Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q (this "Quarterly Report"). This Quarterly Report contains forward-looking statements. This discussion and analysis contain forward looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the "Risk Factors" section in our Annual Report on Form 10-K, as filed with the SEC on September 29, 2025 (the "2025 Annual Report"). We caution the reader not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date of this Quarterly Report. We undertake no obligation to update forward-looking statements, which reflect events or circumstances occurring after the date of this Quarterly Report.

Our accounting policies under U.S. GAAP are referred to in Note 2 of the unaudited condensed consolidated financial statements in this Quarterly Report. All amounts are in United States dollars, unless otherwise indicated.

Overview

We are a clinical-stage biopharmaceutical development company dedicated to developing innovative medicines for patients living with serious chronic diseases and significant unmet needs. Our lead drug candidates, which are currently in Phase 2/3 and Phase 2 clinical developments, include IHL-42X for the treatment of OSA; PSX-001, our psilocybin treatment in combination with psychological therapy in development to treat patients with GAD; and IHL-675A for rheumatoid arthritis. Each of these programs target conditions that currently have limited, inadequate, or no approved pharmaceutical treatment options.

Results of Operations

Comparison of the Three Months Ended September 30, 2025 and 2024

The following tables summarize our results of operations for the periods presented (in thousands):

		For the Three Months Ended September 30
		2025				2024				$ Change				% Change
Revenue from customers		$	-			$	74			$	(74	)			(100	)%
Operating expenses:
Research and development			(1,120	)			(2,896	)			1,776				(61	)%
General and administrative			(5,674	)			(3,432	)			(2,242	)			65	%
Total operating expenses			(6,794	)			(6,328	)			466				7	%
Loss from operations			(6,794	)			(6,254	)			(540	)			9	%
Other income / (expense):
R&D tax incentive			389				811				(422	)			(52	)%
Foreign exchange gains (losses)			(13	)			(5	)			(8	)			160	%
Interest income			5				28				(23	)			(82	)%
Share of earnings(loss) of joint venture			6				-				6				100	%
Total other income / (expenses), net			387				834				(447	)			(54	)%
Currency translation adjustment, net of tax			223				339				(116	)			(34	)%
Comprehensive loss		$	(6,184	)		$	(5,081	)		$	(1,103	)			22	%

Revenue from Customers

We have not generated revenue for the three months end September 30, 2025 and we do not expect to generate material revenues unless and until our drug candidates are approved.

Operating Expenses

Research and development

Research and development expenses consist primarily of external and internal costs incurred in performing clinical and preclinical development activities.

Our R&D expenses include:

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external costs incurred under agreements with CROs, contract manufacturers, consultants and other third parties to conduct and support our clinical trials and preclinical studies; and

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internal costs, including R&D personnel-related expenses such as salaries, and benefits, as well as allocated facilities costs and dues and subscriptions.

We expense research and development costs as incurred.

Research and development expenses decreased by $1.8 million for the three months ended September 30, 2025 compared to the three months ended September 30, 2024. The decrease was primarily due to the completion of the IHL-42X safety and pharmacokinetics clinical trial and the pausing of patient recruitment in the Australian Phase 2 clinical trial for IHL-675A in rheumatoid arthritis. This decision was made to reallocate resources for the IHL675A program and focus on expanding research efforts in the United States, where an expedited regulatory pathway may be available. We have since resumed development activities for this candidate. The primary R&D expense for the period was the Phase 2/3 RePOSA clinical trial investigating IHL-42X in patients with OSA.

We generally expect research and development costs to increase as we progress our candidates through clinical trials. Although research and development activities are central to our business model, the successful development of our drug candidates is highly uncertain. There are numerous factors associated with the successful development of our drug candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. In addition, future regulatory factors beyond our control may impact our clinical development programs. Drug candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later stage clinical trials. As a result, we expect our research and development expenses will increase substantially in connection with our ongoing and planned clinical and preclinical development activities in the near term and in the future to the extent our development activities are successful. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of our drug candidates. Our research and development expenses have varied, and our future research and development expenses may vary, significantly based on a wide variety of factors such as:

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the number and scope, rate of progress, expense and results of our clinical trials and preclinical studies, including any modifications to clinical development plans based on feedback that we may receive from regulatory authorities;

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per patient trial costs;

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the number of trials required for approval;

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the number of sites included in the trials;

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the countries in which the trials are conducted;

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the length of time required to enroll eligible patients;

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the number of patients that participate in the trials;

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the number of doses that patients receive;

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the drop-out or discontinuation rates of patients;

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the potential additional safety monitoring requested by regulatory agencies;

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the duration of patient participation in the trials and follow-up;

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the cost and timing of manufacturing of our drug candidates;

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the costs, if any, of obtaining third-party drugs for use in our combination trials;

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the extent of changes in government regulation and regulatory guidance;

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the efficacy and safety profile of our drug candidates;

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the timing, receipt, and terms of any approvals from applicable regulatory authorities; and

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the extent to which we establish additional collaboration, license, or other arrangements.

A change in the outcome of any of these variables with respect to the development of our drug candidates could significantly change the costs and timing associated with the development of that drug candidate. We may never succeed in obtaining regulatory approval for any drug candidate.

General and Administrative

General and administrative expenses consist primarily of personnel-related expenses finance and accounting, human resources and other administrative functions, including salaries, stock-based compensation and benefits for employees, legal fees, expenses relating to patent and corporate matters and professional fees paid for accounting, auditing, consulting and tax services, as well as facilities-related costs not otherwise included in research and development expenses and other costs such as insurance costs and travel expenses.

General and administrative expenses increased by $2.2 million for the three months ended September 30, 2025, compared to the three months ended September 30, 2024. The increase was primarily attributable to increases in executive and director compensation, additional consulting charges including recurring monthly fees from advisory firms, and the recognition of amortized share-based payment expenses in the current quarter.

We anticipate our general and administrative expenses will increase substantially in the future as we expand our operations, including increasing our headcount to support our continued research and development activities and preparing for potential commercialization of our drug candidates. We also anticipate we will incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance, and investor and public relations expenses associated with operating as a U.S. public company.

Other Income (Expense)

Benefit from R&D tax credit

We receive tax incentives from the Australian government for research and development activities. Subject to certain exclusions, the Australian Government tax incentives provide benefits for eligible research and development activities. Entities are entitled to either (i) a 48.5% refundable tax offset for eligible companies with an aggregated turnover of less than A$20 million per annum or (ii) a non-refundable 38.5% tax offset for all other eligible companies. Our aggregated turnover is less than A$20 million and we are not controlled by one or more income tax exempt entities, we anticipate being entitled to a claim of 48.5% refundable tax offset for costs relating to eligible research and development activities during the year.

Benefit from R&D tax incentive decreased by $0.4 million for the three months ended September 30, 2025 compared to the three months ended September 30, 2024. The decrease in the R&D tax incentive receivable for the three months ended September 30, 2025, was primarily due to a lower estimate based on historical experience of claims.

Foreign exchange losses and Interest Income

Foreign exchange losses increased by $8,000 for the three months ended September 30, 2025, compared to the three months ended September 30, 2024, due to favourable currency exchange rates. Interest income decreased over the same period, reflecting lower interest received from cash deposits.

Share of earnings (loss) of joint venture

Share of earnings (loss) of joint venture increased by $6,000 for the three months ended September 30, 2025, compared to the three months ended September 30, 2024, due to the investment in Mind Clinics Australia

Currency translation adjustment, net of tax

Currency translation adjustment, net of tax, decreased by $116,000 for the three months ended September 30, 2025, compared to the three months ended September 30, 2024. The decrease was due to the depreciation of the Australian dollar against the U.S. dollar. We maintain our consolidated financial statements in Australian dollars, our functional currency, while our financial statements are translated into U.S. dollars for reporting purposes.

Liquidity and Capital Resources

Sources of Liquidity

We have incurred net losses since inception and expect to incur substantial and increasing losses in the future as we expand our R&D activities in an effort to move our drug candidates into later stages of development. Historically, we have funded our operations primarily through the sale of equity securities, proceeds from the exercise of options, tax grants from R&D activities and interest income.

We incurred total comprehensive losses of $6.2 million and $5.1 million for the three months ended September 30, 2025 and three months ended September 30, 2024, respectively. We incurred net losses of $6.4 million and $5.4 million for the three months ended September 30, 2025 and three months ended September 30, 2024, respectively. As of September 30, 2025, we had accumulated deficit of $164.0 million.

As of September 30, 2025, we had cash and cash equivalents of $73.3 million. Although we expect our negative cash flows from operating activities to continue, we believe our current cash balances, together with anticipated cash flows and available financing arrangements, provide sufficient resources to meet our obligations and sustain operations for at least one year from the issuance date of the financial statements included in this Quarterly Report.

For the three months ended September 30, 2025, we experienced net cash used in operating activities of $9.2 million, an increase of $7.0 million compared to the three months ended September 30, 2024. As of September 30, 2025, we had cash and cash equivalents of $73.3 million, an increase of $58.3 million compared to our cash and cash equivalents as of June 30, 2025 of $15.0 million. As of September 30, 2025, our current assets exceed our current liabilities by $76.6 million, a $63.7 million increase compared to the difference between our current assets and current liabilities as of June 30, 2025 of $13.0 million.

On October 22, 2025, the Company repurchased 1,480,000 shares of its common stock at a price of $0.41 per share, for a total cost of $600,000. This repurchase reduced the number of outstanding shares to 346,225,507 from 347,705,507. The Company will continue to assess market conditions and may deploy the buyback program at its discretion as appropriate.

Going Concern

Refer to Note 2 - Basis of Presentation and Summary of Significant Accounting Policies - Going Concern Basis

Off-Balance Sheet Arrangements

We did not have, during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Cash Flows

Comparison of cash flows for the three months ended September 30, 2025 and three months ended September 30, 2024

The following table summarizes our cash flows for the periods presented (in thousands):

		For the Three Months Ended September 30, 2025				For the Three Months Ended September 30, 2024
Net cash used in operating activities		$	(9,163	)		$	(2,245	)
Net cash used in investing activities			(42	)			-
Net cash provided by financing activities			67,177				-
Net (decrease)/increase in cash		$	57,972			$	(2,245	)

Net cash flows from operating activities

Cash used in operating activities increased by $6.9 million for the three months ended September 30, 2025, compared to the three months ended September 30, 2024. The increase due to an increase in trade and other payables.

Net cash flows from investing activities

Cash used in investing activities increased by $42,000 for the three months ended September 30, 2025 compared to the three months ended September 30, 2024. The increase was due to our investment in Mind Medicine Australia.

Cash flows from financing activities

Cash provided in financing activities increased by $67.2 million for the three months ended September 30, 2025 and the three months ended September 30, 2024. The increase was due to share issuances under our ATM.

Critical Accounting Policies and Estimates

Our management's discussion and analysis of our financial condition and results of operations is based on our unaudited interim condensed consolidated financial statements as of September 30, 2025, which have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). The preparation of these unaudited interim condensed consolidated financial statements requires our management to make judgments and estimates that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities during the reporting periods. We base our estimates on historical experience, known trends and events, and various other factors we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements described in the Company's Annual Report on Form 10-K, we believe the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

Stock Based Compensation

We account for stock-based compensation arrangements with employees and non-employees using a fair value method which requires the recognition of compensation expense for costs related to all stock-based payments including share options. The fair value method requires us to estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model. We use either the trinomial pricing or Black-Scholes option-pricing model to estimate the fair value of options granted. Stock-based compensation awards are expensed using the graded vesting method over the requisite service period, which is generally the vesting period, for each separately vesting tranche. We have elected a policy of estimating forfeitures at grant date. Option valuation models, including the trinomial pricing and Black-Scholes option-pricing model, require the input of several assumptions. These inputs are subjective and generally require significant analysis and judgment to develop.

Research and development Costs

Research and development costs are expensed as incurred. Research and development costs consist of salaries, benefits and other personnel related costs including equity-based compensation expense, laboratory supplies, preclinical studies, clinical trials and related clinical manufacturing costs, costs related to manufacturing preparations, fees paid to other entities to conduct certain research and development activities on our behalf and allocated facility and other related costs.

Nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized as prepaid expenses until the related goods are delivered or services are performed.

We record accrued liabilities for estimated costs of research and development activities conducted by third-party service providers, which include the conduct of preclinical studies and clinical trials, and contract manufacturing activities. We record the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced and includes these costs in trade and other payables on the consolidated balance sheets and within research and development expenses on the consolidated statements of operations and comprehensive loss.

We accrue for these costs based on factors such as estimates of the work completed and in accordance with agreements established with its third-party service providers. We make significant judgments and estimates in determining the accrued liabilities balance at the end of each reporting period. As actual costs become known, we adjust our accrued liabilities. We have not experienced any material differences between accrued costs and actual costs incurred.

Benefit from R&D Tax Incentive

Benefit from R&D tax credit consists of the R&D tax credit received in Australia, which is recorded within other income (expense), net. The Company recognizes grants once both of the following conditions are met: (i) the Company is able to comply with the relevant conditions of the grant and (ii) the grant is received.