UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

For the quarterly period ended MarchDecember 31, 20212022

or

or

For the transition period from ___________ to ___________

Commission File No. 001-40388

ANEBULO PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

(512)598-0931

(Registrant’s telephone number, including area code)

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

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 [X]☐

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 [X] ☒ No [  ]☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.

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 [X] ☒

The numberAs of February 8, 2023, the registrant had 25,633,217 shares of the registrant’s common stock, par value $0.001 per share, outstanding as of June 16, 2021 was 23,344,567 shares.outstanding.

Anebulo Pharmaceuticals, Inc.

Table of Contents

In this report, unless otherwise stated or as the context otherwise requires, references to “Anebulo Pharmaceuticals,” “Anebulo,” “the Company,“Company,” “we,” “us,” “our” and similar references refer to Anebulo Pharmaceuticals, Inc. The Anebulo logo, and other trademarks or service marks of Anebulo Pharmaceuticals, Inc. appearing in this report are the property of Anebulo Pharmaceuticals, Inc. This report also contains registered marks, trademarks and trade names of other companies. All other trademarks, registered marks and trade names appearing in this report are the property of their respective holders. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This reportQuarterly Report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject the “safe harbor” created by those sections. These forward-looking statements about us and our industry that involve substantial risks and uncertainties.uncertainties and our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth below under Part II, Item 1A, “Risk Factors” in this Quarterly Report. All statements other than statements of historical facts contained in this report,Quarterly Report, including statements regarding our future 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 by terminology such as “believe,” “may,” “could,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “seek,” “plan,” “expect,” “should,” “would,” “potentially” or the negative of these terms or similar expressions in this report.Quarterly Report.

We have based these forward-looking statements largely on our current expectations, beliefs, estimates and projections, about future events and financial trendsvarious assumptions, many of which, by their nature, are inherently uncertain and beyond our control. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we believe may affect our financial condition, resultshave conducted an exhaustive inquiry into, or review of, operations, business strategy and financial needs.all potentially available relevant information. These forward-looking statements include, the following:but are not limited to, statements about:

You should not place undue reliance on these forward-looking statements. Unless required by law, we undertake no obligation to update or revise any forward-looking statements to reflect new information or future events or developments. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. You should carefully read this Quarterly Report, including the section titled “Risk Factors” and the documents that we reference in this Quarterly Report and have filed as exhibits to this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this report by these cautionary statements.

RISK FACTORS SUMMARY

Below is a summary of material factors that make an investment in our common stock speculative or risky. Importantly, this summary does not address all of the risks and uncertainties that we face. Additional discussion of the risks and uncertainties summarized in this risk factor summary, as well as other risks and uncertainties that we face, can be found under “Risk Factors” in Part II, Item 1A of this Quarterly Report. The below summary is qualified in its entirety by that more complete discussion of such risks and uncertainties. You should carefully consider the risks and uncertainties described under “Risk Factors” in Part II, Item 1A of this Quarterly Report as part of your evaluation of an investment in our common stock.

These risks are not exhaustive. Additional factors could harm our business and financial performance, such as risks associated with the ongoing COVID-19 global pandemic. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied by, any forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Unless required by law, we undertake no obligation to update or revise any forward-looking statements to reflect new information or future events or developments. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. We qualify all of the forward-looking statements in this report by these cautionary statements.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Anebulo Pharmaceuticals, Inc.

Condensed Balance Sheets

(unaudited)

The accompanying notes are an integral part of these unaudited interimcondensed financial statements.

Anebulo Pharmaceuticals, Inc.

Condensed Statements of Operations

(Unaudited)(unaudited)

The accompanying notes are an integral part of these unaudited interimcondensed financial statements.

Anebulo Pharmaceuticals, Inc.

Condensed Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

For the Three and Nine Months Ended March 31, 2021(unaudited)

(unaudited)

The accompanying notes are an integral part of these unaudited interimcondensed financial statements.

Anebulo Pharmaceuticals, Inc.

StatementCondensed Statements of Cash Flows

(unaudited)

The accompanying notes are an integral part of these unaudited interim consolidatedcondensed financial statements.

Anebulo Pharmaceuticals, Inc.

Notes to Unaudited InterimCondensed Financial Statements

(unaudited)

Note 1. OrganizationNature of business and Descriptionbasis of Businesspresentation

Organization

Anebulo Pharmaceuticals, Inc. (“the Company”(the “Company”) was founded on April 23, 2020, as a Delaware corporation. The Company is a clinical stage biotechnology company focused on developing and commercializing new treatments for patients suffering from cannabinoid overdoseAcute Cannabis Intoxication (“ACI”) and addiction. The Company’s principal operations are located in Lakeway, Texas.

Liquidity and capital resources

Since inception, the Company’s activities have consisted primarily of performing research and development to advance its product candidates. The Company is still in the development phase and has not been marketing any developed products to date. Since inception, the Company has incurred losses, including a net loss of approximately $6.4 million for the six months ended December 31, 2022. As of December 31, 2022, the Company had an accumulated deficit of approximately $51.9 million. The Company expects to continue to generate operating losses. The Company expects that its cash will be sufficient to fund its operating expenses and capital expenditure requirements through at least 12 months from the issuance date of the financial statements. Until such time, if ever, as the Company can generate substantial product revenue from sales of any current or future product candidates, the Company expects to seek additional funding in order to reach its development and commercialization objectives through various potential sources, such as equity and debt financings or through collaboration, license and development agreements. The Company may not be able to obtain funding or enter into collaboration, license or development agreements on acceptable terms, or at all. The terms of any funding may be dilutive to or adversely affect the rights of the Company’s stockholders. If the Company is unable to obtain funding on satisfactory terms, or at all, the Company could be forced to delay, scale back or eliminate the development of its current or future product candidates or other business.

Risks and uncertainties

The Company’s future results of operations involve a number of risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include uncertainty regarding results of clinical trials and reaching milestones, uncertainty of regulatory approval of the Company’s current or future product candidates, uncertainty of market acceptance of the Company’s product candidates, if approved, competition from substitute products and larger companies, securing and protecting proprietary technology, ability to establish strategic relationships and dependence on key individuals and sole source suppliers. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities and may not ultimately lead to a marketing approval and commercialization of a product.

The Company’s product candidates require approvals from the U.S. Food and Drug Administration (“FDA”) and comparable foreign regulatory agencies prior to commercial sales in their respective jurisdictions. There can be no assurance that any product candidates will receive the necessary approvals. If the Company was denied approval, approval was delayed or the Company was unable to maintain approval for any product candidate, it could have a materially adverse impact on the Company. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales. The Company will need to generate significant revenue to achieve profitability, and it may never do so.

Basis of presentation

The accompanying interim unauditedcondensed financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include all adjustments necessary for the fair presentation.

The unaudited interim condensed financial statements of the Company’sCompany included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial position, results of operationsstatements prepared in accordance with U.S. GAAP have been omitted from this report, as is permitted by such rules and cash flows for the period presented. The accompanying interim unauditedregulations. Accordingly, these condensed financial statements should be read in conjunction with the financial statements as of and for the year ended June 30, 2022 and the notes thereto, which are included in the Company’s Annual Report on Form 10-K (File No. 001-40388).

In the opinion of management, the information furnished reflects all adjustments, all of which are of a normal and recurring nature, necessary for a fair presentation of the results for the reported interim periods. The Company considers events or transactions that occur after the balance sheet date but before the condensed financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year or any other interim period.

Note 2. Summary of Significant Accounting Policies

The Company’s significant accounting policies are disclosed in the audited financial statements as of and for the year ended June 30, 2022, and notes thereto, aswhich are included in the Company’s Annual Report on Form 10-K that was filed with the SEC on September 9, 2022. Since the date of June 30,those financial statements, there have been no material changes to significant accounting policies.

Note 3. Prepaid Expenses

Prepaid expenses consisted of the following:

Schedule of Prepaid Expenses

Note 4. Accrued Expenses

Accrued expenses consisted of the following:

Schedule of Accrued Expenses

Note 5. License Agreement

In May 2020, the Company licensed certain intellectual property, know-how and clinical trial data from Vernalis Development Limited (“Vernalis”). The initial consideration in exchange for the period from April 23, 2020 (inception) to June 30, 2020.

From inception,license was $150,000 and was recorded as research and development expense in a prior period. The license term shall continue unless and until terminated for cause or insolvency, with 60 days’ prior notice by the Company, has devoted substantiallyor until such time as all royalties and other sums cease to be payable in accordance with the terms of its effortsthe agreement. The Company is required to raising capitalpay development milestone payments related to clinical trials and acquiring licensing rightsgranting of marketing authorization ranging from $350,000 to its drug product.$3,000,000, up to a total development milestone payment of $29,900,000, and sales milestone payments of $10,000,000 and $25,000,000, in the first year when cumulative annual net sales of licensed product exceeds $500,000,000 and $1,000,000,000, respectively. The Company is also required to pay single-digit royalties on product sales over the term of the contract.

As part of the initial public offering (“IPO”) in May 2021, the Company issued 192,857 shares of common stock to Vernalis in lieu of future milestone payments by the Company of $1,350,000, whether or not the Company achieves those milestones. The Company recorded the $1,350,000 payment as research and development expense in a prior period. The Company has determined that itno further milestone payments are considered probable as of December 31, 2022 and therefore no liability has one operating and reporting segment. The Company has one lead product candidate, ANEB-001, under development, which was licensed from Vernalis (R&D) Ltd in May 2020 (“License Agreement”), as described in been recorded. 

Note 8.6. Stockholders’ Equity

On May 4, 2021, the Company filed an amended and restated certificate of incorporation (the “Restated Certificate”) with the Secretary of State of the State of Delaware in connection with the closing of its initial public offering (“IPO”).IPO. As set forth in the Restated Certificate, the Company’s authorized capital stock now consists of 40,000,000 shares of common stock, par value $0.001 $0.001 per share, and 2,000,000 shares of preferred stock, par value $0.001$0.001 per share.

2. Liquidity and Going Concern

Through March 31, 2021,On September 28, 2022, the Company has raised $3,200,000completed a private placement financing of funding through2,264,650 units (collectively, the sales“Units”), with each Unit consisting of its Series A Convertible Preferred Stock (“Series A Preferred”) and the issuance of two promissory notes. As of March 31, 2021, the Company had an accumulated deficit of $9,532,345 and cash and cash equivalents of $3,307,083. The Company’s ability to continue as a going concern is highly contingent on the ability to raise additional capital for ongoing research and development and clinical trials as the Company expects to continue incurring losses for the foreseeable future.

On May 11, 2021, the Company closed on an IPO of 3,000,000 shares(i) one share of its common stock at an offering priceand (ii) a warrant to purchase one share of $7.00 per shareits common stock, for aggregate gross proceeds of approximately $21,000,000.

$6,647,000 (or $2.935 per Unit). The Company believes that its existing cash and cash equivalents, plus thereceived approximately $6,398,000 in net proceeds from the IPO, will enable the Company to meet its operational liquidity needs and fund its planned investing activities for at least the next 12 months from the dateafter deducting offering costs of issuanceapproximately $249,000. Each warrant has an exercise price of these unaudited financial statements.

3. Basis of Presentation and Summary of Significant Accounting Policies

Basis of presentation

The accompanying unaudited interim financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

In the opinion of management, the accompanying unaudited interim financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as of March 31, 2021 and its results of operations for the three and nine months ended March 31, 2021, cash flows for the nine months ended March 31, 2021, and convertible preferred stock and stockholders’ deficit for the three and nine months ended March 31, 2021. Operating results for the three and nine months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the full year ending June 30, 2021. The unaudited interim financial statements, presented herein, do not contain the required disclosures under GAAP for annual financial statements. The accompanying unaudited interim financial statements should be read in conjunction with the annual audited financial statements and related notes as of and for the year ended June 30, 2020 included in the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission (“SEC”) on March 23, 2020 and amended on May 6, 2021.

Anebulo Pharmaceuticals, Inc.

Notes to Unaudited Interim Financial Statements

Recapitalization

On April 23, 2021, the Company approved a 6-for-1 forward stock split to be consummated prior to the completion of the Company’s IPO. All information in the accompanying financial statements and notes thereto regarding share amounts of Series A preferred stock and common stock and price$4.215 per share, of the Series A preferred stock and common stock reflect the application of the stock split. On May 4, 2021, the Company filed a certificate of amendment to amend its certificate of incorporation to increase the number of authorized common stock and amend the number of authorized preferred stock to 2,000,000 shares following the IPO.

Use of estimates and assumptions

The preparation of the unaudited interim financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Due to the uncertainty of factors surrounding the estimates or judgments used in the preparation of the unaudited interim financial statements, including as a result of the ongoing COVID-19 pandemic, actual results may materially vary from these estimates. Estimates and assumptions are periodically reviewed, and the effects of revisions are reflected in the unaudited interim consolidated financial statements in the period they are determined to be necessary.

Risk and Uncertainties

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents. Periodically, the Company may maintain deposits in financial institutions in excess of government insured limits. Management believes that the Company is not exposed to significant credit risk as the Company’s deposits are held at financial institutions that management believes to be of high credit quality, and the Company has not experienced any losses on these deposits.

The Company operates in an industry thatwhich is subject to intense competition, government regulations and rapid technological change. Operations are subject to significant risk and uncertainties including financial, operational, technological, regulatory, and other risks, including potential risk of business failure.

In March 2020, the World Health Organization declared the global novel coronavirus disease 2019 (COVID-19) outbreak a pandemic. As of March 31, 2021, the Company’s operations have not been significantly impacted by the COVID-19 outbreak. However, the Company cannot at this time predict the specific extent, duration, or full impact that the COVID-19 outbreak will have on its financial condition and operations, including ongoing and planned clinical trials.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents.

Anebulo Pharmaceuticals, Inc.

Notes to Unaudited Interim Financial Statements

Fair Value of Financial Instruments

Fair value is defined as the price received to sell an investment in a timely transaction or pay to transfer a liability in a timely transaction with an independent buyercustomary adjustments in the principal market,event of any combination or in the absence of a principal market, the most advantageous market for the investment or liability. A framework is used for measuring fair value utilizing a three-tier hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

The three levels of the fair value hierarchy are as follows:

Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2—Quoted prices in markets that are not considered to be active or financial instrument valuations for which all significant inputs are observable, either directly or indirectly; and

Level 3—Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

Financial instruments are categorized in their entirety based on the lowest level of input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement requires judgment and considers factors specific to the investment. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3.

Warrant Liability

The Company accounts for the Series A warrants (“Warrants”) in accordance with the guidance contained in ASC 815-40, under which the Warrants do not meet the criteria for equity treatment and must be recorded as a liability. Accordingly, the Company classifies the Warrants as a liability at their fair value and adjusts the warrant liability to fair value at each reporting period. The change in fair value is recognized in the statement of operations. The Company utilizes the Black-Scholes option pricing model to value the warrant liability at each reporting period and records changes in value to other income (expense). Upon the exercise of the warrants, the warrant liability is marked to fair value at the conversion date and then reclassified to equity.

Convertible Preferred Stock

The Company has classified its Series A Preferred securities as temporary equity in the accompanying balance sheets due to certain change in control events that are outside of the Company’s control, including sale or transfer of control of the Company, as holders of the Series A Preferred could cause redemption of the shares in these situations.

Deferred Offering Costs

In conjunction with the IPOsplit of the Company’s common stock, costs incurred related to the IPO are capitalized as deferred equity issuance costs in other non-current assets until the IPO is completed or the potential IPO is abandoned. If the Company completes an IPO, these costs will be offset against proceeds received; or if the IPO does not occur, they will be expensed. Offering costs include direct and incremental costs related to the offering such as legal fees and related costs associated with the proposed IPO. As of March 31, 2021, the Company recorded deferred IPO offering costs of approximately $393,000.

Research and Development Costs

Research and development costs are charged to expense as incurred. Payments for these activities will be based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the interim unaudited financial statements as prepaid or accrued research and development. Research and development activities may consist of salaries and benefits, contract services, materials and supplies, stock-based compensation expense, depreciation of equipment, and other outside expenses.

Anebulo Pharmaceuticals, Inc.

Notes to Unaudited Interim Financial Statements

Stock-Based Compensation

The Company recognizes stock-based compensation expense related to stock options granted to employees and non-employees based on the estimated fair value of the awards on the date of grant. The Company estimates the grant date fair value, and the resulting stock-based compensation expense, for stock options that only have service vesting requirements or performance-based vesting requirements without market conditions using the Black-Scholes option-pricing model. The grant date fair value of the stock-based awards with service vesting requirements is generally recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards. Determining the appropriate amount to expense for performance-based awards based on the achievement of stated goals requires judgment. The estimate of expense is revised periodically based on the probability of achieving the required performance targets and adjustments are made as appropriate. The cumulative impact of any revisions is reflected in the period of change. If any applicable financial performance goals are not met, no compensation cost is recognized, and any previously recognized compensation cost is reversed.

The Black-Scholes option-pricing model requires the use of highly subjective assumptions, which determine the fair value of stock-based awards. These assumptions include:

Expected term - Our expected term represents the period that the stock-based awards are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term). For stock-based awards granted to non-employees, the expected term represents the contractual term of the award.

Common stock price - The Board of directors estimates the fair value of common stock. Given the absence of a public trading market for its common stock, and in accordance with the American Institute of Certified Public Accountants’ Practice Guide, Valuation of Privately Held-Company Equity Securities Issued as Compensation, the board of directors exercises reasonable judgment and considers a number of objective and subjective factors to determine its best estimate of the fair value of the common stock, as further described below under “Common stock valuations.”

Expected volatility - The Company is a privately held company and did not have any trading history for its common stock and the expected volatility was estimated using weighted-average measures of implied volatility and the historical volatility of its peer group of companies for a period equal to the expected life of the stock options. The peer group of publicly traded biopharmaceutical companies was chosen based on their similar size, stage in the life cycle or area of specialty.

Risk-free interest rate - The risk-free interest rate is based on the rates paid on securities issued by the U.S. Treasury with a term approximating the expected life of the stock options.

Expected dividend - The Company has never paid, and does not anticipate paying, cash dividends on its common stock. Therefore, the expected dividend yield was assumed to be zero.

In addition to the Black-Scholes assumptions, The Company adopted ASU 2016-09 in June 2020 and as a result, the Company has made an entity-wide accounting policy election to account for pre-vesting award forfeitures when they occur.

Leases

In February 2016, the FASB issued ASU No. 2016-02, “Leases” (“ASC 842”) to enhance the transparency and comparability of financial reporting related to leasing arrangements. Under this new lease standard, most leases are required to be recognized on the balance sheet as right-of-use assets and lease liabilities. Disclosure requirements have been enhanced with the objective of enabling financial statement users to assess the amount, timing, and uncertainty of cash flows arising from leases. Prior to January 1, 2019, U.S. GAAP did not require lessees to recognize assets and liabilities related to operating leases on the balance sheet. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and corresponding lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement as well as the reduction of the right-of-use asset.

Anebulo Pharmaceuticals, Inc.

Notes to Unaudited Interim Financial Statements

This ASU is effective for non-public reporting companies for interim and annual periods beginning after December 15, 2021, with early adoption permitted, and must be adopted using a modified retrospective approach. The Company has adopted the standard effective April 23, 2020 (inception). The Company has elected to apply (i) the practical expedient which allows the Company to not separate lease and non-lease components, for new leases entered into after adoption and (ii) the short-term lease exemption for all leases with an original term of less than 12 months, for purposes of applying the recognition and measurements requirements in the new standard.

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on specific facts and circumstances, the existence of an identified asset(s), if any, and the Company’s control over the use of the identified asset(s), if applicable. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of future lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company will utilize the incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term on an amount equal to the lease payments in a similar economic environment.

Operating leases are recognized on the balance sheet as ROU lease assets, lease liabilities current and lease liabilities non-current. Fixed rents are included in the calculation of the lease balances while variable costs paid for certain operating and pass-through costs are excluded. Lease expense is recognized over the expected term on a straight-line basis.

In August 2020, the Company entered into a one-year sub-lease for office space in Lakeway, Texas, from a related party and recorded rent expense of $3,609 and $9,021 for the three and nine months ended March 31, 2021, respectively. Remaining payments due under the lease total $5,413.

Loss Per Share

The Company’s Series A Preferred securities participate on a one-for-one basis with common stock in the distribution of dividends, if and when declared by the Board of Directors.

Since the Company has reported a net loss for the three and nine months ended March 31, 2021, therefore, no income was allocated to the Company’s Series A Preferred securities. Basic and diluted net loss per share are the same because the impact of Series A Preferred would be anti-dilutive and has been excluded from the computation of diluted weighted-average shares outstanding.

Recently issued and adopted accounting pronouncements

The Company considers the applicability and impact of all ASUs. ASUs not discussed below were assessed and determined to be either not applicable or are expected to have minimal impact on the financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in the existing guidance for income taxes and making other minor improvements. The amendments are effective for annual reporting periods beginning after December 15, 2020 with early adoption permitted. The Company is currently evaluating the impact of adopting this new accounting guidance.

On July 1, 2020, the Company adopted ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting Compensation, issued by the FASB in June 2018. The amendments in this ASU expanded the scope of Compensation—Stock Compensation (“Topic 718”) to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments specified that Topic 718 applied to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The Company applied the new guidance to share-based payments entered into after July 1, 2020 and the adoption of this standard did not have a material impact on the Company’s financial statements.

Anebulo Pharmaceuticals, Inc.

Notes to Unaudited Interim Financial Statements

4. Fair Value Measurements

The following tables present the financial instruments carried at fair value on a recurring basis as of March 31, 2021 and June 30, 2020, respectively, in accordance with the FASB ASC 820 hierarchy (in thousands):

The Company’s financial assets and liabilities which are measured at fair value on a recurring basis were comprised of cash and cash equivalents, based on Level 1 inputs, and a warrant liability, based on Level 3 inputs.

The Company estimates the fair value of the warrant liability using the Black-Scholes option-pricing model upon issuance and at each balance sheet date. Any subsequent changes in the fair value of the warrant liability will be recorded in current period earnings as other expense/income. The Company received proceeds for the issuance of series A preferred warrants of $2,250,000 and the excess fair value of $8,208,393 was recorded as a deemed dividend, against accumulated deficit for the period ended March 31, 2021. The change in the fair value of the warrant liability between March 8, 2021 and March 31, 2021 was de minimis. Therefore, no loss was recorded in other expense for the three and nine months ended March 31, 2021.

The assumptions used to determine the fair value of the warrant liability as of March 31, 2021 were as follows:

There were no assets or liabilities measured at fair value on a nonrecurring basis at March 31, 2021 and June 30, 2020. There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the periods ended March 31, 2021 and June 30, 2020. As of March 31, 2021 and June 30, 2020, the Company did not have any Level 2 assets or liabilities.

5. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets at March 31, 2021 consisted of the following:

There were no prepaid expenses or other current assets as of June 30, 2020.

6. Accrued Expenses

Accrued expenses consisted of the following:

7. Promissory Notes

On May 28, 2020 and June 18, 2020, the Company issued promissory notes (“2020 Notes”) for $175,000 and $25,000, respectively, to a related party investor. The annual interest rate on the 2020 Notes is a fixed rate of 8.0%.

Anebulo Pharmaceuticals, Inc.

Notes to Unaudited Interim Financial Statements

On March 22, 2021, total principal and accrued interest of $200,000 and $13,057, respectively, for the promissory notes issued on May 28, 2020 and June 18, 2020, respectively, were paid in full to the related party investor of the Company.

For the three and nine months ended March 31, 2021, the Company recorded interest expense of $3,701 and $11,767, respectively.

8. License Agreement

In May 2020, the Company licensed certain intellectual property, know-how and clinical trial data from Vernalis Development Limited (“Vernalis”). The Company is required to make cash payments upon reaching certain development milestones (“Development Milestones”) related to clinical trials, granting of marketing authorization and sales milestones. The Company is also required to pay single-digit royalties on product sales over the term of the contract. During the nine months ended March 31, 2021, the Company did not reach any of the Development Milestones and therefore did not record any additional license expense under this agreement.

As part of the IPO in May 2021, the Company issued 192,857 shares of common stock to Vernalis in lieu of future milestone payments to be made by the Company of $1,350,000, whether or not the Company achieves those milestones.

9. Series A Convertible Preferred Stock

In June 2020, the Company authorized the sale and issuance of up to 8,943,906 shares of Series A Preferred. The Series A Preferred financing was structured so that 2,047,500 shares would be issued at the first closing to one investor (“Initial Investor”) at $1.4652 per share (“First Closing”) and up to 6,896,406 shares at $1.685 per share could be issued upon the exercise of certain warrants (“Milestone Warrants”) upon achieving the following development milestones (“Development Milestones): (a) the earlier of (x) filing by the Company with the FDA of an IND, or (y) the making of an analogous regulatory filing in any foreign jurisdictions; and (b) arrangement by the Company of active pharmaceutical ingredient in amounts sufficient to facilitate the consummation of any trial to be effected pursuant to a filing.

Upon certification by the Board of Directors, the Company has the obligation to issue and the Initial Investor plus one designated additional investor (“Additional Investor”) have the right and obligation to purchase Milestone Warrants to purchase 766,266 and 6,130,140 shares of Series A Preferred, respectively and as amended. The Milestone Warrants will have a purchase price of $0.32626 per share of the additional 6,896,406 shares of Series A Preferred for total proceeds of $2,250,000 and the right to purchase the additional 6,896,406 shares of Series A Preferred at $1.685 per share. The term of the Milestone Warrants will be three years from the date of issuance.

On June 18, 2020, the Company issued 2,047,500 shares of Series A Preferred for gross cash proceeds of $3,000,000. Issuance costs paid in cash totaled $24,248.

On March 8, 2021, the requisite development milestones were achieved, and therefore the Milestone Warrants were purchased for $2,250,000 in cash. (See Note 4)

The Company determined the obligation of the Company, the rights and obligations of the initial Series A Preferred shareholder and the one designated additional investor to purchase Milestone Warrants does not meet the definition of a freestanding financial instrument as it is not separable from the Series A Preferred issued in June 2020.

As of March 31, 2021, the rights and preferences of the Series A Preferred are as follows:

Conversion - Each share of Series A Preferred may be converted at any time, at the option of the holder, into shares of common stock, subject to the applicable conversion rate as determined by dividing the original issue price by the conversion price. The initial conversion price for the Series A Preferred issued at the First Closing is $1.4652, however, it may be adjusted for certain dilutive events. The initial conversion price for the Series A Preferred issued upon the exercise of the Milestone Warrants will be $1.685, however, it may be adjusted for certain dilutive events. The Series A Preferred automatically converts into shares of common stock at a 1:1 conversion ratio at the earlier of the closing of a public offering of the Company’s securities at any price per share or at the election of the holders of at least a majority of the then-outstanding shares of Series A Preferred.

Anebulo Pharmaceuticals, Inc.

Notes to Unaudited Interim Financial Statements

If the Initial Investor or any of its affiliates that may have received a portion of the shares from the Initial Closing, fails to purchase the designated Milestone Warrant upon the achievement of the development milestones, then all of shares from the Initial Closing still held by the Initial Investor and any of its affiliates will automatically convert into shares of Common Stock at a 1:1 conversion.

Dividends - Series A Preferred shareholders shall first receive, or simultaneously receive, a dividend if declared on any other class or series of capital stock.

Voting Rights - Preferred Stock and common stockholders vote together as one class on an as converted basis. Common stock voting rights on certain matters are subject to the powers, preferences, and rights of the Preferred Stock. Holders are entitled to vote on all matters and shall have the number of votes equal to the number of shares of common stock into which the shares of Preferred Stock held by such holder are then convertible. Certain actions such as mergers, acquisition, liquidation, dissolution, wind up of business, and deemed liquidation events, must be approved by the holders of at least a majority of the then-outstanding shares of Series A Preferred.

Liquidation Preference - Upon liquidation, dissolution, or winding up of business, the Preferred Stockholders are entitled to receive a liquidation preference in priority to holders of common stock equal to the original Series A Preferred issue price plus any accrued but unpaid dividends if that amount is greater than what it would have received had their shares been converted to common stock. If assets available for distribution are insufficient to satisfy the liquidation payment to holders in full, assets available for distribution will be allocated among holders based on their pro rata shareholdings. When holders are satisfied in full, any excess assets available for distribution will be allocated ratably among common stockholders based on their pro rata shareholdings. The liquidation preference as of March 31, 2021 is $3,000,000.

Redemption – Other than as described in Note 3, the Series A Preferred is not redeemable.

Upon the closing of the IPO on May 11, 2021, all outstanding shares of the Company’s convertible preferred stock were automatically converted into shares of common stock and all outstanding shares of the Company’s Series A milestone warrants were converted on a net exercised basis into shares of common stock, resulting in a total of 7,283,843 shares of common stock being issued to former holders of the Company’s convertible preferred stock and Series A milestone warrants.

10. Common Stock

The Company authorized the sale and issuance of up to 22,800,000 shares of common stock. One related party investor owns 12,000,000 shares of common stock outstanding as of March 31, 2021. As of June 30, 2020, the related party investor owed the Company $3,500, for the purchase of these shares, which was paid in September 2020.

In September 2020, the Company awarded 982,500 shares of restricted common stock to its Chief Executive Officer (“CEO”) under the 2020 Stock Incentive Plan (“2020 Stock Plan”) at a grant date fair value of $0.1083 per share. The restrictions are subject to the satisfaction of certain performance targets and vesting requirements pursuant to the award and employment agreement. The restricted common stock has voting and dividend rights, and therefore all 982,500 shares of restricted common stock are considered issued and outstanding as of March 31, 2021.

As of March 31, 2021, the Company had reserved 1,650,000 shares of common stock for the 2020 Stock Plan, 2,047,500 shares of common stock for the conversion of Series A Preferred, and 6,896,406 shares of common stock for the conversions of Series A Preferred from the exercise of future Milestone Warrants.

Anebulo Pharmaceuticals, Inc.

Notes to Unaudited Interim Financial Statements

On May 11, 2021, the Company closed its IPO of 3,000,000 shares of its common stock at an offering price of $7.00 per share for gross proceeds of approximately $21,000,000. Furthermore, the series A Preferred warrants will be remeasured and reclassified to equity, upon automatic cashless exercise of the warrants and conversion of the underlying Series A preferred stock to common stock. The change in fair value will be recorded in other income (expense) in the statement of operations.warrants expire on September 28, 2027.

As of March 31, 2021, the rights of the common stockholders are as follows:Note 7. Stock-Based Compensation

Voting Rights - The holders of the common stock are entitled to one vote for each share of common stock. The voting, dividend, and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights, powers, and preferences of the holders of the Series A Preferred.

Dividends - The Corporation shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Corporation (other than dividends on shares of Common Stock payable in shares of Common Stock) unless the holders of the Series A Preferred Stock then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Series A Preferred stock then outstanding.

Liquidation Preference - In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, after the payment or provision for payment of all debts and liabilities of the Company and all preferential amounts to which the holders of Preferred Stock are entitled with respect to the distribution of assets in liquidation, the holders of common stock shall be entitled to share ratably in the remaining assets of the Company available for distribution.

11. Stock Incentive Plan

In June 2020, the Board of Directors adopted the 2020 Stock Incentive Plan, which provided for the grant of qualified incentive stock options and nonqualified stock options or other awards to the Company’s employees, officers, directors, advisors, and outside consultants for the purchase of up to 1,650,000 shares of the Company’s common stock. On October 22, 2021, the Company’s stockholders approved an increase of the total authorized shares to 3,650,000 shares. Other awards include restricted stock, restricted stock units, stock appreciation rights and other stock-based awards. Other stock-based awards are awards valued in whole or in part by reference to, or are otherwise based on, shares of common stock. Stock options generally vest over a four-year period, at achievement of a performance requirement, or upon change of control (as defined in the applicable plan). The awards expire in five orto ten years from the date of grant.

12. Stock-Based Compensation

grant. In September 2020, the Company awarded 982,500 shares of restricted common stock to its CEO,former Chief Executive Officer. As of December 31, 2022, the Company had 583,387 shares available for future issuance under the 2020 Stock Incentive Plan.

The Company estimates the fair value of stock-based compensation utilizing the Black-Scholes option pricing model, which is dependent upon several variables, such as assumptions the Company makes for the volatility of its common stock, the expected term of the stock options, the risk-free interest rate for a period that approximates the expected term, and expected dividend yield. Each of these inputs is subjective and generally requires significant judgement to determine. Stock-based compensation is measured at athe grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is generally the vesting period of the respective award.

The following table summarizes the range of key assumptions used to determine the fair value of stock options granted during the three and six months ended December 30, 2022 and 2021.

Schedule of Fair Value Assumptions of Stock Options

The following table summarizes stock option activity for the six months ended December 31, 2022:

Schedule of Stock Option Activity

The weighted-average grant date fair value of $0.1083 options awarded during the six months ended December 31, 2022 was approximately $1.86 per share. The restrictions are subjectAs of December 31, 2022, unrecognized stock-based compensation expense related to the satisfactionunvested stock options totaled approximately $2.9 million which is expected to be recognized over a weighted average period of certain performance targets and vesting requirements pursuant to the award and employment agreement.3.1 years.

In the event of a change in control of our company, the CEO will be entitled to the vesting of 50% of any stock-based awards granted but not yet vested prior to the change in control event not less than six months after the change in control event, provided the CEO remains employed by our company. If the change in control event is an initial public offering, the CEO will be entitled to the full vesting of any stock-based awards. Subsequently, the Company closed its IPO in May 2021, which resulted in a change of control. Therefore, the CEO will be entitled to the full vesting of any stock-based awards.

In March 2021, the Company issued non-qualified stock option awards under the 2020 Stock Plan of 604,404 shares of the Company’s common stock to its Board of Directors and consultants of the Company. These awards are subject to the satisfaction of certain performance targets and vesting requirements pursuant to the award.

Anebulo Pharmaceuticals, Inc.

Notes to Unaudited Interim Financial Statements

Stock Options

Value of Stock Options

The Company has valued awards herein using the Black-Scholes option-pricing model. The Company historically has been a private company and lacks company-specific historical and implied volatility information. Therefore, the Company estimates its expected stock volatility based on historical volatility of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. For options with service-based vesting conditions, the expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for the time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

The following table provides the assumptions used in determining the fair value of option awards as of March 31, 2021:

Changes in awards granted under the 2020 Stock Plan as of March 31, 2021 are as follows:

For the three months ended March 31, 2021, 301,554 shares vested and theThe Company recorded stock-based compensation expenseexpenses for the following periods:

Schedule of $45,302 in generalStock-Based Compensation Expenses

Note 8. Net Loss Per Share Attributable to Common Stockholders

Based on the amounts outstanding at December 31, 2022 and administrative expenses2021, the Company excluded the following potential shares of common stock from the computation of diluted net loss per share attributable to common stockholders for the three and $2,105 in research and development expenses. For the ninesix months ended MarchDecember 31, 2022 and 2021, 383,418because including them would have had an anti-dilutive effect. Therefore, the weighted-average number of common shares vestedoutstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the Company recorded stock-based compensation expensesame.

Schedule of $82,404 in general and administrative expenses and $2,105 in research and development expenses.Anti-dilutive Securities Excluded from Computation of Earnings Per Share

As of March 31, 2021, there are 63,096 shares available to be granted under the 2020 Stock Plan.

As of March 31, 2021, unrecognized stock-based compensation expense associated with the restricted common stock and non-qualified stock options totaled $501,700.

13. Subsequent Events

The Company has completed an evaluation of all subsequent events through June 21, 2021, the date these financial statements were available to be issued. The Company has concluded that no subsequent events have occurred that require disclosure except in Notes 1, 2, 3, 8, 9, and 10.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

YouThe following discussion and analysis of our financial condition and results of operations should be read this section in conjunction with our unaudited interim consolidatedcondensed financial statements and related notes included in Part I. Item 1.this Quarterly Report and the audited financial statements and notes thereto as of and for the year ended June 30, 2022 and the related Management

’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended June 30, 2022 (

“Forward-Looking StatementsAnnual Report

”This), which was filed with the SEC on September 9, 2022. The information in this discussion contains forward-looking statements and information 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, orwhich are subject to the Exchange Act. Forward-looking statements are identified“safe harbor” created by words such as “believe,” “may,” “could,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “seek,” “plan,” “expect,” “should,” “would,” “potentially” or the negative of these terms or similar expressions in this report. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward-looking” information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements.those sections. These forward-looking statements include, but are subjectnot limited to, certainstatements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management. 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. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause a difference result and include, but are not limitedour actual results to differ materially from those discussed underin the caption “Risk Factors” forward-looking statements, including, without limitation, the risks set forth in Part II, Item 1A, “Risk Factors” in this report. SeeQuarterly Report. Please also see the section entitled “Special Note Regarding Forward-Looking Statements.” Forward-looking statements are based on our management’s current beliefs and assumptions and based on information currently available to our management. These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments.

Overview

We are a clinical-stage biotechnology company developing novel solutions for people suffering from acute cannabinoid overdoseintoxication (“ACI”) and substance addiction. Our lead product candidate, ANEB-001, is intended to rapidly reverse the negative effects of cannabinoid overdoseACI within 1 hour of administration. The signs and symptoms of cannabinoid overdoseACI range from profound sedation to anxiety and panic to psychosis with hallucinations. There is no approved medical treatment currently available to specifically alleviate the symptoms of cannabinoid overdose.ACI. If approved by the FDA, we believe ANEB-001 has the potential to be the first FDA approved treatment of its kind on the market for reversing the effects of THC, the principal psychoactive constituent of cannabis. Clinical trials completed to date have shown that ANEB-001 is rapidly absorbed, well tolerated and when administered to obese subjects leads to weight loss, an effect that is consistent with central CB1 antagonism. We intend to launchinitiated a Phase 2 proof-of-concept clinical trial for ANEB-001 in the fourth calendarNetherlands in December 2021. We received initial topline data from Part A of the study on June 29, 2022 and announced the results in a press release on July 5, 2022. We announced preliminary pharmacodynamic data from Part B of the study in a press release on January 9, 2023 and expect the final data from the study by the end of the first quarter of 2021.2023. We anticipate discussing the final data from this Phase 2 clinical trial with the FDA at an End of Phase 2A meeting in the first half of 2023.

Cannabinoid overdosesACI episodes have become a widespread health issue in the United States, particularly in the increasing number of states that have legalized cannabis for personalmedical and recreational use. The ingestion of large quantities of THC is a major cause of cannabinoid overdose.ACI. Excessive ingestion of THC via edible products such as candies and brownies, and overdoses ofintoxication from synthetic cannabinoids (also known as “synthetics,” “K2” or “spice”), are two leading causes of THC-related emergency room visits. Synthetic cannabinoids are analogous to fentanyl for opioids insofar as they are more potent at the cannabinoid receptor than their natural product congener THC. In recent years, hospital emergency rooms across the United States have seen a dramatic increase in patient visits with cannabis-related conditions. Before the legalization of cannabis, an estimated 450,000 patients visited hospital emergency rooms annually for cannabis-related conditions. In 2014, this number more than doubled to an estimated 1.1 million patients, according to data published in “Trends and Related Factors of Cannabis-Associated Emergency Department Visits in the United States: 2006-2014,” Journal of Addiction Medicine (May/June 2019), which provided a national estimate analyzing data from The Nationwide Emergency Department Sample (NEDS)(“NEDS”), the largest database of U.S. hospital-owned emergency department visits. Based on our own analysis of the most recent NEDS data, we believe that the number of hospitalizations grew to 1.74over 1.7 million patients in 20182019 and was growing at an approximately 15% compounded annual growth rate between 2012 and 2018.2019. We believe the number of cannabis-related hospitalizations and other health problems associated with cannabinoid overdosesACIs such as depression, anxiety and mental disorders will continue to increase substantially as more states pass laws legalizing cannabis for medical and recreational use. Given the consequences, there is an urgent need for a treatment to rapidly reverse the symptoms of cannabinoid overdose.ACI.

In May 2020, we entered into a royalty-bearing license agreement with Vernalis R&DDevelopment Limited (“License Agreement”) to exploit its license compounds and licensed products to combat symptoms of cannabinoid overdoseACI and substance addiction. We are currently developing our lead product candidate, ANEB-001 to quickly, and effectively, combat symptoms of cannabinoid overdose.ACI.

Our objective is to develop and commercialize new treatment options for patients suffering from cannabinoid overdoseACI and substance addiction. Our lead product candidate is ANEB-001, a potent, small molecule cannabinoid receptor antagonist, to address the unmet medical need for a specific antidote for cannabinoid overdose.ACI. ANEB-001 is an orally bioavailable, rapidly absorbed treatment that we anticipate will reverse the symptoms of cannabinoid overdoses,ACI, in most cases within 1 hour of administration. Our proprietary position in the treatment of cannabinoid overdoseACI is protected by rights to two patent applications covering various compositions and methods of use of the compound and delivery systems. We anticipate starting a Phase 2 proof-of-concept trial for ANEB-001 in the fourth quarter of 2021.

We were incorporated in Delaware on April 23, 2020, and commenced operations in May 2020. Our operations to date have consisted of organizing and acquiring the license rights to Vernalis’ licensed products, assembling an executive team, starting preparations for a Phase 2 proof-of-concept trial, including the synthesis of a new active pharmaceutical ingredient, the development and filing of a clinical trial protocol with regulatory agencies in Europe and raising capital. We havePrior to our initial public offering (“IPO”), we funded our operations through a private placement of our series A convertible preferred stock and issuance of two promissory notes to a related party.

On May 6,October 12, 2021, the United States Patent and Trademark Office issued to the Company U.S. Patent No. 11,141,404, titled “Formulations and Methods For Treating Acute Cannabinoid Overdose.” The issued patent describes the use of the Company’s investigational drug ANEB-001 to treat acute cannabinoid overdose and is expected to provide patent protection through 2040.

On September 25, 2022, we completedentered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional accredited investors (the “Purchasers”), pursuant to which we sold and issued to the initial public offering (“IPO”Purchasers in a private placement financing an aggregate of 2,264,650 units (collectively, the “Units”), with each Unit consisting of (i) one share of our common stock in which we sold 3,000,000 shares. The shares began trading on the Nasdaq Global Market on May 7, 2021. The shares were sold atand (ii) a warrant to purchase one share of our common stock, for an IPOaggregate purchase price of $7.00approximately $6,647,000 (or $2.935 per share for gross proceeds of approximately $21,000,000. Upon theUnit) (the “Private Placement”). The closing of the IPO, all outstanding sharesPrivate Placement occurred on September 28, 2022. The Company received approximately $6,398,000 in net proceeds from the Private Placement after deducting offering costs of approximately $249,000. Each warrant has an exercise price of $4.215 per share, which is subject to customary adjustments in the event of any combination or split of our convertible preferred stock were automatically converted into shares of common stock, and all outstanding shareshas a five-year term.

Components of Series A milestone warrants were converted on a net exercise basis into sharesResults of common stock, resulting in a total of 7,283,843 shares of common stock being issued to former holders of our convertible preferred stock, and Series A milestone warrants.Operations

We have not generated any revenue from product sales since inception. We expect to continue incurring significant research and development expenses related to ANEB-001. We have incurred operating losses since inception and expect to continue to incur significant operating losses and negative cash flows from operations for the foreseeable future. For the nine months ended March 31, 2021 and as of March 31, 2021, we recorded a net loss of $1,140,815 and an accumulated deficit of $9,532,345, respectively.

As of March 31, 2021, our cash and cash equivalents were $3,307,083. In March 2021, we raised $2,250,000 in gross proceeds from the sale of our series A preferred milestone warrants.

Financial Operations Overview

Revenue

We have not generated any revenue since inception. If our development efforts for our current lead product candidate, ANEB-001, or other additional product candidates that we may develop in the future, are successful and result in marketing approval, or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from such collaboration or license agreements. We cannot predict if, when, or to what extent we will generate revenue from the commercialization and sale of our product candidates. We may never succeedhave incurred operating losses since inception and expect to continue to incur significant operating losses and negative cash flows from operations in obtaining regulatory approval for any of our product candidates.the future.

Research and Development Expenses

We expect to continue incurring significant research and development costs related to ANEB-001. Our research and development expenses for the three and ninesix months ended MarchDecember 31, 2022 and 2021 included research and development consulting expenses, clinical trials, and costs associated with development of our lead product candidate, ANEB-001.

We anticipate that our research and development activities will account for a significant portion of our operating expenses and these costs are expensed as incurred. Following the closing of this offering, weWe expect to significantly increase our research and development efforts as we continue to develop ANEB-001 and conduct clinical trials with patients suffering from symptoms of cannabinoid overdose,ACI, as well as continue to expand our product-candidate pipeline. We anticipate researchResearch and development expenses will include:

We currently have one lead product candidate; and therefore, we do not track our internal research and development expenses on an indication-by-indication basis.

Research and development activities will continue to be central to our business model. Product candidates in early stages of clinical development, generally have high development costs, primarily due to multiple clinical trials, API, drug product and clinical materials manufacturing, milestone payments, IND process and clinical trial planning. We expect our research and development expenses to be significant over the next several years as we advance our current clinical development program and prepare to seek regulatory approval.

At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of any product candidates that we develop from our programs. We are also unable to predict when, if ever, material net cash inflows will commence from sales of product candidates we develop, if at all. This is due to the numerous risks and uncertainties associated with developing product candidates, including the uncertainty of:

A change in the outcome of any of these variables with respect to the development of any of our programs or any product candidate we develop would significantly change the costs, timing and viability associated with the development of such program or product candidate.

General and Administrative Expenses

General and administrative expenses for the three and ninesix months ended MarchDecember 31, 2022 and 2021 consisted primarily of professional fees, stock-based compensation, insurance, personnel costs and rent.

We anticipate that our general and administrative expenses will increase in the future to support our continued development efforts, ongoing and future potential research and development activities, and increased costs of operating as a public company. These increased costs will likely include additional personnel, outside consultants, lawyers, and accountants, among other expenses. Additionally, we anticipate increased costs associated with being a public company, including services associated with maintaining compliance with the requirements of Nasdaq and the SEC, insurance, and investor relations costs. If any of our current or future indication expansion programs or new product candidates obtains U.S. regulatory approval, we expect that we would incur significantly increased expenses associated with building a sales and marketing team.

Results of Operations

Comparison of the Three months ended Marchand Six Months Ended December 31, 2022 and 2021

The following table sets forthsummarizes our results of operations for the three months ended March 31, 2021. As such, the results for the three months ended March 31, 2021 may not provide a complete assessment of our financial performance and future periods.operations:

Research and Development Expenses

Research and development expenses for the three months ended March 31, 2021 consisted of the following:

The overall increase in research and development expenses was primarily attributable to an increase in activities related to pre-clinical and clinical studies, and direct third-party costs incurred under agreements with CROs for ANEB-001. The increase in pre-clinical and clinical studies was related to Phase 2 clinical studies for ANEB-001. During the fiscal year ended June 30, 2022, we began fully engaging with our CMOs to produce drug substance and drug product for our clinical trials, thus increasing our contract manufacturing expense.

General and Administrative Expenses

General and administrative expenses for the three months ended March 31, 2021 consisted of the following:

The overall increase in general and administrative expenses was primarily attributable to compensation and related benefits and stock-based compensation for additional executives and employees, professional and consultant fees, including legal and accounting fees, and facilities and other costs to support our continuous growth in operations. This was partially offset by a decrease in directors’ and officers’ insurance resulting from a decrease in the yearly premium amount.

Liquidity and Capital Resources

Interest ExpenseOverview

Interest expense of $3,701 for the three months ended March 31, 2021 was related to two promissory notes issued to a related party.

Income Taxes

For interim periods, we estimate the annual effective income tax rate and apply the estimated rate to the year-to-date income or loss before income taxes. The effective income tax rate for the three months ended March 31, 2021 was 0.0%. Currently,Since our inception in April 2020, we have recorded a full valuation allowance against our net deferred tax assets, primarily relatedincurred significant operating losses. We expect to federal netincur significant expenses and operating losses in the future as we advance the clinical development of our programs. In May 2021, we completed our IPO in which we sold 3,078,224 shares of our common stock, including the exercise by the underwriter of its option to purchase 78,224 additional shares of common stock, at a public offering price of $7.00 per share. We received net proceeds from our IPO of approximately $19.8 million, after deducting underwriter discounts and researchoffering expenses paid by us. On September 28, 2022, we closed the Private Placement, pursuant to which we sold an aggregate of 2,264,650 Units, with each Unit consisting of (i) one share of our common stock and (ii) a warrant to purchase one share of our common stock, for an aggregate purchase price of approximately $6.6 million (or $2.935 per Unit). The Company received approximately $6.4 million in net proceeds from the Private Placement after deducting offering costs of approximately $249,000. As of December 31, 2022, we had cash of approximately $16.4 million. As and if necessary, we will seek to raise additional funds through various potential sources, such as equity and debt financings or through collaboration, license and development credits.agreements. We can give no assurances that we will be able to secure such additional sources of funds to support our operations on acceptable terms or at all, or, if such funds are available to us, that such additional financing will be sufficient to meet our needs.

Deemed DividendCash Flows

Deemed dividend of $8,208,393 for the three months ended March 31, 2021 recorded against accumulated deficit and was related to the recording of the series A preferred warrant liability at fair value.

Nine months ended March 31, 2021

The following table sets forth a summary of our results of operations forcash flows: 

During the ninesix months ended MarchDecember 31, 2021. As such, the results for the nine months ended March 31, 2021 may not provide a complete assessment2022, we used cash in operating activities of our financial performance and future periods.

Research and Development Expenses

Research and development expenses for the nine months ended March 31, 2021 consistedapproximately $4.6 million primarily of the following:

General and Administrative Expenses

General and administrative expenses for the nine months ended March 31, 2021 consisted primarily of the following:

Interest Expense

Interest expense of $11,767 for the nine months ended March 31, 2021 was related to the two promissory notes issued to a related party and paid in full on March 22, 2021.

Income Taxes

For interim periods, we estimate the annual effective income tax rate and apply the estimated rate to the year-to-date income or loss before income taxes. The effective income tax rate for the nine months ended March 31, 2021 was 0.0%. Currently, we have recorded a full valuation allowance againstresulting from our net deferred taxloss of approximately $6.4 million partially offset by the non-cash related stock-based compensation of approximately $438,000, and a change in operating assets and liabilities of approximately $1.3 million. We received cash from financing activities of approximately $6.5 million primarily related to federal net operating losses and research and development credits.

Deemed Dividend

Deemed dividend of $8,208,393 for the nine months ended March 31, 2021 recorded against accumulated deficit and was related to the recording of the series A preferred warrant liability at fair value.

Liquidity and Capital Resources

Overview

To date, we have financed our operations primarily with proceeds from sales of our series A convertible preferred stock and issuance of two promissory notes to a related party. From our inception through June 30, 2020, we received gross proceeds of $3,200,000. As of March 31, 2021 and June 30, 2020, we had cash and cash equivalents of $3,307,083 and $3,024,980 and an accumulated deficit of $9,532,345 and $183,137, respectively. Additionally, on March 15, 2021, we received proceeds from the issuance of milestone warrants of $2,250,000, pursuant to the Securities Purchase Agreement.

On May 11, 2021, we completed our IPO and received gross proceedsresulting from the issuance of common stock and warrants of $21,000,000.approximately $6.6 million, net of offering costs of approximately $249,000. During the six months ended December 31, 2021, we used cash in operating activities of approximately $2.0 million, primarily resulting from our net loss of approximately $2.6 million, partially offset by the non-cash related stock-based compensation of approximately $128,000, and a change in operating assets and liabilities of approximately $521,000.

Funding and Material Cash Requirements

We intendexpect that our cash at December 31, 2022 will enable us to usefund our current and planned operating expenses and capital expenditures for at least the net proceedsnext 12 months from the filing of this report. We have based these estimates on assumptions that may prove to be imprecise, and we may exhaust our available capital resources sooner that we currently expect. Because of the numerous risks and uncertainties associated with the development of our IPOprograms, we are unable to make expenditures to fund proprietaryestimate the amounts of increased capital outlays and operating expenses associated with completing the research and development of our ANEB-001 product and to support preclinical testing and clinical trials necessary for regulatory filings. A portion of the net proceeds from the IPO may be used for the acquisition or licensing of complementary technologies, products or businesses. The net proceeds of the IPO will also be available for working capital and other general corporate purposes, including enhancing our corporate infrastructure and systems to assist in creating a more robust means of tracking data, automating back-office functions and improving our financial reporting system. We will need additional funding to complete the clinical development of, seek regulatory approval for and commercially launch ANEB-001 and other pipeline development products.candidates.

Until such time, if ever, as we can generate substantial product revenue from sales of any of our current or future product candidates, we expect to finance our cash needs through a combination of equity offerings, debt financings and potential collaboration, license or development agreements. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. We have no current agreements or understandings with investors to provide such capital.

Our present and future funding and cash requirements will depend on many factors, including, among other things:

Until such time, if ever, as we can generate substantial product revenue from sales of any of our current or future product candidates, we will need to seek additional equity or debt financing or potential collaboration, license or development agreements to provide the capital required to maintain or expand our operations, continue the development of our product candidate, build our sales and marketing capabilities, promote brand identity, develop or acquire complementary technologies, products or businesses, or provide for our working capital requirements and other operating and general corporate purposes. If we raise additional capital by issuing equity securities and/or equity-linked securities, the percentage ownership of our existing stockholders may be reduced, and accordingly these stockholders may experience substantial dilution. We may also issue equity securities and/or equity-linked securities that provide rights, preferences and privileges senior to those of our common stock. Debt financing, if obtained, may involve agreements that include liens on our assets and covenants limiting or restricting our ability to take specific actions such as incurring additional debt. Debt financing could also be required to be repaid regardless of our operating results. If we raise funds through collaborations, strategic allianceslicense or marketing, distribution or licensing arrangements with third parties,development agreements, we may be required to relinquish valuablesome rights to our technologies,current or future products or revenue streams research programs or product candidates or to grant licenses on terms that mayare not be favorable to us. Adequate additional funding mayIf such financing is not be available to us on acceptablesatisfactory terms, or is not available at all. If we are unable to raise capital in sufficient amounts or on terms acceptable to us,all, we may havebe required to significantly delay, scale back or discontinue the development or commercialization of our product candidates, grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves or potentially discontinue operations. With our cash on hand and the funds received from our IPO in May 2021, we will have adequate cash resources to fund operations for at least the next twelve (12) months from the date of issuance of these financial statements.

Financing Transactions

On May 28, 2020 and June 18, 2020, we executed two promissory notes payable to Dr. Lawler in the aggregate principal amount of $200,000, reflecting cash advances by the lender to us in May and June 2020. The indebtedness is unsecured and bears interest at the rate of 8.0% per year. All accrued and unpaid interest and principal on the promissory note issued on May 28, 2020 is due and payable on demand by the holder on or after the date on which we consummate an equity financing (or series of equity financings having materially similar terms and conditions) pursuant to which we sell and issue shares of preferred stock for total aggregate gross proceeds of at least $2,500,000.

On March 22, 2021, all accrued and unpaid interest and principal on the promissory notes issued on May 28, 2020 and June 18, 2020 were paid in full.

On June 18, 2020, we received gross proceeds of $3,000,000 from a private placement of our series A preferred stock (the “Private Placement”), convertible into 2,047,500 shares of our common stock, pursuant to the terms of a securities purchase agreement (the “Securities Purchase Agreement”) with 22NW, LP, an institutional accredited investor affiliated with Aron R. English, who became a director of our company at such time. The series A preferred stock is convertible into shares of common stock automatically upon the closing of our IPO. The conversion price of the series A preferred stock is $1.4652 per share. The conversion price is subject to adjustment if, at any time prior to conversion of the shares, we issue in a financing additional shares of common stock or other equity or equity-linked securities at a purchase, conversion or exercise price less than $1.4652 per share. In any such case, we have agreed to issue additional shares of series A preferred stock to the investors so that the effective purchase price per share in the Private Placement is reduced by a weighted-average anti-dilution percentage that takes into account both the lower per share purchase, conversion or exercise price and the number of such additional shares issued at the lower price. No adjustment will be made, however, in respect of shares of common stock or stock options issued to employees, directors or consultants, or in connection with acquisitions of other corporations or strategic collaborations approved by our board of directors.

On March 8, 2021, the requisite development milestones were achieved, and therefore the Milestone Warrants were earned and warrants to purchase Series A preferred stock were issued for $2,250,000 in cash. The warrants are exercisable for cash into up to an additional 6,896,406 shares of series A preferred stock at an exercise price of $1.685 per share or on a “net-exercise” basis into such lesser number of shares of series A preferred stock by surrendering a portion of the underlying warrant shares, based on the positive difference between the stated warrant exercise price and the IPO price per share from the IPO, to pay the exercise price.

On May 11, 2021, we completed the IPO of our common stock, in which we sold 3,000,000 shares. The shares began trading on the Nasdaq Global Market on May 7, 2021. The shares were sold at an IPO price of $7.00 per share for gross proceeds of approximately $21,000,000. Upon the closing of the IPO, all outstanding shares of our convertible preferred stock were automatically converted into shares of common stock and all outstanding shares of Series A underlying the milestone warrants were converted on a net exercise basis into shares of common stock, resulting in a total of 7,283,843 shares of common stock being issued to former holders of our convertible preferred stock, and Series A milestone warrants.

Cash Flows

The following table sets forth a summary of our cash flows for the nine months ended March 31, 2021: