Incannex(IXHL) - 2024 Q3 - Quarterly Report

Special Note Regarding Forward-Looking Statements This section cautions investors about forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ materially - The report contains forward-looking statements regarding future operations, financial condition, business strategy, R&D activities, and regulatory approvals, which are subject to risks and uncertainties[9][10][13] - Investors are cautioned not to unduly rely on these statements, as actual results may differ materially due to competitive and rapidly changing environments, and new risks may emerge[10][11][12] PART I—FINANCIAL INFORMATION This section presents the company's unaudited consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements This section presents the unaudited consolidated financial statements, including the balance sheets, statements of operations and comprehensive loss, stockholders' equity, and cash flows, along with detailed notes explaining the company's re-domiciliation, accounting policies, and specific financial line items Consolidated Balance Sheets This statement provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific points in time Consolidated Balance Sheet Highlights (in thousands USD) | Metric | March 31, 2024 | June 30, 2023 | | :-------------------------------- | :------------- | :------------ | | Cash and cash equivalents | $9,305 | $22,120 | | Total current assets | $16,319 | $22,997 | | Total assets | $17,250 | $23,783 | | Total current liabilities | $2,864 | $2,550 | | Total liabilities | $3,112 | $2,958 | | Total stockholders' equity | $14,138 | $20,825 | Consolidated Statements of Operations and Comprehensive Loss This statement outlines the company's financial performance over periods, including revenues, expenses, net loss, and comprehensive loss Consolidated Statements of Operations and Comprehensive Loss Highlights (in thousands USD) | Metric | 3 Months Ended Mar 31, 2024 | 3 Months Ended Mar 31, 2023 | 9 Months Ended Mar 31, 2024 | 9 Months Ended Mar 31, 2023 | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Research and development | $3,277 | $1,639 | $8,520 | $4,597 | | General and administrative | $4,138 | $2,012 | $11,777 | $5,530 | | Total operating expenses | $7,415 | $3,651 | $20,297 | $45,474 | | Net loss | $(6,031) | $(3,571) | $(11,998) | $(44,637) | | Net loss per share: Basic and diluted | $(0.38) | $(0.22) | $(0.76) | $(2.93) | | Total comprehensive loss | $(6,851) | $(3,773) | $(12,401) | $(46,666) | - Net loss for the three months ended March 31, 2024, increased to $6.031 million from $3.571 million in the prior year period. For the nine months, net loss decreased significantly to $11.998 million from $44.637 million, primarily due to the absence of a large acquisition of in-process R&D expense incurred in the prior year[20] Consolidated Statements of Stockholders' Equity This statement details changes in the company's equity accounts, reflecting contributions, distributions, and comprehensive income or loss Stockholders' Equity Changes (in thousands USD) | Metric | Balance at June 30, 2023 | Balance at March 31, 2024 | | :-------------------------- | :----------------------- | :------------------------ | | Common stock | $2 | $2 | | Additional paid-in capital | $116,290 | $122,004 | | Accumulated deficit | $(92,212) | $(104,210) | | Foreign currency translation reserve | $(3,255) | $(3,658) | | Total Stockholders' Equity | $20,825 | $14,138 | - Total stockholders' equity decreased from $20.825 million at June 30, 2023, to $14.138 million at March 31, 2024, primarily due to a net loss of $11.998 million and a currency translation adjustment of $403 thousand, partially offset by $5.714 million in share-based compensation[23] Consolidated Statements of Cash Flows This statement summarizes the cash inflows and outflows from operating, investing, and financing activities over specific periods Consolidated Statements of Cash Flows Highlights (in thousands USD) | Metric | 9 Months Ended Mar 31, 2024 | 9 Months Ended Mar 31, 2023 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(12,203) | $(8,167) | | Net cash used in investing activities | $(274) | $(145) | | Net cash provided by financing activities | $- | $8,207 | | Net decrease in cash and cash equivalents | $(12,477) | $(105) | | Cash and cash equivalents at end of period | $9,305 | $24,880 | - The company experienced a significant net decrease in cash and cash equivalents of $12.477 million for the nine months ended March 31, 2024, compared to a $105 thousand decrease in the prior year, primarily due to increased cash used in operating activities and no proceeds from financing activities in the current period[27] Notes to Unaudited Consolidated Financial Statements These notes provide detailed explanations and additional information supporting the amounts presented in the consolidated financial statements Note 1 – Re-domiciliation and Business This note describes the company's re-domiciliation from Australia to Delaware and its impact on the corporate structure and Nasdaq listing - Incannex Healthcare Inc. re-domiciled from Australia to Delaware in November 2023, becoming the new ultimate parent company and assuming Incannex Australia's Nasdaq listing[29][30] - The re-domiciliation involved a share exchange ratio where holders of Incannex Australia's ordinary shares received one share of Incannex Healthcare Inc. common stock for every 100 ordinary shares, and ADS holders received one common stock share for every 4 ADSs[31] Note 2 – Basis of Presentation and Summary of Significant Accounting Policies This note outlines the accounting principles, policies, and methods used in preparing the financial statements, including the transition to US GAAP - The company transitioned from IFRS to US GAAP retrospectively for all prior periods presented following the re-domiciliation[35] - Research and development costs are expensed as incurred, and the company accrues for estimated R&D activities by third-party service providers[55][57] - The acquisition of APIRx Pharmaceutical USA, LLC in August 2022 was accounted for as an asset acquisition, with $35.400 million charged to acquisition of in-process R&D expense due to no alternative future use of the product candidates[61][63] - The company's functional currency is the Australian Dollar, but financial statements are presented in U.S. dollars, with translation adjustments recorded in other comprehensive income[68][69] Note 3 – Prepaid expenses and other current assets This note provides a breakdown of the company's prepaid expenses and other current assets, highlighting key components and changes Prepaid Expenses and Other Current Assets (in thousands USD) | Item | March 31, 2024 | June 30, 2023 | | :-------------------------- | :------------- | :------------ | | Prepayments | $421 | $686 | | R&D tax credit recoverable | $6,406 | $- | | GST recoverable | $187 | $191 | | Total other assets | $7,014 | $877 | - The significant increase in total other assets is primarily driven by the recognition of $6.406 million in R&D tax credit recoverable as of March 31, 2024, which was not present at June 30, 2023[76] Note 4 – Property, Plant and Equipment, net This note details the company's property, plant, and equipment, including gross amounts, accumulated depreciation, and net carrying values Property, Plant and Equipment, Net (in thousands USD) | Item | March 31, 2024 | June 30, 2023 | | :-------------------------------- | :------------- | :------------ | | Furniture, fittings and equipment | $194 | $157 | | Assets under construction | $393 | $160 | | Total property, plant and equipment, gross | $587 | $317 | | Accumulated depreciation and amortization | $(64) | $(23) | | Total property, plant and equipment, net | $523 | $294 | - Net property, plant and equipment increased to $523.000 thousand at March 31, 2024, from $294.000 thousand at June 30, 2023, mainly due to an increase in assets under construction[78] Note 5 – Trade and other payables, accrued expenses and other current liabilities This note presents a breakdown of the company's current liabilities, including trade payables, accrued expenses, and employee leave entitlements Current Liabilities (in thousands USD) | Item | March 31, 2024 | June 30, 2023 | | :------------------------------------------------ | :------------- | :------------ | | Trade payables | $1,255 | $1,748 | | Accrued expenses | $1,133 | $426 | | Employee leave entitlements | $315 | $263 | | Total Trade and other payables, accrued expenses and other current liabilities | $2,703 | $2,437 | - Accrued expenses significantly increased from $426.000 thousand to $1.133 million, while trade payables decreased from $1.748 million to $1.255 million[79] Note 6 – Leases This note provides information on the company's lease arrangements, including lease terms, discount rates, and future minimum lease payments Operating Lease Summary | Metric | March 31, 2024 | June 30, 2023 | | :-------------------- | :------------- | :------------ | | Weighted-average remaining lease term (years) | 1.26 | 1.79 | | Discount rate | 9.18% | 9.18% | Future Minimum Lease Payments as of March 31, 2024 (in thousands USD) | Period | Amount | | :------------- | :----- | | June 30, 2024 | $50 | | June 30, 2025 | $205 | | June 30, 2026 | $199 | | June 30, 2027 | $48 | | June 30, 2028 | $32 | | Total minimum lease payments | $534 | | Less amount representing interest | $125 | | Total operating lease liabilities | $409 | - The company records loss contingencies when probable and estimable, and discloses material contingencies when reasonably possible. Currently, management does not believe any actions would have a material impact on financial results[83] Note 7 – Commitments and contingencies This note discusses the company's potential future obligations and contingent liabilities, assessing their probable financial impact - The company records loss contingencies when probable and estimable, and discloses material contingencies when reasonably possible. Currently, management does not believe any actions would have a material impact on financial results[83] Note 8 – Stockholder's equity/Issued capital This note details the company's common stock, including authorized, issued, and outstanding shares, and significant equity transactions - The company's common stock authorized is 100,000,000 shares with a par value of $0.0001 per share. As of March 31, 2024, and March 31, 2023, 15,873,113 shares were issued and outstanding[84][86] - In the nine months ended March 31, 2023, Incannex Australia issued 634,146 ordinary shares for $8.830 million in a private placement and 2,181,695 ordinary shares for the acquisition of APIRx Pharmaceuticals[86][87] Note 9 – Additional paid-in capital This note explains the changes in additional paid-in capital, primarily from equity issuances and share-based compensation Additional Paid-in Capital (in thousands USD) | Item | March 31, 2024 | March 31, 2023 | | :-------------------------------- | :------------- | :------------- | | Opening balance | $116,290 | $69,074 | | Equity instruments issued to management and directors | $5,714 | $1,631 | | Share placements | $- | $8,830 | | Asset acquisition shares issued | $- | $34,170 | | At March 31 | $122,004 | $115,700 | - Additional paid-in capital increased by $5.714 million for the nine months ended March 31, 2024, primarily due to equity instruments issued to management and directors[89] Note 10 – General and Administration expenses This note provides a detailed breakdown of general and administrative expenses, including salaries, compliance, and legal costs General and Administration Expenses (in thousands USD) | Item | 3 Months Ended Mar 31, 2024 | 3 Months Ended Mar 31, 2023 | 9 Months Ended Mar 31, 2024 | 9 Months Ended Mar 31, 2023 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Salaries, and other employee benefits | $2,873 | $979 | $7,706 | $3,122 | | Compliance, legal and regulatory | $821 | $517 | $2,393 | $1,210 | | Total general and administration expenses | $4,138 | $2,012 | $11,777 | $5,530 | - General and administrative expenses significantly increased across all categories for both the three and nine-month periods, with salaries and employee benefits showing the largest increase[94] Note 11 – Share-based payments This note describes the company's share-based compensation plans, including expense recognition and restricted stock activity Share-based Compensation Expense (in thousands USD) | Item | 3 Months Ended Mar 31, 2024 | 3 Months Ended Mar 31, 2023 | 9 Months Ended Mar 31, 2024 | 9 Months Ended Mar 31, 2023 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | General and administrative | $2,116 | $531 | $5,584 | $2,092 | | Total share-based compensation expense | $2,116 | $531 | $5,584 | $2,092 | Restricted Stock Activity (in thousands, except per share data) | Item | Unvested and Outstanding as of June 30, 2023 | Unvested and Outstanding as of March 31, 2024 | | :-------------------------------- | :------------------------------------------- | :-------------------------------------------- | | Numbers of Shares | 62,514 | 1,739,215 | | Weighted Average Grant Date Fair Value ($) | 149 | 1,006 | - Share-based compensation expense for general and administrative activities increased significantly to $5.584 million for the nine months ended March 31, 2024, from $2.092 million in the prior year[95] Note 12 – Income Tax This note details the company's income tax provisions, including the reconciliation of tax benefits and the valuation allowance against deferred tax assets Income Tax Benefit Reconciliation (in thousands USD) | Item | March 31, 2024 | June 30, 2023 | | :-------------------------------- | :------------- | :------------ | | Accounting loss before tax | $(11,998) | $(52,766) | | Income tax benefit at the applicable tax rate of 30% | $(3,599) | $(15,830) | | Non-deductible expenses | $8,064 | $36,510 | | Non-assessable income | $(8,154) | $(171) | | Deferred tax assets not recognized | $875 | $581 | | Net unrecognized tax benefit at 30% | $9,075 | $4,989 | - The company has established a valuation allowance against its deferred tax assets due to a history of operating losses, indicating uncertainty regarding the realization of future tax benefits[101] Note 13 – Loss per share This note explains the calculation of basic and diluted loss per share, considering the impact of net losses on potential common stock Loss Per Share (in thousands, except per share amounts) | Metric | 3 Months Ended Mar 31, 2024 | 3 Months Ended Mar 31, 2023 | 9 Months Ended Mar 31, 2024 | 9 Months Ended Mar 31, 2023 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic loss per share | $0.38 | $0.22 | $0.76 | $2.93 | | Total comprehensive loss for the year | $6,031 | $3,571 | $11,998 | $44,637 | | Weighted average number of common stocks | 15,873,113 | 15,873,113 | 15,873,113 | 15,221,900 | - Basic and diluted loss per share are the same for all periods presented due to the company reporting net losses since inception, making potential common stocks anti-dilutive[102] Note 14 – Related Party Transactions This note discloses transactions and balances with related parties, confirming their commercial terms and lack of outstanding payables - There were no amounts payable to any related parties as of March 31, 2024, and June 30, 2023, and transactions between related parties are on commercial terms[103][104] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting key drivers of financial performance, liquidity, capital resources, and critical accounting policies. It emphasizes the company's status as a development-stage enterprise with ongoing R&D expenditures Overview This section provides an overview of the company's development-stage status, funding sources, and anticipated R&D tax offsets - The company is a development-stage enterprise focused on drug candidates, incurring net losses since inception and expecting substantial losses as R&D activities expand[108] - Operations are primarily funded through equity sales, option exercises, tax grants from R&D activities, and interest income[108] - The company anticipates being entitled to a 48.5% refundable tax offset for eligible R&D activities from the Australian government[109] Results of Operations This section analyzes the company's financial performance over the reporting periods, focusing on key revenue and expense drivers Operating Expenses This section details the company's research and development, and general and administrative expenses, explaining their changes and underlying causes Operating Expenses (in thousands USD) | Expense Category | 3 Months Ended Mar 31, 2024 | 3 Months Ended Mar 31, 2023 | % Change | 9 Months Ended Mar 31, 2024 | 9 Months Ended Mar 31, 2023 | % Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :------- | :-------------------------- | :-------------------------- | :------- | | Research and development | $3,277 | $1,639 | 100% | $8,520 | $4,597 | 85% | | General and administrative | $4,138 | $2,012 | 106% | $11,777 | $5,530 | 113% | | Total operating expenses | $7,415 | $3,651 | 103% | $20,297 | $45,474 | (55)% | - R&D expenses increased by $1.600 million (100%) for the three months and $3.900 million (85%) for the nine months, driven by increased clinical research and product development activities, including new clinical trials for IHL-42X and IHL-675A[111][112] - G&A expenses rose by $2.100 million (106%) for the three months and $6.200 million (113%) for the nine months, primarily due to higher salaries, employee benefits (issuance of restricted stock), and increased compliance, legal, and accounting costs post-re-domiciliation[114][115] Other Income (Expense) This section outlines non-operating income and expenses, including R&D tax credits, foreign exchange, and interest income Other Income/(Expense) (in thousands USD) | Item | 3 Months Ended Mar 31, 2024 | 3 Months Ended Mar 31, 2023 | % Change | 9 Months Ended Mar 31, 2024 | 9 Months Ended Mar 31, 2023 | % Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :------- | :-------------------------- | :-------------------------- | :------- | | Benefit from R&D tax credit | $1,320 | $(83) | (1,690)% | $8,150 | $684 | 1,092% | | Foreign exchange gains (losses) | $(11) | $- | - | $(17) | $- | - | | Interest income | $75 | $163 | (54)% | $166 | $153 | 8% | | Total other income/(expense), net | $1,384 | $80 | 1,630% | $8,299 | $837 | 892% | - Benefit from R&D tax credit decreased by $1.400 million for the three months and $7.500 million for the nine months ended March 31, 2024, due to the finalization of the fiscal 2023 Australian tax return[116][117] - Interest income decreased by $88.000 thousand for the three months due to lower cash deposits, while foreign exchange losses increased by $11.000 thousand due to unfavorable currency rates[118][119] Liquidity and Capital Resources This section assesses the company's ability to meet its financial obligations, discussing cash position, funding sources, and future capital needs Sources of Liquidity This section identifies the primary sources of funds available to the company, including cash on hand and anticipated funding requirements - As of March 31, 2024, the company had $9.300 million in cash and anticipates this will be sufficient to fund operations until at least December 2024[123] - The company expects to require substantial additional funds to achieve long-term goals and complete drug candidate development, as significant revenue is not anticipated until regulatory approval and product sales commence[125] Cash Flows This section provides a detailed analysis of cash generated from or used in operating, investing, and financing activities Cash Flow Summary (in thousands USD) | Cash Flow Activity | 9 Months Ended Mar 31, 2024 | 9 Months Ended Mar 31, 2023 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(12,203) | $(8,167) | | Net cash used in investing activities | $(274) | $(145) | | Net cash provided by financing activities | $- | $8,207 | | Net decrease in cash | $(12,477) | $(105) | - Cash used in operating activities increased by $4.000 million, primarily due to an increase in prepaid expenses and other current assets[129] - Cash provided by financing activities decreased to nil in the current period, compared to $8.207 million in the prior year, due to no proceeds from common stock issuances[131] Critical Accounting Policies and Estimates This section highlights accounting policies that require significant management judgment and estimates, such as stock-based compensation and income taxes - Key accounting policies requiring significant management judgment and estimates include stock-based compensation and income taxes, particularly the valuation of awards and deferred tax assets[132][133][134] Emerging Growth Company Status This section explains the company's status as an emerging growth company and its election to use an extended transition period for accounting standards - The company is an 'emerging growth company' and has elected to use the extended transition period for complying with new or revised accounting standards, which may affect comparability with other public companies[136][137] Fully Diluted Share Capital This section presents the total number of common stock equivalents, including outstanding shares, restricted stock, and warrants Fully Diluted Share Capital as of March 31, 2024 | Item | Number of Shares of Common Stock Equivalents | | :-------------------- | :------------------------------------------- | | Shares of Common Stock | 15,873,113 | | Restricted Stock | 1,739,215 | | Warrants | 1,978,346 | | Total - March 31, 2024 | 19,590,674 | Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Incannex Healthcare Inc. is permitted to omit the information typically required by this item - The company, as a 'smaller reporting company,' has omitted disclosures regarding quantitative and qualitative market risk[139] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2024, with no material changes in internal control over financial reporting identified during the quarter - Management concluded that disclosure controls and procedures were effective as of March 31, 2024[140] - No material changes in internal control over financial reporting were identified during the quarter ended March 31, 2024[141] PART II—OTHER INFORMATION This section provides additional non-financial information, including legal proceedings, risk factors, and equity security sales Item 1. Legal Proceedings The company is not currently involved in any legal, arbitration, or governmental proceedings that could materially impact its financial position or profitability - The company is not involved in any legal or arbitration proceedings that could have a material adverse impact on its financial position or profitability[144] Item 1A. Risk Factors This section refers readers to the 'Risk Factors' discussion in the company's 2023 Annual Report for a detailed understanding of the risks and uncertainties affecting the business - Readers are directed to Item 3D 'Risk Factors' in the 2023 Annual Report for a comprehensive discussion of risks and uncertainties[145] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item details the unregistered sales of equity securities related to the company's re-domiciliation, where shares of common stock and options were issued under an exemption from registration - The re-domiciliation involved the issuance of common stock and options, exempt from registration under Section 3(a)(10) of the Securities Act of 1933[146][147] - Holders of Incannex Australia ordinary shares received one share of common stock for every 100 shares, and ADS holders received one common stock share for every 4 ADSs[150] Item 3. Defaults upon Senior Securities This item states that there are no defaults upon senior securities to report - Not applicable[149] Item 4. Mine Safety Disclosures This item states that there are no mine safety disclosures to report - Not applicable[150] Item 5. Other Information This item indicates that there is no other information to disclose - None[150] Item 6. Exhibits This section lists all exhibits filed with the Quarterly Report, including various agreements, corporate documents, and certifications - The report includes exhibits such as the Deed of Amendment and Restatement to Scheme Implementation Deed, Amended and Restated Certificate of Incorporation, Bylaws, Employment Agreements, Clinical Trial Research Agreements, and various certifications[151] SIGNATURES This section confirms the official signing and certification of the quarterly report by the company's principal executive and financial officers - The report was signed on May 15, 2024, by Joel Latham, Chief Executive Officer, Director and President, and Joseph Swan, Chief Financial Officer, Treasurer and Secretary[156][157]