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 of 1933, as
amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
and is subject to the safe harbor created by those sections. For more information, see “Cautionary 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 encourage you to review the risks and uncertainties described in “Risk Factors” in this Annual
Report on Form 10-K. 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, 2023, and the related notes thereto, which have been prepared in accordance with U.S. GAAP, included in our Form 10-K filing.
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 clinical stage pharmaceutical
company developing a pipeline of prescription-based products, including rare cannabinoids and novel cannabinoid analogs, targeting the
treatment of diseases with high unmet medical needs. Together with our subsidiary, BayMedica, we also have significant know-how in developing
proprietary manufacturing approaches to produce cannabinoids for various market sectors. Our know-how includes traditional approaches
such as chemical synthesis and biosynthesis, as well as a proprietary, integrated manufacturing approach called IntegraSyn. We are dedicated
to delivering new therapeutic alternatives to patients and consumers who may benefit from cannabinoid-based products. Our approach leverages
on the several thousand years’ history of health benefits attributed to the Cannabis plant and brings this anecdotal information
into the 21st century by applying tried, tested and true scientific approaches to establish non-plant-derived (synthetically manufactured),
individual cannabinoid compounds as Product Candidates for InMed’s pharmaceutical product development pipeline or specific rare
cannabinoid Products sold to end-product manufacturers by BayMedica. While our activities do not involve direct use of Cannabis
nor extracts from the plant, we note that the FDA has, to date, not approved any marketing application for Cannabis for the treatment
of any disease or condition and has approved only one Cannabis-derived and three Cannabis-related drug products. Our ingredients
are synthetically made and, therefore, we have no interaction with the Cannabis plant. We do not grow nor utilize Cannabis
nor its extracts in any of our Products or Product Candidates; our current pharmaceutical drug Product Candidates are applied topically
(not inhaled nor ingested); and, we do not utilize THC or CBD, the most common cannabinoid compounds that are typically extracted from
the Cannabis plant, in any of our Products or Product Candidates. The API under development for our initial two drug candidates,
INM-755 for EB and INM-088 for glaucoma, is CBN. Additional uses of both INM-755 and INM-088 are being explored, as well as the application
of novel cannabinoid analogs to treat diseases including but not limited to neurodegenerative diseases such as Alzheimer’s, Parkinson’s,
and Huntington’s.
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We believe we are positioned
to develop multiple pharmaceutical Product Candidates in diseases which may benefit from medicines based on rare cannabinoid compounds.
Most currently approved cannabinoid therapies are based specifically on CBD and/or THC and are often delivered orally, which has limitations
and drawbacks, such as side effects (including the intoxicating effects of THC). Currently, we intend to deliver our rare cannabinoid
pharmaceutical Product Candidates through various topical formulations (cream for dermatology, eye drops for ocular diseases) as a way
of enabling treatment of the specific disease at the site of disease while seeking to minimize systemic exposure and any related unwanted
systemic side effects, including any drug-drug interactions and any metabolism of the active pharmaceutical ingredient by the liver. The
cannabinoid Products sold through our B2B raw material supply business are integrated into various product formats by the companies who
then further commercializes such products. We access rare cannabinoids via all non-extraction approaches, including chemical synthesis,
biosynthesis and our proprietary integrated IntegraSyn approach, thus negating any interaction with or exposure to the Cannabis
plant.
Since our acquisition of Biogen
Sciences Inc., a privately held British Columbia pharmaceutical company focused on drug discovery and development of cannabinoids in 2014,
our operations have focused on conducting research and development for our Product Candidates and for our integrated, biosynthesis-based
manufacturing technology, establishing our intellectual property, organizing and staffing our Company, business planning and capital raising.
On October 13, 2021, we acquired BayMedica, Inc., now named BayMedica, LLC. Upon closing of the transaction, BayMedica became a wholly-owned
subsidiary of InMed. To date, we have funded our operations primarily through the issuance of common shares.
We have incurred significant operating losses since our inception and
since the acquisition of Biogen Science Inc. and we expect to continue to incur significant operating losses for the foreseeable future.
Our ability to generate product revenue that is sufficient to achieve profitability will depend heavily on the revenues generated from
our products in the Health and Wellness sector, on the successful development and eventual commercialization of one or more of our Product
Candidates and/or the success of our manufacturing technologies. Our net loss was $8.0 million and $18.6 million for the year ended June
30, 2023 and 2022, respectively. As of June 30, 2023, we had an accumulated deficit of $101.4 million, which includes all losses since
our inception in 1981. We expect our expenses will remain steady as we:
● maintain, expand, enforce, defend and protect our intellectual property;
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As a result of these activities
as well as our working capital requirements, we will need substantial additional funding to support our continuing operations and pursue
our growth strategy. We expect to finance our operations through product sales, the sale of equity, debt financings or other capital sources,
including collaborations with other companies or other strategic transactions. We may be unable to raise additional funds or enter into
such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements
as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more
of our Products and Product Candidates or grant rights to external entities to develop and market our Product Candidates, even if we would
otherwise prefer to develop and market such Products and Product Candidates ourselves.
Because of the numerous risks
and uncertainties associated with drug development and commercial growth, we are unable to predict the timing or amount of increased expenses
and working capital requirements or the timing of when or if we will be able to achieve or maintain profitability. If we fail to become
profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels
and be forced to reduce or terminate our operations.
Recent Developments
We completed our Phase 2 trial
on INM-755 in April of 2023, and we have released preliminary results in June 2023. We anticipate publishing the full data from the study
in the second quarter of fiscal 2024.
Components of Results of Operations
Revenue
Our revenue consists of manufacturing
and distribution sales of bulk rare cannabinoid Products, which are generally recognized at a point in time. The Company recognizes revenue
when control over the products have been transferred to the customer and the Company has a present right to payment.
Cost of Sales
Cost
of sales 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 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:
● research supplies; and
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.
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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.
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 establish sales, licensing or collaboration arrangements;
● competition with other products; and
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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 2023 as compared to fiscal 2022, largely due to high
start-up costs associated with the multicenter Phase 2 clinical trial in our INM-755 program during fiscal 2022. However, we expect our
research and development expenses to increase significantly in future periods as we continue to implement our business strategy, which
includes advancing our drug candidates and our manufacturing technologies into and through clinical development, expanding our research
and development efforts, including hiring additional personnel to support our research and development efforts, ultimately seeking regulatory
approvals for our drug candidates that successfully complete clinical trials, and further developing selected R&D and commercial BayMedica
activities. In addition, drug candidates in later stages of clinical development generally incur higher development costs than those in
earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. Accordingly,
although we expect our research and development expenses to increase as our drug candidates advance into later stages of clinical development,
we do not believe that it is possible, at this time, to accurately project total program-specific expenses through to commercialization.
There are numerous factors associated with the successful commercialization of any of our Product Candidates, including future trial design
and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development.
General and Administrative Expenses
General and administrative
expenses consist of personnel-related costs, including salaries, benefits and stock-based compensation expense, for our personnel in executive,
finance and accounting, human resources, business operations and other administrative functions, investor relations activities, legal
fees related to corporate matters, fees paid for accounting and tax services, consulting fees and facility-related costs.
Amortization and Depreciation
Intangible assets are comprised
of intellectual property that we acquired in 2014 and 2015 and trade secrets, product formulation knowledge, patents that we acquired
in October 2021. The acquired intellectual property and patents are amortized on a straight-line basis based on their estimated useful
lives. Equipment and leasehold improvements are depreciated using the straight-line method based on their estimated useful lives.
Impairment of Long-Lived Assets
We assess the recoverability
of our long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash
flows expected to be generated by the asset or assets. If carrying value exceeds the sum of undiscounted cash flows, we then determine
the fair value of the underlying asset. Any impairment to be recognized is measured as the amount by which the carrying amount of the
asset group exceeds the estimated fair value of the asset group. Assets classified as held for sale are reported at the lower of the carrying
amount or fair value, less costs to sell.
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.
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Other Income
Other income consists primarily
of interest income earned on our cash, cash equivalents and short-term investments.
Results of Operations
As of the closing of the BayMedica
acquisition, the Company aligned into two operating and reportable segments, InMed Pharmaceuticals (the “InMed” segment) and
BayMedica (the “BayMedica” segment).
Comparison of the year ended June 30, 2023
and 2022 for InMed Segment
Year Ended June 30,
(in thousands)
Operating expenses:
Amortization and depreciation 105 107 (2 ) (2 )%
Foreign exchange (loss) gain (48 ) (118 ) 70 (59 )%
Research and Development and Patents Expenses
Research and development and patents expenses decreased by $3.1 million
in our InMed segment, or 52%, for the year ended June 30, 2023 compared to the year ended June 30, 2022. The decrease in research and
development and patents expenses was due to a combination of lower personnel expenses, legal fees and decreased expenses related to the
INM-755 program as a result of high start-up costs associated with the multicenter Phase 2 clinical trial during fiscal 2022.
General and administrative expenses
General and administrative
expenses decreased by $1.9 million in our InMed segment, or 32%, for the year ended June 30, 2023 compared to the year ended June 30,
2022. The decrease results primarily from a combination of changes including lower office and admin fees, investor relation expenses,
stock-based compensation expenses, personnel expenses, accounting, and legal fees.
Foreign exchange loss
The Company’s functional currency is US dollar and our foreign
exchange loss is predominantly due to transactions with foreign currency. Foreign exchange loss increased
by less than $0.1 million in our InMed segment, or 59%, for the year ended June 30, 2023, compared to the year ended June 30, 2022, as
a consequence of holding non-US denominated assets and liabilities combined with fluctuations in foreign exchange rates.
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Comparison of the year ended June 30, 2023
and 2022 for BayMedica Segment
Year Ended June 30,
(in thousands)
Operating expenses:
Amortization and depreciation 98 79 19 24 %
Impairment of intangible assets and goodwill - 3,473 (3,473 ) (100 )%
Tax expense (13 ) - (13 ) nm
Sales
Sales increased by $3.0 million
in our BayMedica segment, or 280%, for the year ended June 30, 2023 compared to the year ended June 30, 2022. BayMedica has now realized
three consecutive quarters of revenue growth, with increases of 46%, 100%, and 123% in Q2, Q3, and Q4 of fiscal year 2023, respectively.
While we expect revenue fluctuations based on distributor order patterns, there are no assurances that this growth will continue in future
quarters. However, the recent trend of increased sales is encouraging. The increase in distribution 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
increased by $1.9 million in our BayMedica segment, or 344%, for the year ended June 30, 2023 compared to the year ended June 30,
2022. The increase in cost of goods sold is a result from the increase in sales mentioned above Our cost of sales percentage
fluctuates based on the Products mix sold.
Inventory Write-Down
The
write-down of inventories to net realizable value was $0.3 million in our BayMedica segment for the year ended June 30, 2023, with no
comparable expenses in 2022. Contributing factors to the decrease in net realizable value included lower demand and downward pricing pressure
in the first quarter of fiscal 2023. BayMedica continues to evaluate new manufacturing approaches for certain products to increase competitive
position in the marketplace.
Research and Development and Patents Expenses
Research and development and
patents expenses decreased by $0.4 million in our BayMedica segment, or 33%, for the year ended June 30, 2023 compared to the year ended
June 30, 2022. The decrease in research and development and patents expenses was primarily due to lower personnel expenses and external
consultants. This was offset by an increase in research supplies.
General and administrative expenses
General and administrative
expenses increased by $0.9 million in our BayMedica segment, or 90%, for the year ended June 30, 2023 compared to the year ended June
30, 2022. The increase results primarily from a combination of changes including higher personnel expenses, accounting fees, legal fees
and sales and marketing expenses.
Liquidity and Capital Resources
Since our inception, we have
only generated limited revenue from product sales, no sales from any other sources and have incurred significant operating losses and
negative cash flows from our operations. We have only commenced commercial sales with the acquisition of BayMedica and 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, 2023, we had cash, cash equivalents
and short-term investments of $9.0 million.
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The following table summarizes our cash flows
for each of the periods presented:
(in thousands) Year Ended June 30, 2023 Year Ended June 30, 2022
Net cash (used in) operating activities $ (7,283 ) $ (15,584 )
Net cash (used in) investing activities (662 ) (673 )
Net cash provided by financing activities 10,680 15,071
Net increase (decrease) in cash and cash equivalents $ 2,735 $ (1,186 )
Operating Activities
During the year ended June
30, 2023, we used cash in operating activities of $7.3 million, primarily resulting from our net loss of $7.9 million combined with $0.6 million used in changes in our non-cash working capital, partially offset by non-cash share-based compensation expenses and inventory
write-down.
During the year ended June
30, 2022, we used cash in operating activities of $15.9 million, primarily resulting from our net loss of $18.6 million combined with
$2.7 million used in changes in our non-cash working capital, partially offset by non-cash share-based compensation expenses, impairment
of intangible assets and goodwill and warrant modification expense related to the change in fair value of warrants that were re-priced
during the year.
Investing Activities
During the year ended June
30, 2023, cash used in investing activities of $0.7 million resulted from escrow payments made to BayMedica’s historical equity
and convertible debt holders and purchase of property and equipment.
During the year ended June
30, 2022, cash used in investing activities of $0.7 million resulted from escrow payments made to BayMedica’s historical equity
and convertible debt holders, settlement of loan receivable from BayMedica and purchases of property and equipment, partially offset by
cash acquired from the acquisition of BayMedica.
Financing Activities
During the year ended June
30, 2023, cash provided by financing activities of $10.7 million consisted of $12.0 million of gross proceeds from private placements
of our common shares, offset by total transaction costs of $1.3 million.
During the year ended June
30, 2022, cash provided by financing activities of $15.1 million consisted of $12.0 million of gross proceeds from a private placement
of our common shares and $5.0 million of gross proceeds from a registered direct offering and concurrent private placement of our common
shares, offset by total transaction costs of $1.8 million and $0.3 million for the repayment of debt assumed in the BayMedica acquisition.
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 the Company’s ability to continue as a going concern within one
year after the date that the consolidated financial statements are issued.
Through June 30, 2023, we
have funded our operations primarily with proceeds from the sale of common stock. We have incurred recurring losses and negative cash
flows from operations since its inception, including net losses of $7.9 million and $18.6 million for the year ended June 30, 2023 and
2022, respectively. In addition, we have an accumulated deficit of $101.4 million as of June 30, 2023.
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As
of the issuance date of the consolidated interim financial statements, we expect our cash and cash, cash equivalents and short-term investments
of $9.0 million as of June 30, 2023 will be sufficient to fund our operating expenses and capital expenditure requirements into the first
quarter of calendar year 2024. depending on the level and timing of realizing BayMedica revenues from the sale of Products in the Health
& Wellness sector as well as the level and timing of the Company operating expenses. Our future viability is dependent on our ability
to raise additional capital to finance our operations. In addition, there are a number of uncertainties in estimating our operating expenses
and capital expenditure requirements including the impact of potential acquisitions.
As a result, 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.
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 costs, timing and outcome of regulatory review of our Product Candidates;
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.
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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 of the SEC.
Critical Accounting Policies and Significant
Judgments and Estimates
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, 2023. 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.
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Research &
Development and Patents costs:
Research
and development and patents 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.
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
● 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.
Impairment of Intangible
Assets:
We
assess the recoverability of our long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to
future undiscounted net cash flows expected to be generated by the asset or assets. If carrying value exceeds the sum of undiscounted
cash flows, we then determine the fair value of the underlying asset. Any impairment to be recognized is measured as the amount by which
the carrying amount of the asset group exceeds the estimated fair value of the asset group.
Due
to the impairment indicators discussed in Note 5 of our consolidated financial statements, as of June 30, 2022, the Company determined
that intangibles assets of BayMedica that were associated with manufacturing and commercialization of our health and wellness products
were impaired during the year ended June 30, 2022. Refer to Note 5 of our consolidated financial statements.
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Business Combination
Business
combinations are accounted for using the acquisition method. The fair value of total purchase consideration is allocated to the fair values
of identifiable tangible and intangible assets acquired and liabilities assumed, with the remaining amount being classified as goodwill.
All assets and liabilities acquired or assumed in a business combination are recorded at their fair values at the date of acquisition.
If the Company’s interest in the fair value of the acquiree’s net identifiable assets exceeds the cost of the acquisition,
the excess is recognized in earnings or loss immediately. Transaction costs that are incurred in connection with a business combination,
other than costs associated with the issuance of debt or equity securities, are expensed as incurred.
As
part of our acquisition of BayMedica Inc, on October 13, 2021, goodwill, trade secrets, product formulation knowledge, patents, trademarks,
Technology and In-Process Research and Development Intangible (“IPR&D”) intangible assets were recognized. The fair
value of the aggregate intangible assets was determined to be $2.7 million and goodwill was $2.0 million at the acquisition date. IPR&D
was classified as indefinite-lived and was not amortized. The multi-period excess earnings method was used to determine the fair value
of these assets as at the date of acquisition. All research and development costs incurred subsequent to the acquisition of IPR&D
are expensed as incurred. Patents are expected to have a finite life and are being amortized on a straight-line basis over their estimated
useful lives. Amortization begins when intangible assets with finite lives are put into use.
Going Concern
Through June 30, 2023, we
have funded our operations primarily with proceeds from the sale of common shares. We have incurred recurring losses and negative cash
flows from operations since our inception, including net losses of $7.9 million and $18.6 million for the years ended June 30, 2023 and
2022, respectively. In addition, we have an accumulated deficit of $101.4 million as of June 30, 2023.
As of the issuance date of
the consolidated financial statements, we expect our cash and cash equivalents and short-term investments of $9.0 million as of June
30, 2023 will be sufficient to fund our operating expenses and capital expenditure requirements into the first quarter of calendar 2024,
and possibly into the second quarter of calendar year 2024, depending on the level and timing of realizing revenues from the BayMedica
commercial operations as well as the level and timing of the Company operating expense. Our future viability is dependent on our ability
to raise additional capital to finance our operations. In addition, there are a number of uncertainties in estimating our operating expenses
and capital expenditure requirements including the impact of potential acquisitions.
As a result, 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.
We expect 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.
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.
90
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements of
InMed Pharmaceuticals Inc.
For the Year Ended June 30, 2023 and 2022
F-1
InMed Pharmaceuticals Inc.
(Expressed in U.S. Dollars)
June 30, 2023
INDEX Page
Consolidated Financial Statements
● Report of Independent Registered Public Accounting Firm (PCAOB Firm ID 85) F-4
● Consolidated Balance Sheets F-5
● Consolidated Statements of Operations F-6
● Consolidated Statements of Shareholders’ Equity F-7
● Consolidated Statements of Cash Flows F-8
● Notes to the Consolidated Financial Statements F-9 - F-32
F-2
Report of Independent
Registered Public Accounting Firm
To the Shareholders and Board of Directors of
InMed Pharmaceuticals Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheet of InMed Pharmaceuticals Inc. (the “Company”) as of June 30, 2023, the related consolidated statements of operations,
changes in shareholders’ equity and cash flows for the year ended June 30, 2023 and the related notes (collectively referred to
as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial
position of the Company as of June 30, 2023, and the results of its operations and its cash flows for the year ended June 30, 2023, in
conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. As more fully described in Note 1, the Company has incurred significant
losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt
about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1.
The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We
are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Marcum llp
Marcum llp
We have served as the Company’s auditor since 2023
New York, NY
September 29, 2023
F-3
Report of Independent
Registered Public Accounting Firm
To the Shareholders and Board of Directors
InMed Pharmaceuticals Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of InMed
Pharmaceuticals Inc. (the Company) as of June 30, 2022, the related consolidated statement of operations, shareholders’ equity,
and cash flows for the year ended June 30, 2022, and the related notes (collectively, the consolidated financial statements). In
our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as
of June 30, 2022, and the results of its operations and its cash flows for the year ended June 30, 2022, in conformity with U.S.
generally accepted accounting principles.
Going Concern
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company
has incurred recurring losses and negative cash flows and has an accumulated deficit that raise substantial doubt about its ability to
continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal
control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for
our opinion.
/s/ KPMG LLP
Chartered Professional Accountants
We have served as the Company’s auditor since 2017.
Vancouver, Canada
September 23, 2022
F-4
InMed Pharmaceuticals Inc.
CONSOLIDATED BALANCE SHEETS
Expressed in U.S. Dollars
ASSETS $ $
Current
Non-Current
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current
Acquisition consideration payable - 500,000
Non-current
Commitments and Contingencies (Note 14)
Shareholders’ Equity
Related Party Transactions (Note 15)
Subsequent Events (Note 16)
The accompanying notes form an integral part of these consolidated
financial statements.
F-5
InMed Pharmaceuticals Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
Expressed in U.S.
Dollars
For the Years Ended
$ $
Operating Expenses
Impairment of intangible assets and goodwill 5 - 3,472,593
Other Income (Expense)
Warrant modification expense - (1,314,307 )
Income tax expense (13,100 ) -
Net loss per share for the year
Weighted average outstanding common shares
The accompanying notes form an integral part of these consolidated
financial statements.
F-6
InMed Pharmaceuticals Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the years ended June 30, 2023 and 2022
Expressed in U.S.
Dollars
Additional Accumulated Other
# $ $ $ $ $
Additional Accumulated Other
# $ $ $ $ $
The accompanying notes form
an integral part of these consolidated financial statements.
F-7
InMed Pharmaceuticals Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended June 30, 2023 and 2022
Expressed in U.S.
Dollars
$ $
Cash provided by (used in):
Operating Activities
Items not requiring cash:
Shares issued for services - 79,879
Loss on disposal of assets - 11,355
Interest income received on short-term investments (803 ) (115 )
Unrealized foreign exchange loss 1,183 1,770
Impairment of intangible assets and goodwill - 3,472,593
Warrant modification expense - 1,314,307
Changes in operating assets and liabilities:
Accounts payable and accrued liabilities (806,530 ) (811,599 )
Investing Activities
Cash acquired from acquisition of BayMedica - 91,566
Payment of acquisition consideration payable (500,000 ) (300,457 )
Payment of deposit on equipment (1,790 ) -
Sale of short-term investments (42,268 ) -
Purchase of short-term investments 42,268 -