Incannex(IXHL) - 2024 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements This section presents the company's unaudited consolidated financial statements and accompanying explanatory notes Consolidated Balance Sheets Financial Position (in thousands USD) | Metric | Dec 31, 2023 | Jun 30, 2023 | | :-------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $14,554 | $22,120 | | Total current assets | $21,332 | $22,997 | | Total assets | $22,359 | $23,783 | | Total current liabilities | $3,186 | $2,550 | | Total liabilities | $3,487 | $2,958 | | Total stockholders' equity | $18,872 | $20,825 | - Cash and cash equivalents decreased by $7.57 million, and total stockholders' equity decreased by $1.95 million from June 30, 2023, to December 31, 2023, while total liabilities increased by $0.53 million[16] Consolidated Statements of Operations and Comprehensive Loss Operating Results (in thousands USD) | Metric | 3 Months Ended Dec 31, 2023 | 3 Months Ended Dec 31, 2022 | 6 Months Ended Dec 31, 2023 | 6 Months Ended Dec 31, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Research and development | $2,638 | $1,549 | $5,247 | $2,959 | | General and administrative | $5,345 | $2,090 | $7,629 | $3,521 | | Total operating expenses | $7,983 | $3,639 | $12,876 | $41,827 | | Loss from operations | $(7,983) | $(3,639) | $(12,876) | $(41,827) | | R&D tax incentive | $2,727 | $666 | $6,824 | $680 | | Net loss | $(5,241) | $(2,918) | $(5,968) | $(41,066) | | Net loss per share (Basic and diluted) | $(0.33) | $0.05 | $(0.38) | $(2.76) | - For the three months ended December 31, 2023, total operating expenses increased by 119.3% YoY, driven by higher R&D and G&A expenses, and net loss increased by 79.6% YoY[19] - For the six months ended December 31, 2023, total operating expenses decreased by 69.2% YoY, and net loss significantly decreased by 85.5% YoY, primarily due to the absence of a prior-year acquisition expense[19] - The R&D tax incentive saw substantial increases of 309% for the three-month period and 903.5% for the six-month period, significantly offsetting losses[19] Consolidated Statements of Stockholders' Equity (Deficit) Stockholders' Equity (in thousands USD) | Metric | Dec 31, 2023 | Sep 30, 2023 | Jun 30, 2023 | Dec 31, 2022 | Jun 30, 2022 | | :-------------------------- | :----------- | :----------- | :----------- | :----------- | :----------- | | Common stock (Amount) | $2 | $2 | $2 | $2 | $1 | | Additional paid-in capital | $119,887 | $116,491 | $116,290 | $115,169 | $69,074 | | Accumulated deficit | $(98,179) | $(92,938) | $(92,212) | $(84,467) | $(43,401) | | Foreign currency translation reserve | $(2,838) | $(3,765) | $(3,255) | $(2,790) | $(963) | | Total stockholders' equity | $18,872 | $19,790 | $20,825 | $27,914 | $24,711 | - Total stockholders' equity decreased from $20.83 million at June 30, 2023, to $18.87 million at December 31, 2023, primarily due to net losses[22][25] - Additional paid-in capital increased by $3.6 million from June 30, 2023, to December 31, 2023, mainly due to share-based compensation[22][25] - The accumulated deficit increased by $5.97 million from June 30, 2023, to December 31, 2023, reflecting the net loss for the period[22][25] Consolidated Statements of Cash Flows Cash Flow Summary (in thousands USD) | Metric | 6 Months Ended Dec 31, 2023 | 6 Months Ended Dec 31, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(7,852) | $(5,437) | | Net cash used in investing activities | $(280) | $(113) | | Net cash provided by financing activities | $0 | $8,280 | | Net (decrease)/increase in cash | $(8,132) | $2,730 | | Cash and cash equivalents at end of period | $14,555 | $28,065 | - Net cash used in operating activities increased by $2.42 million (44.5%) for the six months ended December 31, 2023, compared to the prior year period[28] - Net cash provided by financing activities decreased to $0 in 2023 from $8.28 million in 2022, indicating no new equity issuances for funding[28] - Overall, cash and cash equivalents decreased by $8.13 million, resulting in an ending balance of $14.56 million as of December 31, 2023[28] Notes to Unaudited Consolidated Financial Statements Note 1 – Re-domiciliation and Business - Incannex Healthcare Inc (Delaware) acquired Incannex Healthcare Limited (Australia) in November 2023, making the Australian entity a wholly-owned subsidiary[31] - The share exchange ratio was 1 share of Incannex Healthcare Inc common stock for every 100 ordinary shares of the Australian entity[33] - Issued and outstanding common stock shares in the financial statements are retrospectively adjusted to reflect the 100:1 exchange ratio as if it occurred on July 1, 2022[34] Note 2 – Basis of Presentation and Summary of Significant Accounting Policies - Following re-domiciliation, the company transitioned from IFRS to US GAAP, applying US GAAP retrospectively for all prior periods presented[37] - The company's consolidated financial statements include Incannex Healthcare Inc and its wholly-owned subsidiaries, with all intercompany balances and transactions eliminated[40] - Significant estimates include valuation of equity-based instruments, accrued R&D expense, and R&D tax credit[42] - The company faces risks common to the biopharmaceutical industry, including financing, regulatory approval, and competition[43] - Research and development costs are expensed as incurred, including salaries, supplies, clinical trials, and manufacturing costs[57] USD:AUD Exchange Rate | Date | Exchange Rate | | :--- | :------------ | | Dec 31, 2023 (Balance Sheet) | 0.6840 | | Jun 30, 2023 (Balance Sheet) | 0.6630 | | Dec 31, 2023 (Average for period) | 0.6526 | | Jun 30, 2023 (Average for period) | 0.6764 | Note 3 – Prepaid expenses and other current assets Prepaid Expenses and Other Current Assets (in thousands USD) | Item | Dec 31, 2023 | Jun 30, 2023 | | :------------------------ | :----------- | :----------- | | Prepayments | $1,188 | $686 | | R&D tax credit recoverable | $5,337 | $0 | | GST recoverable | $253 | $191 | | Total | $6,778 | $877 | - The R&D tax credit recoverable increased from $0 to $5.34 million, contributing to a substantial increase in total other assets[78] Note 4 – Property, Plant and Equipment, net Property, Plant and Equipment, net (in thousands USD) | Item | Dec 31, 2023 | Jun 30, 2023 | | :-------------------------------- | :----------- | :----------- | | Furniture, fittings and equipment | $195 | $157 | | Assets under construction | $412 | $160 | | Total property, plant and equipment, gross | $607 | $317 | | Accumulated depreciation and amortization | $(48) | $(23) | | Total property, plant and equipment, net | $559 | $294 | - Net property, plant, and equipment increased by $0.265 million (90.1%) from June 30, 2023, to December 31, 2023, primarily due to an increase in assets under construction[80] Note 5 – Trade and other payables, accrued expenses and other current liabilities Current Liabilities (in thousands USD) | Item | Dec 31, 2023 | Jun 30, 2023 | | :------------------------------------------------- | :----------- | :----------- | | Trade payables | $1,952 | $1,748 | | Accrued expenses | $734 | $426 | | Employee leave entitlements | $331 | $263 | | Total Trade and other payables, accrued expenses and other current liabilities | $3,017 | $2,437 | - Total current liabilities increased by $0.58 million (23.8%) from June 30, 2023, to December 31, 2023, mainly due to increases in trade payables and accrued expenses[81] Note 6 – Leases - In fiscal 2023, the Group entered into three new lease agreements for its corporate head office, Melbourne office, and Clarion Clinic site[82] Lease Metrics (as of Dec 31, 2023) | Metric | Value | | :-------------------- | :---- | | Weighted-average remaining lease term | 1.48 years | | Discount rate | 9.18% | | Operating lease cost (6 months ended Dec 31, 2023) | $79 thousand | | Cash paid for operating lease liabilities (6 months ended Dec 31, 2023) | $73 thousand | Future Minimum Lease Payments (in thousands USD) | Period | Amount | | :----------- | :----- | | June 30, 2024 | $103 | | June 30, 2025 | $214 | | June 30, 2026 | $208 | | June 30, 2027 | $50 | | June 30, 2028 | $34 | | Total minimum lease payments | $609 | | Less amount representing interest | $(139) | | Total operating lease liabilities | $470 | Note 7 – Commitments and contingencies - The company records loss contingencies when probable and estimable, and discloses material contingencies when reasonably possible[85] - Management does not believe there are any current legal or tax actions that would have a material impact on the company's financial position[85] Note 8 – Stockholder's equity/Issued capital - Post-re-domiciliation, the company has 100,000,000 authorized shares of common stock with a par value of $0.0001 per share[86] - As of December 31, 2023, there were 15,873,113 shares of common stock outstanding[88] - In the prior period, the company raised $8.83 million from a share placement and issued shares for the acquisition of APIRx Pharmaceuticals[88][89] Note 9 – Additional paid-in capital Additional Paid-in Capital (in thousands USD) | Item | Dec 31, 2023 | Dec 31, 2022 | | :------------------------------------ | :----------- | :----------- | | Opening balance | $116,294 | $69,075 | | Equity instruments issued to management and directors | $3,598 | $2,150 | | Share placements | - | $8,830 | | Asset acquisition shares issued | - | $34,171 | | At December 31 | $119,892 | $116,298 | - Additional paid-in capital increased by $3.6 million from December 31, 2022, to December 31, 2023, primarily due to equity instruments issued to management and directors[90] - Prior period activities included $8.83 million from share placements and $34.17 million from asset acquisition shares issued[90][91] Note 10 – General and Administration expenses General and Administration Expenses (in thousands USD) | Item | Dec 31, 2023 | Dec 31, 2022 | Change ($) | Change (%) | | :------------------------------ | :----------- | :----------- | :--------- | :--------- | | Salaries, and other employee benefits | $4,825 | $2,142 | $2,683 | 125.2% | | Compliance, legal and regulatory | $1,573 | $695 | $878 | 126.3% | | Advertising and investor relations | $705 | $427 | $278 | 65.1% | | Occupancy expenses | $153 | $35 | $118 | 337.1% | | Other administration expenses | $349 | $188 | $161 | 85.6% | | Total general and administration expenses | $7,629 | $3,521 | $4,108 | 116.7% | - Total G&A expenses more than doubled, increasing by $4.11 million (116.7%) for the six months ended December 31, 2023, primarily due to higher salaries and legal costs[93] Note 11 – Share-based payments Share-based Compensation Expense (in thousands USD) | Item | Dec 31, 2023 | Dec 31, 2022 | | :-------------------------------- | :----------- | :----------- | | General and administrative | $3,471 | $1,100 | | Total share-based compensation expense | $3,471 | $1,100 | - Share-based compensation expense increased by $2.37 million (215.5%) for the six months ended December 31, 2023[94] - As of December 31, 2023, there were 1,739,215 unvested restricted shares outstanding with a fair value of $1,006k[95] - As of December 31, 2023, there were 284,008 stock options outstanding with a weighted average exercise price of $36.37[97] - Unrecognized compensation cost related to unvested share options was $411 thousand, expected to be recognized over 1.08 years[98] Note 12 – Income Tax - The company reported an accounting loss before tax of $(5,805) thousand for the six months ended December 31, 2023[100] - Due to a history of operating losses, the company has a valuation allowance against its deferred tax assets, with $6,485 thousand in net unrecognized tax benefit[100] Note 13 – Loss per share Net Loss Per Share (Basic and Diluted) | Metric | Dec 31, 2023 | Dec 31, 2022 | | :------------------------------------------------- | :----------- | :----------- | | Basic loss per share (cents) | 37.60 | 275.58 | | Basic loss per share (USD) | $0.38 | $2.76 | | Total comprehensive loss for the year (in thousands) | $5,968 | $41,066 | | Weighted average number of common stocks | 15,873,113 | 14,901,631 | - Basic and diluted loss per share are the same because potential common stocks are anti-dilutive due to net losses[101] Note 14 – Related Party Transactions - Related party transactions are conducted on commercial terms[102] - No amounts were payable to related parties as of December 31, 2023, and June 30, 2023[103] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, liquidity, capital resources, and operational results Overview - The company is an early-stage development enterprise with drug candidates, incurring net losses since inception[107] - Operations are primarily funded by equity securities sales, option exercises, R&D tax grants, and interest income[107] - The company anticipates being entitled to a 43.5% refundable tax offset for eligible R&D activities from the Australian government[108] Results of Operations Research and development - R&D expenses increased by $1.1 million (71%) for the three months ended December 31, 2023, due to clinical research and product development[111] - R&D expenses increased by $2.3 million (77%) for the six months ended December 31, 2023, driven by new clinical trials[112] Acquisition of in-process research and development - No acquisition of in-process R&D expense was recorded for the three or six months ended December 31, 2023[109] - A $35.3 million expense was recorded in the six months ended December 31, 2022, related to the APIRx Pharmaceutical USA, LLC acquisition[109][113] General and Administrative - G&A expenses increased by $3.3 million (156%) for the three months ended December 31, 2023, mainly due to a $3.1 million increase in salaries and employee benefits[114] - G&A expenses increased by $4.1 million (117%) for the six months ended December 31, 2023, driven by a $2.7 million increase in salaries and a $0.9 million increase in legal costs[115] Benefit from R&D tax credit - The R&D tax credit increased by $2.1 million (308%) for the three months ended December 31, 2023[116] - The R&D tax credit increased by $6.1 million (904%) for the six months ended December 31, 2023[117] - The increase is attributed to higher tax credits received from the Australian Taxation Office due to increased research and clinical trials activities[116][117] Foreign exchange losses and Interest Income - Foreign exchange losses and interest income decreased by $40 thousand for the three months ended December 31, 2023, due to lower interest income and increased currency exchange losses[118] - Foreign exchange losses and interest income increased by $3 thousand for the six months ended December 31, 2023, due to higher interest income partially offset by foreign exchange losses[119] Currency translation adjustment, net of tax - The currency translation adjustment, net of tax, decreased by $2.8 million for the three months ended December 31, 2023[120] - The currency translation adjustment, net of tax, decreased by $2.2 million for the six months ended December 31, 2023[121] - The decrease is attributed to currency translation from the Australian dollar (functional currency) to the US dollar (reporting currency)[120][121] Liquidity and Capital Resources - Operations are mainly financed through equity securities issuance and interest earned from cash on term deposit[122] - As of December 31, 2023, cash was $14.5 million, anticipated to be sufficient until at least December 2024[123] - Substantial additional funds will be required for long-term goals, as significant revenue is not expected until regulatory approval[125] - The company's capital risk management objective is to balance current working capital against R&D programs and corporate overheads[124] Cash Flows Cash Flow Summary (in thousands USD) | Metric | 6 Months Ended Dec 31, 2023 | 6 Months Ended Dec 31, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(7,852) | $(5,437) | | Net cash used in investing activities | $(280) | $(113) | | Net cash provided by financing activities | $0 | $8,280 | | Net increase in cash | $(8,132) | $2,730 | Cash flows from operating activities - Cash used in operating activities increased by $2.4 million for the six months ended December 31, 2023[129] - This increase was primarily due to a $5.66 million increase in prepaid expenses and other current assets, partially offset by positive changes in payables and share-based compensation[129] Cash flows from investing activities - Cash used in investing activities increased by $167 thousand for the six months ended December 31, 2023[130] - This increase was due to increased purchases of equipment to conduct clinical trials[130] Cash flows from financing activities - Cash provided by financing activities decreased to $0 for the six months ended December 31, 2023, from $8.28 million in the prior year[131] - This decrease was due to a decrease in the proceeds from issuances of common stock[131] Critical Accounting Policies and Estimates Stock Based Compensation - Compensation expense for stock options is recorded based on the fair market value of the awards on the date of grant and amortized over the vesting period[133] - The company uses a binomial option pricing model to estimate the fair value of share options and other equity-based compensation[133] Income Taxes - Income taxes are accounted for using the liability method, recognizing deferred tax assets and liabilities for temporary differences[134] - A valuation allowance is established for deferred tax assets if realization is not "more likely than not"[134] Emerging Growth Company Status - The company is an "emerging growth company" as defined in the JOBS Act[136] - The company elected to use the extended transition period for new or revised accounting standards[137] Fully Diluted Share Capital Fully Diluted Share Capital (as of Dec 31, 2023) | Item | Number of Shares of Common Stock Equivalents | | :--------------------- | :------------------------------------------- | | Shares of Common Stock | 15,873,113 | | Restricted Stock | 2,316,715 | | Warrants | 1,978,346 | | Total | 20,168,174 | Item 3. Quantitative and Qualitative Disclosures About Market Risk As a "smaller reporting company," the company is permitted to omit the information typically required for this item - The company is exempt from providing detailed market risk disclosures due to its "smaller reporting company" status[139] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of December 31, 2023 Evaluation of Disclosure Controls and Procedures - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective as of December 31, 2023[140] Changes in Internal Control over Financial Reporting - No changes in internal control over financial reporting occurred during the quarter that materially affected or are reasonably likely to materially affect internal controls[141] PART II—OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any material legal or arbitration proceedings - The company is not involved in any legal or arbitration proceedings that could materially affect its financial position or profitability[144] Item 1A. Risk Factors This section outlines key risks and uncertainties by referencing other detailed company filings - Key risks and uncertainties are discussed in Item 3D "Risk Factors" of the 2023 Annual Report on Form 20-F and in Part II, Item 1A of this Quarterly Report[145] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details unregistered equity sales related to the re-domiciliation, which were exempt from registration - The re-domiciliation involved an exchange of securities, with ratios of 1:100 for ordinary shares, 1:100 for options, and 1:4 for ADSs[148] - These issuances were exempt from registration under Section 3(a)(10) of the Securities Act of 1933[147] - No proceeds were used from these unregistered sales of equity securities[147] Item 3. Defaults upon Senior Securities This item is not applicable to the company - This item is not applicable[149] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[150] Item 5. Other Information There is no other information to report under this item - No other information to report[150] Item 6. Exhibits This section provides a list of exhibits filed with the Quarterly Report - The exhibit list includes various corporate documents, employment and research agreements, and required certifications[151][154] SIGNATURES - The report was signed by the Chief Executive Officer and Chief Financial Officer on February 14, 2024[157]