InMed Pharmaceuticals Inc.: Form 10-Q for the period ended Mar 31, 2025

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. These forward-looking statements are made as of the date of this Quarterly Report, 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

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 March 31, 2025. 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.

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

Special Meeting of the Company’s Shareholders

On April 4, 2025, the Company announced the meeting, record date and certain other information relating to a special meeting of the Company’s shareholders to be held on June 13, 2025 (the “June Special Meeting”), pursuant to a filing submitted to the System for Electronic Document Analysis and Retrieval (“SEDAR”) in Canada. On April 29, 2025, the Company filed a Notice of Special Meeting and Information Circular on the SEC’s Electronic Data Gathering, Analysis, and Retrieval system (“EDGAR”) as the preliminary proxy statement required under Section 14A of the United States Securities Exchange Act of 1934, as amended (the “Preliminary Proxy Statement”). The Company expects to file the definitive proxy statement on or about May 12, 2025, and will thereafter mail copies of the definitive proxy statement and proxy card and accompanying materials to holders of our Common Shares. At the June Special Meeting, holders of the Common Shares will be asked to approve the potential issuance of 20% or more of the Company’s issued and outstanding Common Shares under the SEPA pursuant to Nasdaq Listing Rules 5635(d) and 5635(b). The Company encourages its holders of Common Shares to review the entirety of the Preliminary Proxy Statement made available on EDGAR (as well as the definitive proxy statement, once filed, on EDGAR), as it contains important information concerning the SEPA and related considerations, as well as the June Special Meeting, including instructions as to how to vote such holder’s Common Shares.

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. The Company may, in management’s sole discretion and based on its assessment of, among other things, existing market factors, elect to file a new registration with the SEC in connection with the Amended ATM Agreement.

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.

Economic and Trade Policy Uncertainty

The Company continues to monitor the potential impact of evolving trade policies, including the threat of additional tariffs imposed by the U.S. and other jurisdictions. While no specific tariffs have been implemented during the reporting period covered by this Quarterly Report that directly and materially affect the Company’s operations, the potential for future changes in cross-border trade arrangements and import/export duties contributes to broader economic uncertainty and could impact the counterparties with whom we commercially engage. As of March 31, 2025, the Company’s management has not identified any material and adverse effects on the Company’s financial position, results of operations, or estimates related to credit losses or asset impairments as a result of the implementation of such tariffs and trade policies; however, the ultimate outcome and impact of such trade policies are not fully ascertainable as of the date hereof. See Item 1A. “Risk Factors—The threat or actual adoption of tariffs, retaliatory tariffs and duties, trade barriers and restrictions, and related international trade conflicts, including by the United States, Canada or other jurisdictions, could materially impact the macroeconomic framework in which we operate” discussed below.

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.

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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 increased in the nine months ended March 31, 2025, as compared to the nine months ended March 31, 2024, primarily due to an increased level of work in support of our current programs. As products advance through the research and development phases towards human clinical trials, we generally expect that our R&D expenses will correspondingly increase. We intend to 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. 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 March 31, 2025 and 2024 for the InMed Pharma Segment

(in thousands)

Research and Development and Patents Expenses

Research and development and patents expenses increased by $276,000 in our InMed Pharma segment, or 45%, for the three months ended March 31, 2025, as compared to the three months ended March 31, 2024. 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 to conducting clinical trials for the INM-901 and INM-089 programs which will result in higher costs related to studies, and drug supplies, and increased regulatory requirements, as we continue to implement our business strategy.

General and administrative expenses

General and administrative expenses decreased by $59,000 in our InMed Pharma segment, or 5%, for the three months ended March 31, 2025, as compared to the three months ended March 31, 2024. The decrease resulted primarily from a combination of changes, including lower accounting fees, share-based payments, and shareholder communication fees. This amount was offset by an increase in regulatory fees and consulting fees.

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 $26,000 in our ‘InMed Pharma’ segment, or 54%, for the three months ended March 31, 2025, as compared to the three months ended March 31, 2024, as a consequence of the Company holding non-US denominated assets and liabilities combined with fluctuations in foreign exchange rates.

Comparison of the three months ended March 31, 2025 and 2024 for the BayMedica Commercial Segment

(in thousands)

Sales

Sales increased by $89,000 in our BayMedica Commercial segment, or 8%, for the three months ended March 31, 2025, as compared to the three months ended March 31, 2024. The increase in sales resulted from expanded marketing efforts and increased demand for certain cannabinoid products. While market demand increased, the need to remain price competitive impacted overall profitability for the period. 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 to the highest margins, where BayMedica continues to hold a strong competitive position.

Cost of Sales

Cost of goods sold increased by $203,000 in our ‘BayMedica Commercial’ segment, or 23%, for the three months ended March 31, 2025, as compared to the three months ended March 31, 2024. The increase in cost of goods sold was primarily the result of an increase in sales of lower margin products.

General and administrative expenses

General and administrative expenses increased by $13,000 in our BayMedica segment, or 6%, for the period ended March 31, 2025 as compared to the period ended March 31, 2024. The increase results primarily from a combination of changes including higher personnel expenses, accounting and legal fees, and marketing expenses.

Comparison of the nine months ended March 31, 2025 and 2024 for the InMed Pharma Segment

(in thousands)

Research and development expenses

Research and development expenses increased by $256,000 in our InMed Pharma segment, or 10%, for the nine months ended March 31, 2025, as compared to the nine months ended March 31, 2024. The increase resulted primarily from a combination of changes including external contractors and research supplies. This increase was offset by a decrease in lower personnel compensation.

Comparison of the nine months ended March 31, 2025 and 2024 for the BayMedica Commercial Segment

(in thousands)

Sales

Sales increased by $323,000 in our BayMedica Commercial segment, or 10%, for the nine months ended March 31, 2025, as compared to the nine months ended March 31, 2024. The increase in sales resulted from expanded marketing efforts and increased demand for certain cannabinoid products. While market demand increased, the need to remain price competitive impacted overall profitability for the period. 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 the contribute highest margins, where BayMedica continues to hold a strong competitive position.

Cost of sales

Cost of goods sold decreased by $172,000 in our ‘BayMedica Commercial’ segment, or 6%, for the nine months ended March 31, 2025, as compared to the nine months ended March 31, 2024. 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 nine months ended March 31, 2025.

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 March 31, 2025, we had cash, cash equivalents and short-term investments of $4.7 million.

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

(in thousands)

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Operating Activities

During the nine months ended March 31, 2025, we used cash in operating activities of $6.0 million, primarily resulting from our net loss of $6.4 million combined with a $141,000 decrease in changes in our non-cash working capital, partially offset by non-cash expenses contributing to net cash using in operating activities.

During the nine months ended March 31, 2024, we used cash in operating activities of $5.9 million, primarily resulting from our net loss of $5.7 million combined with changes in our working capital and non-cash expenses contributing to net cash used in operating activities.

Investing Activities

During the nine months ended March 31, 2025, there was no change in investing activities as a result of the purchases and sale of short-term investments.

During the nine months ended March 31, 2024, cash used in investing activities of $10 thousand resulted from the purchases and sale of short-term investments, as well as the purchase of property and equipment.

Financing Activities

During the nine months ended March 31, 2025, cash provided by financing activities of $4.1 million consisted of $4.4 million in gross proceeds from the sale of Common Shares under the Amended ATM Agreement and SEPA, offset by total transaction costs of approximately $0.3 million.

During the nine months ended March 31, 2024, cash provided by financing activities 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 approximately $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 March 31, 2025, 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 $6.4 million and $5.7 million for the nine months ended March 31, 2025 and 2024, respectively. In addition, we have an accumulated deficit of $115.5 million as of March 31, 2025. The Company expects to continue to generate operating losses for the foreseeable future.

As of the issuance date of this Quarterly Report, the Company expects its cash, cash equivalents and short-term investments of $4.7 million as of March 31, 2025, to be sufficient to fund its operating expenses and capital expenditure requirements into the third 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;
• the level and timing of realizing revenues from the BayMedica commercial operations; and
• the impact of adverse macroeconomic factors and considerations, including the implementation and consequence of tariffs and other fiscal policies.

A change in the outcome of any of these factors, 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 March 31, 2025. 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 March 31, 2025, 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 nine-month period ended March 31, 2025, 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 and in the December 2024 Form 10-Q. You should carefully consider such factors in the 2024 Annual Report, the December 2024 Form 10-Q and below, which could materially and adversely affect our business, financial condition and future results. The risks described in our 2024 Annual Report, the December 2024 Form 10-Q and below, are not exhaustive and therefore, there are additional risks facing the Company that could adversely affect its business, financial condition and future results. 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 will require additional financing, and a failure to obtain this necessary capital when needed could force us to delay, limit, or reduce our investments in marketing 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. On April 4, 2025, the Company announced the meeting, record date and certain other information relating to the June Special Meeting, pursuant to a filing submitted to SEDAR. On April, 29,2025, the Company filed the Preliminary Proxy Statement on EDGAR. The Company expects to file the definitive proxy statement on or about May 12, 2025, and will subsequently mail copies of the definitive proxy statement and proxy cared and accompanying materials to the Company’s holders of Common Shares. At the June Special Meeting, holders of Common Shares will be asked to approve the potential issuance of 20% or more of the Company’s issued and outstanding Common Shares under the SEPA pursuant to the Nasdaq Listing Rules 5635(d) and 5635(b).

The threat or actual adoption of tariffs, retaliatory tariffs and duties, trade barriers and restrictions, and related international trade conflicts, including by the United States, Canada or other jurisdictions, could materially impact the macroeconomic framework in which we operate.

Since taking office in January 2025, the current U.S. presidential administration has issued numerous executive orders, including with respect to international and domestic policies, and in the first and second quarters of 2025, there were significant changes to tariffs by the U.S. and other countries. In the second quarter of 2025, new U.S. tariffs were announced, including additional tariffs on imports from China, India, Japan, South Korea, Taiwan, Vietnam and the EU, among others. In response, several countries have imposed, or threatened to impose, reciprocal tariffs on imports from the U.S. and other retaliatory measures. Various modifications and delays to the U.S. tariffs have been announced and further changes are expected to be made in the future, which may include additional sector-based tariffs or other measures. The ultimate impact remains uncertain and will depend on several factors, including whether additional or incremental U.S. tariffs or other measures are announced or imposed, to what extent other countries implement tariffs or other retaliatory measures in response, and the overall magnitude and duration of these measures. If disputes and conflicts further escalate, actions by the governments in response could be significantly more severe and restrictive. Trade disputes, tariffs, restrictions and other political tensions between the U.S. and other countries may also exacerbate unfavorable macroeconomic conditions including inflationary pressures, foreign exchange volatility, financial market instability, and economic recessions or downturns. The ultimate impact of current or future tariffs and trade restrictions remains uncertain. While we actively monitor these risks and manage our supply chains accordingly, prolonged economic or geopolitical disruptions could adversely affect our business, ability to access the capital markets or other financing sources, results of operations, financial conditions and prospects. In addition, tariffs and other trade developments have and may continue to heighten the risks related to the other risk factors described elsewhere in this Quarterly Report. The ultimate outcome and consequences of the implementation of tariffs or other restrictive trade measures by the U.S. and other countries (including in the form of reciprocal measures) remains highly uncertain. Any trade wars, through the implementation of tariffs or otherwise, could materially and adversely affect us, directly and indirectly, including by adversely impacting the supply chains for our operations, declining consumer confidence, inflation, lower economic expectations, and increasing the costs of services we provide and utilize.