(Expressed in U.S. Dollars)
The accompanying
notes form an integral part of these condensed consolidated interim financial statements.
Expressed in U.S. Dollars
The accompanying
notes form an integral part of these condensed consolidated interim financial statements.
The accompanying
notes form an integral part of these condensed consolidated interim financial statements.
The accompanying
notes form an integral part of these condensed consolidated interim financial statements
NOTES TO THE CONDENSED
CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX
MONTHS ENDED DECEMBER 31, 2020 AND 2019
(Expressed in U.S.
Dollars)
|
1.
|
CORPORATE
INFORMATION AND CONTINUING OPERATIONS
|
InMed Pharmaceuticals
Inc. (“InMed” or the “Company”) was incorporated in the Province of British Columbia on May 19, 1981 under
the Business Corporations Act of British Columbia. InMed is a clinical stage pharmaceutical company specializing in the
research and development of novel, cannabinoid-based therapies and a system for the manufacturing of pharmaceutical-grade cannabinoids.
The Company’s
shares are listed on the on the Nasdaq Capital Market (“Nasdaq”) under the trading symbol “INM”) and on
the Toronto Stock Exchange (“TSX”) under the trading symbol “IN”. InMed’s corporate office and principal
place of business is located at #310 – 815 West Hastings Street, Vancouver, B.C., Canada, V6C 1B4.
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), the Company has 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 condensed consolidated interim financial statements are issued.
Through December
31, 2020, the Company has funded its operations primarily with proceeds from the sale of common stock. The Company has incurred
recurring losses and negative cash flows from operations since its inception, including net losses of $3.8 million and $5.3 million
for the six months ended December 31, 2020 and 2019, respectively. In addition, the Company had an accumulated deficit of $68.5
million as of December 31, 2020. The Company expects to continue to generate operating losses for the foreseeable future.
As of the
issuance date of these condensed consolidated interim financial statements, the Company expects its cash and cash equivalents
of $10.0 million as of December 31, 2020 will be sufficient to fund its operating expenses and capital expenditure requirements
into the second quarter of fiscal 2022. The future viability of the Company beyond that point is dependent on its ability to raise
additional capital to finance its operations. As a result, the Company has concluded that there is substantial doubt about its
ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are
issued.
The Company
expects 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. The Company 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 the Company’s
existing stockholders.
These condensed
consolidated interim financial statements have been prepared on a going concern basis, which assumes that the Company will be
able to meet its commitments, realize its assets and discharge its liabilities in the normal course. These condensed consolidated
interim financial statements do not reflect adjustments to the carrying values of assets and liabilities that would be necessary
if the Company was unable to continue as a going concern and such adjustments could be material.
INMED PHARMACEUTICALS INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2020 AND 2019
(Expressed in U.S. Dollars)
|
2.
|
SIGNFICANT
ACCOUNTING POLICIES
|
|
(a)
|
Basis of Presentation
|
These unaudited
condensed consolidated interim financial statements have been prepared using accounting policies consistent with those used in
the Company’s 2020 annual consolidated financial statements under generally accepted accounting principles as applied in
the United States (“US GAAP”) except for new standards, interpretations and amendments mandatorily effective for the
first time from July 1, 2020.
The functional
currency of the Company and its subsidiaries is the Canadian Dollar. These condensed consolidated interim financial statements
are presented in U.S Dollars.
The preparation
of financial statements in compliance with US GAAP requires management to make certain critical accounting estimates. 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 condensed consolidated interim financial statements are the estimate of useful
life of intangible assets, the application of the going concern assumption, the impairment assessment for long-lived assets, and
determining the fair value of share-based payments and warrants.
On March 11,
2020 the COVID-19 outbreak was declared a pandemic by the World Health Organization. The situation is dynamic and the ultimate
duration and magnitude of the impact on the economy and our business are not known at this time. Management uses judgment to assess
the impact of the pandemic on the Company’s ability to obtain debt and equity financing in the future and impairment in
the value of its long-lived assets.
|
(c)
|
Basis of Consolidation
|
These condensed
consolidated interim financial statements include the accounts of the Company and its subsidiaries, including inactive subsidiaries:
Biogen Sciences Inc., Sweetnam Consulting Inc., and InMed Pharmaceutical Ltd. The Company’s former inactive subsidiary,
Meridex Network Corporation, was wound up into InMed effective April 17, 2019. A subsidiary is an entity that the Company controls,
either directly or indirectly, where control is defined as the power to govern the financial and operating policies of an entity
so as to obtain benefits from its activities. All inter-company transactions and balances including unrealized income and expenses
arising from intercompany transactions are eliminated in preparing these condensed consolidated interim financial statements.
|
(d)
|
Derivative
financial instruments
|
The Company
generally does not use derivative instruments to hedge exposures to cash-flow or market risks; however, certain warrants to purchase
common stock that do not meet the requirements for classification as equity are classified as liabilities with attributable transaction
costs recognized in the condensed consolidation interim statement of operations and comprehensive loss. Such financial instruments
are initially recorded at fair value with subsequent changes in fair value charged (credited) to operations in each reporting
period. If these instruments subsequently meet the requirements for classification as equity, the Company reclassifies the fair
value to equity.
INMED PHARMACEUTICALS INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2020 AND 2019
(Expressed in U.S. Dollars)
|
2.
|
SIGNIFICANT
ACCOUNTING POLICIES (cont’d)
|
|
(e)
|
New Standards
Applicable in the Reporting Period
|
In June 2016, the FASB issued
ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), and subsequent amendments to the initial guidance:
ASU 2018-19, ASU 2019-04, ASU 2019-05 and ASU 2019-10 (collectively Topic 326), requires companies to measure credit losses on
financial instruments measured at amortized cost applying an “expected credit loss” model based upon past events,
current conditions and reasonable and supportable forecasts that affect collectability. Previously, companies applied an “incurred
loss’ model for recognizing credit losses. This standard is effective for fiscal years beginning after December 14, 2019.
The Company adopted this standard from July 1, 2020, which did not have a significant impact on the condensed consolidated interim
financial statements.
|
ii)
|
Fair Value Measurement
|
In August 2018, the FASB issued
ASU 2018–13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements
for Fair Value Measurement. The amendments in this ASU eliminate, add and modify certain disclosure requirements for fair value
measurements as part of its disclosure framework project. The Company adopted ASU 2018-13 from July 1, 2020, which did not have
a significant impact on the condensed consolidated interim financial statements.
|
iii)
|
Collaborative Arrangements
|
In November 2018, the FASB
issued ASU 2018–18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic
606. This ASU provides guidance that clarifies when certain transactions between participants in a collaborative arrangement
should be accounted for under ASC 606 when the counterparty is a customer, and amends ASC 808 to refer to the unit-of-account guidance
in ASC 606. The guidance specifically precludes an entity from presenting consideration from a transaction in a collaborative
arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. The Company adopted
ASU 2018-18 on July 1, 2020, which did not have a significant impact on the condensed consolidated interim financial statements.
|
3.
|
PROPERTY
AND EQUIPMENT, NET
|
Property and equipment consists of the
following:
|
|
December 31,
2020
|
|
|
June 30,
2020
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
Right-of-Use Asset (lease)
|
|
|
446,780
|
|
|
|
417,405
|
|
Equipment
|
|
|
67,276
|
|
|
|
62,853
|
|
Leasehold Improvements
|
|
|
42,986
|
|
|
|
40,160
|
|
Property and equipment
|
|
|
557,042
|
|
|
|
520,418
|
|
Less: accumulated depreciation
|
|
|
(183,198
|
)
|
|
|
(116,933
|
)
|
Property and equipment, net
|
|
|
373,844
|
|
|
|
403,485
|
|
INMED PHARMACEUTICALS INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2020 AND 2019
(Expressed in U.S. Dollars)
|
3.
|
PROPERTY
AND EQUIPMENT, NET (cont’d)
|
Depreciation
expense on property, equipment and leasehold improvements for the three and six months ended December 31, 2020 was $6,528 and
$12,912 (2019 - $27,795 and $41,755, respectively). Depreciation expense related to the Right-of-Use Asset for the three and six
months ended December 31, 2020 of $21,828 and $43,179 (2019 - $21,545 and $28,725) and was recorded in general and administrative
expenses.
|
4.
|
INTANGIBLE
ASSETS, NET
|
Intangible
assets consist of:
|
|
December 31,
2020
|
|
|
June 30,
2020
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
Intellectual property
|
|
|
1,736,420
|
|
|
|
1,622,255
|
|
Less: accumulated amortization
|
|
|
(626,885
|
)
|
|
|
(535,600
|
)
|
Intangible assets, net
|
|
|
1,109,535
|
|
|
|
1,086,655
|
|
The acquired
intellectual property is recorded at cost and is amortized on a straight-line basis over an estimated useful life of 18 years
net of any accumulated impairment losses. As at December 31, 2020, the acquired intellectual property has an estimated remaining
useful life of approximately 11 years.
Amortization
expense on intangible assets for the three and six months ended December 31, 2020 was $30,288 and $51,885 (2019- $21,983 and $45,429).
Based upon the intangible assets held as at December 31, 2020, the Company expects amortization expense to be incurred over the
next five years as follows:
|
|
$
|
|
|
|
|
|
2021
|
|
|
96,468
|
|
2022
|
|
|
96,468
|
|
2023
|
|
|
96,468
|
|
2024
|
|
|
96,468
|
|
2025
|
|
|
96,468
|
|
|
|
|
482,340
|
|
|
5.
|
ACCOUNTS
PAYABLE AND ACCRUED LIABILITIES
|
Accounts
payable and accrued liabilities consist of the following:
|
|
December 31,
2020
|
|
|
June 30,
2020
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
Trade payables
|
|
|
930,393
|
|
|
|
706,516
|
|
Accrued research and development expenses
|
|
|
229,431
|
|
|
|
193,119
|
|
Employee compensation, benefits and related accruals
|
|
|
552,660
|
|
|
|
536,231
|
|
Accrued general and administrative expenses
|
|
|
364,841
|
|
|
|
171,437
|
|
Accounts payable and accrued liabilities
|
|
|
2,077,325
|
|
|
|
1,607,303
|
|
INMED PHARMACEUTICALS INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2020 AND 2019
(Expressed in U.S. Dollars)
|
6.
|
DERIVATIVE
WARRANTS LIABILITY
|
The warrants
issued as part of the November 16, 2020 public offering of common shares and common share purchase warrants (see Note 7), in accordance
with ASC Topic 480, Distinguishing Liabilities from Equity and ASC 815, Derivatives and Hedging, are derivative
warrant liabilities given the currency of the exercise price is different from the Company’s functional currency.
At inception,
the derivative is measured, using the Black-Scholes pricing model, at fair value with subsequent changes in fair value recognized
in unrealized gain or loss on derivative warrants liability. The reconciliation of changes in fair value for the three and six
month periods ended December 31, 2020 is presented in the following table:
|
|
December 31,
2020
|
|
Derivative warrants liability, beginning of period
|
|
-
|
|
Fair value of warrants issued
|
|
|
1,958,000
|
|
Unrealized gain included in net loss
|
|
|
(242,628
|
)
|
Translation effect
|
|
|
48,608
|
|
Derivative warrants liability, end of period
|
|
|
1,763,980
|
|
|
7.
|
SHARE CAPITAL
AND RESERVES
|
As at December 31, 2020, the
Company’s authorized share structure consisted of: (i) an unlimited number of common shares without par value; and (ii)
an unlimited number of preferred shares without par value. No preferred shares were issued and outstanding as at December 31,
2020 and June 30, 2020.
The Company may issue preferred
shares and may, at the time of issuance, determine the rights, preference and limitations pertaining to these shares. Holders
of preferred shares may be entitled to receive a preference payment in the event of any liquidation, dissolution or winding up
of the Company before any payment is made to the holders of common shares.
During the six months ended
December 31, 2020, the Company completed the following:
Transaction Description
|
|
Number
|
|
|
Issue Price
|
|
|
Total
|
|
Public offering
|
|
|
1,780,000
|
|
|
$
|
4.50
|
|
|
$
|
8,010,000
|
|
Allocated to Derivative Warrants Liability
|
|
|
|
|
|
|
|
|
|
|
(1,958,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
6,052,000
|
|
Share issuance costs
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
(1,109,128
|
)
|
INMED PHARMACEUTICALS INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2020 AND 2019
(Expressed in U.S. Dollars)
|
7.
|
SHARE CAPITAL
AND RESERVES (cont’d)
|
|
b)
|
Common Shares (cont’d)
|
On November 16, 2020, the Company
closed a public offering of its common shares and issued an aggregate of 1,780,000 common shares, together with accompanying warrants,
for gross proceeds of $8,010,000. Each common share was sold in the offering with one warrant to purchase one common share. Transaction
costs were allocated proportionally between the common shares and the derivative warrants liability (see Note 6) with $1,109,128
allocated to common shares and charged to shareholders’ equity and the balance of $360,350 allocated to the warrants and
charged to operations.
|
c)
|
Share Purchase Warrants
|
A total of 910,297 share purchase
warrants issued in January 2018 and June 2018 expired in July 2019 and June 2020, respectively, and were exercisable in Canadian
dollars (United States dollar amounts for exercise price and aggregate intrinsic value are calculated using prevailing rates as
at June 30, 2020). Each warrant entitled the holders thereof the right to purchase one common share.
The warrants issued on November
16, 2020 have an exercise price of $5.11 per share, are immediately exercisable upon issuance, and expire six years following
the date of issuance (Note 6 and 7(b)).
The following is a summary of
changes in share purchase warrants from July 1, 2019 to December 31, 2020:
|
|
Number
|
|
|
Weighted
Average
Share Price
|
|
|
Weighted
Average
Share Price
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
#
|
|
|
C$
|
|
|
US$
|
|
|
C$
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at June 30, 2019
|
|
|
910,297
|
|
|
$
|
41.25
|
|
|
$
|
31.52
|
|
|
-
|
|
|
-
|
|
Expired
|
|
|
(910,297
|
)
|
|
$
|
41.25
|
|
|
$
|
31.52
|
|
|
|
|
|
|
|
Balance as at June 30, 2020
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Granted
|
|
|
1,780,000
|
|
|
|
-
|
|
|
$
|
5.11
|
|
|
-
|
|
|
-
|
|
Balance as at December 31, 2020
|
|
|
1,780,000
|
|
|
|
-
|
|
|
$
|
5.11
|
|
|
-
|
|
|
-
|
|
At June 30, 2019, there were
46,665 outstanding agents’ warrants with a weighted average share price of $27.99 (C$36.63), all of which expired on June
22, 2020. Agents’ warrants were exercisable in Canadian dollars (United States dollar amounts for exercise price and aggregate
intrinsic value are calculated using prevailing rates as at June 30, 2020). Each warrant entitled the holders thereof the right
to purchase one common share. There are no agents’ warrants outstanding at December 31, 2020 and June 30, 2020.
INMED PHARMACEUTICALS INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2020 AND 2019
(Expressed in U.S. Dollars)
On March 24, 2017, as amended
on November 20, 2020, the Company’s shareholders approved: (i) the adoption of a new stock option plan (the “Plan”)
pursuant to which the Board of Directors may, from time to time, in its discretion and in accordance with the requirements of
the TSX, grant to directors, officers, employees and consultants of the Company, non-transferable options to purchase common shares,
provided that the number of common shares reserved for issuance will not exceed twenty percent (20%) of the issued and outstanding
common shares at the date the options are granted (on a non-diluted and rolling basis); and (ii) the application of the new stock
option plan to all outstanding stock options of the Company that were granted prior to March 24, 2017 under the terms of the Company’s
previous stock option plan.
As at December 31, 2020, there
were 504,074 (June 30, 2020 – 455,507) options available for future allocation pursuant to the terms of the Plan. The option
price under each option shall be not be less than the closing price on the day prior to the date of grant. All options vest upon
terms as set by the Board of Directors, either over time, typically 12 to 36 months, or upon the achievement of certain corporate
milestones.
Stock options are granted with
Canadian dollar exercise prices (United States dollar amounts for weighted average exercise prices and aggregate intrinsic value
are calculated using prevailing rates as at December 31, 2020). The following is a summary of changes in outstanding options from
July 1, 2019 to December 31, 2020:
|
|
Number
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Exercise Price
|
|
|
|
|
|
|
C$
|
|
|
US$
|
|
Balance as at June 30, 2019
|
|
|
599,090
|
|
|
|
17.64
|
|
|
|
13.48
|
|
Granted
|
|
|
52,728
|
|
|
|
8.78
|
|
|
|
6.44
|
|
Expired/Forfeited
|
|
|
(63,183
|
)
|
|
|
37.39
|
|
|
|
27.43
|
|
Balance as at June 30, 2020
|
|
|
588,635
|
|
|
|
14.73
|
|
|
|
10.81
|
|
Granted
|
|
|
339,250
|
|
|
|
3.85
|
|
|
|
3.02
|
|
Expired/Forfeited
|
|
|
(31,818
|
)
|
|
|
8.19
|
|
|
|
6.43
|
|
Balance as at December 31, 2020
|
|
|
896,067
|
|
|
|
10.84
|
|
|
|
8.51
|
|
INMED PHARMACEUTICALS INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2020 AND 2019
(Expressed in U.S. Dollars)
|
8.
|
SHARE-BASED
PAYMENTS (cont’d)
|
|
b)
|
Fair Value of Options Issued During the Period
|
|
i)
|
The weighted average fair value
at grant date of options granted during the six months ended December 31, 2020 was C$2.52
per option (year ended June 30, 2020 - C$6.08). Assumptions used for options granted
during the six months ended December 31, 2020 included a weighted average risk-free interest
rate of 0.25% (year ended June 30, 2020 – 1.51%), weighted average expected life
of 3.2 years calculated using the Simplified Method for directors, officers and employees
and the contractual life for consultants (year ended June 30, 2020 – 3.3 years),
weighted average volatility factor of 106.43% (year ended June 30, 2020 – 110.08%),
weighted average dividend yield of 0% (year ended June 30, 2020 – 0%) and a 5%
forfeiture rate (year ended June 30, 2020 – 5%).
|
|
ii)
|
Expenses Arising from Share-based Payment Transactions
|
Total expenses arising from
share-based payment transactions recognized during the three and six months ended December 31, 2020 were $96,634 and $182,041
(2019 - $283,953 and $634,435). Unrecognized compensation cost at December 31, 2020 related to unvested options was $737,616 (C$939,133)
which will be recognized over a weighted-average vesting period of 1.8 years.
On commencement
of the lease for the Company’s new offices premises on July 1, 2019, the Company recognized right-of-use assets of $434,660
and a lease liability of $385,057 with no net impact on accumulated deficit. When measuring lease liabilities, the Company discounted
lease payments using its incremental borrowing rate at July 1, 2019 of 8%.
The following
table lists the Company’s operating lease obligations recognized on commencement of the lease for the Company’s new
offices premises at July 1, 2019.
Lease obligations recognized as at July 1, 2019
|
|
$
|
385,057
|
|
Discounted using the incremental borrowing rate at
July 1, 2019
|
|
|
8
|
%
|
Estimated annual variable lease payments not included
in lease obligations
|
|
$
|
59,983
|
|
The Company is committed to
minimum lease payments as follows:
Maturity Analysis
|
|
December 31,
2020
|
|
Less than one year
|
|
$
|
156,213
|
|
One to five years
|
|
|
425,306
|
|
More than five years
|
|
|
-
|
|
Total undiscounted lease liabilities
|
|
$
|
581,519
|
(1)
|
|
(1)
|
Excludes
estimated variable operating costs of $61,656 on an annual basis through to August 31,
2024.
|
INMED PHARMACEUTICALS INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2020 AND 2019
(Expressed in U.S. Dollars)
|
10.
|
BASIC
AND DILUTED LOSS PER SHARE
|
Basic loss
per share amounts are calculated by dividing the net loss for the period by the weighted average number of ordinary shares outstanding
during the period. As the outstanding stock options and warrants are anti-dilutive, they are excluded from the weighted average
number of common shares in the table below.
|
|
Three Months Ended
December 31,
|
|
|
Six Months Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Net loss for the period
|
|
|
(2,243,782
|
)
|
|
|
(2,493,495
|
)
|
|
|
(3,842,861
|
)
|
|
|
(5,298,807
|
)
|
Basic and diluted loss per share
|
|
|
(0.37
|
)
|
|
|
(0.48
|
)
|
|
|
(0.68
|
)
|
|
|
(1.01
|
)
|
Weighted average number of common shares - basic and diluted
|
|
|
6,091,359
|
|
|
|
5,220,707
|
|
|
|
5,656,033
|
|
|
|
5,220,707
|
|
|
11.
|
NON-CASH
TRANSACTIONS
|
Investing
and financing activities that do not have a direct impact on cash flows are excluded from the statements of cash flows. During
the six months ended December 31, 2020, the following transaction was excluded from the statement of cash flows:
i) As at
December 31, 2020, the Company has unpaid financing costs of $328,845.
During the
six months ended December 31, 2019, the following transaction was excluded from the statement of cash flows:
ii) On January
14, 2019, the Company executed a lease for new office premises (see Note 9). The term of this new lease is from July 1, 2019
to August 31, 2024. In accordance with Topic 842 Leases, on commencement of the lease on July 1, 2019, the Company recognized
right-of-use assets of $434,660 and a lease liability of $385,057.
|
12.
|
COMMITMENTS
AND CONTINGENCIES
|
Pursuant
to the terms of agreements with various contract research organizations, as at December 31, 2020, the Company is committed for
contract research services and materials at a cost of approximately $938,546. A total of $920,158 of these expenditures are expected
to occur in the twelve months following December 31, 2020 and the balance of $18,388 in the following twelve-month period.
Pursuant
to the terms of a May 31, 2017 Technology Assignment Agreement between the Company and the University of British Columbia (“UBC”),
the Company is committed to pay royalties to UBC on certain licensing and royalty revenues received by the Company for biosynthesis
of certain drug products that are covered by the agreement. To date, no payments have been required to be made.
Pursuant
to the terms of a December 13, 2018 Collaborative Research Agreement with UBC in which the Company owns all right, title and interest
in and to any intellectual property, in addition to funding research at UBC, the Company is committed to make a one-time payment
upon filing of any PCT patent application arising from the research. To date, no payments have been required to be made.
INMED PHARMACEUTICALS INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2020 AND 2019
(Expressed in U.S. Dollars)
|
12.
|
COMMITMENTS
AND CONTINGENCIES (cont’d)
|
Pursuant
to the terms of a November 1, 2018 Contribution Agreement with National Research Council Canada, as represented by its Industrial
Research Assistance Program (NRC-IRAP), under certain circumstances contributions received, including the disposition of the underlying
intellectual property developed in part with NRC-IRAP contributions, may become repayable.
Short-term
investments include guaranteed investment certificates with a face value of $45,162 (June 30, 2020 - $42,193) that are pledged
as security for a corporate credit card.
The Company
has entered into certain agreements in the ordinary course of operations that may include indemnification provisions, which are
common in such agreements. In some cases, the maximum amount of potential future indemnification is unlimited; however, the Company
currently holds commercial general liability insurance. This insurance limits the Company’s liability and may enable the
Company to recover a portion of any future amounts paid. Historically, the Company has not made any indemnification payments under
such agreements and it believes that the fair value of these indemnification obligations is minimal. Accordingly, the Company
has not recognized any liabilities relating to these obligations for any period presented.
In July 2020,
in connection with the IPO of our common shares, two inadvertent disclosures of already publically available information were
made that may have exceeded the scope permissible under Rule 134 of the Securities Act of 1933, and thus may not be entitled to
the “safe-harbor” provided by Rule 134. As a result, either of the two inadvertent disclosures could be determined
to not be in compliance for a registered securities offering under Section 5 of the Securities Act of 1933. If either of the two
inadvertent disclosures are determined by a court to be a violation by the Company of the Securities Act of 1933, the recipients
of the inadvertent disclosures who purchased our common shares in the IPO may have a rescission right, which could require the
Company to repurchase those shares at their original purchase price with interest or a claim for damages if the purchaser no longer
owns the securities, for one year following the date of the violation. The Company could also incur considerable expense if it
were to contest any such claims. Consequently, a contingent liability may arise out of this possible violation of the Securities
Act of 1933. The likelihood and magnitude of this contingent liability, if any, is not determinable at this time.
Pursuant
to a technology licensing agreement, the Company is committed to issue, subject to regulatory approval, 5,000 common shares to
the licensee. In addition, under the licensing agreement, the Company is committed to issue up to 17,500 warrants to purchase
17,500 common shares upon the achievement of certain milestones. The exercise price of the warrants will be equal to the five
day VWAP of the common shares prior to each milestone achievement and the warrants will be exercisable for a period of three years
for issuance date.
From time
to time, the Company may be subject to various legal proceedings and claims related to matters arising in the ordinary course
of business. The Company does not believe it is currently subject to any material matters where there is at least a reasonable
possibility that a material loss may be incurred.
INMED
PHARMACEUTICALS INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2020 AND 2019
(Expressed in U.S. Dollars)
|
13.
|
FINANCIAL
RISK MANAGEMENT
|
Fair value:
Fair value
measurements recognized in the condensed consolidated balance sheets must be categorized in accordance with the following levels:
Level 1:
Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2:
Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices);
Level 3:
Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The Company’s
financial instruments consist of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and
accrued liabilities and derivative warrants liability.
The fair values of short-term
investments, accounts receivable, and accounts payable and accrued liabilities approximate their fair values because of the short-term
nature of these instruments. Cash and cash equivalents are measured at fair value using Level 1 inputs. The Company measured its
derivative warrant liabilities at fair value on a recurring basis using level 3 inputs. The fair value of derivative warrant liabilities
is determined using the Black-Scholes valuation model. The following assumptions were used to value the derivative warrant liabilities
issued November 16, 2020; exercise price: $5.11; expected risk free interest rate: 0.45%; expected annual volatility; 46.32% expected
life in years: 6.0; and expected annual dividend yield: $Nil. Subsequently, the following assumptions were used to value the derivative
warrant liabilities at December 31, 2020; exercise price: $5.11; expected risk free interest rate: 0.45%; expected annual volatility:
45.32%; expected life in years: 5.9; and expected annual dividend yield: $Nil.
The following
table summarizes the classification and carrying values of the Company’s financial instruments at December 31, 2020 and
June 30, 2020:
December 31, 2020
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
10,020,853
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,020,853
|
|
Short-term investments
|
|
|
-
|
|
|
|
45,225
|
|
|
|
-
|
|
|
|
45,225
|
|
Accounts receivable
|
|
|
-
|
|
|
|
154,846
|
|
|
|
-
|
|
|
|
154,846
|
|
Total financial assets
|
|
|
10,020,853
|
|
|
|
200,071
|
|
|
|
|
|
|
|
10,220,924
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
|
|
|
|
2,077,325
|
|
|
|
-
|
|
|
|
2,077,325
|
|
Derivative warrants liability
|
|
|
-
|
|
|
|
-
|
|
|
|
1,763,980
|
|
|
|
1,763,980
|
|
Total financial liabilities
|
|
|
-
|
|
|
|
2,077,325
|
|
|
|
1,763,980
|
|
|
|
3,841,305
|
|
INMED PHARMACEUTICALS INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2020 AND 2019
(Expressed in U.S. Dollars)
|
13.
|
FINANCIAL
RISK MANAGEMENT (cont’d)
|
June 30, 2020
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
5,805,809
|
|
|
-
|
|
|
-
|
|
|
5,805,809
|
|
Short-term investments
|
|
|
-
|
|
|
42,384
|
|
|
-
|
|
|
42,384
|
|
Accounts receivable
|
|
|
-
|
|
|
45,344
|
|
|
-
|
|
|
45,344
|
|
Total financial assets
|
|
|
5,805,809
|
|
|
87,728
|
|
|
-
|
|
|
5,893,537
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
|
|
-
|
|
|
1,607,303
|
|
|
-
|
|
|
1,607,303
|
|
Total financial liabilities
|
|
|
-
|
|
|
1,607,303
|
|
|
-
|
|
|
1,607,303
|
|
Market risk is the risk that
the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices
are comprised of four types of risk: foreign currency risk, interest rate risk, commodity price risk and equity price risk. The
Company does not currently have significant commodity price risk or equity price risk.
Foreign Currency Risk:
Foreign currency risk is the
risk that the future cash flows or fair value of the Company’s financial instruments that are denominated in a currency
that is not the Company’s functional currency (C$) will fluctuate due to changes in foreign exchange rates. Portions of
the Company’s cash and cash equivalents and accounts payable and accrued liabilities are denominated in U.S. dollars.
Accordingly, the Company is
exposed to fluctuations in the U.S. and Canadian dollar exchange rates.
As at December 31, 2020, the
Company has a net excess of U.S. dollar denominated cash and cash equivalents in excess of U.S. dollar denominated accounts payable
and accrued liabilities of US$6,022,540 which is equivalent to C$7,667,898 at the December 31, 2020 exchange rate. The U.S. dollar
financial assets generally result from holding U.S. dollar cash to settle anticipated near-term accounts payable and accrued liabilities
denominated in U.S. dollars. The U.S. dollar financial liabilities generally result from purchases of supplies and services from
suppliers from outside of Canada.
Each change of 1% in the U.S.
dollar in relation to the Canadian dollar results in a gain or loss, with a corresponding effect on cash flows, of $60,225 based
on the December 31, 2020 net U.S. dollar assets (liabilities) position. During the six months ended December 31, 2020, the Company
recorded foreign exchange loss of $271,241 (December 31, 2019 – loss of $11,250) related to US dollars.
INMED PHARMACEUTICALS INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2020 AND 2019
(Expressed in U.S. Dollars)
|
13.
|
FINANCIAL
RISK MANAGEMENT (cont’d)
|
Foreign Currency Risk (cont’d):
As at December 31, 2020, the
Company has a net excess of Euros denominated accounts payable and accrued liabilities in excess of Euros denominated cash and
cash equivalents of €76,911 which is equivalent to US$94,284 at the December 31, 2020 exchange rate. The Euros financial
assets generally result from holding Euro denominated account holdings to settle anticipated near-term accounts payable and accrued
liabilities denominated in Euros. The Euros financial liabilities generally result from purchases of supplies and services from
suppliers from outside of Canada.
Each change of 1% in the Euro
in relation to the Canadian dollar results in a gain or loss, with a corresponding effect on cash flows, of $943 based on the
December 31, 2020 net Euro assets (liabilities) position. During the six months ended December 31, 2020, the Company recorded
a foreign exchange gain of $36,950 (December 31, 2019 – gain of $Nil) related to Euros.
Interest Rate Risk:
Interest rate risk is the risk
that future cash flows will fluctuate as a result of changes in market interest rates. As at December 31, 2020, holdings of cash
and cash equivalents of $3,043,954 (June 30, 2020 - $4,307,407) are subject to floating interest rates. The balance of the Company’s
cash holdings of $6,976,899 (June 30, 2020 - $1,498,402) are non-interest bearing.
As at December 31, 2020, the
Company held variable rate guaranteed investment certificates, with one-year terms, with face value of $45,162 (June 30, 2020
- $42,193).
The Company’s current
policy is to invest excess cash in guaranteed investment certificates or interest-bearing accounts of major Canadian chartered
banks or credit unions with comparable credit ratings. The Company regularly monitors compliance to its cash management policy.
The Company, as at December
31, 2020, does not have any borrowings. Interest rate risk is limited to potential decreases on the interest rate offered on cash
and cash equivalents and short-term investments held with chartered Canadian financial institutions. The Company considers this
risk to be immaterial.
Credit risk is the risk of financial
loss to the Company if a customer or a counter party to a financial instrument fails to meet its contractual obligations. Financial
instruments which are potentially subject to credit risk for the Company consist primarily of cash and cash equivalents and short-term
investments. Cash and cash equivalents and short-term investments are maintained with financial institutions of reputable credit
and may be redeemed upon demand.
The carrying amount of financial
assets represents the maximum credit exposure. Credit risk exposure is limited through maintaining cash and cash equivalents and
short-term investments with high-credit quality financial institutions and management considers this risk to be minimal for all
cash and cash equivalents and short-term investments assets based on changes that are reasonably possible at each reporting date.
INMED PHARMACEUTICALS INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2020 AND 2019
(Expressed in U.S. Dollars)
|
13.
|
FINANCIAL
RISK MANAGEMENT (cont’d)
|
Liquidity risk is the risk that
the Company will not be able to meet its financial obligations as they become due. The Company’s policy is to ensure that
it has sufficient cash to meet its liabilities when they become due, under both normal and stressed conditions, without incurring
unacceptable losses or risking damage to the Company’s reputation. A key risk in managing liquidity is the degree of uncertainty
in the cash flow projections. If future cash flows are fairly uncertain, the liquidity risk increases. As at December 31, 2020,
the Company has cash and cash equivalents and short-term investments of $10,066,078 (June 30, 2020 - $5,848,193), current liabilities
of $2,153,637 (June 30, 2020 - $1,676,268 ) and a working capital surplus of $8,095,751 (June 30, 2020 - $4,636,189).
On February
5, 2021, the Company announced that it has entered into definitive agreements with certain institutional investors to raise aggregate
gross proceeds of approximately $4.5 million at a price of $4.25 per unit in a private placement of its equity securities. Each
unit consists of one common share and 0.66 of a warrant to purchase one common share. Each whole warrant has an exercise price
of $4.85 per share, is exercisable six months following issuance and has a term of five and one half years following issuance.
After the placement agent fees and estimated offering expenses payable by the Company, the Company expects to receive net proceeds
of approximately $4.0 million. The offering is expected to close on or about February 12, 2021, subject to customary closing conditions
and TSX and Nasdaq approval.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
This Quarterly Report on Form 10-Q contains
“forward-looking statements” within the meaning of United States Private Securities Litigation Reform Act of 1995
and “forward-looking information” within the meaning of applicable Canadian securities law, which are included but
are not limited to statements with respect to InMed Pharmaceuticals Inc.’s (the “Company” or “InMed”)
anticipated results and progress of the Company’s operations, research and development in future periods, plans related
to its business strategy, and other matters that may occur in the future. These statements relate to analyses and other information
that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management. We may,
in some cases, use words such as “anticipate”, “believe”, “could”, “estimate”,
“expect”, “intend”, “may”, “plan”, “predict”, “project”,
“will”, “would”, and similar expressions that convey uncertainty of future events or outcomes to identify
these forward-looking statements. Any statements contained herein that are not statements of historical facts may be deemed to
be forward-looking statements. Forward-looking statements in this prospectus include, but are not limited to, statements about:
|
●
|
Our researching,
developing, manufacturing and commercializing cannabinoid-based biopharmaceutical products will treat diseases with high unmet
medical needs;
|
|
●
|
Bringing strict
scientific discipline to the field of cannabinoid medicine to unlock the full potential of this class of drugs
|
|
●
|
Our ability to register
and commercialize products in the United States and other jurisdictions;
|
|
●
|
The future timing
of INM-755 and INM-088 studies;
|
|
●
|
Our ability to source
cannabinoids from third-party manufacturers;
|
|
●
|
Our ability to successfully
develop and scale-up our IntegraSyn™ approach;
|
|
●
|
Our ability to transfer
our integrative biosynthesis-based manufacturing approach to a contract development and manufacturing organization, or “CDMO”;
|
|
●
|
Our ability to deliver
our rare cannabinoid pharmaceuticals through various topical formulations (cream for dermatology, eye drops for ocular diseases);
|
|
●
|
Our ability 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;
|
|
●
|
Our ability to continue
research on INM-755, our lead drug candidate for the treatment of EB, by completing the ongoing clinical trials and commencing
subsequent clinical trials;
|
|
●
|
Our ability to continue
preclinical research studies for INM-088, our drug candidate for the treatment of glaucoma, which we expect to be followed
by clinical trial-enabling studies and then human clinical trials;
|
|
●
|
Our ability to investigate
our Product Candidates for additional indications;
|
|
●
|
Our ability to pursue
the discovery of drug targets for other diseases with high unmet medical needs and the subsequent development of any resulting
Product Candidates;
|
|
●
|
Our ability to seek
regulatory approvals for any Product Candidates that successfully complete clinical trials;
|
|
●
|
Our ability to scale-up
our manufacturing processes and capabilities, or arrange for a third party to do so on our behalf, to support our clinical
trials of our Product Candidates and commercialization of any of our Product Candidates for which we obtain marketing approval;
|
|
●
|
Acquiring or in-licensing
externally developed product(s) and/or technologies;
|
|
●
|
Maintaining, expanding,
enforcing, defending and protecting our intellectual property;
|
|
●
|
Our ability to hire
additional clinical, quality control and scientific personnel;
|
|
●
|
Our ability to add
operational, financial and management information systems and personnel, including personnel to support our product development
and potential future commercialization efforts and our operations as a public company; and
|
|
●
|
Our ability to finance
our operations through the sale of equity, debt financings or other capital sources, including collaborations with other companies
or other strategic transactions;
|
This list is not exhaustive of the factors
that may affect our forward-looking statements. Some of the important risks and uncertainties that could affect forward-looking
statements are described further under the section heading: Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations of this report. Although we have attempted to identify important factors that could cause actual results
to differ materially from those described in forward-looking statements, there may be other factors that cause results not to
be as anticipated, estimated or intended. Should one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated, or expected. We caution
readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made and are based
only on the information available to us at that time. Except as required by law, we disclaim any obligation to subsequently revise
any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence
of anticipated or unanticipated events.