DiaMedica operates in a highly regulated and competitive environment. The development, manufacturing and marketing of pharmaceutical products require approval from, and are subject to ongoing oversight by, the Food and Drug Administration (FDA) in the United States, the European Medicines Agency (EMA) in the European Union and comparable agencies in other countries. We are in the clinical stage of development of our initial product candidate, DM199, for the treatment of AIS and CKD. The Company has not completed the development of any product candidate and does not generate any revenues from the commercial sale of any product candidate. DM199 requires significant additional clinical testing and investment prior to seeking marketing approval and is not expected to be commercially available for at least three to four years, if at all.

On July 6, 2022, the Company announced that the FDA placed a clinical hold on the Company’s Phase 2/3 ReMEDy2 trial, which is an adaptive design, randomized, double-blind, placebo-controlled trial studying the use of DM199 to treat AIS patients. The clinical hold was issued following the Company voluntarily pausing patient enrollment in the trial to investigate three unexpected instances of clinically significant hypotension (low blood pressure) occurring shortly after initiation of the intravenous (IV) dose of DM199. The blood pressure levels of the three patients recovered back to their baseline blood pressure within minutes after IV infusion was stopped and the patients suffered no further adverse events. The Company may not enroll any additional patients in the ReMEDy2 trial until the Company provides the FDA with the Company’s analysis of the events leading to or causing the hypotension, its protocol modifications to address the mitigation of these events, its rationale and supporting data for the protocol modifications, and the FDA notifies the Company that it may resume enrollment in the clinical trial. Based on information received to date, the Company believes that the use of IV administration bags made from a different type of plastic in the ReMEDy2 study is responsible for the unexpected hypotension and that a proportionate reduction in the DM199 dose level for the initial IV dose will effectively mitigate the hypotension issue in future ReMEDy2 patients. The Company plans to submit a revised ReMEDy2 trial protocol with the supporting rationale and data to the FDA in September 2022. However, there can be no assurance that our belief as to the cause of the hypotension events or our response to prevent future events is correct, or that we will be able to fully respond to the FDA’s questions sufficiently for the FDA to lift the clinical hold. It is also possible that the FDA may subsequently make additional requests that we would need to fulfill prior to the lifting of the clinical hold, such as requiring us to complete additional clinical trials or imposing stricter approval conditions than we currently expect for our DM199 product candidate.

Prior to voluntarily halting enrollment, our Phase 2/3 ReMEDy2 trial has been adversely impacted by the COVID-19 pandemic and other factors. Specifically, we have experienced, and when we resume enrollment we may continue to experience, slower than expected site activations and enrollment in our ReMEDy2 trial. We believe this may be due to a number of factors, including the reduction or suspension of research activities at our current and targeted clinical study sites, as well as staffing shortages, due to COVID-19 and concerns managing logistics and protocol compliance for patients discharged from the hospital to an intermediate care facility during the three-week treatment period. While we are encouraged that COVID-19 related hospitalizations are down compared to prior periods and while we have taken and will continue to take certain actions to assist study sites in overcoming these issues, no assurances can be provided as to if and when these issues will resolve.

The Company’s future success is dependent upon the success of its development efforts, its ability to demonstrate clinical progress for its DM199 product candidate in the United States or other markets, its ability to obtain required governmental approvals of its product candidate, its ability to license or market and sell its DM199 product candidate and its ability to obtain additional financing to fund these efforts.

As of June 30, 2022, we have incurred losses of $89.4 million since our inception in 2000. For the six months ended June 30, 2022, we incurred a net loss of $6.9 million and negative cash flows from operating activities of $6.4 million. We expect to continue to incur operating losses until such time as any future product sales, royalty payments, licensing fees, and/or milestone payments generate revenue sufficient to fund our continuing operations. For the foreseeable future, we expect to incur significant operating losses as we continue the development and clinical studies of, and to seek regulatory approval for, our DM199 product candidate. As of June 30, 2022, DiaMedica had combined cash, cash equivalents and marketable securities of $38.4 million, working capital of $37.6 million and shareholders’ equity of $37.7 million. Our principal source of cash has been net proceeds from the issuance of equity securities. Although the Company has previously been successful in obtaining financing through equity securities offerings, there is no assurance that we will be able to do so in the future. This is particularly true if we are unable to resolve the clinical hold on our ReMEDy2 trial, if our clinical data is not positive or if economic and market conditions do not improve or further deteriorate.

We expect that we will need substantial additional capital to further our research and development activities, complete the required clinical studies, regulatory activities and manufacturing development for our product candidate, DM199, or any future product candidates, to a point where they may be licensed or commercially sold. We expect our current cash, cash equivalents and marketable securities to fund our planned operations for at least the next twelve months from the date of issuance of these condensed consolidated financial statements. The amount and timing of our future funding requirements will depend on many factors, including the timing and results of our ongoing development efforts, including the duration of the current clinical hold, the rate of site activation and enrollment in our clinical studies, the potential expansion of our current development programs, potential new development programs, the effects of the COVID-19 pandemic, staffing shortages and other factors on our clinical trials and our operating expenses. We may require significant additional funds earlier than we currently expect and there is no assurance that we will not need or seek additional funding prior to such time, especially if market conditions for raising capital are favorable.