Item 7. Management’s Discussion and Analysis
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 this Annual 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 report. These forward-looking
statements are made as of the date of this 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, 2025, and the related notes thereto, which have been prepared in accordance with U.S. GAAP. Additionally, the following discussion
and analysis should be read in conjunction with our audited consolidated financial statements included in this Annual Report. Throughout
this discussion, unless the context specifies or implies otherwise the terms “InMed,” “Company,” “we,”
“us,” and “our” refer to InMed Pharmaceuticals Inc.
All
dollar amounts stated herein are in U.S. dollars unless specified otherwise.
Overview
We
are a pharmaceutical drug development company with 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 our wholly owned
subsidiary, BayMedica, LLC, or 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.
68
We
have sought to focus on the research and development of preferential signaling ligands of CB1 and CB2, and have produced a library of
novel, proprietary drug candidates, or Product Candidates. These Product Candidates are patentable new chemical entities, or NCEs, for
pharmaceutical development, aimed at targeting diverse clinical indications. Our current potential pharmaceutical pipeline consists of
three programs, with drug candidates targeting Alzheimer’s disease, dry Age-Related Macular Degeneration, or dry AMD, and Epidermolysis
Bullosa, or EB.
Our
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, or 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, indicate potentially promising neuroprotective effects in
the back of the eye, which may lead to the preservation of retinal function. Neuroprotection in dry AMD remains an unmet medical need
and a new treatment option may help solve this multifactorial disease.
We
have completed a Phase 2 clinical trial of INM-755 (cannabinol) cream studying its safety and efficacy in treating symptoms related to
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. We are also pursuing strategic partnership opportunities for INM-755 in EB
and other itch-related skin conditions.
Together
with BayMedica, our manufacturing capabilities include traditional approaches such as chemical synthesis and biosynthesis, as well as
a proprietary, integrated manufacturing approach called IntegraSyn. With multiple manufacturing approaches, we have 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 uses. 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
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”). Accordingly, all Common Shares, stock options, warrants, as well as per share information,
for all periods presented in the consolidated financial statements and notes thereto have been adjusted retrospectively to
reflect this Reverse Stock Split.
Private
Offering
On
June 24, 2025, we entered into a securities purchase agreement, or the Purchase Agreement, with the Selling Shareholder, for the sale
and issuance of an aggregate of 1,952,363 common shares (or pre-funded warrants in lieu thereof) at a purchase price of $2.561 per share
(or pre-funded warrant in lieu thereof). In addition, we agreed to issue to the Selling Shareholder short-term preferred investment options
to purchase up to an aggregate of 1,952,363 common shares at an exercise price of $2.436 per share. The foregoing transaction is referred
to herein as the Private Placement. On June 26, 2025, the parties consummated the Private Placement.
The
terms of the Purchase Agreement provided the Selling Shareholder the option of purchasing the pre-funded warrants in lieu of common shares
in such manner as to result in the same aggregate purchase price being paid by the Selling Shareholder to us.
At
the closing of the Private Placement, we issued to the Selling Shareholder (i) pre-funded warrants to purchase an aggregate of 1,952,363
common shares and (ii) preferred investment options to purchase up to an aggregate of 1,952,363 common shares. No common shares were
issued to the Selling Shareholder at the closing of the Private Placement. The Company received gross proceeds of approximately $5.0
million and paid approximately $0.5 million in transaction costs
The
pre-funded warrants have an exercise price of $0.0001 per pre-funded warrant and can be exercised at any time from the date and time
of issuance until the pre-funded warrants are exercised in full. The terms of the pre-funded warrants preclude a holder thereof from
exercising such holder’s pre-funded warrants, and us from giving effect to such exercise, if after giving effect to the issuance
of common shares upon such exercise, the holder (together with the holder’s affiliates and any other persons acting as a group
together with the holder or any of the holder’s affiliates) would beneficially own in excess of 9.99% of the number of common shares
outstanding immediately after giving effect to the issuance of common shares upon such exercise.
69
The
preferred investment options issued to the Selling Shareholder in the Private Placement have an exercise price of $2.436 per share, became
exercisable immediately upon issuance and will expire eighteen (18) months from the effective date of the Resale Registration Statement
(as defined below). The terms of such preferred investment options preclude a holder thereof from exercising such holder’s preferred
investment option, and the Company from giving effect to such exercise, if after giving effect to the issuance of common shares upon
such exercise, the holder (together with the holder’s affiliates and any other persons acting as a group together with the holder
or any of the holder’s affiliates) would beneficially own in excess of 4.99% of the number of common shares outstanding immediately
after giving effect to the issuance of common shares upon such exercise.
A
holder may increase or decrease the beneficial ownership thresholds relating to the pre-funded warrants and preferred investment options
specified above, except that the issuance of 9.99% can be no sooner than 61 days after notifying us and that the beneficial ownership
limitation may not exceed 9.99% in any event. The Selling Shareholder has elected 4.99% for the pre-funded warrants and 9.99% for the
preferred investment options as of the date hereof.
In
connection with the Private Placement, we entered into a Registration Rights Agreement with the Selling Shareholder, dated June 24, 2025,
or the Registration Rights Agreement. The Registration Rights Agreement grants the Selling Shareholder certain registration rights and
obligates us to file one or more registration statements with the Securities and Exchange Commission, or the SEC, by certain dates, covering
the resale of the common shares issuable upon exercise of the pre-funded warrants and preferred investment options sold in the Private
Placement, or the Resale Registration Statement. The Company has met all such obligations and timely filed related Resale Registration
Statements.
The
pre-funded warrants and preferred investment options described above were offered in a private placement under Section 4(a)(2) of the
Securities Act and Regulation D promulgated thereunder and, along with the common shares underlying the pre-funded warrants and preferred
investment options, have not been registered under the Securities Act or applicable state securities laws. Accordingly, the pre-funded
warrants, preferred investment options and the common shares underlying the pre-funded warrants and preferred investment options may
not be offered or sold in the United States absent registration with the SEC or an applicable exemption from such registration requirements
and in accordance with applicable state securities laws. The securities were offered and sold only to accredited investors.
The
foregoing descriptions of the Purchase Agreement, the Registration Rights Agreement, and the pre-funded warrants and the preferred investment
options issued in the Private Placement are not complete and are qualified in their entirety by the full text of such documents, copies
of which are filed as exhibits to this Annual Report.
Existing
Investment Option Amendment
Concurrently
with our entry into the Purchase Agreement, we and the Selling Shareholder entered into an Amendment Letter, dated June 24, 2025, or
the Existing Investment Option Amendment, to amend 199,115 preferred investment options issued to the Selling Shareholder on October
24, 2023, or the Existing Investment Options, with an exercise price of $16.60, pursuant to which the Existing Investment Options were
amended to be exercisable for 199,115 common shares at a reduced exercise price of $2.436 per share in consideration for the Selling
Shareholder’s participation in the Private Placement and the payment by the Selling Shareholder to us cash consideration of $0.125
per Existing Investment Option.
The
foregoing description of the Existing Investment Option Amendment is not complete and is qualified in its entirety by the full text of
the Existing Investment Option Amendment, a copy of which is filed as an exhibit to this Annual Report.
70
Engagement
Letter
We
entered into an engagement letter with H.C. Wainwright & Co., LLC, or Wainright, dated June 24, 2025, or the Engagement Letter, pursuant
to which Wainwright agreed to serve as our exclusive agent, advisor or underwriter in certain offerings, including the Private Placement.
We agreed to pay Wainwright a cash fee, or as to an underwritten offering an underwriter discount, equal to 7.5% of the aggregate gross
proceeds raised in each offering. Upon any exercise for cash of any privately-placed warrants or options issued to investors in each
offering, we agreed to pay Wainwright a cash fee of 7.5% of the aggregate gross exercise price paid in cash with respect such exercise.
In addition, pursuant to the Engagement Letter, we also agreed to grant to Wainwright, or its designees, at each closing, warrants (or
warrant equivalents) to purchase that number of common shares of the Company equal to 6.5% of the aggregate number of common shares of
(or common shares equivalent, if applicable) placed in each offering (and if an offering includes a “greenshoe” or “additional
investment” component, such number of common shares underlying such “greenshoe” or “additional investment”
component, with the warrants and/or warrant equivalents granted to Wainwright issuable upon the exercise of such component). Upon any
exercise for cash of any privately-placed warrants or warrant equivalents issued to investors in each offering, we agreed to issue to
Wainwright (or its designees), warrants and/or warrant equivalents to purchase that number of common shares equal to 6.5% of the aggregate
number of such common shares underlying the warrants and/or warrant equivalents that have been so exercised. Warrants and/or warrant
equivalents issued to Wainwright will have a term of five years (or such other term the privately-placed warrants or warrant equivalents
issued to investors in the applicable offering) and an exercise price equal to 125% of the offering price per share (or unit, if applicable)
in the applicable offering and if such offering price is not available, the market price of the common shares on the date an offering
is commenced, such price being referred to herein as the Offering Price. If warrants and/or warrant equivalents are issued to investors
in an offering, the warrants issued to Wainwright are required to have the same terms as the warrants and/or warrant equivalents issued
to the investors in the applicable offering, except that the warrants and/or warrant equivalents issued to Wainwright shall have an exercise
price equal to 125% of the Offering Price.
We
also agreed to pay Wainwright a management fee equal to 1.0% of the gross proceeds raised in each offering, $20,000 for non-accountable
expenses (to be increased to $50,000 in the case of a public offering), up to $35,000 for fees and expenses of legal counsel and other
out-of-pocket expenses (to be increased to $90,000 in the case of a public offering), plus certain additional amounts in special circumstances.
The Engagement Letter has indemnity and other customary provisions.
In
accordance with the Engagement Letter, in connection with the Private Placement, we issued to Wainwright preferred investment options,
or placement agent preferred investment options, to purchase an aggregate of 126,904 common shares. The preferred investment options
issued to Wainwright have an exercise price of $3.2013 per share, became exercisable immediately upon issuance and will expire eighteen
(18) months from the effective date of the Resale Registration Statement. A holder of the preferred investment options issued to Wainwright
is precluded from exercising such holder’s preferred investment option, and we are precluded from giving effect to such exercise,
if after giving effect to the issuance of common shares upon such exercise, the holder (together with the holder’s affiliates and
any other persons acting as a group together with the holder or any of the holder’s affiliates) would beneficially own in excess
of 4.99% of the number of common shares outstanding immediately after giving effect to the issuance of common shares upon such exercise.
A holder may increase or decrease the aforementioned beneficial ownership threshold, except that the beneficial ownership limitation
may not exceed 9.99% in any event.
The
placement agent preferred investment options issued to Wainwright, and the common shares issuable upon exercise thereof, were issued
in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act as transactions not involving a public
offering and in reliance on similar exemptions under applicable state laws.
The
foregoing description of the placement agent preferred investment options issued to Wainwright is not complete and is qualified in their
entirety by the full text of such document, the form of which is filed as an exhibit to this Annual Report.
71
Standby
Equity Purchase Agreement
On
December 13, 2024, we entered into a Standby Equity Purchase Agreement, or the SEPA, with YA II PN, LTD, or the Investor, to sell up
to $10 million in the aggregate of common shares at any time during the 36-month period following the effective date of the SEPA, or
the Effective Date.
On
June 13, 2025, we and the Investor entered into a certain Amendment to Standby Equity Purchase Agreement, or the SEPA Amendment, pursuant
to which we and the Investor agreed to amend certain of the provisions set forth under Section 6.02 of the SEPA. Pursuant to the SEPA
Amendment, the Company may, from time to time, suspend, in our sole discretion, the use of the registration statement related to the
common shares under the SEPA by providing written notice to the Investor in the event that we determine in good faith that such suspension
is necessary: (A) to delay the disclosure of material nonpublic information concerning us, the disclosure of which at the time is not,
in our good faith opinion, in our best interest; or (B) to amend or supplement the registration statement or prospectus so that the registration
statement or prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or a Black
Out Period. During any such Black Out Period, the Investor has agreed not to sell any common shares pursuant to the registration statement,
but it may sell common shares pursuant to an exemption from the registration requirements under U.S. securities laws subject to compliance
with all applicable laws. Further, pursuant to the SEPA Amendment, we agreed to not impose any Black Out Period that is more restrictive
(including, without limitation, as to duration) than the comparable restrictions that we may impose on transfers of our equity securities
by our directors and senior executive officers. In addition, we shall not deliver any advance notice during any Black Out Period. If
the public announcement of such material, nonpublic information is made during a Black Out Period, the Black Out Period shall terminate
immediately after such announcement, and we shall be obligated to immediately notify the Investor of the termination of the Black Out
Period.
Special
Meeting of the Shareholders
On
June 13, 2025, we held a special meeting of our shareholders, or the Special Meeting, for the purpose of approving, in accordance with
Nasdaq Listing Rules 5635(b) and 5635(d), the potential issuance of 20% or more of our issued and outstanding common shares pursuant
to the SEPA, or the Share Issuance Proposal.
After
counting the number of common shares present in person and by proxy, it was determined that a quorum for the transaction of business
at the Special Meeting was not present. While approximately 60% of the voted common shares were in favor of the Share Issuance Proposal,
in the absence of a quorum, no business was able to be conducted at the Special Meeting, including a vote on the Share Issuance Proposal.
The board of directors continues to assess whether we will (x) hold a subsequent special meeting of our shareholders at a later date
with respect to the Share Issuance Proposal and/or (y) include the Share Issuance Proposal in our definitive proxy statement for our
2025 annual general meeting of shareholders
72
INM-901
Program Updates
On
June 24, 2025, the Company reported new preclinical data demonstrating that INM-901 significantly reduces inflammation in ex vivo models
of neuroinflammation, further supporting its potential as a therapeutic candidate in Alzheimer’s disease.
The
study evaluated INM-901 in an ex vivo model of lipopolysaccharide (LPS)-induced inflammation in animal brain tissue, which is designed
to induce a strong expression of pro-inflammatory cytokines IL-6, IL-1β, IL-2, and KC/Gro and inflammasome marker NLRP3. Results
demonstrated that INM-901 treatment can reduce pro-inflammatory cytokines and may have a direct impact on neuroinflammation independent
of the influence of amyloid beta or tau aggregation. This study model offers insight into INM-901’s potential therapeutic impact
on brain inflammation that may underlie a broad range of neurodegenerative diseases, including Alzheimer’s disease.
Key
Findings from the Study:
● INM-901
significantly reduced levels of NLRP3 and IL-1β, two inflammasome markers increasingly
implicated in the pathogenesis of Alzheimer’s disease and other neuroinflammatory diseases.
● INM-901
treatment resulted in a dose-dependent and statistically significant reduction in several
key pro-inflammatory markers, including IL-6, IL-1β, KC/Gro, and IL-2.
● INM-901
reduced key pro-inflammatory markers, independent of amyloid-beta or tau pathology, signifying
potential to treat other dementia-related diseases.
On
July 27, 2025, the Company reported INM-901 treatment in the well-established 5xFAD AD mouse model led to improvement in cognitive function
and memory, locomotor activity, anxiety-based behavior, sound awareness. InMed’s most recent study evaluated INM-901 using a longer
treatment duration and subjects with more advanced disease to validate and expand upon previous findings, which have demonstrated improvements
in cognitive function, anxiety-related behavior, and sensory responsiveness.
Summary
of INM-901 Long-term 5xFAD study:
● Hippocampal
RNA Expression - Several genes associated with inflammation, the endocannabinoid system,
synaptic dysfunction and oxidative stress and apoptosis (cell death) were evaluated following
treatment. In some cases, INM-901 demonstrated a dose-dependent trend towards a return to
non-diseased baseline following treatment.
● Inflammation
– Treatment with INM-901 resulted in a significant reduction in the inflammatory biomarkers
IFN-γ, TNF-α, IL-1β, KC-GRO, IL-2 and NfL, suggesting a dose-dependent therapeutic
effect in neuroinflammation.
● Immunohistochemistry
- Amyloid-beta (Aβ) immunoreactivity is reduced following INM-901 treatment in a dose-dependent
manner. MAP2, the microtubule-associated protein 2 is a protein found in the neurons, especially
in the dendrites and is involved in neurite outgrowth and signal transduction of the neurons,
is partially restored with INM-901 treatment.
● Behavioral
– Cognitive function, anxiety-related behavior, and sensory responsiveness were restored
or approaching normal following INM-901 treatment.
Economic
and Trade Policy Uncertainty
We
continue 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 that directly and materially affect our 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 the date of this Annual Report, management has not identified any material
and adverse effects on our 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 “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.”
73
Components
of Results of Operations
Revenue
Our
revenue consists of manufacturing and distribution sales of bulk rare cannabinoid Products, which are recognized at a point in time.
We recognize revenue when control over the products has been transferred to the customer and we have a present right to payment.
Cost
of Sales
Cost
of sales consist 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 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 expense. We do not track our internal research and development expenses on
a program-by-program basis as the resources are deployed across multiple projects.
74
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.
75
A
change in the outcome of any of these variables with respect to the development of any of our Products or Product Candidates would significantly
change the costs and timing associated with the development of those Products or Product Candidates.
Research
and development activities account for a significant portion of our operating expenses. Research and development expenses decreased in
fiscal 2025 as compared to fiscal 2024, largely due to the retirement of our Senior Vice-President, Clinical & Regulatory at the
end of June 2024. We do not currently have plans to fill this position. However, we expect our research and development expenses to increase
significantly in future periods as we continue to implement our business strategy, which includes advancing our drug candidates and our
manufacturing technologies through the extensive preclinical testing and into 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 R&D and commercial 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, patent costs
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, and
patents that we acquired in October 2021. The acquired intellectual property and patents are amortized on a straight-line basis based
on their estimated useful lives. Equipment and leasehold improvements are depreciated using the straight-line method based on their estimated
useful lives.
Share-based
Payments
Share-based
payments is the stock-based compensation expense related to our granting of stock options to employees and others. The fair value, at
the grant date, of equity-settled share awards is charged to our loss over the period for which the benefits of employees and others
providing similar services are expected to be received. The vesting components of graded vesting employee awards are measured separately
and expensed over the related tranche’s vesting period. The amount recognized as an expense is adjusted to reflect the number of
share options expected to vest. The fair value of awards is calculated using the Black-Scholes option pricing model, which considers
the exercise price, current market price of the underlying shares, expected life of the award, risk-free interest rate, expected volatility
and the dividend yield.
Other
Income
Other
income consists primarily of interest income earned on our cash, cash equivalents and short-term investments.
Results
of Operations
We
have two operating and reportable segments based on the management approach which designates the internal reporting used by the Chief
Operating Decision Maker (“CODM”), which is our Chief Executive Officer and the senior management team, for making decisions
and assessing performance as the source of our 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. We have determined our reportable segments to be InMed Pharmaceuticals (“InMed
Pharma”) and BayMedica Commercial based on the information used by the CODM.
76
Comparison
of the year ended June 30, 2025 and 2024 for InMed Pharma Segment
Year
Ended
June 30,
2025
2024
Change
%
Change
(in thousands)
Operating expenses:
Research
and development
2,821
3,079
(258 )
(8 )%
General and administrative
5,415
5,042
373
7 %
Amortization and depreciation
210
217
(7 )
(3 )%
Foreign
exchange loss
28
62
(34 )
(55 )%
Total operating expenses
8,474
8,400
74
1 %
Interest and other income
156
533
(377 )
(71 )%
Finance
expense
(372 )
-
(372 )
(100 )%
Net loss
$ (8,690 )
$ (7,867 )
$ (823 )
(10 )%
Research
and Development Expenses
Research
and development expenses decreased by $0.3 million in our InMed Pharma segment, or 8%, for the year ended June 30, 2025 as compared to
the year ended June 30, 2024. The decrease in research and development expenses was due primarily to a decrease in external contractors
and personnel compensation. This was offset by an increase in research supplies. However, we expect our research and development expenses
to increase significantly in future periods as we continue to implement our business strategy.
General
and administrative expenses
General
and administrative expenses increased by $0.4 million in our InMed Pharma segment, or 7%, for the year ended June 30, 2025 as compared
to the year ended June 30, 2024. The increase results primarily from a combination of changes including higher legal expenses, and consulting
fees. This was offset by a decrease in office and administrative fees.
Interest
and other income
Interest
and other income decreased by $0.4 million in our InMed segment, or 71% for the year ended June 30, 2025, as compared to the year ended
June 30, 2024. The decrease primarily results from the loss of a sublessor during the year ended June 30, 2025, and the reduction in
our average cash on hand during the current year.
Finance
Expense
Finance
expense increased by $0.4 million in our InMed segment, or 100% for the year ended June 30, 2025 as compared to the year ended June 30,
2024. The increase primarily results from the fees incurred in relation to the SEPA agreement.
Comparison
of the year ended June 30, 2025 and 2024 for the BayMedica Segment
Year
Ended
June 30,
2025
2024
Change
%
Change
(in thousands)
Sales
$ 4,943
$ 4,598
$ 345
8 %
Cost of sales
3,236
3,497
(261 )
(7 )%
Gross profit
1,707
1,101
606
55 %
Operating expenses:
Research and development
33
138
(105 )
(76 )%
General and administrative
1,143
756
387
51 %
Amortization
and depreciation
2
2
-
- %
Total operating expenses
1,178
896
282
31 %
Interest and other income
-
(5 )
5
(100 )%
Tax
expense
-
(7 )
7
(100 )%
Net Income
$ 529
$ 193
$ 336
174 %
77
Sales
Sales
increased by $0.3 million in our BayMedica segment, or 8%, for the year ended June 30, 2025 as compared to the year ended June 30, 2024.
The increase in sales results from expanded marketing efforts and increased demand in certain cannabinoid products. BayMedica will continue
to evaluate opportunities for potential structured supply arrangements and collaborations for the commercial business. Sales and marketing
efforts will remain focused on products that contribute highest margins, where BayMedica continues to hold a strong competitive position.
Cost
of Sales
Cost
of goods sold decreased by $0.3 million in our BayMedica segment, or 7%, for the year ended June 30, 2025 as compared to the year ended
June 30, 2024. The decrease in cost of goods sold is primarily the result of the Company lowering its supply chain costs and a decrease
in write-down of inventories to net realizable value during the year ended June 30, 2025.
Research
and Development Expenses
Research
and development expenses decreased by less than $0.1 million in our BayMedica segment, or 76%, for the year ended June 30, 2025 as compared
to the year ended June 30, 2024. The decrease in research and development expenses was primarily due to a decrease in external contractors.
General
and administrative expenses
General
and administrative expenses increased by approximately $0.4 million in our BayMedica segment, or 51%, for the year ended June 30, 2025
as compared to the year ended June 30, 2024. The increase results primarily from a combination of changes including higher salaries and
employee benefits, and marketing expenses.
Liquidity
and Capital Resources
Since
our inception, we have generated revenue from BayMedica product sales and no sales from any other sources and have incurred significant
operating losses and 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 Common Shares.
As
of June 30, 2025, we had cash, cash equivalents and short-term investments of $11.1 million.
The
following table summarizes our cash flows for each of the periods presented:
(in
thousands)
Year
Ended
June 30,
2025
Year
Ended
June 30,
2024
Net cash used in operating activities
$ (7,767 )
$ (6,986 )
Net cash used in investing activities
-
(9 )
Net cash provided
by financing activities
12,271
4,654
Net increase (decrease)
in cash and cash equivalents
$ 4,504
$ (2,341 )
78
Operating
Activities
During
the year ended June 30, 2025, we used cash in operating activities of $7.8 million, primarily resulting from our net loss of $8.2 million
combined with $1.0 million used in changes in our non-cash working capital, partially offset by non-cash share-based compensation expenses.
During
the year ended June 30, 2024, we used cash in operating activities of $7.0 million, primarily resulting from our net loss of $7.7 million
combined with $0.4 million used in changes in our non-cash working capital, partially offset by non-cash share-based compensation expenses
and inventory write-down.
Investing
Activities
During
the year ended June 30, 2025, cash used in investing activities of $nil resulted from the purchases and sale of short-term investments.
During
the year ended June 30, 2024, cash used in investing activities of less than $0.01 million resulted from the purchases of property and
equipment.
Financing
Activities
During
the year ended June 30, 2025, cash provided by financing activities of $12.3 million consisted of $8.1 million in gross proceeds derived
from the sale of common stock, $5.0 million in gross proceeds derived from the sale of warrants, offset by total transaction costs of
$0.9 million.
During
the year ended June 30, 2024, cash provided by financing activities of $4.7 million consisted of $5.2 million in gross proceeds derived
from the 2023 Private Placement, 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 operating as a US-listed public company and associated with any required investment into BayMedica’s R&D
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 our ability to continue as a going concern
within one year after the date that the consolidated financial statements are issued.
Through
June 30, 2025, we have 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 $8.2 million and $7.7 million for the years ended
June 30, 2025 and 2024, respectively. In addition, we have an accumulated deficit of $117.2 million as of June 30, 2025.
As
of the issuance date of these consolidated annual financial statements, we expect our cash, cash equivalents and short-term investments
of $11.1 million as of June 30, 2025 will be sufficient to fund our operating expenses and capital expenditure requirements into the
fourth quarter of calendar 2026, 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 our operating expenses. Our future viability is dependent on our
ability to raise additional capital to finance its operations. We have concluded that there is substantial doubt about our ability to
continue as a going concern within one year after the date that the consolidated financial statements are issued.
79
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 stockholders.
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.
80
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 Estimates and Accounting Policies
We
periodically review our financial reporting and disclosure practices and accounting policies to ensure that they provide accurate and
transparent information relative to the current economic and business environment. As part of this process, we have reviewed our selection,
application and communication of critical accounting policies and financial disclosures. Management has discussed the development and
selection of the critical accounting policies with the Audit Committee of the Board of Directors and the Audit Committee has reviewed
the disclosure relating to critical accounting policies in this Management’s Discussion and Analysis.
This
discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements included
as part of this report, which have been prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements
requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the revenue and expenses
incurred during the reported periods. We base estimates on our historical experience, known trends and various other factors that we
believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not apparent from other sources. Actual results may differ from these estimates under different assumptions
or conditions.
The
full details of our accounting policies are presented in Note 2 of our audited consolidated financial statements for the year ended June
30, 2025. These policies are considered by management to be essential to understanding the processes and reasoning that go into the preparation
of our consolidated financial statements and the uncertainties that could have a bearing on its financial results. The significant accounting
policies that we believe to be most critical in fully understanding and evaluating our financial results are research and development
costs and share based payments.
Use
of Estimates
The
preparation of financial statements in compliance with US GAAP requires management to make estimates and assumptions that affect the
reported amount of assets and liabilities as of the balance sheet date, and the corresponding revenues and expenses for the periods reported.
It also requires management to exercise judgment in applying the Company’s accounting policies. In the future, actual experience
may differ from these estimates and assumptions. The areas involving a higher degree of judgment or complexity, or areas where assumptions
and estimates are significant to these consolidated financial statements are the application of the going concern assumptions, determining
the fair value of share-based payments, income tax provisions, write-down of inventories to net realizable value, warrant valuations,
and the assumptions used in the determination of research & development accruals.
Actual
results could differ from those estimates.
Research
& Development costs:
Research
and development costs is a critical accounting estimate due to the magnitude and nature of the assumptions that are required to calculate
third-party accrued and prepaid research and development expenses. Research and development costs are charged to expense as incurred
and include, but are not limited to, personnel compensation, including salaries and benefits, services provided by CROs that conduct
preclinical and clinical studies, costs of filing and prosecuting patent applications, and lab supplies.
The
amount of expenses recognized in a period related to service agreements is based on estimates of the work performed using an accrual
basis of accounting. These estimates are based on services provided and goods delivered, contractual terms and experience with similar
contracts. We monitor these factors and adjust our estimates accordingly.
81
Share-based
payments :
The
fair value, at the grant date, of equity share awards is charged to income or loss over the period for which the benefits of employees
and others providing similar services are expected to be received, generally the vesting period. The corresponding accrued entitlement
is recorded in contributed surplus. 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 following factors:
●
Exercise price;
●
Current market price of
the underlying shares;
●
Expected life of the award;
●
Risk-free interest rate;
●
Expected volatility; and
●
Dividend yield.
Management
determines costs for share-based payments using market-based valuation techniques. The fair value of the market-based and performance-based
share awards are determined at the date of grant using generally accepted valuation techniques. Assumptions are made and judgment used
in applying valuation techniques. These assumptions and judgments include estimating the future volatility of the stock price, expected
dividend yield, forfeiture rates and corporate performance. For employee awards, we use the “simplified method” to determine
the expected term of options. Under this method, the expected term represents the average of the vesting period and the contractual term.
Such judgments and assumptions are inherently uncertain. Changes in these assumptions affect the fair value estimates. If we had made
different judgments and assumptions than those described previously, the amount of our share-based payments expense, net loss and net
loss per common shares amounts could have been materially different.
Recent
Accounting Pronouncements
The
Company has reviewed recent accounting pronouncements and concluded that they are either not applicable to the Company or that there
was no material impact or no material impact is expected in these consolidated financial statements as a result of
future adoption.
In
November 2024, the FASB issued ASU 2024-03, Income Statement Reporting Comprehensive Income - Expense Disaggregation Disclosures ,
which requires disclosure, in the notes to financial statements, of specified information about certain costs and expenses. The amendments
in this update improve financial reporting by requiring that public business entities disclose additional information about specific
expense categories in the notes to financial statements at interim and annual reporting periods. This ASU should be applied on a prospective
basis, with retrospective application permitted. The amendments in this update are effective for fiscal years beginning after December
15, 2026 and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently
evaluating the future effect the adoption of this ASU will have on our consolidated financial statements and related disclosures.
In
December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , which requires disclosure
of specific categories meeting a quantitative threshold within the income tax rate reconciliation, as well as disaggregation of income
taxes paid by jurisdiction. This ASU, which can be applied either prospectively or retrospectively, is effective for annual periods beginning
after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of this ASU and expects to include
updated income tax disclosures in its fiscal year 2026.
In
November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, Segment Reporting (Topic 280): Improvements
to Reportable Segment Disclosures , which enhances reportable segment disclosure requirements primarily through expanded disclosures
around significant segment expenses. The amendments are effective for fiscal years beginning after December 15, 2023, and for interim
periods within fiscal years beginning after December 15, 2024. The amendments should be applied retrospectively to all prior periods
presented in the financial statements. The Company has adopted this accounting pronouncement.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
We
are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required
under this item.
82