UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2025

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM___________ TO__________

Commission File Number 001-41106

Incannex Healthcare Inc.

(Exact name of Registrant as specified in its Charter)

Delaware		93-2403210
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Rialto South Tower Level 23, 525 Collins Street Melbourne VIC 3008 Australia		Not applicable
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: +61 409 840 786

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0.0001 par value per share		IXHL		The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of February 13, 2026, the registrant had 358,329,368 shares of common stock outstanding.

Table of Contents

		Page
PART I—FINANCIAL INFORMATION		1

Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss	2
	Condensed Consolidated Statements of Stockholders’ Equity (Deficit)	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Controls and Procedures	21

PART II—OTHER INFORMATION		23

Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.	Defaults Upon Senior Securities	23
Item 4.	Mine Safety Disclosures	23
Item 5.	Other Information	23
Item 6.	Exhibits	24
SIGNATURES		25

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, adopted pursuant to the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

●

our ability to implement our product development and business strategies, including our ability to continue to pursue development pathways and regulatory strategies for IHL-42X, PSX-001, and IHL-675A and any of our other drug candidates;

●

estimates regarding market size and related future growth rates;

●

our research and development (“R&D”) activities, including clinical testing and manufacturing and the related costs and timing;

●

the possibility that we may be required to conduct additional clinical studies or trials for our drug candidates and the consequences resulting from the delay in obtaining necessary regulatory approvals;

●

the timing, scope or likelihood of regulatory filings and approvals and our ability to obtain and maintain regulatory approvals for our drug candidates for any indication;

●

the pricing, coverage and reimbursement of our drug candidates, if approved and commercialized;

●

the rate and degree of market acceptance and clinical utility of our drug candidates;

●

our ability to compete with other drugs or therapies currently marketed or in development for our target indications;

●

our expectations around feedback from and discussions with regulators, regulatory development paths and with respect to Controlled Substances Act designation;

●

our ability to obtain or maintain effective patent rights and other intellectual property protection for our drug candidates, and to prevent competitors from using technologies we consider important to the successful development and commercialization of our drug candidates;

●

our estimates regarding expenses, revenues, financial performance and capital requirements, including the length of time our capital resources will sustain our operations;

●

our ability to commercialize drug candidates and to generate revenues;

●

our financial condition, including our ability to obtain the funding necessary to advance the development of our drug candidates;

●

our ability to comply with the provisions and requirements of our debt arrangements and to pay amounts owed, including any amounts that may be accelerated;

●

our ability to retain and attract qualified employees, directors, consultants and advisors;

●

our ability to continue to comply with applicable privacy laws and protect confidential information from security breaches;

●

how recent and potential future changes in healthcare policy could negatively impact our business and financial condition;

●

the extent to which global economic and political developments, including existing regional conflicts, pandemics, natural disasters, and the indirect and/or long-term impact of inflation, will affect our business operations, clinical trials, or financial condition; and

●

any statement of assumptions underlying any of the foregoing.

These risks are not exhaustive. Other sections of this Quarterly Report may include additional factors that could harm our business and financial performance.

You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” previously disclosed in Item 1A in our Annual Report on Form 10-K, as filed with the SEC on September 29, 2025 (the “2025 Annual Report”). Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report and, while we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

The forward-looking statements made in this Quarterly Report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report to reflect events or circumstances after the date of this Quarterly Report or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.

We may announce material business and financial information to our investors using our investor relations website (https://www.incannex.com/investors/). We therefore encourage investors and others interested in our company to review the information that we make available on our website. Our website and information included in or linked to our website are not part of this Quarterly Report.

iii

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

INCANNEX HEALTHCARE INC.

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands, except share and per share amounts)

(expressed in U.S. Dollars, unless otherwise stated)

	December 31, 2025			June 30, 2025
Assets
Current assets:
Cash and cash equivalents	$	68,900		$	15,039
Restricted cash		293			-
Prepaid expenses and other assets		431			791
Research and development (“R&D”) tax incentive receivable		5,054			4,132
Total current assets		74,678			19,962
Property, plant and equipment, net		108			227
Investment in joint venture		57			-
Operating lease right-of-use assets		163			258
Total assets	$	75,006		$	20,447
Liabilities and stockholders’ equity
Current liabilities:
Trade and other payables	$	1,256		$	6,104
Accrued expenses and other current liabilities		181			696
Operating lease liabilities, current		110			184
Total current liabilities		1,547			6,984
Operating lease liabilities, non-current		53			74
Total liabilities		1,600			7,058
Commitments and contingencies (Note 8)
Stockholders’ equity:
Common stock, $0.0001 par value – 800,000,000 shares authorized; 359,218,871 and 194,379,996 shares issued and outstanding at December 31, 2025 and June 30, 2025, respectively		36			20
Preferred stock, $0.0001 par value per share, 10,000,000 shares authorized; no shares issued or outstanding at December 31, 2025 and June 30, 2025, respectively		-			-
Additional paid-in capital		247,042			174,049
Accumulated deficit		(170,484	)		(157,556	)
Foreign currency translation reserve		(3,188	)		(3,124	)
Total stockholders’ equity		73,406			13,389
Total liabilities and stockholders’ equity	$	75,006		$	20,447

The accompanying notes are an integral part of these condensed consolidated financial statements.

INCANNEX HEALTHCARE INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

(in thousands, except share and per share amounts)

(expressed in U.S. Dollars, unless otherwise stated)

	For the three months ended December 31,						For six months ended December 31,
	2025			2024			2025			2024
Revenue from customers		-			12			-			86
Operating expenses:
Research and development		(2,280	)		(1,414	)		(3,401	)		(4,310	)
General and administrative		(4,715	)		(3,602	)		(10,388	)		(7,034	)
Total operating expenses		(6,995	)		(5,016	)		(13,789	)		(11,344	)
Loss from operations		(6,995	)		(5,004	)		(13,789	)		(11,258	)
Other income, net:
R&D tax incentive		482			956			871			1,767
Foreign exchange gains/(losses)		(24	)		(326	)		(37	)		(331	)
Interest expense		-			(171	)		-			(171	)
Interest income		5			28			10			57
Change in fair value of convertible rights		-			(179	)		-			(179	)
Change in fair value of warrant liabilities		-			(103	)		-			(103	)
ELOC commitment fee		-			(1,095	)		-			(1,095	)
Share of earnings (loss) of joint venture		11			-			17			-
Total other income, net		474			(890	)		861			(55	)
Loss before income tax expense		(6,521	)		(5,894	)		(12,928	)		(11,313	)
Net loss	$	(6,521	)	$	(5,894	)	$	(12,928	)	$	(11,313	)
Other comprehensive income/(loss):
Currency translation adjustment, net of tax		(287	)		(414	)		(64	)		(75	)
Total comprehensive loss	$	(6,808	)	$	(6,308	)	$	(12,992	)	$	(11,388	)
Net loss per share: Basic and diluted	$	(0.02	)	$	(0.33	)	$	(0.04	)	$	(0.65	)
Weighted average number of shares outstanding, basic and diluted		349,464,317			17,624,422			329,984,356			17,563,200

The accompanying notes are an integral part of these condensed consolidated financial statements.

INCANNEX HEALTHCARE INC.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(unaudited)

(in thousands, except share amounts)

(expressed in U.S. Dollars, unless otherwise stated)

												Foreign			Total
						Additional						currency			Stockholders’
						paid-in			Accumulated			translation			Equity
	Common Stock					capital			deficit			reserve			(Deficit)
	Shares			Amount		Amount			Amount			Amount			Amount
	#			$		$			$			$			$
Balance at June 30, 2025		194,379,996			20		174,049			(157,556	)		(3,124	)		13,389
Stock-based compensation		-			-		2,626			-			-			2,626
Share issuance		153,325,511			15		69,450			-			-			69,465
Share issuance costs		-			-		(2,288	)		-			-			(2,288	)
Net loss		-			-		-			(6,407	)		-			(6,407	)
Currency translation adjustment, net of tax		-			-		-			-			223			223
Balance at September 30, 2025		347,705,507			35		243,837			(163,963	)		(2,901	)		77,008
Stock-based compensation		-			-		2,279			-			-			2,279
Share issuance		14,617,372			1		2,196			-			-			2,197
Share repurchase		(3,104,008	)		-		(1,179	)		-			-			(1,179	)
Share issuance costs		-			-		(91	)		-			-			(91	)
Net loss		-			-		-			(6,521	)		-			(6,521	)
Currency translation adjustment, net of tax		-			-		-			-			(287	)		(287	)
Balance at December 31, 2025		359,218,871			36		247,042			(170,484	)		(3,188	)		73,406

										Foreign			Total
					Additional					currency			Stockholders’
					paid-in		Accumulated			translation			Equity
	Common Stock				capital		deficit			reserve			(Deficit)
	Shares		Amount		Amount		Amount			Amount			Amount
	#		$		$		$			$			$
Balance at June 30, 2024		17,642,832		2		125,218		(110,671	)		(3,332	)		11,217
Stock-based compensation		-		-		459		-			-			459
Share issuance		-		-		-		-			-			-
Net loss		-		-		-		(5,420	)		-			(5,420	)
Currency translation adjustment, net of tax		-		-		-		-			339			339
Balance at September 30, 2024		17,642,832		2		125,677		(116,091	)		(2,993	)		6,595
Stock-based compensation		-		-		435		-			-			435
Convertible note conversion		-		-		-		-			-			-
Share issuance		142,403		-		242		-			-			242
Share issuance costs		-		-		-		-			-			-
Net loss		-		-		-		(5,894	)		-			(5,894	)
Currency translation adjustment, net of tax		-		-		-		-			(414	)		(414	)
Balance at December 31, 2024		17,785,235		2		126,354		(121,985	)		(3,407	)		964

The accompanying notes are an integral part of these condensed consolidated financial statements.

INCANNEX HEALTHCARE INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands, except share and per share amounts)

(expressed in U.S. Dollars, unless otherwise stated)

	For the six months ended December 31,
	2025			2024
Cash flows from operating activities:
Net loss	$	(12,928	)	$	(11,313	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		125			190
Unrealized loss on foreign currency remeasurement		37			273
Non-cash expense of ELOC commitment		-			1,095
Stock-based compensation expense		4,905			894
Change in fair value of warrant liabilities		-			103
Change in fair value of convertible rights		-			179
Non-cash interest expense		-			176
Change in operating assets and liabilities:
Prepaid expenses and other current assets		350			146
R&D tax incentive		(922	)		2,627
Securities pledged		-			(1,383	)
Trade and other payables		(5,352	)		(859	)
Net cash used in operating activities		(13,785	)		(7,872	)
Cash flows from investing activities:
Purchase of property, plant and equipment		(6	)		(8	)
Investment of joint venture		(40	)		-
Net cash used in investing activities		(46	)		(8	)
Cash flows from financing activities:
Proceeds received from facility agreement		-			4,282
Repayment of facility agreement		-			(2,898	)
Proceeds from share issuance		71,662			-
Share issuance costs		(2,379	)		-
Proceeds from issuance of convertible debt		-			2,779
Debt issuance costs		-			(113	)
Share repurchase		(1,179	)		-
Net cash provided by financing activities		68,104			4,050
Effect of exchange rate changes on cash and cash equivalents		(119)			70
Net increase/(decrease) in cash, cash equivalents, and restricted cash		54,272			(3,830	)
Cash and cash equivalents, and restricted cash at beginning of period		15,039			5,858
Cash and cash equivalents, and restricted cash at end of period	$	69,193		$	2,098

Non-cash investing and financing activities
Issuance of ELOC warrants at initial fair value		-			1,284
Issuance of convertible note warrants at initial fair value		-			543
Issuance of convertible rights at initial fair value		-			449
Total		-			2,276

The accompanying notes are an integral part of these condensed consolidated financial statements.

INCANNEX HEALTHCARE INC.

Notes To Unaudited Condensed Consolidated Financial Statements

(in thousands, except share and per share amounts)

(expressed in U.S. Dollars, unless otherwise stated)

Note 1 – Business

Incannex Healthcare Inc. (the “Company”) is a corporation formed under the laws of Delaware in July 2023. Incannex Healthcare Inc. and its subsidiaries are referred to as “the Company” unless the text otherwise requires.

The Company’s fiscal year end is June 30. References to a particular “fiscal year” are to the Company’s fiscal year ended June 30 of that calendar year.

The unaudited condensed consolidated financial statements of the Company are presented in United States dollars and consist of Incannex Healthcare Inc. and the following wholly-owned subsidiaries:

Subsidiary		Jurisdiction
Incannex Healthcare Limited		Victoria, Australia
Incannex Pty Ltd		Victoria, Australia
Psychennex Pty Ltd		Victoria, Australia
APIRx Pharmaceutical USA, LLC		Delaware, United States of America
APIRx Pharmaceuticals Holding BV		IJsselstein, Netherlands
Clarion Clinics Group Pty Ltd		Victoria, Australia
Clarion Model Clinic Pty Ltd		Victoria, Australia
Psychennex Licensing and Franchising Pty Ltd		Victoria, Australia

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The Company’s unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and pursuant to the rules and regulations of the SEC.

Reference is frequently made herein to the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”). This is the source of authoritative U.S. GAAP recognized by the FASB to be applied to non-governmental entities.

Unaudited Interim Financial Information

In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of December 31, 2025, and its results of operations for the three and six months ended December 31, 2025, and 2024, and cash flows for the six months ended December 31, 2025, and 2024. The Company has condensed or omitted certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP pursuant to the applicable required disclosures and regulations of the SEC. As such, these unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2025 (the “2025 Annual Report”).

Going Concern Basis

The financial report has been prepared on the going concern basis, which assumes continuity of normal business activities and the realization of assets and the settlement of liabilities in the ordinary course of business.

The Company has incurred total comprehensive losses of $13.0 million and $11.4 million for the six months ended December 31, 2025 and 2024, respectively, and experienced net cash outflows from operating activities of $13.8 million and $7.9 million for the six months ended December 31, 2025 and 2024, respectively.

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)

As of December 31, 2025 and June 30, 2025, the Company had cash and cash equivalents of $68.9 million and $15.0 million, respectively, and current assets exceeded its current liabilities by $73.1 million and $13.0 million, respectively.

Historically, the Company has financed its operations to date primarily through partnerships, funds received from public offerings of common stock, a debt financing facility, as well as funding from governmental bodies. The Company continues to plan for additional capital through the sale of common stock in public offerings and/or private placements, debt financings, or through other capital sources, including pursuant to the at-the-market offering program, collaborations with other companies or other strategic transactions.

Based on the Company’s unrestricted cash and cash equivalents as of December 31, 2025, the Company anticipates that it will be able to fund its planned operating expenses and capital expenditure requirements for at least twelve months from the date of these financial statements.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Details of all controlled entities are set out in Note 1. All intercompany balances and transactions have been eliminated on consolidation.

Equity Method Investment

The Company has a joint venture with Mind Medicine Australia (“MMA”) to operate a psychedelic-assisted therapies services clinic in Melbourne, Australia. The Company owns 50% of MMA and does not have control over the joint venture. The Company accounts for investments in unconsolidated entities where it exercises significant influence, but does not have control, using the equity method. Under the equity method of accounting, the Company recognizes its share of the investee’s net income or loss. Losses are only recognized to the extent the Company has positive carrying value related to the investee. Carrying values are only reduced below zero if the Company has an obligation to provide funding to the investee. The Company’s equity method investments are required to be reviewed for impairment when it is determined there may be an other than-temporary loss in value.

The carrying value of equity method investments were $57,000 as of December 31, 2025.

Comparative information

Comparative information has been reclassified where appropriate to conform to changes in presentation in the current year to enhance comparability.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in the Company’s unaudited condensed consolidated financial statements and accompanying notes.

The most significant estimates and assumptions in the Company’s unaudited condensed consolidated financial statements include the valuation of equity-based instruments issued, accrued research and development expense, and the research and development tax credit. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ materially from those estimates.

Risks and Uncertainties

The Company is subject to risks and uncertainties common to companies in the biopharmaceutical industry. The Company believes that changes in any of the following areas could have a material adverse effect on future financial position or results of operations: ability to obtain future financing; regulatory approval and market acceptance of, and reimbursement for, drug candidates; performance of third-party clinical research organizations and manufacturers upon which the Company relies; protection of the Company’s intellectual property; litigation or claims against the Company based on intellectual property, patent, product, regulatory or other factors; the Company’s ability to attract and retain employees.

There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained or maintained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid technological change and substantial competition from other pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees, consultants and other third parties.

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)

Significant Accounting Policies

The following is provided to update the Company’s significant accounting policies disclosed in Note 2 to the Consolidated Financial Statements described in the 2025 Annual Report that have had a material impact on the Company’s unaudited condensed consolidated financial statements and related notes.

Equity-Line of Credit Purchase Agreement

On September 6, 2024, the Company entered into an equity line of credit Purchase Agreement (the “ELOC Purchase Agreement”) with Arena Business Solutions Global SPC II, Ltd (“Arena Global”). Under the ELOC Purchase Agreement, Arena Global had committed to purchase up to $50 million of the Company’s common stock par value $0.0001 per share (the “Common Stock”), at the Company’s direction from time to time, subject to the satisfaction of the conditions in the ELOC Purchase Agreement.

The purchase price per share of Common Stock was obtained by multiplying by 96% the daily volume weighted average price (“VWAP”) on The Nasdaq Global Market (“Nasdaq”) for the trading day specified in the sale notice (same trading day or one trading day following such notice) delivered to Arena Global. The ELOC Purchase Agreement would have terminated automatically upon the earliest to occur of (i) the first day of the month next following the 36-month anniversary of the date of the ELOC Purchase Agreement; or (ii) the date on which Arena Global would have purchased shares of Common Stock under the ELOC Purchase Agreement for an aggregate gross purchase price equal to the Commitment Amount (as defined in the ELOC Purchase Agreement). The Company had also agreed to pay a financial advisor up to 7% of the gross proceeds raised under the ELOC Agreement.

On December 9, 2024, in connection with the ELOC Purchase Agreement, the Company issued 142,403 shares of Common Stock as a commitment fee to Arena Global. On January 16, 2025 the Company issued 10,346 true-up shares of Common Stock to Arena Global. The Company evaluated that the costs incurred in connection with the commitment fee and the true-up shares do not meet the definition of an asset and, therefore, were expensed as incurred.

As additional consideration for Arena Global’s execution and delivery of the ELOC Purchase Agreement, the Company issued a five-year warrant (the “ELOC Warrant”) on October 31, 2024, exercisable for 585,000 shares of Common Stock with an exercise price equal to $1.66 per share.

The Company determines whether to classify contracts, such as warrants, that may be settled in the Company’s own stock as equity of the entity or as a liability. An equity-linked financial instrument must be considered indexed to the Company’s own stock to qualify for equity classification. The Company classifies warrants as liabilities for any contracts that may require a transfer of assets. Warrants classified as liabilities are accounted for at fair value and remeasured at each reporting date until exercise, expiration or modification that results in equity classification. Any change in the fair value of the warrants is recognized in the Consolidated Statements of Operations and Comprehensive Loss.

Classification of the ELOC Warrants as liability instruments was based on management’s analysis of the guidance in ASC 815 and in a statement issued by the Staff of the SEC regarding the accounting and reporting considerations for warrants issued entitled “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies”.

Management considered whether the ELOC Warrant displayed the three characteristics of a derivative under ASC 815 and concluded that the ELOC Warrant meets the definition of a derivative. However, the ELOC Warrant failed to meet the equity scope exception in ASC 815-10-15-74(a) and thus is classified as a liability measured at fair value, subject to remeasurement at each reporting period. This conclusion is based on the fact that the ELOC Warrant includes certain cash-settlement features in the event of a tender offer, which is outside the control of the Company, and that the exercise price is denominated in a currency other than the reporting entity’s functional currency. As a result, the instrument is not considered to be indexed to the reporting entity’s own stock. The Company measured the ELOC Warrant as a liability at fair value as at each reporting period with changes in fair value recognized as other (income) expense, net in the consolidated statements of operations and comprehensive income (loss).

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)

Convertible Debenture Financing

On September 6, 2024, the Company entered into a Securities Purchase Agreement (the “September 2024 Purchase Agreement”) with Arena Investors, LP (“Arena Investors”), which provided for the issuance of secured convertible debentures in an aggregate principal amount of up to $10 million at an aggregate purchase price of up to $9 million (a 10% original issue discount), divided into three separate tranches, each subject to closing conditions. Under the September 2024 Purchase Agreement, the conversion price of each secured convertible debenture equaled 115% of the closing price of the Common Stock on the trading day preceding the date of the issuance of the respective secured convertible debenture, subject to subsequent adjustments and alternative conversion prices based on the then-current trading price of the Common Stock on Nasdaq, as further detailed in the September 2024 Purchase Agreement. For each secured convertible debenture purchased under the September 2024 Purchase Agreement, the Company would have issued a warrant to the purchaser, exercisable to purchase up to the number of shares of Common Stock equal to 25% of the total principal amount of the related secured convertible debenture, divided by 115% of the closing price of the Company’s Common Stock on the trading day immediately preceding the applicable closing date. The Company was not obligated to issue warrants for any tranche that does not close. The exercise price of each warrant would have been 115% of the closing price of the Common Stock on the issuance date, and the warrants were to have a five-year term. Additionally, the Company has agreed to pay a financial advisor up to 7% of the gross proceeds raised under the September 2024 Purchase Agreement.

The Company completed the closing of the first tranche under the September 2024 Purchase Agreement for the issuance of a 10% original issue discount secured convertible debenture (the “First Tranche Debenture”) in the principal amount of $3,333,333 at an aggregate purchase price of $3 million (a 10% original issue discount) to Arena Special Opportunities (Offshore) Master II LP (“Arena Opportunities”). The First Tranche Debenture provided for a payment-in-kind interest rate at 5% and would have matured on April 14, 2026. In addition, the Company issued a warrant to Arena Investors exercisable for up to 453,749 shares of Common Stock (the “First Tranche Warrant”), at an exercise price of $1.89 per share.

The net proceeds received from the issuance of the First Tranche Debenture, after deduction of expenses reimbursable to the Arena Investors, was $2,877,588.

The Company did not meet the closing conditions for the second and third tranche closings set forth in the September 2024 Purchase Agreement.

On November 6, 2024, and as required by the Company’s agreements in connection with the First Tranche Debenture, the Company filed a resale Registration Statement on Form S-1/A with the SEC, registering for resale up to 61,389,758 shares of Common Stock, including up to 10,101,009 shares of Common Stock issuable upon conversion of the First Tranche Debenture and up to 453,749 shares of Common Stock issuable upon the exercise of the First Tranche Warrant. This registration statement was declared effective on December 6, 2024.

The Company evaluates its convertible instruments and warrants to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC 815, Derivatives and Hedging. The classification of derivative instruments, including whether such instruments should be recorded as assets, liabilities, or equity, is reassessed at the end of each reporting period. For equity-linked financial instruments, the Company must determine whether the underlying instrument is indexed to its own Common Stock in order to classify the derivative instrument as equity. Otherwise, the derivative asset or liability, including embedded derivatives, is recognized at fair value with subsequent changes in fair value recognized in the consolidated statements of operations and comprehensive income (loss).

For hybrid instruments, ASC 815-15 requires bifurcation of embedded features if (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. The nature of the host instrument is therefore evaluated to determine if it is more akin to a debt-like or equity-like host. In this assessment, the Company considers the stated and implied substantive features of the contract as well as the economic characteristics and risks of the hybrid instrument. Each term and feature are then weighed based on the relevant facts and circumstances to determine the nature of the host contract. Terms and features of the hybrid.

On February 5, 2025, Arena Investors converted a total of $100,000 debt into shares of Common Stock.

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)

On March 13, 2025 the Company repaid in full the outstanding Convertible Debenture, previously issued pursuant to that certain Securities Purchase Agreement dated as of September 6, 2024, by and between the Company and the Arena Investors, by making a cash payment of $3,851,111.00, representing the outstanding principal, interest, amounts and redemption premiums due as of February 28, 2025. In connection with the repayment of the Debenture, the September 2024 Purchase Agreement, the related security documents and that certain Equity Line Purchase Agreement, dated September 6, 2024, by and between the Company and Arena Investors were terminated except with respect to the indemnification and registration rights set forth therein. The (i) warrant to purchase up to 453,749 shares of Common Stock, previously issued to Arena Investors (the “Debenture Warrant”), (ii) Registration Rights Agreement, dated as of October 14, 2025, by and between the Company and Arena Investors and (iii) warrant to purchase up to 585,000 shares of Common Stock, previously issued to Arena Global pursuant to the Equity Line Purchase Agreement (the “ELOC Warrant”) remained in effect.

The Company has accounted for the First Tranche Debenture as a financing transaction, wherein the net proceeds that were received were allocated to the financial instruments issued. Prior to making the accounting allocation, the Company evaluated the Convertible Debentures under ASC 815 Derivatives and Hedging (“ASC 815”). ASC 815 generally requires the analysis of embedded terms and features that have characteristics of derivatives to be evaluated for bifurcation and separate accounting in instances where their economic risks and characteristics are not clearly and closely related to the risks of the host contract.

The Company evaluated that the Conversion right meets the definition of a derivative under ASC 815-10-15-83. Further the Company evaluated that the Conversion right requires bifurcation from the debt host on the basis that it fails to meet the equity scope exception in ASC 815-10-15-74(a) and thus are classified as a liability measured at fair value, subject to remeasurement at each reporting period.

The Company evaluated that the First Tranche warrant is a detachable freestanding instrument. The First Tranche Warrant includes certain cash- settlement features in the event of a tender offer, which is outside the control of the company, and that the exercise price is denominated in a currency (USD) other than the reporting entity’s functional currency (AUD), and thus fails to meet the equity scope exception in ASC 815-10-15-74(a). Therefore the instrument is not considered indexed to the reporting entity’s own stock. As such the First Tranche Warrants are classified as a liability and measured at fair value, with changes in fair value each period reported in earnings.

The proceeds from issuing the Convertible Debentures were allocated first to the First Tranche Warrants based on its fair value. The proceeds allocated to the debt instrument was then further allocated between the debt host contract and the bifurcated derivative based on the fair value of that derivative as prescribed by ASC 815-15-30-2.

Debt discount and the debt issuance costs were capitalized to the carrying amount of the debt. Such costs are presented on the balance sheet as a direct deduction from that debt liability host.

Fair Value of Financial Instruments

The Company measures certain financial assets and liabilities at fair value. ASC 820, Fair Value Measurement and Disclosures (“ASC 820”), specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs have created the following fair-value hierarchy:

Level 1: Quoted prices for identical instruments in active markets;

Level 2: Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)

Cash and Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated statements of cash flows:

	December 31, 2025		June 30, 2025
	$		$
	(in thousands)
Unrestricted cash		68,900		15,039
Unrestricted cash equivalents		-		-
Total unrestricted cash and cash equivalents		68,900		15,039
Short-term restricted cash		293		-
Long-term restricted cash		-		-
Total restricted cash		293		-
Total unrestricted and restricted cash and cash equivalents		69,193		15,039

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash. Cash equivalents are reported at fair value.

Restricted Cash

The restricted cash, current balance of $0.3 million as of December 31, 2025, relates to cash restricted held by the Company’s brokerage in connection with the share repurchase program announced on August 21, 2025, as referenced in Note 12.

Note 3 – Prepaid expenses and other current assets

	December 31, 2025		June 30, 2025
	$		$
	(in thousands)
Prepayments¹		186		297
GST recoverable		245		494
Total prepaid expenses and other current assets		431		791

Prepayments consist of prepaid clinical trial insurances, prepaid R&D expenditure relating to PSX-001 and IHL-675A clinical trials and scientific, marketing, and advertising subscription services.

Note 4 – R&D tax incentive receivable

	December 31, 2025		June 30, 2025
	$		$
	(in thousands)
R&D tax incentive receivable		5,054		4,132

R&D tax incentive is recorded within the unaudited condensed consolidated statements of operations and comprehensive loss and amounted to $0.9 million and $1.8 million for the six months ended December 31, 2025 and 2024, respectively.

Note 5 – Property, Plant and Equipment, net

	December 31, 2025			June 30, 2025
	$			$
	(in thousands)
Furniture, fittings and equipment		506			495
Assets under construction		-			-
Total property, plant and equipment, gross		506			495
Accumulated depreciation and amortization		(398	)		(269	)
Total property, plant and equipment, net	$	108		$	227

Depreciation expense is recorded within general and administrative in the unaudited condensed consolidated statements of operations and comprehensive loss and amounted to $0.1 million and $0.2 million for the six months ended December 31, 2025 and 2024, respectively.

Note 6 – Trade and other payables, accrued expenses and other current liabilities

	December 31, 2025		June 30, 2025
	$		$
	(in thousands)
Current liabilities
Trade payables		1,226		6,074
Contract liabilities		30		30
Total trade and other payables		1,256		6,104

Accrued expenses		133		661
Employee leave entitlements		48		35
Total accrued expenses and other current liabilities		181		696
Total trade and other payables, accrued expenses and other current liabilities		1,437		6,800

Trade and other payables are unsecured, non-interest bearing and are normally settled within 30 days. The carrying amounts are a reasonable approximation of fair value.

Note 7 – Leases

During fiscal year 2023, the Company entered into three lease agreements for its corporate head office in Sydney, Melbourne office and Clarion Clinic site. The leases have four, five and three-year terms respectively. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases also include renewal options at the election of the Company to renew or extend the lease for an additional three to five years. These optional periods have not been considered in the determination of the right-of-use assets or lease liabilities associated with these leases as the Company did not consider it reasonably certain it would exercise the options.

Note 7 – Leases (continued)

The following table summarizes the weighted-average remaining lease term and discount rates for the Company’s operating leases:

	December 31, 2025			June 30, 2025
Lease term (years)		0.90			1.32

Discount rate		9.18	%		9.18	%

The following table summarizes the lease costs pertaining to the Company’s operating leases:

	December 31, 2025		June 30, 2025
	$		$
	(in thousands)
Operating lease cost		110		203

Cash paid for amounts included in the measurement of operating lease liabilities during the six months ended December 31, 2025 and fiscal year June 30, 2025 was $0.1 million and $0.2 million respectively, and was included within net cash used in operating activities in the cash flows.

The following table summarizes the future minimum lease payments due under operating leases as of December 31, 2025, (in thousands):

Operating leases	Amount $ (in thousands)
June 30, 2026		94
June 30, 2027		49
June 30, 2028		33

Total minimum lease payments		176

Less amount representing interest		(13	)

Total operating lease liabilities		163

As of December 31, 2025, the Company’s operating lease has a weighted-average remaining lease term of 0.90 years and a discount rate of 9.18%.

Note 8 – Commitments and contingencies

The Company records a loss contingency when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company also discloses material contingencies when it believes a loss is not probable but reasonably possible. Accounting for contingencies requires the Company to use judgment related to both the likelihood of a loss and the estimate of the amount or range of loss. Although the Company cannot predict with assurance the outcome of any litigation or tax matters, it does not believe there are currently any such actions that, if resolved unfavorably, would have a material impact on the Company’s operating results, financial position or cash flows.

Note 9 – Stockholder’s equity/issued capital

Common Stock

The Company has one class of Common Stock. The Company’s amended and restated certificate of incorporation provides for the issuance of 800,000,000 authorized shares of Common Stock with one vote per share. Holders of Common Stock are entitled to receive any dividends as may be declared from time to time by the Company’s board of directors.

Note 10 – Stock-based payments

	For the six months ended December 31, 2025
	2025		2024
	$		$
	(in thousands)
Research and development		-		-
General and administrative		4,905		894
Total stock-based compensation expense		4,905		894

	For the three months ended December 31,
	2025		2024
	$		$
	(in thousands)
Research and development		-		-
General and administrative		2,279		435
Total stock-based compensation expense		2,279		435

Restricted Stock and Restricted Stock Units

A summary of the changes in the Company’s restricted stock unit and restricted stock activity for the three and six month period ended December 31, 2025, are as follows:

	Number of Shares			Weighted Average Grant Date Fair Value $
Unvested and Outstanding as of June 30, 2025		40,767,047			0.23
Granted		150,630			1.64
Vested		(10,092,372	)		0.24
Forfeited		-			-
Unvested and Outstanding as of December 31, 2025		30,825,305			0.23

Note 10 – Stock-based payments (continued)

	Number of Shares			Weighted Average Grant Date Fair Value $
Unvested and Outstanding as of September 30, 2025		40,867,523			0.23
Granted		50,154			0.39
Vested		(10,092,372	)		0.24
Forfeited		-			-
Unvested and Outstanding as of December 31, 2025		30,825,305			0.23

Stock Options

A summary of the changes in the Company’s stock options activity for the three and six months ended December 31, 2025, are as follows:

	Number of Shares			Weighted Average Exercise Price ($)		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in thousands) ($)
Outstanding as of June 30, 2025		227,508			27.22		1.46		-
Granted		-			-		0.00		-
Exercised		-			-		0.00		-
Cancelled or forfeited		(109,335	)		40.16		0.08		-
Outstanding as of December 31, 2025		118,173			15.25		1.78		-
Unvested as of December 31, 2025		-			-		0.00		-

	Number of Shares		Weighted Average Exercise Price ($)		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in thousands) ($)
Outstanding as of September 30, 2025		118,173		15.25		1.78		-
Granted		-		-		0.00		-
Exercised		-		-		0.00		-
Cancelled or forfeited		-		-		0.00		-
Outstanding as of December 31, 2025		118,173		15.25		1.78		-
Unvested as of December 31, 2025		-		-		0.00		-

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s Common Stock for those stock options that had exercise prices lower than the fair value of the Company’s Common Stock.

Note 11 – Income Tax

For the six months ended December 31, 2025, and December 31, 2024, respectively, the Company did not recognize a provision or benefit for income taxes as it incurred net losses. In addition, the net deferred tax assets generated from net operating losses were fully offset by a valuation allowance as the Company believes it is not more likely than not that the benefit will be realized.

Note 12 – Information on Share Repurchase Program

In August 2025, our Board of Directors authorized a $20 million share repurchase program pursuant to which the Company may repurchase up to $20 million of its outstanding shares of Common Stock. The share repurchase program has an expiration on August 30, 2026. Under the share repurchase program, the Company may repurchase shares from time to time in the open market or in privately negotiated transactions, accelerated share repurchase arrangements, or other methods permitted under applicable securities laws in compliance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended.

During the three and six months ended December 31, 2025, the Company repurchased 3.1 million shares of its Common Stock at an aggregate cost of $1.5 million under the share repurchase program.

Note 13 – Loss per share

Basic and diluted net loss per share attributable to stockholders was calculated as follows (in thousands, except share and per share amounts):

	For the six months ended December 31,
	2025			2024
	$			$
Basic and diluted loss per share – (dollars per share)		(0.04	)		(0.65	)
The loss and weighted average number of shares used in the calculation of basic loss per share is as follows:
Total comprehensive loss (in thousands)		(12,992	)		(11,388	)
- Weighted average number of shares (number)		329,984,356			17,563,200

	For the three months ended December 31,
	2025			2024
	$			$
Basic and diluted loss per share – (dollars per share)		(0.02	)		(0.33	)
The loss and weighted average number of shares used in the calculation of basic loss per share is as follows:
Total comprehensive loss (in thousands)		(6,808	)		(6,308	)
- Weighted average number of shares (number)		349,464,317			17,624,422

The Company notes that the diluted loss per share is the same as basic loss per share.

Note 14 – Related Party Transactions

Transactions between related parties are on commercial terms and conditions, no more favorable than those available to other parties unless otherwise stated.

There were no amounts payable to any related parties as of December 31, 2025 and June 30, 2025.

Item 2. 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 and Six Months Ended December 31, 2025 and 2024

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

	For the three months ended December 31,												For six months ended December 31,
	2025			2024			$ Change			% Change			2025			2024			$ Change			% Change
Revenue from customers	$	-		$	12		$	(12	)		(100	)%	$	-		$	86		$	(86	)		(100	)%
Operating expenses:
Research and development		(2,280	)		(1,414	)		(866	)		61	%		(3,401	)		(4,310	)		909			(21	)%
General and administrative		(4,715	)		(3,602	)		(1,113	)		31	%		(10,388	)		(7,034	)		(3,357	)		48	%
Total operating expenses		(6,995	)		(5,016	)		(1,979	)		39	%		(13,789	)		(11,344	)		(2,448	)		22	%
Loss from operations		(6,995	)		(5,004	)		(1,991	)		40	%		(13,789	)		(11,258	)		(2,534	)		22	%
Other income / (expense):
R&D tax incentive		482			956			(474	)		(50	)%		871			1,767			(896	)		(51	)%
Foreign exchange gains (losses)		(24	)		(326	)		302			(93	)%		(37	)		(331	)		294			(89	)%
Interest income		5			28			(23	)		(82	)%		10			57			(47	)		(82	)%
Interest expense		-			(171	)		171			(100	)%		-			(171	)		171			(100	)%
Change in fair value of convertible rights		-			(179	)		179			(100	)%		-			(179	)		179			(100	)%
Change in fair value of warrant liabilities		-			(103	)		103			(100	)%		-			(103	)		103			(100	)%
ELOC commitment fee		-			(1,095	)		1,095			(100	)%		-			(1,095	)		1,095			(100	)%
Share of earnings (loss) of joint venture		11			-			11			-	%		17			-			17			-	%
Total other income / (expenses), net		474			(890	)		1,364			(153	)%		861			(55	)		916			(1,665	)%
Currency translation adjustment, net of tax		(287	)		(414	)		127			(31	)%		(64	)		(75	)		11			(15	)%
Comprehensive loss	$	(6,808	)	$	(6,308	)	$	(500	)		8	%	$	(12,992	)	$	(11,388	)	$	(1,604	)		14	%

Revenue from Customers

We have not generated revenue for the three and six months ended December 31, 2025, and we do not expect to generate material revenue 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:

●

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

●

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 increased by $0.9 million for the three months ended December 31, 2025 compared to the three months ended December 31, 2024. The increase was primarily due to the late-stage and close-out costs associated with the IHL-42X safety and pharmacokinetics clinical trial. These costs were partially offset by the pausing of patient recruitment in the Australian Phase 2 clinical trial for IHL-675A in rheumatoid arthritis.

Research and development expenses decreased by $0.9 million for the six months ended December 31, 2025 compared to the six months ended December 31, 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. These decisions were 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 drug 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:

●

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;

●

per patient trial costs;

●

the number of trials required for approval;

●

the number of sites included in the trials;

●

the countries in which the trials are conducted;

●

the length of time required to enroll eligible patients;

●

the number of patients that participate in the trials;

●

the number of doses that patients receive;

●

the drop-out or discontinuation rates of patients;

●

the potential additional safety monitoring requested by regulatory agencies;

●

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

●

the cost and timing of manufacturing of our drug candidates;

●

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

●

the extent of changes in government regulation and regulatory guidance;

●

the efficacy and safety profile of our drug candidates;

●

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

●

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 $1.1 million for the three months ended December 31, 2025 compared to the three months ended December 31, 2024. The increase was primarily attributable to increases in recognition of amortized stock-based payment expenses in the current quarter and additional consulting charges including recurring monthly fees from advisory firms.

General and administrative expenses increased by $3.4 million for the six months ended December 31, 2025 compared to the six months ended December 31, 2024. The increase was primarily attributable to increases in recognition of amortized stock-based payment expenses in the current quarter and additional consulting charges including recurring monthly fees from advisory firms.

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 $0.5 million for the three months ended December 31, 2025 compared to the three months ended December 31, 2024. The decrease in the R&D tax incentive receivable for the three months ended December 31, 2025, was primarily due to a lower estimate based on historical experience of claims.

Benefit from R&D tax incentive decreased by $0.9 million for the six months ended December 31, 2025 compared to the six months ended December 31, 2024. The decrease in the R&D tax incentive receivable for the six months ended December 31, 2025, was primarily due to a lower estimate based on historical experience of claims.

Foreign exchange losses and Interest Income

Foreign exchange losses decreased by $0.3 million for the three months ended December 31, 2025 compared to the three months ended December 31, 2024, due to favorable currency exchange rates. Interest income decrease over the same period, reflecting lower interest received from cash deposits.

Foreign exchange losses decreased by $0.3 million for the six months ended December 31, 2025 compared to the six months ended December 31, 2024, due to favorable 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 $17,000 for the six months ended December 31, 2025, compared to the six months ended December 31, 2024, due to the investment in Mind Clinics Australia.

Currency translation adjustment, net of tax

Currency translation adjustment, net of tax, decreased by $0.1 million for the three months ended December 31, 2025, compared to the three months ended December 31, 2024. The increase was due to the appreciation of the Australian dollar against the U.S. dollar.

Currency translation adjustment, net of tax, increased by $0.1 million for the six months ended December 31, 2025, compared to the six months ended December 31, 2024. The increase was due to the appreciation 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.

We incurred total comprehensive losses of $13.0 million and $11.4 million for the six months ended December 31, 2025 and six months ended December 31, 2024, respectively. We incurred net losses of $12.9 million and $11.3 million for the six months ended December 31, 2025 and 2024, respectively. As of December 31, 2025, we had accumulated deficit of $170.5 million. For the six months ended December 31, 2025, we experienced net cash used in operating activities of $13.8 million, an increase of $6.0 million compared to the six months ended December 31, 2024. In addition, during the three and six months ended December 31, 2025, the Company repurchased 3.1 million shares of its Common Stock at an aggregate cost of $1.2 million under the share repurchase program. The Company will continue to assess market conditions and may deploy the buyback program at its discretion as appropriate.

As of December 31, 2025, we had cash and cash equivalents of $68.9 million, an increase of $53.9 million compared to our cash and cash equivalents as of June 30, 2025 of $15.0 million. As of December 31, 2025, our current assets exceed our current liabilities by $72.0 million, a $59.9 million increase compared to the difference between our current assets and current liabilities as of June 30, 2025 of $13.0 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. However, we could use our capital resources sooner than we expect. Our operating plans may change, and we may need additional funds sooner than planned. The process of testing drug candidates in pre-clinical and clinical studies is costly, and the timing of progress in studies is uncertain. Because the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our drug candidates or whether, or when, we may achieve profitability.

Until such time as we can generate product revenues, if ever, we expect to finance our cash needs through the sale of common stock in public offerings and/or private placements, debt financings, or through other capital sources, including pursuant to the at-the-market offering program, collaborations with other companies or other strategic transactions. During the three months ended December 31, 2025, we sold 4,525,000 shares of our common stock pursuant to our at-the-market offering program. We paid commissions and fees of $75,000 to the sales agents in connection with these sales, resulting in net proceeds of $2.1 million. Any additional equity fundraising in the capital markets may be dilutive for our stockholders. To the extent that we raise additional capital through the sale of equity, convertible debt or other securities convertible into equity, the ownership interest of our stockholders will be diluted, and the terms of new securities may include liquidation or other preferences that adversely affect rights of our stockholders. Debt financing, if available at all, would likely involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, completing acquisitions or declaring or paying dividends. If we raise additional funds through strategic collaborations or licensing arrangements with third parties, we may have to relinquish valuable rights to our drug candidates or future revenue streams or grant licenses on terms that are not favorable to us.

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 six months ended December 31, 2025 and 2024

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

	For Six Months Ended December 31, 2025			For Six Months Ended December 31, 2024
Net cash used in operating activities	$	(13,785	)	$	(7,872	)
Net cash used in investing activities		(46	)		(8	)
Net cash provided by financing activities		68,104			4,050
Net increase/(decrease) in cash	$	54,273		$	(3,830	)

Net cash flows from operating activities

Cash used in operating activities increased by $5.9 million for the six months ended December 31, 2025, compared to the six months ended December 31, 2024. The increase was due to a decrease in trade and other payables.

Net cash flows from investing activities

Cash used in investing activities increased by $38,000 for the six months ended December 31, 2025 compared to the six months ended December 31, 2024. The increase was due to our investment in Mind Medicine Australia.

Cash flows from financing activities

Cash provided by financing activities increased by $64.1 million for the six months ended December 31, 2025, compared to the six months ended December 31, 2024. The increase was due to stock issuances under our at-the-market offering program offsetting with stock repurchases under the share repurchase program.

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 December 31, 2025, which have been prepared in accordance with “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 2025 Annual Report, 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 stock 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a “smaller reporting company” (as defined by Item 10 of Regulation S-K), we are permitted to omit information required by this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e)) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated, as of the end of the period covered by this Quarterly Report, the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2025, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weakness in internal control over financial reporting which existed as of December 31, 2025, relating to the documentation of accounting policies and procedures, particularly relating to the correct application of complex accounting measures as previously reported in our 2025 Annual Report.

A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Management has concluded that we did not maintain effective disclosure controls and procedures due to the material weakness in internal control over financial reporting which existed as of December 31, 2025, relating to the documentation of accounting policies and procedures, particularly relating to the correct application of complex accounting measures.

Remediation Efforts

The measures that we are undertaking to remediate the material weakness in internal control over financial reporting have and will include: (a) hiring qualified internal control personnel or consultants to manage the implementation of internal control policies, procedures and improvement of the internal audit function, as applicable; (b) developing and implementing written policies and procedures for accounting and financial reporting that meet the standards applied to public companies listed in the United States; and (c) conducting internal control training to management, key operations personnel and the accounting department, so that management and relevant personnel understand the requirements and elements of internal control over financial reporting mandated by the US securities laws.

We believe we have made progress in accordance with our remediation plan even though the material weaknesses will not be considered remediated until we have completed implementing the necessary additional applicable controls and operate with them for a sufficient period of time to allow management and our auditors to concluded that these controls are operating effectively.

We cannot determine when our remediation plan will be fully completed and we cannot provide any assurance that these remediation efforts will be successful or that our internal control over financial reporting will be effective as a result of these efforts.

Changes in Internal Control over Financial Reporting

Other than the remediation of the material weakness discussed above, there were no changes in our internal controls over financial reporting (as such term is defined in Rules 13a-15(d) and 15d-15(d) under the Exchange Act) that occurred during three months ended December 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may become involved in litigation or other legal proceedings arising in the ordinary course of our business. We are not currently a party to any material litigation or legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, negative publicity, reputational harm and other factors.

Item 1A. Risk Factors

There have been no material changes to the risk factors set forth in Part I, Item 1A, “Risk Factors,” of the 2025 Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The number of shares of Common Stock repurchased by us under our share repurchase program and the average price paid per share for the three months ended December 31, 2025, are as follows:

Period	(a) Total Number of Shares Repurchased		(b) Average Price Paid Per Share		(c) Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs		(d) Maximum Dollar Value of Shares that May Yet Be Repurchased Under the Plans or Programs
October 2025 (10/1/2025 - 10/31/2025)		1,480,000		0.4054		1,480,000		19,400,008
November 2025 (11/1/2025 - 11/30/2025)		1,624,008		0.35465		1,624,008		18,824,054
December 2025 (12/1/2025 - 12/31/2025)		—		—		—		18,824,054
Total⁽¹⁾		3,104.008				3,104,008		18,824,054

(1)

In August 2025, our board of directors authorized a share repurchase program pursuant to which the Company may repurchase up to $20 million of its outstanding shares of Common Stock. The share repurchase program expires on August 30, 2026. Under the share repurchase program, the Company may repurchase shares from time to time in the open market, privately negotiated transactions, accelerated share repurchase arrangements, or other methods permitted under applicable securities laws, including in compliance with Rule 10b-18 of the Exchange Act. All purchases listed above were made in the open market at prevailing market prices.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Rule 10b5-1 trading arrangements

During the three months ended December 31, 2025, none of our directors or officers adopted or terminated “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K.

Item 6. Exhibits

The information required by this Item 6 is set forth on the Exhibit Index that immediately precedes the signature page to this report and is incorporated herein by reference.

Exhibit No.		Description
2.1		Deed of Amendment and Restatement to Scheme Implementation Deed, dated September 13, 2023, between Incannex Healthcare Limited and Incannex Healthcare Inc. (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed with the SEC on November 29, 2023).
3.1		Amended and Restated Certificate of Incorporation, as filed with the Secretary of State of the State of Delaware on July 31, 2023 (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the SEC on November 29, 2023).
3.2		Certificate Amendment to Amended and Restated Certificate of Incorporation, as filed with the Secretary of State of Delaware on May 27, 2025 (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the SEC on May 28, 2025).
3.3		Amended and Restated Bylaws, dated November 20, 2023 (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K filed with the SEC on November 29, 2023).
4.1		First Tranche Warrant (incorporated by reference to Exhibit 4.3 of the Company’s Registration Statement on Form S-3 filed with the SEC on November 6, 2024).
4.2		ELOC Warrant (incorporated by reference to Exhibit 4.4 of the Company’s Registration Statement on Form S-3 filed with the SEC on November 6, 2024).
31.1*		Certification of Principal Executive Officer Required Under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2*		Certification of Principal Financial Officer Required Under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32.1**		Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.
32.2**		Certification of Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.
101.INS		Inline XBRL Instance Document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document.
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104		Cover Page Interactive Data File (embedded within the Inline XBRL document).

*	Filed herewith.

**	Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Incannex Healthcare Inc.

Date: February 13, 2026	By:	/s/ Joel Latham
		Joel Latham
		Chief Executive Officer, Director and President

Date: February 13, 2026	By:	/s/ Joseph Swan
		Joseph Swan
		Chief Financial Officer, Treasurer and Secretary

SEC Form 10-Q filed by Incannex Healthcare Inc.