) the Panel had therefore determined to continue the listing of our Common Shares on the Nasdaq Stock Market and was closing this matter.

Reverse Stock Split

On November 14, 2024, the Company effected a reverse stock split of the Company’s issued and outstanding Common Shares, by a ratio of 20-to-1 (the “Reverse Stock Split”). Trading of our 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. Unless otherwise noted, the share-related information reflected herein reflects our Common Shares on a split-adjusted basis.

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.

As of the date of this Quarterly Report, the Company has issued a total of 313,245 Common Shares for gross proceeds of $1.9 million, pursuant to the terms of the Amended ATM Agreement. The Company’s Registration Statement on Form S-3 which was previously filed with the SEC in connection with the transactions contemplated by the Amended ATM Agreement expired on February 10, 2025.

Standby Equity Purchase Agreement

On December 13, 2024, the Company entered into a Standby Equity Purchase Agreement (the “SEPA”) with YA II PN, LTD (the “Investor”) to sell up to $10 million in the aggregate of our Common Shares at any time during the 36-month period following the effective date of the SEPA (the “Effective Date”). The total number of Common Shares under the terms of the SEPA is limited to a number equivalent to 19.99% of the outstanding Common Shares as of the Effective Date unless certain pricing conditions are met, which could have the effect of limiting the total proceeds made available to the Company under the SEPA. In addition, the issuance of our Common Shares under the SEPA is subject to further limitations, including that the Common Shares beneficially owned by the Investor and its affiliates will not exceed 9.99% in the aggregate of our Common Shares issued and outstanding. The Common Shares issued and sold to the Investor will be priced at 97% of the Market Price (as defined in the SEPA) during a specified three-day pricing period.) The Company reserves the right to set a minimum acceptable price for the Common Share issuances made under the SEPA. The Company did not issue any Common Shares under the SEPA as at December 31, 2024. Certain terms of the SEPA, including with respect to the specified three-day pricing period discussed above, may be modified or waived, as mutually agreed upon by the Investor, on the one hand, and the Company, on the other, in accordance with Section 12.02 and the other provisions of the SEPA. The foregoing description of the terms of the SEPA does not purport to be complete and is qualified in its entirety by reference to the full text of the SEPA.

Under the terms of the SEPA, the Company paid the Investor a one-time structuring fee in the amount of $25,000 and the Company is also obligated to pay a commitment fee in an amount equal to 2.50% of the Commitment Amount (or $250,000), 25% of which was paid in December 2024. The remaining 75% of the Commitment Fee shall be paid in three equal quarterly installments beginning on the three-month anniversary of the Effective Date, with each such installment to be paid at the Company’s option either in cash or by the issuance to the Investor of such number of Common Shares that is equal to such portion of the deferred fee divided by the lowest daily VWAP of the Common Shares during the consecutive Trading Days immediately prior to the date of such installment at the Effective Date. The Commitment Fee and other SEPA related fees of $351,549 were expensed during the three and six months ended December 31, 2024, since at the inception of the arrangement, the fees exceeded the fair value of the asset recognized. The SEPA was precluded from equity treatment in accordance with ASC 815-40-25 as the SEPA was not deemed fixed according to the accounting standard.

As of the date of this Quarterly Report, the Company has issued a total of 413,336 Common Shares for gross proceeds of $2,455,600 pursuant to the terms of the SEPA.

Annual General Meeting – Director Resignation

At the Company’s 2024 Annual General Meeting held on December 18, 2024 (the “2024 AGM”), the Company’s shareholders withheld the election of one nominee, Ms. Janet Grove, from being appointed as a member of the Company’s Board of Directors (the “Board”), in accordance with the Company’s Majority Voting Policy. As a result, Ms. Grove offered her resignation to the Board, and the Company’s Nominating & Governance Committee, in accordance with the Majority Voting Policy, considered her resignation and ultimately recommended to the Board to accept Ms. Grove’s resignation. On February 10, 2024, the Board elected to accept Ms. Grove’s resignation. The Board intends to initiate a search for an independent director to replace Ms. Grove as soon as reasonably practicable. In the interim, the Board will continue to operate with the remaining four directors, and each committee of the Board will be comprised of the three independent directors who were re-appointed for directorship at the 2024 AGM. The Board Chair will assume the role of Chair of the Nominating & Governance Committee.

Advancements to the INM-901 program

On January 21, 2025, we announced positive results from a long-term in vivo preclinical Alzheimer’s Disease (“AD”) study. In the study, INM-901 demonstrated a reduction in several plasma and brain markers of neuroinflammation, a recognized contributor to Alzheimer’s disease development and progression. Results from the long-term study of INM-901 in a well-characterized Alzheimer’s disease model demonstrated the following:

• Improved cytokine profile – INM-901 treated groups showed a dose-dependent and statistically significant reduction in plasma pro-inflammatory cytokines such as TNF-α, IL-1ß and INF-γ. Cytokine networks, when deregulated, may contribute to tissue inflammation.
• Reduction in neurodegeneration biomarker – INM-901 demonstrated a dose-dependent and statistically significant reduction in neurofilament light chain (“NfL”) in the plasma for the high dose treated group. NfL is a protein that is released from neurons in response to injury or disease. NfL levels are used to assess cellular damage in neurodegenerative disease.
• Study supported by mRNA data – mRNA assessments showed a reduction of several key neuroinflammatory genes in the brain, such as GFAP, CD-33 and TLR-2, further supporting the overall results from the study.

Advancements to the INM-089 program

On February 3, 2025, we announced the selection of an intravitreal formulation for INM-089 as a drug candidate to be utilized in the Company’s ongoing development program targeting the treatment of Age-related Macular Degeneration (“AMD”). The Company’s proprietary IVT formulation, combined with the INM-089 active pharmaceutical ingredient (“API”), has been successfully delivered to the targeted area of the eye in preclinical studies in doses of up to 10 times the calculated safety margin relative to the therapeutic dose level. This INM-089 IVT formulation will be used in the next stages of preclinical studies, including GLP-enabling studies and subsequent stages of clinical development. Additionally, the Company has recently completed a series of dose-ranging in vivo studies, which will help guide the Company in selecting the appropriate doses for the pivotal preclinical toxicology studies.

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 has 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.

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 increased in the six months ended December 31, 2024, as compared to our six months ended December 31, 2023, primarily due to an increased level of work in support of our current programs. During the year, 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 are 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 December 31, 2024 and 2023 for InMed Pharma Segment

(in thousands)

Research and Development and Patents Expenses

Research and development and patents expenses increased by $489,000 in our InMed Pharma segment, or 86%, for the three months ended December 31, 2024, as compared to the three months ended December 31, 2023. The increase in research and development and patents expenses primarily resulted from an increase in external contractors relating to our INM-901 and INM-089 programs and patent fees, offset by a decrease in compensation expense. However, we expect our research and development expenses to increase significantly in future periods as we move closer towards clinical trials for the INM-901 and INM-089 programs 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 $169,000 in our InMed Pharma segment, or 15%, for the three months ended December 31, 2024, as compared to the three months ended December 31, 2023. The increase results primarily from a combination of changes including higher consulting fees, legal fees, and personnel expenses. 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 increased by $108,000 in our InMed Pharma segment, or 180%, for the three months ended December 31, 2024, as compared to the three months ended December 31, 2023, as a consequence of the Company holding non-U.S. denominated assets and liabilities combined with fluctuations in foreign exchange rates.

Finance expense

Finance expenses increased by $352,000 in our InMed Pharma segment, for the three months ended December 31, 2024, as compared to the three months ended December 31, 2023. The increase in finance expenses resulted from the fees incurred pursuant to the SEPA.

Comparison of the three months ended December 31, 2024 and 2023 for BayMedica Commercial Segment

(in thousands)

Sales

Sales decreased by $128,000 in our BayMedica Commercial segment, or 10%, for the three months ended December 31, 2024, as compared to the three months ended December 31, 2023. The decrease in sales primarily resulted from the Company lowering product pricing due to increased competition. 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 the highest margins, where BayMedica continues to hold a strong competitive position.

Cost of Sales

Cost of goods sold decreased by $265,000 in our BayMedica Commercial segment, or 29%, for the three months ended December 31, 2024, as compared to the three months ended December 31, 2023. The decrease in cost of goods sold is primarily the result of a decrease in write-down of inventories to net realizable value during the three months ended December 31, 2024.

Comparison of the Six months ended December 31, 2024 and 2023 for InMed Pharma Segment

(in thousands)

General and administrative expenses

General and administrative expenses increased by $344,000 in our InMed Pharma segment, or 15%, for the six months ended December 31, 2024, as compared to the six months ended December 31, 2023. The increase resulted primarily from a combination of changes including higher consulting fees, accounting and legal fees, personnel expenses, and investor relation expenses. This was offset by a decrease in lower office and administrative expenses.

Finance expense

Finance expenses increased by $352,000 in our InMed Pharma segment, for the six months ended December 31, 2024, as compared to the three months ended December 31, 2023. The increase in finance expenses resulted from the fees incurred pursuant to the SEPA.

Comparison of the six months ended December 31, 2024 and 2023 for BayMedica Commercial Segment

(in thousands)

Sales

Sales increased by $234,000 in our BayMedica Commercial segment, or 11%, for the six months ended December 31, 2024, as compared to the six months ended December 31, 2023. The increase in sales resulted from expanded marketing efforts and increased demand for 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 are expected to contribute highest margins, where BayMedica continues to hold a strong competitive position.

Cost of Sales

Cost of goods sold decreased by $375,000 in our BayMedica Commercial segment, or 21%, for the six months ended December 31, 2024, as compared to the six months ended December 31, 2023. The decrease in cost of goods sold is primarily the result of a decrease in write-down of inventories to net realizable value during the six months ended December 31, 2024.

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 December 31, 2024, we had cash, cash equivalents and short-term investments of $3.5 million.

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

(in thousands)

28

Operating Activities

During the six months ended December 31, 2024, we used cash in operating activities of $4.3 million, primarily resulting from our net loss of $4.3 million combined with a $218,000 decrease in changes in our non-cash working capital, partially offset by non-cash share-based compensation expenses and inventory write-down.

During the six months ended December 31, 2023, we used cash in operating activities of $4.0 million, primarily resulting from our net loss of $4.0 million combined with changes in our working capital and non-cash expenses contributing to net cash used in operating activities.

Investing Activities

During the six months ended December 31, 2023, cash used in investing activities of $9,291 resulted from the purchases and sale of short-term investments, as well as the purchase of property and equipment.

Financing Activities

During the six months ended December 31, 2024, cash provided by financing activities of $1.2 million consisted of $1.4 million in gross proceeds derived from the Amended ATM Agreement, offset by total transaction costs of $250,000. The Company’s Registration Statement on Form S-3 which was previously filed with the SEC in connection with the transactions contemplated by the Amended ATM Agreement expired on February 10, 2025.

During the six months ended December 31, 2023, cash provided by financing activities consisted of $4.7 million consisted of $5.2 million of gross proceeds from private placements of our common shares, offset by total transaction costs of $0.5 million.

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 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 December 31, 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 $4.3 million and $4.0 million for the six months ended December 31, 2024 and 2023, respectively. In addition, we have an accumulated deficit of $113 million as of December 31, 2024. The Company expects to continue to generate operating losses for the foreseeable future.

As of the issuance date of these unaudited condensed consolidated financial statements, the Company expects its cash, cash equivalents and short-term investments of $3.5 million as of December 31, 2024 and the receipt of $2.9M in gross proceeds from financing activities which took place in January 2025 (refer to Note 7 – Share Capital and Reserves and Note 13 – Subsequent Events included in this Quarterly Report), to be sufficient to fund its operating expenses and capital expenditure requirements through the end of the second quarter of calendar 2025, depending on the level and timing of realizing BayMedica revenues from the sale of bulk rare cannabinoids in the ‘health & 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.

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.

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 December 31, 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 December 31, 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 six-month period ended December 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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.

We may require additional financing, and a failure to obtain this necessary capital when needed could force us to delay, limit, or reduce our investments in advertising and other strategic initiatives planned for future growth.

On December 13, 2024, we entered the SEPA with the Investor, whereby we have the right, but not the obligation, to sell to the Investor Common Shares up to the Commitment Amount during the 36-month period following the Effective Date, subject to certain conditions. The Common Shares that may be issued under the SEPA may be sold by us to the Investor at our discretion from time to time and sales of Common Shares under the SEPA will depend upon market conditions and other factors. Additionally, in no event may we sell and issue the aggregate number of Common Shares that is equal to or in excess of the Exchange Cap, unless we obtain shareholder approval to issue Common Shares in excess of the Exchange Cap in accordance with applicable Nasdaq rules and comply with certain other requirements as described in the SEPA. We are unable to predict or provide assurances as of the date of this Quarterly Report that such shareholder approval would be obtained on a timely manner, if at all. As a result, unless our stock price exceeds $5.15, we will be unable to sell the full Commitment Amount to the Investor without seeking stockholder approval to issue additional Common Shares in excess of the Exchange Cap. In addition, the issuance of Common Shares under the SEPA is subject to further limitations, including that the Common Shares beneficially owned by the Investor and its affiliates will not exceed 9.99%, in the aggregate.

We may ultimately decide to sell all or some of the Common Shares that may be available for us to sell pursuant to the SEPA. Because the purchase price per share to be paid by the Investor for the Common Shares that we may elect to sell under the SEPA will fluctuate based on the market prices of our Common Shares during the applicable pricing period for each of those sales, it is not possible for us to predict, as of the date of this Quarterly Report and prior to any such sales, the number of Common Shares that we will sell under the SEPA, the purchase price per share or the aggregate gross proceeds that we will receive from those purchases under the SEPA. Further, the resale by the Investor of a significant number of Common Shares at any given time, or the perception that such sales may or are likely to occur, could cause the market price of our Common Shares to materially decline and be highly volatile.

Accordingly, due to the foregoing, we may not have access to the full Commitment Amount unless the market price of our Common Shares remains stable throughout the term of the SEPA. Any significant decrease to the price of our Common Shares could materially limit our ability to sell the full Commitment Amount to the Investor. If the aggregate selling price of our Common Shares under the SEPA is below $5.15, it is possible that we may not be permitted to draw the full amount of proceeds of the drawdown request from the Investor, which may not provide adequate funding for our planned operations and may materially decrease our liquidity.

The transition to a new presidential administration in the United States, including the potential use and effects of tariffs to address the administration’s policy goals, could materially impact the macroeconomic framework in which we operate.

The transition to a new presidential administration in the United States could impact the macroeconomic framework in which we operate, and we are unable to precisely predict what actions the new administration will take. For example, on February 1, 2025, the current U.S. presidential administration announced the implementation of a 25% additional tariff on imports from Canada. While the administration agreed to put a 30-day pause on the implementation of such tariffs, such tariffs may ultimately be re-implemented in the event that the United States and Canada are ultimately unable to agree to economic terms. Any trade wars, through the implementation of tariffs or otherwise, has the potential to adversely affect us, including by impacting (a) the supply chains for our operations as well as the third parties with whom we engage, and (b) the macroeconomic markets at large.