INNOCAN PHARMA CORPORATION
Management's Discussion and Analysis
For the three and nine-month period ended September 30, 2025
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis is management's assessment of the results and financial condition of Innocan Pharma Corporation (the "Company" or "Innocan").
The following information should be read in conjunction with the notes to the Company's unaudited condensed consolidated financial statements and accompanying notes for the three and nine month period ended September 30, 2025 and the three-month period ended September 30, 2024.
The date of this management's discussion and analysis ("MD&A") is November 26, 2025. The Company's amounts in this MD&A have been prepared in accordance with International Financial Reporting Standards ("IFRS"). All dollar amounts are stated in United States dollars ("US$") unless otherwise indicated (for reference, "C" means Canadian dollars). On September 5, 2025, the Company effected a 1-for-65 reverse split of its issued and outstanding Common Shares, pursuant to which shareholders received 0.0154 of a Common Share for every one Common Share. As such, all monetary and share amounts have been retroactively restated for all periods presented.
Statements in this report that are not historical facts are forward-looking statements involving known and unknown risks and uncertainties, which could cause actual results to vary considerably from these statements. Readers are cautioned not to place undue reliance on forward-looking statements.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This MD&A contains forward-looking information within the meaning of applicable Canadian securities legislation ("forward-looking information"). Such forward-looking information involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking information. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statements were made.
In some cases, these forward-looking statements can be identified by words or phrases such as "may", "believes", "expects", "will", "intends", "projects", "anticipates", "estimates", "continues", "plans", "aim", "seek" or the negative of these terms, or other similar expressions intended to identify forward-looking statements. The Company has based these forward-looking statements on current expectations and projections about future events and financial trends that they believe may affect the Company's financial condition, results of operations, business strategy and financial needs.
Forward-looking information contained herein is given as of the date of this MD&A and the Company disclaims any obligation to update any forward-looking information, whether as a result of new information, future events or results, except as may be required by applicable securities laws. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. For a description of material factors that could cause the Company's actual results to differ materially from the forward-looking statements in this MD&A, please see the section titled "Risks and Uncertainties" herein.
DESCRIPTION OF BUSINESS
Company Overview
Innocan Pharma Corporation was incorporated under the Canada Business Corporations Act on May 31, 2018. The Company's registered office is 1015, 926 - 5 Avenue SW Calgary, Canada and its corporate website is https://www.innocanpharma.com. The Company is publicly listed on the Canadian Securities Exchange trading under the symbol INNO and is quoted in the United States on the OTCQB venture market under the symbol INNPF, and is listed for trading in Germany on the Frankfurt stock exchange under the symbol IP4. The Company is the parent company of Innocan Pharma Ltd.
Innocan is a pharmaceutical tech company that operates under two main segments: Pharmaceuticals and Consumer Wellness. In the Pharmaceutical segment, Innocan develops innovative drug delivery technologies for both human and animal health applications, based on advanced cannabinoids science, to treat various conditions to improve quality of life. Supported by preclinical studies conducted in various animal models, but not yet verified in humans, its synthetic Cannabidiol-loaded Liposome injection Platform (LPT-CBD) facilitates exact dosing and the prolonged and controlled release of synthetic CBD into the blood stream. While determinations of safety and efficacy are solely within the authority of the United States Food and Drug Administration (FDA) and comparable foreign regulatory bodies, it expects, based on various scientific studies, including a report of the World Health Organization, that cannabidiol in general will avoid many of the risks of addiction, tolerance, and dependency, commonly associated with opioids. Innocan's LPT-CBD is in a late pre-clinical stage of development, and it has initiated the FDA regulatory review process for this non-opioid alternative for chronic pain management. The process has been initiated with a successful pre-Investigational New Drug (Pre-IND) meeting that structured its development plan towards IND submission. Innocan intends to submit an IND application for its initial Phase 1a study following the completion of LPT-CBD scale-up activities, which are expected to take approximately one year. Upon completion, it will conduct a Good Laboratory Practice (GLP)-compliant single-injection preclinical safety study, with final reporting anticipated within 6-8 months. Following the availability of the safety data, it will submit the IND application to the FDA, including the clinical protocol and safety report. If the safety results are deemed acceptable, and assuming no clinical hold is issued, Phase 1a first-in-human study will commence 30 days post-submission. During Phase 1a studies, it will collect PK and exposure data of LPT-CBD to form a scientific bridge to the listed drug Epidiolex, which it intends to submit to the FDA in support of a 505(b)(2) application. This process is estimated to take 6-8 months and will run in parallel with the Phase 1a studies. Phase 1b studies are intended to begin immediately following the approval of Phase 1a study results and the completion of a repeated-dose GLP safety study. Synthetic CBD is known to have high purity, batch to batch consistency and to date, regulatory superiority without THC, and does not involve the use of the cannabis plant. The novelty of LPT-CBD lays in its ability to be injected under the skin (subcutaneously) once a month facilitating the prolonged release of synthetic CBD to the blood stream for up to four weeks. This has been supported by various preclinical studies conducted in both small and large animal models, although it has not yet been confirmed in clinical studies.
In the Consumer Wellness segment, Innocan develops and markets a wide portfolio of innovative and high-performance self-care and CBD beauty products to promote a healthier lifestyle. Also under this segment, Innocan has established a joint venture company, B.I. Sky Global Ltd. ("B.I. Sky"). Innocan holds 60% of B.I. Sky and Brandzon Co. Ltd. ("Brandzon") holds the remaining
40%. Roni Kamhi, Brandzon's Chief Operating Officer, is the chief executive officer and a co-founding director of B.I. Sky. B.I. Sky focuses on developing and marketing advanced non-CBD personal care and beauty products in the United States, starting with online marketplaces, with plans to expand to direct-to-consumer sales, and finally evolving to brick & mortar storefronts. Revenues in the United States are attributed primarily to sales of B.I. Sky's non-CBD personal care products. In addition, in its pharmaceuticals segment, Innocan sells CBD personal care products through distribution in Europe. Innocan's patent portfolio consists of 31 published patents pending and granted across eight families. Innocan seeks composition of matter describing pharmaceutical entity protection for its liposomal cannabinoids and uses thereof patent, which is currently in a pending status worldwide and granted in India. Three additional granted patents are related to its pain relief topical compositions and the rest of its patents related to additional cannabinoid compositions and use thereof are at pending status.
Innocan's business model is driven by a three-tiered strategy:
Animal Health - establishing licensing and strategic partnerships with veterinary pharmaceutical market leaders. Innocan intends to submit an INAD application with the FDA-CVM during 2026 in order to commence testing its product candidate in the U.S.
Human Health - forming similar licensing and strategic partnerships with pharmaceutical companies, centered on human applications, pending FDA submission and approval for the initiation of IND studies.
Wellness - marketing personal care and beauty products via multiple channels.
Innocan has experienced net losses in every period since its inception in 2018. It incurred net losses of $2,196,000 and $214,000 for the nine-month period ended September 30, 2025, and 2024, respectively. As of September 30, 2025, and December 31, 2024, it had an accumulated deficit of
$38,027,000 and $34,908,000, respectively. Innocan anticipates that it will continue to incur significant losses for the foreseeable future as its operating expenses and capital expenditure increase substantially due to its continued investment in its research and development activities and as it hires additional employees over the coming years.
References throughout to "Innocan" or the "Company" refer generally to the collective activity and operations of the Company and its subsidiaries, in the aggregate. Innocan consolidates B.I. Sky's activity and operations.
Description of the Company's Principal Businesses and Operations Company's Activity Under Research Agreements
On January 9, 2025, the Company announced that the FDA's Center for Veterinary Medicine (CVM) granted the Company a sponsor fee waiver for its LPT-CBD product for the second consecutive year. The Animal Drug User Fee Act (ADUFA) authorizes the CVM to collect user fees for certain animal drug applications on an annual basis. Under ADUFA, sponsors may request a yearly fee waiver through the 'significant barrier to innovation' provision. Following a thorough review, the CVM granted Innocan the 2025 fee waiver, recognizing the Company's continued pursuit of innovative animal drug products and technology. The waiver applies to the Company's LPT-CBD product, developed for subcutaneous injection to manage chronic pain in dogs. With growing interest in CBD products among pet owners seeking safe and effective ways to support
their pets' health, Innocan's LPT-CBD aims to deliver precise and sustained CBD release from a single injection. This innovation offers a safe and convenient dosing solution for managing chronic pain in dogs, providing benefits for pets of all ages and sizes.
On January 29, 2025, the Company announced that its subsidiary, B.I. Sky, successfully completed the Human Repeated Insult Patch Test (HRIPT) for Sensitization and Irritation Testing, ensuring the safety of its cosmetic products. HRIPT is the personal care industry's standard safety test for cosmetic, OTC drug, and topical medical devices. In addition, the Company announced that it surpassed the important sales milestone of an average of 5,000 units per day in 2024. This achievement is particularly significant as the typical minimum production quantity for most cosmetic products is 5,000 units in total, while B.I. Sky sells this amount daily. This significant sales volume far exceeds the requirements for annual production agreements with key third-party manufacturing companies.
On February 10, 2025, the Company announced a successful outcome from the compassionate treatment of a female donkey with its LPT-CBD. Innocan's innovative therapy provided quick and sustained pain relief, significantly improving mobility in an elderly female donkey suffering from osteoarthritis. Ariel, a 35-year-old elderly female donkey residing at a rescue farm, had endured years of carrying excessive weight, leading to debilitating osteoarthritis across multiple joints. As an act of compassionate therapy, Ariel was administered a single LPT-CBD injection. Positive effects were observed, and Ariel's mobility improved for several weeks. Due to the remarkable success of the treatment, she was given a second LPT-CBD dose, which demonstrated continued improvement in her condition.
On February 18, 2025, the Company announced that it has been granted a patent in India that protects its LPT-CBD, designed for precise dosing and sustained release of Synthetic CBD into the bloodstream. LPT-CBD received positive feedback from the FDA following a successful pre-IND meeting to advance its development as a non-opioid alternative for chronic pain management. The Indian patent, granted in a pharmaceutical market estimated at US$55 billion (Bain & Company) complements Innocan's global patent applications, strengthening the proprietary value of its novel liposome-based cannabinoid technology. Developed jointly in collaboration with Professor Chezy Barenholz and Dr. Ahuva Cern from the Hebrew University in Jerusalem, the liposomal drug delivery platform allows for prolonged exposure and maximizes the bioavailability and therapeutic effects of cannabinoids.
On April 7, 2025, the Company announced that a divisional application for its Chinese (CN) liposome-based CBD technology patent was filed. China, the second-largest pharmaceutical market in the world, was valued with US$163 billion medicine spending at 2023 (IQVIA). The filing of this divisional application in China reflects the expertise and commitment of the Innocan team and represents a strategic step in aligning the company's intellectual property portfolio with its longterm global business objectives.
On May 6, 2025, the Company announced that the Mexican patent office issued a notice of allowance for the Company's patent application covering its proprietary topical pain-relief technology. This patent covers a groundbreaking formulation comprising the unique blending of cannabidiol with minerals to deliver fast-acting, targeted pain relief. Clinical studies have demonstrated noticeable pain reduction within 20 minutes of application. The approval of this patent represents a major milestone in Innocan's mission to advance next-generation topical therapeutic solutions. The Mexican allowance adds to previously granted counterpart patents in the
United States, Russia, and Ukraine, and complements a growing portfolio of pending applications across various global jurisdictions. This development positions Innocan for early and strategic access to Latin American markets.
On June 13, 2025, the Company announced the third party publication of a peer-reviewed narrative review in Cureus journal titled "Considering Long-Acting Synthetic Cannabidiol for Chronic Pain: A Narrative Review" (DOI: https://doi.org/10.7759/cureus.81577). The article discusses the therapeutic potential of long-acting synthetic CBD in addressing chronic pain. Co-authored by leading pain specialists from institutions such as Johns Hopkins University and NYU School of Medicine, the review highlights that synthetic CBD administered through extended-release formulations could offer a well-tolerated, non-opioid analgesic alternative with the potential to significantly reduce reliance on addictive opioids. Chronic pain affects over 24% of adults in the United States alone, placing a significant burden on patients, healthcare systems, and economies. Yet, long-term treatment options remain inadequate. NSAIDs pose cumulative toxicity risks, and opioids-while effective-present serious concerns including tolerance, dependency, and overdose risk. Globally, opioid misuse results in over 100,000 deaths annually (DOI: 10.1016/j.lana.2023.100557). The FDA has emphasized the critical need for novel, nonaddictive pain therapies through its "Guidance for Industry: Non-Opioid Analgesic Development Programs". Innocan's proprietary LPT-CBD platform is uniquely positioned to align with this regulatory focus. Innocan has initiated regulatory submissions in support of advancing LPT-CBD into human clinical trials. This progress marks a pivotal step toward realizing a first-in-class, non-opioid analgesic therapy tailored for the complexities of chronic pain management.
On June 20, 2025, the Company announced that the recently published narrative review titled "Considering Long-Acting Synthetic Cannabidiol for Chronic Pain: A Narrative Review" (DOI: https://doi.org/10.7759/cureus.81577) has been officially accepted for presentation at PAINWEEK 2025, the national conference on pain management, that took place in September in Las Vegas, Nevada. PAINWEEK is a prestigious event that brings together leading clinicians, researchers, and educators in the field of pain medicine, offering a unique platform to showcase innovative research and best practices. The narrative review, selected through a competitive peer-review process, provides important insights into the potential of synthetic CBD, administered through extended-release formulations, as a well-tolerated, non-opioid analgesic alternative. Supported by multiple animal studies, LPT-CBD has demonstrated steady plasma CBD levels for up to four weeks, prolonged pain relief, and excellent tolerability-offering a promising alternative to current opioid medications and addressing the urgent need to reduce opioid dependency.
On July 3, 2025, the Company announced the acceptance for publication of a research article entitled "Liposomal-Cannabidiol Injection: Preliminary Insights into Pharmacokinetics and Safety Characteristics in Göttingen Minipigs and Rabbits" in the esteemed journal Precision Nanomedicine. The study demonstrates promising results of prolonged release and a favorable safety profile of CBD following a single subcutaneous administration of LPT-CBD in minipigs.
On August 22, 2025, the Company announced that during the PAINWeek conference 2025, it would showcase a poster outlining key data on LPT-CBD pharmacokinetics and efficacy along with the recently published narrative review titled "Considering Long-Acting Synthetic Cannabidiol for Chronic Pain: A Narrative Review" (DOI: https://doi.org/10.7759/cureus.81577). The poster was showcased during the scientific poster reception on September 4 (Poster #29), presented by Joseph V. Pergolizzi, Jr., MD, MBA, NEMA Research, a key member of Innocan's advisory board.
On September 15, 2025, the Company announced that its LPT-CBD poster presentation, delivered
by Dr. Joseph V. Pergolizzi, Jr., MD, MBA, at the PAINWeek conference in Las Vegas, sparked genuine enthusiasm among conference participants. Pain Medicine News, a leading pain publication in the U.S., has selected the poster for a dedicated video interview anticipated to be featured on its website within the next two weeks. The top key opinion leaders and subject matter experts in the pain field, including Dr. Bob Raffa and Dr. Eugene Vortsman, were interviewed expressing positive views on the potential of long-acting synthetic CBD treatments for pain relief, emphasizing the promising role of LPT-CBD in advancing the field. PAINWeek is a prestigious event that brings together thousands of leading clinicians, researchers, educators, and potential pharmaceutical partners in the field of pain medicine, offering a rare chance to connect, share ideas, and highlight new approaches. At the conference, Dr. Pergolizzi presented data from a narrative review highlighting the limitations of plant-derived CBD oils in treating chronic pain and the urgent need for regulated, long-acting synthetic CBD therapies. In parallel, preclinical data emphasizing the prolonged pharmacokinetics and extended pain relief of LPT-CBD was presented following a single administration to dogs and minipigs. The poster seemed to attract strong interest at the conference, showing the potential of LPT-CBD as an innovative solution for chronic pain management by delivering long-acting synthetic CBD through a single injection.
On September 18, 2025, the Company announced its ongoing collaboration with Freedom Farm, a sanctuary dedicated to rescuing animals that were expelled from the industrial farms as a result of the animals having physical disabilities and other medical conditions. Through this collaboration, Freedom Farm animals that suffer from painful conditions receive compassionate care supported by Innocan's advanced long-acting injectable LPT-CBD analgesic, to help alleviate their pain and significantly improve their well-being. Among the many animals saved by Freedom Farm, Billy and Dror stand out. Two goats that arrived at the farm with severe skeletal and joint deformities endure chronic pain that makes daily activities and social interaction extremely difficult. For the past two years, these goats have received compassionate treatment with Innocan's LPT-CBD delivered through a single subcutaneous injection every 6-9 weeks. The treatment was observed to significantly reduce their pain, restore their mobility, and allow them to play and socialize with their animal friends, a transformation that speaks to the profound impact of LPT-CBD. Moreover, no adverse events were noticed, even after such a long period of repeated treatment. Animals suffering from severe conditions that limit them from performing daily activities and basic functions are often euthanized. Thanks to Innocan's LPT-CBD compassionate care, Billy and Dror regained mobility and social interaction, greatly enhancing their quality of life. LPT-CBD is a liposomal drug product designed to treat chronic pain through a prolonged release mechanism of synthetic CBD.
Recent Offerings
In the debenture offering conducted in March 2025, the Company issued a debenture unit to its largest shareholder, Tamar Innovest Ltd., for gross proceeds of $1,000,000. The debenture unit consists of: (i) one secured convertible debenture in the principal amount of $1,000,000, and
(ii) 85,470 common share purchase warrants. The debenture matures two years from the date of issuance, will bear interest at the rate of 10% per annum and is convertible into common shares of Innocan ("Common Shares") prior to maturity at a price of C$13.65 per Common Share. Each warrant is exercisable into one Common Share at a price of C$16.90 for a period of four years from the date of issuance.
In the private placement conducted in April 2025, the Company issued 18,362 units at a price of C$11.70 per unit for aggregate gross proceeds of C$214,839. Each unit was comprised of one Common Share and one warrant to purchase one Common Share (each an "April 2025
Warrant"). Each April 2025 Warrant will entitle the holder thereof to purchase one Common Share at an exercise price of C$16.25 for a period of four (4) years from the date of issuance.
Recent Developments
On July 2, 2025, the Company granted an aggregate of 354,615 Restricted Share Units ("RSUs") to certain directors, officers, employees and consultants of the Company, payable in Common Shares upon satisfaction of various milestone-based vesting conditions.
On July 2, 2025, the Company also granted an aggregate of 30,000 stock options of the Company (the "Options") at an exercise price of C$14.625 with a five-year expiry date to various employees of the Company. The RSUs and the Options were granted under the Company's stock option plan as most recently amended on June 26, 2025. All RSU's, stock options and underlying Common Shares are subject to a hold period of four months and one day pursuant to the policies of the Canadian Securities Exchange.
On July 23, 2025, the Company announced that it had publicly filed a registration statement on Form F-1 with the U.S. Securities and Exchange Commission (the "SEC") relating to a proposed public offering of units (each, a "Unit" and collectively, the "Units") in the United States. Each Unit will be comprised of one Common Share and one common share purchase warrant of the Company (a "Warrant"). Each Warrant will entitle the holder thereof to purchase one Common Share at an exercise price and term in the context of the market. The Company had applied to list its Common Shares and Warrants on the Nasdaq Capital Market ("NASDAQ") under the symbols "INNP" and "INNPW", respectively. ThinkEquity LLC is acting as representative underwriter in the offering. This proposed offering will be made only by means of a prospectus.
On August 29, 2025, the Company announced that further to its press release dated July 23, 2025, it would consolidate all of its issued and outstanding Common Shares on the basis of one (1) post-consolidation Common Share for each 65 pre-consolidation Common Shares (the "Share Consolidation"). The Share Consolidation represents another step towards the completion of a proposed public offering of Units in the United States as set out in its registration statement on Form F-1 that has been publicly filed with the SEC and the listing of the Common Shares on the NASDAQ.
Changes in management
Effective July 1, 2025, Ron Mayron resigned as Executive Chairman and director of the Company. Mr. Mayron will remain with the Company for three additional months as a special consultant to the Company.
Components of Operating Results
RevenueRevenue is recognized when (or as) control of the promised goods or services is transferred to the customer, and in an amount that reflects the consideration the Company is contractually due in exchange for those services or goods. The Company follows five steps to record revenue: (i) identify the contract with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in
the contract and (v) recognize revenue when (or as) we satisfy its performance obligations.
Sales of CBD beauty products are made through business-to-business transactions, and non-CBD personal care and beauty products sales are made through online platforms. In the Company's Consumer Wellness Segment, the Company develops and markets a wide portfolio of innovative and high-performance self-care non-CBD products to promote a healthier lifestyle.
The Company recognizes revenue from the sale of its products at the point of time when control is transferred to its customers. Each transaction of a product sale consists of one performance obligation.
Operating expensesThe Company's current operating expenses consist of three components: (i) research and development expenses; (ii) sales, marketing and distribution expenses and (iii) general and administrative expenses. Labour costs and costs of sales are the most significant component of operating expenses and consist of salaries, including benefits and materials.
Sales, marketing and distribution expensesSales, marketing and distribution expenses consist primarily of advertising on online platforms, including shipping and handling.
Research and Development ExpensesResearch and development expenses consist of labour costs, subcontractors, material and costs associated with development and patent-related expenses. Costs are expensed as they are incurred.
Research and development activities are the Company's primary focus. The Company does not believe that it is possible at this time to accurately project the total expenses required for it to reach the point at which it will be ready to out-license its technologies or explore strategic partnerships. Development timelines, the probability of success and development costs can differ materially from expectations. In addition, the Company cannot forecast whether and when collaboration arrangements will be entered into, if at all, and to what degree such arrangements would affect its development plans and capital requirements. The Company expects its research and development expenses to increase over the next several years as its development program progresses. The Company would also expect to incur increased research and development expenses if it were to identify and develop additional technologies.
Research and development expenses include the following:
employee-related expenses, such as salaries and share-based compensation;
Expenses relating to its collaboration agreement with Yissum Research Development Company of the Hebrew University of Jerusalem Ltd. (Yissum);
expenses relating to outsourced and contracted services, such as CRO's, CMO's,
consulting, and advisory services;
supply and development costs;
expenses incurred in operating its lab in Jerusalem; and
costs associated with regulatory compliance.
The Company recognizes research and development expenses as it incurs them.
The Company anticipates that its research and development expenses will increase in the future as it increases its development headcount and infrastructure to support its continued research and development programs and the potential commercialization of its products.
General and Administrative ExpensesGeneral and administrative expenses consist primarily of personnel costs, including share-based compensation related to directors and employees, facility costs, and external professional service costs, including legal, regulatory, accounting, audit, finance, business development, investor relations and human resources services, and other consulting fees.
The Company anticipates that its general and administrative expenses will increase in the future as it increases its administrative headcount and infrastructure to support its continued research and development programs and the potential commercialization of its products.
Financial expensesThe financial expenses consisted primarily of change in the fair value of investments, warrants and financial liabilities measured at fair value, interest expenses on loans and exchange rate differences expenses.
Income TaxesThe Company anticipates that it will continue to generate tax losses for the foreseeable future and that it will be able to carry forward these tax losses indefinitely to future taxable years. Accordingly, the Company does not expect to pay taxes in Israel until it has taxable income after the full utilization of its carry forward tax losses. However, B.I. Sky, has started to generate taxable income in the years ended December 31, 2023, and December 31, 2024, and has paid taxes in Israel for such years.
Results of OperationsThe Company's results of operations have varied in the past and can be expected to vary in the future due to numerous factors. The Company believes that period-to-period comparisons of its operating results are not necessarily meaningful and should not be relied upon as indications of future performance.
Impact of the War in IsraelOn October 7, 2023, Hamas terrorists invaded southern Israel and launched thousands of rockets in a widespread terrorist attack on Israel. On the same day, the Israeli government declared that the country was at war, and the Israeli military began to call-up reservists for active duty. In addition, since the commencement of these events, there had been continued hostilities along Israel's northern border with Lebanon (with the Hezbollah terrorist organization) and on other fronts from various extremist groups in the region, such as the Houthis in Yemen and various rebel militia groups in Syria and Iraq. Israel carried out a number of targeted strikes on sites belonging to these terrorist organizations. In October 2024, Israel began limited ground operations against Hezbollah in Lebanon, and in November 2024, a ceasefire was brokered between Israel and Hezbollah. In addition, Iran launched direct attacks on Israel involving hundreds of drones and missiles and had threatened to continue to attack Israel. Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, the Houthi movement in Yemen and various rebel militia groups in Syria and Iraq.
On June 15, 2025, in light of continued nuclear threats and intelligence assessments indicating imminent attacks, Israel launched a pre-emptive strike directly targeting military and nuclear infrastructure inside Iran, aimed at disrupting Iran's capacity to coordinate or launch further hostilities against Israel, as well as to degrade its nuclear program. In response, Iran launched multiple waves of drones and ballistic missiles at Israeli cities, including Tel Aviv, Haifa, and Jerusalem. While most of these attacks were intercepted, several caused civilian casualties and damage to infrastructure. The Israeli military had conducted additional operations against Iranian assets.
In October 2025, after 2 years of fighting, a ceasefire was reached between Israel and Hamas. However, the situation remains volatile, and the risk of a broader regional escalation involving additional actors still exists.
To date, the Company's operations have not been materially impacted. However, the intensity, duration, and geographic scope of the current conflict are unpredictable. An escalation or prolonged conflict could disrupt the Company's supply chains, impair communications or travel, delay project timelines, and hinder the Company's access to personnel, customers, and partners.
Financial Review
The following financial data was prepared in accordance with IFRS and is presented for the three-month period ended September 30, 2025. See below discussion for period over period variations.
Summary of quarterly results (US$ in thousands, except for per share data):
September 30, 2025
June 30,
2025
March 31,
2025
December 31,
2024
September 30, 2024
June 30,
2024
March 31,
2024
December 31, 2023
Revenues
6,822
7,006
7,796
5,401
8,624
8,644
6,768
4,893
Cost of revenues
(631)
(811)
(681)
(992)
(845)
(646)
(767)
(605)
Sales, marketing and distribution expenses
(5,512)
(4,926)
(5,702)
(4,182)
(6,170)
(6,101)
(5,314)
(3,945)
Research and development expenses
(415)
(176)
(180)
(323)
(377)
(425)
(424)
(504)
General and administrative expenses
(1,482)
(697)
(744)
(823)
(880)
(940)
(1,475)
(733)
Total operating profit (loss)
(1,218)
396
489
(919)
352
532
(1,212)
(895)
Total finance income (expenses), net
(214)
(505)
(456)
922
350
902
(8)
312
Total profit (loss)
(1,652)
(315)
(229)
(48)
284
956
(1,454)
(797)
Basic profit (loss) per share (*)
(0.36)
(0.13)
(0.13)
(0.013)
0.065
0.065
(0.325)
(0.195)
Diluted profit (loss) per share (*)
(0.36)
(0.13)
(0.13)
(0.013)
0.065
0.065
(0.325)
(0.195)
(*) On September 5, 2025, the Company effected a 1-for-65 reverse split of its issued and outstanding common shares, pursuant to which holders of the Company's common shares received 0.0154 of a common share for every one common share. All share amounts have been retroactively restated for all periods presented.
Three- and nine-month period ended September 30, 2025, compared to the three- and nine-month period ended September 30, 2024
Revenues
Revenues decreased by $2,412,000 to $21,624,000 for the nine-month period ended September 30, 2025, compared to $24,036,000 for the nine-month period ended September 30, 2024; reported a 10% year-over-year decline in revenue as it continues to navigate challenging market conditions while advancing its portfolio and marketing initiatives. The revenues decline was attributed to several factors, including uncertainty and volatility with the influence of global trade tariffs environment.
The following table sets forth its revenues, revenues by segments, during the past two three-month periods:
Nine Months period ended
September 30,
(in thousands of USD)
2025
2024
Online Sales (Consumer Wellness)
$ 21,611
$ 24,002
Other Operations (CBD-integrated topical)
$ 13
$ 34
Total
21,624
24,036
Revenues decreased by $1,802,000 to $6,822,000 for the three-month period ended September 30, 2025, compared to $8,624,000 for the three-month period ended September 30, 2024, due to challenging market conditions, such as uncertainty and volatility with the influence of global trade tariffs environment. The company continues to deal with a traffic decline and persistent macroeconomic pressures.
The following table sets forth its revenues, revenues by segments, during the past two three-month periods:
Three Months period ended
September 30,
(in thousands of USD)
2025
2024
Online Sales (Consumer Wellness)
$ 6,818
$ 8,624
Other Operations (CBD-integrated topical)
$ 4
$ -
Total
6,822
8,624
Cost of revenues
Cost of revenues decreased by $135,000 to $2,123,000 for the nine-month period ended September 30, 2025, compared to $2,258,000 for the nine-month period ended September 30, 2024.
Cost of revenues decreased by $214,000 to $631,000 for the three-month period ended September 30, 2025, compared to $845,000 for the three-month period ended September 30, 2024.
Research and development expenses
Research and development expenses decreased by $455,000 to $771,000 for the nine-month period ended September 30, 2025, compared to $1,226,000 for the nine-month period ended September 30, 2024. This decrease is mainly due to a decrease of $356,000 for service providers relating to research pursuant to the agreement with Yissum, a decrease of $225,000 related to the research and license agreement with Yissum, offset by an increase of $134,000 in share-based compensation expenses, mainly as a result of RSUs that were granted in July 2025 to research and development employees of the Company and Options that were granted in July 2025 to consultants of the Company.
Research and development expenses increased by $38,000 to $415,000 for the three-month period ended September 30, 2025, compared to $377,000 for the three-month period ended September 30, 2024. This increase is mainly due to an increase of $248,000 in share-based compensation expenses, mainly as a result of RSUs that were granted in July 2025 to research and development employees of the Company and Options that were granted in July 2025 to consultants of the Company. This increase was offset by a decrease of $111,000 for service providers relating to research pursuant to the agreement with Yissum, a decrease of $87,000 related to the research and license agreement with Yissum and a decrease of $9,000 for salary and related expenses.
General and administrative expenses
General and administrative expenses decreased by $372,000 to $2,923,000 for the nine-month period ended September 30, 2025, compared to $3,295,000 for the nine-month period ended September 30, 2024. This decrease is mainly due to a decrease of $259,000 for share-based compensation expenses, mainly as a result of less RSUs that were granted in July 2025 compared to RSUs that were granted in March 2024 and as a result less options were vesting during the nine-month period ended September 30, 2025 (to general and administrative employees of the Company) compared to the nine-month period ended September 30, 2024. In addition, a decrease of $202,000 for professional service providers, offset by an increase of $64,000 for salary and related expenses and an increase of $26,000 for other expenses.
General and administrative expenses increased by $602,000 to $1,482,000 for the three-month period ended September 30, 2025, compared to $880,000 for the three-month period ended September 30, 2024. This increase is mainly due to an increase of $743,000 in share-based compensation expenses, mainly as a result of RSUs that were granted in July 2025 to general and administrative employees and officers of the Company, an increase of $27,000 for salary and related expenses and an increase of $12,000 for legal fees. This increase was offset by a decrease of $158,000 for professional service providers and a decrease of $22,000 for other expenses.
Sales, Marketing and Distribution Expenses
Sales, marketing and distribution expenses decreased by $1,445,000 to $16,140,000 for the nine-month period ended September 30, 2025, compared to $17,585,000 for the nine-month period ended September 30, 2024. This decrease is mainly due to a decrease of $999,000 attributed to online retail services and advertising costs. These expenses corresponded to B.I. Sky and therefore decreased consistently with the decrease in revenues. In addition, there was a decrease of $511,000 for marketing service providers and a decrease of $31,000 for salary and related expenses. This decrease was offset by an increase of $46,000 for share-based compensation expenses, mainly because of RSUs that were granted in July 2025 to sales and marketing employees and officers of the Company. In addition, there was an increase of $50,000 for other expenses.
Sales, marketing and distribution expenses decreased by $658,000 to $5,512,000 for the three-month period ended September 30, 2025, compared to $6,170,000 for the three-month period ended September 30, 2024. This decrease is mainly due to a decrease of $983,000 attributed to online retail services and advertising costs. These expenses corresponded to B.I. Sky and therefore decreased consistently with the decrease in revenues. In addition, there was a decrease of $184,000 for marketing service providers and a decrease of $3,000 for salary and related expenses. This decrease was offset by an increase of $384,000 for share-based compensation expenses, mainly because of RSUs that were granted in July 2025 to sales and marketing employees and officers of the Company. In addition, there was an increase of $128,000 for other expenses.
Net loss
Net loss increased by $1,982,000 to $2,196,000 for the nine months period ended September 30, 2025, compared to $214,000 for the nine months period ended September 30, 2024. The increase resulted mainly from decreased revenues and increased financial expenses, due to changes in fair value of warrants and convertible debentures.
Net loss increased by $1,936,000 to $1,652,000 for the three-month period ended September 30, 2025, compared to net profit of $284,000 for the three-month period ended September 30, 2024. The increase resulted mainly from decreased revenues, increased research and development expenses, increased general and administrative expenses and increased financial expenses, due to changes in fair value of warrants and convertible debentures and currency exchange expenses.
Key Business Metric and Non-IFRS Financial Measure
The Company monitors the key business metric set forth below to help it evaluate growth trends, establish budgets, measure the effectiveness of its sales and marketing efforts, and assess operational efficiencies. The Company's key business metric is working capital. Increases or decreases in its key performance metric may not correspond with increases or decreases in its revenue.
Working CapitalSeptember
30, December 31,
(in thousands of USD)
2025
2024
CURRENT ASSETS:
Cash and cash equivalents
$ 7,270
5,008
Inventory
$ 2,447
3,317
Other current assets
$ 1,307
822
Total current assets
$ 11,024
9,147
CURRENT LIABILITIES:
Trade accounts payable
$ 43
185
Other accounts payable
599
488
Total current liabilities (excluding derivative warrant and convertible debenture liabilities)
642
673
Working capital
$ 10,382
8,474
Working capital is a non-IFRS financial measure that the Company defined as its total current assets, consisting of cash and cash equivalents, trade receivables, other accounts receivable and inventory, trade accounts payable and other accounts payable less total current liabilities, consisting of trade accounts and other accounts payable (excluding derivative warrant liability). Derivative warrant liability and convertible debentures are not included since it has no effect on the future cash flow of the Company and are not current or future payments are required to be made by the Company. The Company's working capital was approximately $10,382,000 and $8,474,000 for the nine months period ended September 30, 2025, and year ended December 31, 2024, respectively. The increase resulted mainly from an increase in cash and cash equivalents.
Recently Issued Accounting Pronouncements
Certain recently issued accounting pronouncements are discussed in Note 2, Significant Accounting Policies, to the financial statements, regarding the impact of the IFRS standards issued by the IASB that we will adopt in future periods in its financial statements. The Company and its subsidiaries (the "Group"), are currently assessing the impact of these new accounting standards and amendments. The Group does not expect any other standards issued by the IASB, but not yet effective, to have a material impact on the Group.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations through cash generated from the proceeds from issuances of its Common Shares as described in this MD&A.
As of September 30, 2025, and December 31, 2024, the Company had cash on hand of
$7,270,000 and $5,008,000, respectively and working capital of $10,382,000 and $8,474,000, respectively. The working capital above consists of total current assets of cash and cash equivalents, trade receivables, other accounts receivable and inventory, trade accounts payable and other accounts payable. The working capital above does not include the balance of the warrants under current liabilities and convertible debenture under non-current liabilities. The warrants and convertible debenture balance were not included since it has no effect on the future cash flow of the Company, and are not current or future payments required to be made by the Company. For further discussion, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Key Business Metric and Non-IFRS Financial Measure."
The Company believes that its existing capital resources and cash flow from operations together will be adequate to satisfy its expected liquidity requirements through the next twelve months. Without derogating from the foregoing estimate regarding its existing capital resistance and cash flows from operations, the Company may decide to raise additional funds in 2025. The Company believes that, if required, it will be able to raise additional capital or reduce discretionary spending to provide the required liquidity beyond the next twelve months.
The Company's future capital requirements will depend on many factors, including its revenue growth, the timing and extent of investments to support such growth, the expansion of sales and marketing activities, increases in general and administrative costs and many other factors as described under "Risks and Uncertainties."
To the extent additional funds are necessary to meet its long-term liquidity needs as we continue to execute its business strategy, the Company anticipates that it will be obtained through the incurrence of additional equity financings; however, such financing may not be available on favorable terms, or at all. If the Company is unable to raise additional funds when desired, its business, financial condition and results of operations could be adversely affected.
The Company's failure to obtain sufficient funds on commercially acceptable terms when needed would have a material adverse effect on its business, results of operations and financial condition. The Company's forecast of the period of time through which its financial resistance will be adequate to support its operations is a forward-looking statement that involves risks and uncertainties, and the actual amount of its expenses could vary materially and adversely as a result of several factors. The Company has based its estimates on assumptions that may prove to be wrong, and its expenses could prove to be significantly higher than it currently anticipates.
The Company's future capital requirements will depend on many factors, including, but not limited to:
the progress and costs of its research and development activities;
the costs of development and expansion of its operational infrastructure and sales, marketing and distribution expenses;
the Company's ability, or that of its collaborators, to achieve development milestones and other events or developments under potential future licensing agreements;
the amount of revenue and contributions the Company receives under future licensing, collaboration, development and commercialization arrangements with respect to its technologies;
the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;
the costs of contracting with third parties to provide sales and marketing capabilities for the Company or establishing such capabilities itself, once its technologies are developed and ready for commercialization;
the costs of acquiring or undertaking development and commercialization efforts for any future products or technology;
the magnitude of the Company's general and administrative expenses; and
any additional costs that it may incur under future in- and out-licensing arrangements relating to its technologies and futures products.
Until the Company can generate significant recurring revenues, it expects to satisfy its future cash needs through capital raising or by out-licensing and/or co-developing applications of one or more of its product candidates. The Company cannot be certain that additional funding will be available to it on acceptable terms, if at all. If funds are not available on favorable terms, or at all, the Company may be required to delay, reduce the scope of or eliminate research or development efforts or plans for commercialization with respect to its technologies and make necessary changes to its operations to reduce the level of its expenditures in line with available resources. This may raise substantial doubts about its ability to continue as a going concern.
The Company is a development-stage pharmaceutical technology and sales and marketing company, and it is not possible for it to predict with any degree of accuracy the outcome of its research and development efforts. As such, it is not possible for it to predict with any degree of accuracy any significant trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on its net loss, liquidity or capital resources, or that would cause financial information to not necessarily be indicative of future operating results or financial condition. However, to the extent possible, certain trends, uncertainties, demands, commitments and events are described herein.
The Company anticipates raising additional funds in the future to support additional research and development costs and to have sufficient resources to support its operations, including the payment of current and non-current liabilities, as they become due.
Capital ExpendituresFor the nine-month period ended September 30, 2025, and three-month period ended September 30, 2025, the Company made capital expenditures of $0.01 million and $0.005 million, respectively. These capital expenditures mainly include expenditures related to medical equipment.
The table below shows a summary of its cash flows for the periods indicated:
Nine months period Ended
September 30
2025 2024
US dollars, in thousands USD
Net cash provided by (used in) operating
activities
1,076
(1,075)
Net cash used in investing activities
(10)
(11)
Net cash provided by financing activities
1,146
2,304
Effect of foreign exchange on cash
50
(46)
Net increase in cash
2,262
1,172
Net cash used in operating activities - continuing operations
Net cash provided by operating activities increased by $2,151,000 to $1,076,000 for the nine-month period ended September 30, 2025 compared to net cash used in operating activities
$1,075,000 for the nine-month period ended September 30, 2024. This increase in net cash from operating activities is mostly due to changes in fair value of warrants and convertible debenture and decrease in inventories.
Net cash used in financing activities
Net cash provided by financing activities decreased by $1,158,000 to $1,146,000 for the nine-month period ended September 30, 2025, compared to net cash provided by financing activities of $2,304,000 for the nine-month period ended September 30, 2024. This decrease is attributed to cash received in its private placement conducted in March 2025 and April 2025 compared to cash received in its private placements in March 2024 and August 2024.
TRANSACTIONS WITH RELATED PARTIES
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making operating and financial decisions. This would include the Company's senior management, who are considered to be key management personnel by the Company.
Parties are also related if they are subject to common control or significant influence. Related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.
The following table sets forth information concerning the total compensation paid to the named executive officers of the Company and any related corporate entity for the three-month period ended September 30, 2025, and September 30, 2024.
(US$ in thousands) Nine months period ended September 30,2025
2024
Management compensation
382
432
Share-based compensation
939
1,129
Services fees
-
14
The Company has transactions with key management personnel.
As of September 30, 2025 (US$ in thousands) As of December 31, 2024 (US$ in thousands)Balances owing to the CEO 56 57
Balances owing to the CFO 2 3
Balances owing to the COO 27 19
Warrants 434 77
Convertible Debenture to related party (*) 1,523 -
(*) On March 7, 2025, the Company closed a non-brokered private placement offering of a debenture unit to its largest shareholder for gross proceeds of $1,000,000 consisting of: (a) one secured convertible debenture in the principal amount of $1,000,000 and (b) 85,470 common share purchase warrants. The debenture matures two years from the date of issuance, will bear interest at the rate of 10% per annum and is convertible into Common Shares at a price of C$13.65 per Common Share. Each Warrant is exercisable into one Common Share a price of C$16.90 for a period of four years from the date of issuance.
FINANCIAL INSTRUMENTS AND FINANCIAL RISK EXPOSURES
Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to a variety of financial risks, which result from its financing, operating and investing activities. The objective of financial risk management is to contain, where appropriate, exposures in these financial risks to limit any negative impact on its financial performance and position. Its main financial instruments are its cash and other receivables, trade and other payables. The main purpose of these financial instruments is to raise finance for their operations. The Company actively measures, monitors and manages its financial risk exposures by various functions pursuant to the segregation of duties and principals. The risks arising from its
financial instruments are mainly credit risk and currency risk. The risk management policies employed by us to manage these risks are discussed below.
Liquidity RiskLiquidity risk is the risk that we will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled in cash. Cash flow forecasting is performed in its operating entities and aggregated at a consolidated level. The Company monitors forecasts of its liquidity requirements to ensure it has sufficient cash to meet operational needs. The Company may be reliant on its ability to raise additional investment capital from the issuance of both debt and equity securities to fund its business operating plans and future obligations.
Credit RiskFinancial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash. The Company limits its exposure to credit loss by placing its cash with high credit quality financial institutions. The carrying amount of financial assets represents the maximum credit exposure.
Credit risk is the risk of financial loss to us if a debtor or counterparty to a financial instrument fails to meet its contractual obligations and arises mainly from its receivables.
The Company restricts exposure to credit risk in the case of its operations by investing only in bank deposits.
Equity price riskAs the Company has not invested in securities riskier than short-term bank deposits, it does not believe that changes in equity prices pose a material risk to its holdings. However, decreases in the market price of its common shares could make it more difficult for it to raise additional funds in the future or require it to raise funds at terms unfavorable to it.
Inflation riskThe Company does not believe that inflation has had a material effect on its business, financial condition or results of operations in the reporting period. If its costs were to become subject to significant inflationary pressures, the Company may not be able to fully offset such higher costs through hedging transactions. Its inability or failure to do so could harm its business, financial condition and results of operations.
Foreign Currency Exchange RiskCurrency fluctuations could affect the Company through increased or decreased costs, mainly for goods and services acquired outside of Israel. Currency fluctuations did not have a material effect on its results of operations during the nine- and three-month period ended September 30, 2025, and 2024.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Critical Accounting Policies
The management discussion and analysis of its financial condition and results of operations is based on its consolidated financial statements, which have been prepared in accordance with IFRS. The preparation of these consolidated financial statements requires management to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures. Its estimates are based on its historical experience and on various other factors that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sites. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.
While its significant accounting policies are more fully described in Note 2 to the audited consolidated financial statements for the year ended December 31, 2024, management believes the following discussion addresses its most critical accounting policies, which are those that are most important to the financial condition and results of operations and require its most difficult, subjective and complex judgments.
Significant EstimatesShare-based Compensation
Fair values are determined using the Black-Scholes option pricing model.
Estimating fair value requires determining the most appropriate valuation model for a grant of equity instruments, which is dependent on the terms and conditions of the grant. Option-pricing models require the use of highly subjective estimates and assumptions including the expected stock price volatility. Changes in the underlying assumptions can materially affect the fair value estimates and, therefore, existing models do not necessarily provide reliable measurement of the fair value of the Company's stock options.
The Company has a share-based plan for its employees and service providers. The estimated fair value of share options is determined using the Black Scholes Merton model. Inputs to the model are subject to various estimates related to volatility, interest rates, dividend yields and expected life of the stock options issued. Fair value inputs are subject to market factors, as well as internal estimates.
Fair value valuation of warrants
The Company measures the fair value of the warrants using the Black-Scholes model. Inputs to the model are subject to various estimates related to volatility, interest rates, dividend yields and expected life of the warrants.
Significant JudgmentsThe critical judgments that the Company's management has made in the process of applying the Company's accounting policies that have the most significant effect on the amounts recognized in the Company's consolidated financial statements are as follows:
Going Concern
The application of the going concern assumption which requires management to take into account all available information about the future, which is at least but not limited to, 12 months from the year end of the reporting period. The Company is aware that material uncertainties related to events or conditions may cast significant doubt upon the Company's ability to continue as a going concern.
OTHER INFORMATION
The following details the Common Shares and warrants outstanding as of the date of this MD&A:
Common Shares - As of November 26, 2025, 4,498,772 Common Shares were issued and outstanding.
Share Purchase Warrants
Investors
Number Of Warrants
Exercise Price
Exercisable at September 30,
2025
Expiry Date
October 2021 Common Warrants
148,908
C71.50
148,908
October 13, 2026(1)
February 2023 Warrants (Class B)
15,246
C28.60
64,690
February 16, 2026(2)
August 2023 Warrants (Class
A)
64,690
C18.85
64,690
August 3, 2026(3)
August 2023 Warrants (Class B)
64,690
C26.00
1,748
August 3, 2028(4)
First Tranche October 2023 Broker Warrants
1,748
C19.50
21,849
October 12, 2026 (5)
First Tranche October 2023
Warrants
21,849
C23.40
2,360
October 12, 2026 (6)
Second Tranche October 2023 Broker Warrants
2,360
C19.50
1,885
October 20, 2026 (7)
October 2023 Broker Units
1,885
C23.40
61,622
October 20, 2026 (8)
Second Tranche October 2023 Warrants
61,622
C23.40
122,351
October 20, 2026 (9)
March 2024 Warrants
122,351
C20.80
77,319
March 14, 2028 (10)
August 2024 Warrants
77,319
C20.80
48,880
August 29, 2028 (11)
December 2024 Warrants
48,880
C18.20
1,038
December 31, 2028 (12)
December 2024 Finders
1,038
C18.20
85,470
December 31, 2028 (13)
Warrants
March 2025 Warrants
85,470
C16.90
18,362
March 7, 2029 (14)
April 2025 Warrants
18,362
C16.25
148,908
April 15, 2029 (15)
Notes:
Each October 2021 Common Warrant entitles the holder thereof to acquire one Common Share at an exercise price of C$71.50 for a period of 60 months following October 13, 2021.
Each February 2023 Warrant (Class B) entitles the holder thereof to acquire one Common Share at an exercise price of C$28.60 for a period of three years from February 16, 2023.
Each August 2023 Warrant (Class A) entitles the holder thereof to acquire one Common Share at an exercise price of C$18.85 for a period of three years from August 3, 2023.
Each August 2023 Warrant (Class B) entitles the holder thereof to acquire one Common Share at an exercise price of C$26.00 for a period of five years from August 3, 2023.
Each First Tranche October 2023 Broker Warrant consists of one broker unit share and one broker unit warrant. Each broker unit warrant will entitle the holder thereof to purchase one broker unit warrant share at a price of C$19.50 for a period of three years from October 12, 2023.
Each First Tranche October 2023 Warrant entitles the holder thereof to acquire one Common Share at an exercise price of C$23.40 for a period of three years from October 12, 2023.
Each Second Tranche October 2023 Broker Warrant consists of one broker unit share and one broker unit warrant. Each broker unit warrant will entitle the holder thereof to purchase one broker unit warrant share at a price of C$19.50 for a period of three years from October 20, 2023.
Each October 2023 Broker Unit is comprised of one Common Share and one Common Share purchase warrant. Each warrant shall entitle the holder thereof to purchase one Common Share at an exercise price of C$23.40 for a period of 36 months from the date of the closing of the Second Tranche, October 20, 2023
Each Second Tranche October 2023 Warrant entitles the holder thereof to acquire one Common Share at an exercise price of C$23.40 for a period of three years from October 20, 2023.
Each March 2024 Warrant will entitle the holder thereof to purchase one Common Share at an exercise price of C$20.80 for a period of four years from the date of issuance.
Each August 2024 Warrant will entitle the holder thereof to purchase one Common Share at an exercise price of C$20.80 for a period of four years from the date of issuance.
Each December 2024 Warrant will entitle the holder thereof to purchase one Common Share at an exercise price of C$18.20 for a period of four years from the date of issuance, December 31, 2024.
Each December 2024 Finders Warrant will entitle the holder thereof to purchase one Common Share at an exercise price of C$18.20 for a period of four years from the date of issuance, December 31, 2024.
Each March 2025 Warrant will entitle the holder thereof to purchase one Common Share at an exercise price of C$16.90 for a period of four years from the date of issuance, March 7, 2025.
Each April 2025 Warrant will entitle the holder thereof to purchase one Common Share at an exercise price of C$16.25 for a period of four years from the date of issuance, April 15, 2025.
Incentive Stock Options
The Company has adopted a stock option plan (the "Plan"), which is intended to provide an incentive to retain persons of training, experience, and ability, to attract new employees, officers, directors, consultants and service providers, to encourage the sense of proprietorship of such persons, and to stimulate the active interest of such persons in the development and financial success of the Company by providing them with opportunities to purchase Common Shares pursuant to the Plan.
On July 2, 2025, the Company granted an aggregate of 30,000 options to consultants of the Company. Each of the options is exercisable for one Common Share. All options vested immediately upon grant.
During the three-month period ended September 30, 2025, the Company recorded an expense in the amount of US$258,000 (US$89,000 for the three-month period ended September 30, 2024) with respect to the issuance of stock options under the Plan.
Restricted Stock Units
On March 14, 2024, the Company granted an aggregate of 109,854 restricted share units (each, an "RSU") to directors and officers of the Company. Each RSU entitles the recipient to receive one Common Share upon vesting. A total of 75,666 RSUs vested on March 14, 2024, and 34,188 RSUs vested as follows: (i) one-third on March 14, 2024; (ii) one-third on September 14, 2024; and (iii) one-third on March 14, 2025. The RSUs and the underlying Common Shares are subject to a statutory hold period of four months and one day expiring on July 15, 2024.
On May 30, 2024, the Company granted an aggregate of 2,154 RSUs to a consultant of the Company. Each RSU entitles the recipient to receive one Common Share upon vesting. A total of 2,154 RSUs vested on September 30, 2024.
On July 2, 2025, the Company granted an aggregate of 354,615 RSUs to directors and officers of
the Company. Each RSU entitles the recipient to receive one Common Share upon vesting. These RSUs have not vested yet.
During the three-month period ended September 30, 2025, the Company recorded an expense in the amount of US$1,337,000 (US$132,000 for the three-month period ended September 30, 2024) with respect to the issuance of RSUs under the Plan.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements.
RISKS AND UNCERTAINTIES
Risks Related to our Business and Industry
Going ConcernSince inception, the Company has generated revenues, despite that, Innocan expects to continue to finance itself through raising adequate funds in the foreseeable future. During the three-month period ended September 30, 2025, Innocan incurred a net loss of US$1,652,000 and generated US$38,027,000 of accumulated deficit since inception. These material uncertainties may cast significant doubt upon Innocan's ability to continue as a going concern. In assessing whether the going concern assumption was appropriate, management took into account all relevant information available about the future, which was at least, but not limited to, the twelve months period following September 30, 2025.
Innocan is currently implementing various financing strategies, including the following:
Innocan is actively monitoring cash forecasts and managing performance against its forecasts.
Innocan has identified various cost-reduction initiatives.
Innocan has a plan in place to issue additional shares under a non-brokered private placement to raise additional proceeds.
Innocan believes that based on the financial strength of its existing shareholder base, and previous success in raising capital, any shortfall in its operating plan may be met through one or more of the above strategies.
Regulatory RisksSuccessful execution of the Company's strategy is contingent, in part, upon compliance with regulatory requirements enacted by governmental authorities and obtaining all regulatory approvals, where necessary, for the sale of its products, including maintaining and renewing its licenses. The impact of regulations in the jurisdictions where the Company is looking to operate or sell its products, such as the compliance regimes under the FDA, European Medicines Agency, and Health Canada, any delays in obtaining, or failure to obtain regulatory approvals may significantly delay or impact the development of markets, products and sales initiatives and could have a material
adverse effect on the business, financial condition and operating results of the Company.
The Company will incur ongoing costs and obligations related to regulatory compliance. Failure to comply with regulations may result in additional costs for corrective measures, penalties or in restrictions on the Company's operations. In addition, changes in regulations, more vigorous enforcement thereof or other unanticipated events could require extensive changes to the Company's operations, increased compliance costs or give rise to material liabilities, which could have a material adverse effect on the business, financial condition and operating results of the Company.
Change in laws, regulations and guidelinesThe Company's operations are subject to various laws, regulations and guidelines relating to the manufacture, management, packaging/labelling, advertising, sale, transportation, storage and disposal of pharmaceutical products but also including laws and regulations relating to drug, controlled substances, health and safety, the conduct of operations and the protection of the environment at the territories the Company is looking to be active. While to the knowledge of management, other than routine corrections that may be required by health authorities in the U.S., Canada and European Union from time to time, the Company is currently in compliance with all such laws. Changes to such laws, regulations and guidelines due to matters beyond the control of the Company may cause adverse effects to its operations.
The Company endeavors to comply with all relevant laws, regulations and guidelines in the countries that the Company is looking to be active in. To the Company's knowledge, it is complying or is in the process of being assessed for compliance with all such laws, regulations and guidelines as described elsewhere in this MD&A.
Changes in and uncertainty surrounding U.S. trade policy could have a material adverse impact on our business, financial condition and results of operationsThe Trump Administration has recently imposed a series of tariffs on U.S. trading partners. On April 2, 2025, the President issued an Executive Order announcing a "baseline" reciprocal tariff of 10% on all U.S. trading partners effective April 5, 2025, and higher individualized reciprocal tariffs on 57 countries (with certain product exemptions for pharmaceutical-related products, among others). Previously, the administration had imposed tariffs equaling 20% on China. Prior to when the country-specific reciprocal tariffs were scheduled to take effect, the administration delayed the effective date of such tariffs for all countries except China.
The tariff war continues to have side effects. Retailers are struggling with long-term planning. While the Company's first quarter of 2025 sales were not materially affected by these developments, its second and third quarters' sales were negatively affected by negative consumer sentiment and economic uncertainty in the Company's market. If substantial tariffs remain in place, the Company may begin to see the effect of higher duties on restocking later this year. The likely short-term impact of the tariffs is difficult to predict with any certainty, however. The Company is actively evaluating its options and the impact of trade policy changes on future quarters remains uncertain.
Reliance on Key ContractsThe Company is reliant on certain key commercial agreements, including the Yissum research and license agreement, in order to continue operations. These agreements may include options for termination by the other parties if the Company fails to meet certain development milestones, does not commercialize the products within a reasonable timeframe, or fails to file and maintain patents in certain jurisdictions. The loss of any of these key commercial agreements could materially adversely affect the Company's ability to execute its business plan and strategy, and it may not be able to find adequate replacements on a timely basis, or at all.
Medical research of phytocannabinoidsResearch in Canada, the U.S. and internationally regarding the medical benefits, viability, safety, efficacy and dosing of cannabis or isolated phytocannabinoids remains in their early stages. There have been relatively few clinical trials on the benefits of cannabis or isolated phytocannabinoids. The statements made in this MD&A concerning the potential medical benefits of cannabinoids are based on published articles and reports with details of research studies and clinical trials, including those shown in the list of third-party studies summarized in the Company's public disclosure. . As a result, the statements made in this MD&A are subject to the experimental parameters, qualifications and limitations in the studies that have been completed.
We rely on management and need additional key personnel to grow our business, and the loss of key employees or inability to hire key personnel could harm our business.We believe our success has depended, and continues to depend, on the efforts and talents of our management team and employees. Our future success depends on our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees. Qualified individuals are in high demand, and we may incur significant costs to attract and retain them. In addition, the loss of any of our senior management or key employees could materially adversely affect our ability to execute our business plan and strategy, and we may not be able to find adequate replacements on a timely basis, or at all. We do not maintain key person life insurance policies on any of our employees.
Factors which may prevent realization of growth targetsThe Company is currently in the expansion stage from early development stage. There is a risk that expansion and development will not be achieved on time, on budget, or at all, as they can be adversely affected by a variety of factors, including some that are discussed elsewhere in these Risks and Uncertainties and the following:
failure or delays in obtaining, or conditions imposed by, regulatory approvals;
environmental pollution; non-performance by third party contractors; increases in materials or labour costs; construction performance falling below expected levels of output or efficiency;
breakdown, aging or failure of equipment or processes;
contractor or operator errors;
operational inefficiencies;
labour disputes, disruptions or declines in productivity; inability to attract sufficient numbers of qualified workers; disruption in the supply of energy and utilities; and
major incidents and/or catastrophic events such as fires, explosions, or storms.
As a result, there is a risk that the Company may not have product or sufficient product available to meet the anticipated demand or to meet future demand when it arises.
Additional financingThere is no guarantee that the Company will be able to execute its strategy. The continued development of the Company may require additional financing. The failure to raise such capital could result in the delay or indefinite postponement of the current business strategy or the Company ceasing to carry on business. There can be no assurance that additional capital or other types of financing will be available if needed or that, if available, the terms of such financing will be favorable to the Company. If additional funds are raised through issuances of equity or convertible debt securities, existing shareholders could suffer significant dilution, and any new equity securities issued could have rights, preferences and privileges superior to those of holders of Common Shares. In addition, from time to time, the Company may enter into transactions to acquire assets or the shares of other companies. These transactions may be financed wholly or partially with debt, which may temporarily increase the Company's debt levels above industry standards. Any debt financing secured in the future could involve restrictive covenants relating to capital raising activities and other financial and operational matters, which may make it more difficult for the Company to obtain additional capital and to pursue business opportunities, including potential acquisitions. Debt financings may contain provisions, which, if breached, may entitle lenders to accelerate repayment of loans and there is no assurance that the Company would be able to repay such loans in such an event or prevent the enforcement of security granted pursuant to such debt financing. The Company may require additional financing to fund its operations to the point where it is generating positive cash flow. Negative cash flow may restrict the Company's ability to pursue its business objectives.
CompetitionThere is potential that the Company will face intense competition from other companies, some of which can be expected to have more financial resources and manufacturing and marketing experience than the Company. Increased competition by larger and better financed competitors could materially and adversely affect the business, financial condition and results of operations of the Company.
Research and development and product obsolescenceRapidly changing markets, technology, emerging industry standards and frequent introduction of new products characterize the Company's business. The introduction of new products embodying new technologies, including new manufacturing processes, and the emergence of new industry standards may render the Company's products obsolete, less competitive or less marketable. The process of developing the Company's products is complex and requires significant continuing costs, development efforts and third party commitments The Company's failure to develop new technologies and products and the obsolescence of existing technologies could adversely affect the business, financial condition and operating results of the Company. The Company may be unable to anticipate changes in its potential customer requirements that could make the Company's existing technology obsolete. The Company's success will depend, in part, on its ability to continue to enhance its existing technologies, develop new technology that addresses the increasing
sophistication and varied needs of the market, and respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis. The development of the Company's proprietary technology entails significant technical and business risks. The Company may not be successful in using its new technologies or exploiting its niche markets effectively or adapting its businesses to evolving customer or medical requirements or preferences or emerging industry standards.
Transportation risksDue to the perishable and premium nature of the Company's products, the Company will depend on fast and efficient third party transportation services to distribute its products. Any prolonged disruption of third-party transportation services could have an adverse effect on the financial condition and results of operations of the Company. Rising costs associated with the third party transportation services used by the Company to ship its products may also adversely impact the business of the Company and its ability to operate profitably.
Due to the nature of the Company's products, security of the product during transportation to and from the Company's facilities is of the utmost concern. A breach of security during transport or delivery could have a material and adverse effect on the business, financial condition and operating results of the Company. Any breach of the security measures during transport or delivery, including any failure to comply with recommendations or requirements of Health Canada, could also have an impact on the Company's ability to continue operating under its licenses or the prospect of renewing its licenses.
We may be subject to unfavourable publicity or consumer perceptionThe Company believes the medical cannabis industry is highly dependent upon consumer perception regarding the safety, efficacy and quality of the medical cannabis produced. Consumer perception of the Company's products can be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention and other publicity regarding the consumption of medical cannabis products. There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention or other research findings or publicity will be favourable to the medical cannabis market or any particular product, or consistent with earlier publicity. Future research reports, findings, regulatory proceedings, litigation, media attention or other publicity that are perceived as less favourable than, or that question, earlier research reports, findings or publicity could have a material adverse effect on the demand for the Company's products and the business, results of operations, financial condition and cash flows of the Company. The Company's dependence upon consumer perceptions means that adverse scientific research reports, findings, regulatory proceedings, litigation, media attention or other publicity, whether or not accurate or with merit, could have a material adverse effect on the Company, the demand for the Company's products, and the business, results of operations, financial condition and cash flows of the Company. Further, adverse publicity reports or other media attention regarding the safety, efficacy and quality of medical cannabis in general, or the Company's products specifically, or associating the consumption of medical cannabis with illness or other negative effects or events, could have such a material adverse effect. Such adverse publicity reports or other media attention could arise even if the adverse effects associated with such products resulted from consumers' failure to consume such products legally, appropriately or as directed.