CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Statements in this report that are not descriptions of historical facts are forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 that are based on management’s current expectations and are subject to risks and uncertainties that could negatively affect our business, operating results, financial condition and share price. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” “will,” “would,” the negative of these terms or other comparable terminology, and the use of future dates.

The forward-looking statements in this report are subject to risks and uncertainties and include, among other things, statements about:things:

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described under “Part I. Item 1A. Risk Factors” in our annual report on Form 10-K for the fiscal year ended December 31, 20202021 and those described above and elsewhere in this report. Moreover, we operate in a very competitive and rapidly-changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, 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 any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Forward-looking statements should not be relied upon as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Except as required by law, including the securities laws of the United States, we do not intend to update any forward-looking statements to conform these statements to actual results or to changes in our expectations.

PART I - FINANCIAL INFORMATION

DiaMedica Therapeutics Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share amounts)

See accompanying notes to the condensed consolidated financial statements.

DiaMedica Therapeutics Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

(Unaudited)

See accompanying notes to the condensed consolidated financial statements.

DiaMedica Therapeutics Inc.

Condensed Consolidated Statements of Shareholders’ Equity

For the Six Months Ended June 30, 20212022 and 20202021

(In thousands, except share and per share amounts)

(Unaudited)

See accompanying notes to the condensed consolidated financial statements.

DiaMedica Therapeutics Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

See accompanying notes to the condensed consolidated financial statements.

DiaMedica Therapeutics Inc.
Notes to the Condensed Consolidated Financial Statements

(Unaudited)

DiaMedica Therapeutics Inc. and its wholly-owned subsidiaries, DiaMedica USA, Inc. and DiaMedica Australia Pty Ltd. (collectively we, us, our, DiaMedica and the Company), are focused on developing novel treatmentsexists for the primary purpose of advancing the clinical and commercial development of our proprietary recombinant KLK1 protein, DM199, for the treatment of neurological disorders and kidney diseases. Currently, our primary focus is on developing DM 199,DM199, a proprietary recombinant form of the human tissue kallikrein-1 (KLK1)kallikrein-1 (KLK1) protein for the treatment of acute ischemic stroke (AIS) and chronic kidney disease (CKD). Our parent company is governed under the British ColumbiaColumbia’s Business Corporations Act, and our common shares are publicly traded on The Nasdaq Capital Market under the symbol “DMAC.”

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 accordingly, has does not begun to commercialize any product candidate or 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 fivefour 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, 2021, 2022, we have incurred losses of $75.8$89.4 million since our inception in 2000. For the six months ended June 30, 2021, 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, 2021, 2022, DiaMedica had combined cash, and cash equivalents of $2.2 million,and marketable securities of $19.1$38.4 million, working capital of $20.2$37.6 million and shareholders’ equity of $20.3$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, and regulatory activities and otherwise developmanufacturing 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 be sufficient to allow us to complete our currently ongoing Phase 2 study in patients with CKD and to otherwise fund our currently planned operations into the third quarter of 2022, but notfor 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 related generalother factors on our clinical trials and administrative support.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.

The accompanying interim condensed consolidated financial statements have been prepared assuming that we will continue as a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business and do not include any adjustments relating to the recoverability or classification of assets or the amounts of liabilities that might result from the outcome of these uncertainties. Our ability to continue as a going concern, realize the carrying value of our assets and discharge our liabilities in the ordinary course of business is dependent upon a number of factors, including our ability to obtain additional financing, the success of our development efforts, our ability to obtain marketing approval for our initial product candidate, DM199, in the United States, the European Union or other markets, and ultimately our ability to license and/or market and sell our initial product candidate. These factors, among others, raise substantial doubt about our ability to continue operations as a going concern. See Note 3 titled “Liquidity and Management Plans.”

As of December 31, 2020 and June 30, 2021, the Company had an accumulated deficit of $68.9 million and $75.8 million, respectively, and the Company has not generated positive cash flow from operations since its inception.

Additional funding will be required to continue the Company’s research and development and other operating activities. In the next 12 months, we will likely seek to raise additional funds through various sources, such as equity or debt financings, or through strategic collaborations and license agreements. We can give no assurances that we will be able to secure additional sources of funds to support our operations, or if such funds are available to us, that such additional financing will be on terms acceptable to us or sufficient to meet our needs. This risk would increase if our clinical data is not positive or economic and market conditions deteriorate.

There can be no assurances that we will be able to obtain additional financing on commercially reasonable terms, or at all. To the extent we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our shareholders will be diluted. Debt financing, if available, may involve agreements that include conversion discounts or covenants limiting or restricting our ability to take specific actions, such as incurring additional debt or making capital expenditures. If we raise additional funds through government or other third-party funding, marketing and distribution arrangements or other collaborations, or strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. The availability of financing may be affected by our clinical data and other results of scientific and clinical research; our ability to obtain regulatory approvals; market acceptance of our product candidates; the state of the capital markets generally with particular reference to pharmaceutical and biotechnology companies; the status of any then strategic alliance agreements; and other relevant commercial considerations.

If adequate funding is not available when needed, we may be required to scale back our operations by taking actions that may include, among other things, implementing cost reduction strategies, such as reducing use of outside professional service providers, reducing the number of our employees or employee compensation, modifying or delaying the development of our DM199 product candidate; licensing to third parties the rights to commercialize our DM199 product candidate for AIS, CKD or other indications that we would otherwise seek to pursue, or otherwise relinquishing significant rights to our technologies, future revenue streams, research programs or product candidates or granting licenses on terms that may not be favorable to us; and/or divesting assets or ceasing operations through a merger, sale, or liquidation of our company.

Interim financial statements

We have prepared the accompanying condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (US GAAP) for interim financial information and with the instructions to Form 10-Q10-Q and Regulation S-XS-X of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. These condensed consolidated financial statements reflect all adjustments consisting of normal recurring accruals which, in the opinion of management, are necessary to present fairly our consolidated financial position, consolidated results of operations, consolidated statement of shareholders’ equity and consolidated cash flows for the periods and as of the dates presented. Our fiscal year ends on December 31. The condensed consolidated balance sheet as of December 31, 2020 2021 was derived from our audited consolidated financial statements. Certain prior year amounts have been reclassified to conform to the current year presentation. These condensed consolidated financial statements should be read in conjunction with our annual consolidated financial statements and the notes thereto. The nature of our business is such that the results of any interim period may not be indicative of the results to be expected for the entire year.

Cash and cash equivalents

The Company considers all bank deposits, including money market funds, and other investments, purchased with an original maturity to the Company of three months or less, to be cash and cash equivalents. The carrying amount of our cash equivalents approximates fair value due to the short maturity of the investments.

Concentration of credit risk

Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of cash, cash equivalents and marketable securities. The Company maintains its cash balances primarily with onetwo financial institution.institutions. These balances generally exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in cash and cash equivalents. The Company believes that the credit risk related to marketable securities is limited due to the adherence to an investment policy focused on the preservation of principal.

Marketable securities

The Company’s marketable securities typically consist of obligations of the United States government and its agencies and investment grade corporate obligations, and bank certificates of deposit, which are classified as available-for-sale and included in current assets as they are intended to fund current operations. Securities are valued based on market prices for similar assets using third party certified pricing sources. Available-for-sale securities are carried at fair value with unrealized gains and losses reported as a component of shareholders’ equity in accumulated other comprehensive income (loss).loss. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization or accretion is included in interest income. Realized gains and losses, if any, are calculated on the specific identification method and are included in other income in the condensed consolidated statements of operations.

Available-for-sale securities are reviewed for possible impairment at least quarterly, or more frequently if circumstances arise that may indicate impairment. When the fair value of the securities declines below the amortized cost basis, impairment is indicated and it must be determined whether it is other than temporary. Impairment is considered to be other than temporary if the Company: (i) intends to sell the security, (ii) will more likely than not be forced to sell the security before recovering its cost, or (iii) does not expect to recover the security’s amortized cost basis. If the decline in fair value is considered other than temporary, the cost basis of the security is adjusted to its fair market value and the realized loss is reported in earnings. Subsequent increases or decreases in fair value are reported as a component of shareholders’ equity in accumulated other comprehensive income (loss).loss. There were no other-than-temporary unrealized losses as of June 30, 2021.2022.

Fair value measurements

Under the authoritative guidance for fair value measurements, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The authoritative guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The categorization of financial assets and financial liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The hierarchy is broken down into three levels defined as follows:

Level 1 Inputs — quoted prices in active markets for identical assets and liabilities

Level 2 Inputs — observable inputs other than quoted prices in active markets for identical assets and liabilities

Level 3 Inputs — unobservable inputs

As of June 30, 2021, 2022, the Company believes that the carrying amounts of its other financial instruments, including amounts receivable, accounts payable and accrued liabilities, approximate their fair value due to the short-term maturities of these instruments. See Note 4, titled “Marketable Securities” for additional information.

Patent costs

Costs associated with applying for, prosecuting and maintaining patents are expensed as incurred given the uncertainty of patent approval and, if approved, the resulting probable future economic benefit to the Company. Patent-related costs, consisting primarily of legal expenses and filing/maintenance fees, are included in general and administrative costs and were $68,000$90,000 and $60,000$68,000 for the six months ended June 30, 2021 2022 and 2020,2021, respectively.

The available-for-sale marketable securities are primarily comprised of investments in commercial paper, corporate bonds and government securities and consist of the following, measured at fair value on a recurring basis (in thousands):

Accrued interest receivable on available-for-sale securities is included in amounts receivable and was $9,000$88,000 and $34,000$130,000 as of June 30, 2021 2022 and December 31, 2020, 2021, respectively.

There were no transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy during the six months ended June 30, 2021.2022.

Under the terms of the Company’s investment policy, purchases of marketable securities are limited to investment grade governmental and corporate obligations and bank certificates of deposit with a primary objective of principal preservation. Maturities of individual securities are less than one year and the amortized cost of all securities approximated fair value as of June 30, 2021 2022 and December 31, 2020.2021.

Amounts receivable consisted of accrued interest receivable on marketable securities of $88,000 and $130,000 as of June 30, 2022 and December 31, 2021, respectively.

Deposits consisted of the following (in thousands):

We periodically advance funds to vendors engaged to support the performance of our clinical trials and related supporting activities. The funds advanced are held, interest free, for varying periods of time and may be recovered by DiaMedica through full or partial reductions of ongoing invoices, application against final study/project invoices or refunded upon completion of services to be provided. Deposits are classified as current based upon their expected recovery time.

Property and equipment consisted of the following (in thousands):

Accrued liabilities consisted of the following (in thousands):

We lease certain office space under a non-cancelable operating lease. This lease does not have significant rent escalation holidays, concessions, leasehold improvement incentives or other build-out clauses. Further this lease does not contain contingent rent provisions. This lease terminates on August 31, 2022 and we do not have an option to renew. This lease does include both lease (e.g., fixed rent) and non-lease components (e.g., common-area and other maintenance costs). The non-lease components are deemed to be executory costs and are therefore excluded from the minimum lease payments used to determine the present value of the operating lease obligation and related right-of-use asset.

Our operating lease cost and variable lease costs were $34,000$32,000 and $28,000,$26,000, respectively, for the six months ended June 30, 2021. 2022. Variable lease costs consist primarily of common area maintenance costs, insurance and taxes which are paid based upon actual costs incurred by the lessor.

Maturities of our operating lease obligation are as follows as of June 30, 2021 (in2022 (in thousands):

New office lease

In June 2022, we entered into an agreement to lease approximately 6,000 square feet of office space in Minneapolis, MN, near our current office space. The lease commencement date is expected to coincide with the initiation of the lease term on September 1, 2022. The lease term is 65 months, expiring on January 31, 2028.  The aggregate base rent due over the initial term under the terms of the lease agreement is approximately $608,000, without giving effect to certain rent abatement terms. We will also be responsible for the payment of variable lease costs covering certain common area maintenance costs, insurance and taxes. The lease includes a one-time 5-year renewal option at the market rate following the initial lease term. We intend to relocate our principal executive officers, together with our research and development operations, to this office space on September 1, 2022 following the expiration of the lease described above.

Authorized capital stock

The Company has authorized share capital of an unlimited number of voting common shares and the shares do not have a stated par value.

Common shareholders are entitled to receive dividends as declared by the Company, if any, and are entitled to one vote per share at the Company's annual general meeting and any special meeting.

Equity issued during the six months ended June 30, 20212022

During the six months ended June 30, 2022, we did not issue any common shares.

Equity issued during the six months ended June 30, 2021

During the six months ended June 30, 2021, 40,000 common shares were issued upon the exercise of options for gross proceeds of $244,000 with an aggregate intrinsic value of $132,000 and no warrants were exercised.

Equity issued during the six months ended June 30, 2020

On February 13, 2020, we issued and sold an aggregate of 2,125,000 common shares in a public, underwritten offering at a public offering price of $4.00 per share. As a result of the offering, we received gross proceeds of $8.5 million, which resulted in net proceeds to us of approximately $7.7 million, after deducting the underwriting discount and offering expenses.

During the six months ended June 30, 2020, 7,200 common shares were issued upon the exercise of options for gross proceeds of $16,000 and 0 warrants were exercised.

Shares reserved

Common shares reserved for future issuance are as follows:

We compute net loss per share by dividing our net loss (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period. Shares issued during the period and shares reacquired during the period, if any, are weighted for the portion of the period that they were outstanding. The computation of diluted earnings per share, or EPS, is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. Our diluted EPS is the same as basic EPS due to common equivalent shares being excluded from the calculation, as their effect is anti-dilutive.

The following table summarizes our calculation of net loss per common share for the periods (in thousands, except share and per share data):

The following outstanding potential common shares were not included in the diluted net loss per share calculations as their effects were not dilutive:

Amended and Restated 2019 Omnibus Incentive Plan

At the 2022 Annual General Meeting of Shareholders on May 18, 2022, our shareholders, upon recommendation of our Board of Directors (Board), approved the DiaMedica Therapeutics Inc. Amended and Restated 2019 Omnibus Incentive Plan (the 2019 Plan). The Board approved the 2019 Plan, subject to approval by our shareholders, on March 10, 2022.

The DiaMedica Therapeutics Inc. 2019 Omnibus Incentive Plan (2019 Plan) was adopted by the Board of Directors in March 2019 and approved by our shareholders at our annual general and special meeting of shareholders held on May 22, 2019. The 2019 Plan permits the Board, or a committee or subcommittee thereof, to grant to the Company’s eligible employees, non-employee directors and certain consultants non-statutory and incentive stock options, stock appreciation rights, restricted stock awards, restricted stock units, deferred stock units (DSUs), performance awards, non-employee director awards and other stock-based awards. We grant options to purchase common shares under the 2019 Plan at no less than the fair market value of the underlying common shares as of the date of grant. Options granted to employees and non-employee directors have a maximum term of ten years and generally vest in approximately equal quarterly installments over one to threefour years. Options granted to non-employees have a maximum term of five years and generally vest in approximately equal quarterly installments over one year. Subject to adjustment as provided in the 2019 Plan, the maximum number of the Company’s common shares authorized for issuance under the 2019 Plan is 2,000,0004,000,000 shares. As of June 30, 2021, 2022, options to purchase 930,682an aggregate of 1,833,588 common shares were outstanding and 50,959117,069 common shares were reserved for issuance upon settlement of deferred share units (DSUs)DSUs under the 2019 Plan.

2021 Employment Inducement Incentive Plan

On December 3, 2021, the Board adopted the DiaMedica Therapeutics Inc. 2021 Employment Inducement Incentive Plan (Inducement Plan) to facilitate the granting of equity awards as an inducement material to new employees joining the Company. The Inducement Plan is administered by the Compensation Committee of the Board of Directors. The Board reserved 1,000,000 common shares of the Company for issuance under the Inducement Plan. The only persons eligible to receive awards under the Inducement Plan are individuals who are new employees and satisfy the standards for inducement grants under Nasdaq Listing Rule 5635(c)(4) or 5635(c)(3), as applicable. As of June 30, 2022, options to purchase an aggregate of 325,000 common shares were outstanding under the Inducement Plan.

Prior stock option planStock Option Plan

The DiaMedica Therapeutics Inc. Stock Option Plan, Amended and Restated November 6, 2018 (Prior(Prior Plan), was terminated by the Board of Directors in conjunction with the shareholder approval of the 2019 Plan. Awards outstanding under the Prior Plan remain outstanding in accordance with and pursuant to the terms thereof. Options granted under the Prior Plan have terms similar to those used under the 2019 Plan. As of June 30, 2021, 2022, options to purchase 490,410an aggregate of 465,410 common shares were outstanding under the Prior Plan.

Prior deferred share unit planDeferred Stock Unit Plan

The DiaMedica Therapeutics Inc. Amended and Restated Deferred ShareStock Unit Plan (DSU(Prior DSU Plan) was terminated by the Board of Directors in conjunction with the shareholder approval of the 2019 Plan. Awards outstanding under the Prior DSU Plan remain outstanding in accordance with and pursuant to the terms thereof. As of June 30, 2021, 2022, there were 21,18317,333 common shares reserved for issuance upon settlement of DSUs outstanding.outstanding under the Prior DSU Plan.

Share-based compensation expense for each of the periods presented is as follows (in thousands):

We recognize share-based compensation based on the fair value of each award as estimated using the Black-Scholes option valuation model. Ultimately, the actual expense recognized over the vesting period will only be for those shares that actually vest.

A summary of option activity is as follows (in thousands except share and per share amounts):

Information about stock options outstanding, vested and expected to vest as of June 30, 2021, 2022, is as follows:

During 2021, we have engaged a consulting firm owned by our Vice President of Regulatory Affairs to perform certain tasks supporting our quality and regulatory activities. The work is performed as required by us and all services are invoiced on an hourly basis with no minimum commitment. Total charges invoiced were approximately $149,000 during the six-months ended June 30, 2021, and are recorded as research and development expenses, of which approximately $8,500 was outstanding and included in accounts payable as of June 30, 2021.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon accounting principles generally accepted in the United States of America and discusses the financial condition and results of operations for DiaMedica Therapeutics Inc. and its subsidiaries for the three and six months ended June 30, 20212022 and 2020.2021.

This discussion should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this report and our Annual Report on Form 10-K for the year ended December 31, 2020, which includes additional information about our critical accounting policies and practices and risk factors.2021. The following discussion contains forward-looking statements that involve numerous risks and uncertainties. Our actual results could differ materially from the forward-looking statements as a result of these risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements” for additional cautionary information.

Business Overview

We are a clinical stage biopharmaceutical company primarily focused on developing novel treatments for neurological disorders and kidneycommitted to improving the lives of people suffering from serious diseases. Currently, our primary focusDiaMedica’s lead candidate, DM199, is on developing DM199, a proprietarythe first pharmaceutically active recombinant (synthetic) form of the human tissue kallikrein-1 (KLK1) protein to be studied in patients. KLK1 proteinis an established therapeutic modality for the treatment of acute ischemic stroke (AIS) and chronic kidney disease (CKD). Our goal is to use our patented and licensedin-licensed technologies to establish our Company as a leader in the development and commercialization of therapeutic treatments from novel recombinant proteins. Our current focus is on the treatment of AIS and CKD. We plan to advance DM199 our lead drug candidate, through required clinical studiestrials to create shareholder value by establishing its clinical and commercial potential as a therapy for AIS and CKD.

DM199 is a recombinant form of human tissue kallikrein-1 (KLK1). KLK1 is a serine protease (protein) produced primarily in the kidneys, pancreas and salivary glands, thatwhich plays a critical role in the regulation of local blood flow and vasodilation (the widening of blood vessels which decreases blood pressure)vascular resistance) in the body, as well as an important role in inflammation and oxidative stress (an imbalance between potentially damaging reactive oxygen species, or free radicals, and antioxidants in theyour body). We believe DM199 has the potential to treat a variety of diseases where healthy functioning requires sufficient activity of KLK1 and its system, the kallikrein-kinin system.

Our DM199 product candidatedevelopment pipeline is in clinical development as follows:

Neuro: AIS Phase 2/3 ReMEDy2 Study of DM199

In December 2020, we received written responses fromOur ReMEDy2 trial is an adaptive design, randomized, double-blind, placebo-controlled trial intended to enroll approximately 350 patients at 75 sites in the FDA followingUnited States. Patients enrolled in the trial will be treated with either DM199 or placebo within 24 hours of the onset of AIS symptoms. The trial excludes patients treated with tissue plasminogen activator (tPA) and those with large vessel occlusions. The study population is representative of the approximately 80% of AIS patients who do not have treatment options today, primarily due to the limitations on treatment with tPA or mechanical thrombectomy. DiaMedica believes that the proposed trial has the potential to serve as a Type B Pre-IND meeting request that we submitted in October 2020 regarding our development plan forpivotal registration study of DM199 in the treatment of AIS. In the FDA’s written responses to the questions we provided, the FDA agreed with our proposals regarding key elements of a pivotal Phase 2/3 study for DM199 in patients with AIS, including plans for an adaptive study design with a primary endpoint based upon the modified Rankin Scale at day 90 and acknowledged that, provided the study results qualify, a single study may support a Biologics License Application submission.this patient population.

In April 2021,On July 6, 2022, we submitted an Investigational New Drug (IND) applicationannounced that the FDA has placed a clinical hold on our Phase 2/3 ReMEDy2 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. We may not enroll any additional patients in the ReMEDy2 trial until we provide the FDA with our analysis of the events leading to or causing the hypotension, our protocol modifications to address the mitigation of these events, our rationale and supporting data for the protocol modifications, and the FDA notifies us that we may resume enrollment in the clinical trial. Based on information received to date, we believe 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. We plan to submit a revised ReMEDy2 trial protocol with the supporting rationale and data to the FDA detailing a proposed protocolin 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 thisthe FDA to lift the clinical study. Thehold. It is also possible that the FDA accepted our IND in May 2021, allowingmay subsequently make additional requests that we would need to fulfill prior to the lifting of the clinical hold, such as requiring us to proceed withcomplete additional clinical trials or imposing stricter approval conditions than we currently expect for our DM199 product candidate.

Prior to voluntarily halting enrollment, we had experienced slower than expected site activations and enrollment in our ReMEDy2 trial and may continue to experience these conditions if and when we are able to resume enrollment. We believe this pivotal Phase 2/3 study which we have named ReMEDy2. Thiswas due to a number of factors, including the reduction or suspension of research activities at our current and targeted clinical study follows our Phase 2sites 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. While we are encouraged that COVID-19 related hospitalizations are down compared to prior periods and while we are taking certain actions to assist study sites in AIS patients that demonstrated an improvement in stroke outcomesovercoming these issues when the clinical hold is lifted and reduction in severe stroke recurrence. The upcoming pivotal ReMEDy2 studyenrollment resumes, no assurances can be provided as to if and when these issues will evaluate whether DM199, a recombinant investigational agent, can improve three-month outcomes in AIS patients who have no treatment option other than supportive care. Initial preparations are underway and initiation of the study is expected later this summer.resolve.

Renal: CKD Phase 2 REDUX Clinical StudyTrial of DM199

In October 2019, the U.S. Food and Drug Administration (FDA) acceptedAs of December 31, 2021, we completed patient enrollment in our Phase 2REDUX clinical study protocoltrial for the treatment of CKD caused by rare or significant unmet diseases. The study named REDUX, Latin for restore, iswith a multi-center, open-label investigation targeting enrollmenttotal of approximately 90 participants79 patients enrolled and initiating treatment, including 21 African American patients into Cohort 1, 25 patients with mild or moderate CKD (Stage II or III)IgAN into Cohort 2 and albuminuria, who are being enrolled in three equal cohorts. The study is being conducted in the United States at 13 sites and is focused on participants with CKD: Cohort I is focused on non-diabetic, hypertensive African Americans (AA) with Stage II or III CKD. African Americans are at greater risk for CKD than Caucasians, and those African Americans who have the APOL1 gene mutation are at an even higher risk. The study is designed to evaluate the APOL1 gene mutation as an exploratory biomarker in this cohort. Cohort II is focused on participants with IgA Nephropathy (IgAN). Cohort III, which was added after the completion of our August 2020 public offering, is focused on diabetic kidney disease (DKD) participants33 patients with Type 2 diabetes mellitus within Cohort 3. As of March 31, 2022, all patients had completed their treatment periods. We are currently working towards finalizing the data and evaluating next steps for our CKD hypertension and albuminuria. The study will evaluate two dose levels of DM199 within each cohort. Study participants receive DM199 by subcutaneous injection twice weekly for 95 days. The primary study endpoints include safety, tolerability, blood pressure, albuminuria and kidney function, which will be evaluated by changes from baseline in estimated glomerular filtration rate and albuminuria, as measured by the urinary albumin to creatinine ratio. Participant enrollment and dosing for this study commenced in December 2019.program.

In June 2021, we announced interim results indicating that DM199 is demonstrating clinically meaningful improvements in kidney function in Cohorts I and II, as measured by simultaneously stabilizing estimated glomerular filtration rate (eGFR) and decreasing urine albumin-to-creatinine ratio (UACR). In participants who were hypertensive (Cohorts I and III), DM199 also reduced blood pressure by clinically significant levels and importantly, there was no effect on participants who were not hypertensive (Cohort II). We reported the following preliminary data:

DM199 was safe and well tolerated across all cohorts, with no DM199 related severe adverse events (SAEs) or discontinuations due to drug-related adverse events (AEs). AEs were generally mild to moderate in severity, with the most common being local injection site irritation that resolved.Other: DM300

As of July 31, 2021, we had enrolled 75 subjects, including 20 African American subjects into Cohort I, 22 subjects with IgAN into Cohort II and completed enrollment with 33 subjects with Type 2 diabetes, hypertension and albuminuria into Cohort III. We have continued to experience slower than expected enrollmentidentified a potential novel new treatment for inflammatory diseases, DM300, currently in the first two cohortspreclinical stage of the REDUX study. We believe this is due to continued concerns of potential study subjects related to visiting clinical study sites. We are evaluating the effects of the recent surge in COVID-19 infections  related to the Delta variant and we will provide an update on the anticipated completion of  Cohort I and Cohort II when we are able to reasonably estimate.development.

Financial Overview

We have not generated any revenues from product sales. Since our inception, we have financed our operations from public and private sales of equity, the exercise of warrants and stock options, interest income on funds available for investment and government grants. We have incurred losses in each year since our inception. Our net losses were $6.9 million and $4.9 million for each of the six monthsmonth periods ended June, 20212022 and 2020, respectively.2021. As of June 30, 2021,2022, we had an accumulated deficit of $75.8$89.4 million. Substantially all of our operating losses resulted from expenses incurred in connection with the development of our DM199 product candidate, our primary research and development (R&D) activities and general and administrative (G&A) support costs associated with our operations.

We expect to continue to incur significant expenses and increased operating losses for at least the next several years.years as we advance our clinical programs. In the near term, we anticipate that our expenses will increase as compared to prior periods as we:

While we expect our rate of future negative cash flow per month will vary due to the timing of site activations and patient enrollment expenses, incurred, we expect our current cash and marketable securities resources will be sufficient to allow us to work with the FDA to lift the clinical hold and continue our Phase 2/3 ReMEDy2 trial in patients with AIS, complete the remaining two cohortspatient follow-up in our REDUX Phase 2 studytrial in patients with CKD, initiate our pending Phase 2/3 study in patients with AIS and to otherwise fund our currently planned operations intofor at least the third quarter of 2022, but not at leastnext twelve months from the date of issuance of thesethe condensed consolidated financial statements.statements included in this report. However, the amount and timing of future funding requirements will depend on many factors, including the timing and results of our ongoing development efforts, includingsite activations and enrollment in our clinical studies, the potential expansion of our current development programs, potential new development programs, related G&A support and the effects of the COVID-19 pandemic. 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. We may elect to raise additional funds even before we need themtime, especially if market conditions for raising additional capital are favorable.

Overview of Expense Components

Research and Development Expenses

R&D expenses consist primarily of fees paid to external service providers such as contract research organizations; contractual obligations for clinical development including clinical sites, outside nursing services and laboratory testing, and preclinical studies;trials; development of manufacturing processes, costs for production runs of DM199; salaries, benefits, and share-based compensation and other personnel costs.

At this time, due to the risks inherent in the clinical development process and the clinical stage of our product development programs, including our ability to address the FDA imposed clinical hold on our ReMEDy2 trial, we are unable to estimate with any certainty the costs we will incur in the continued development of DM199 or any of our preclinical development programs. Although as previously discussed, we have experienced a delay and expectPrior to continue to experience a delayvoluntarily halting enrollment in the timing of costs incurred in the REDUX study asReMEDy2 trial, we had experienced slower than expected site activations and enrollment. We believe this was due to a result of the COVID-19 pandemic, we do not expect to experience a significant overall increase in costs. We intend to continue to assess the effect of the pandemic on our REDUX study and our future studies by monitoring the continued spread of the COVID-19 virus, actions implemented to combat the virus, the availability and effectiveness of vaccines and the number of people vaccinated. Our R&D expenses have increased beginning withfactors, including the second quarterreduction or suspension of 2021research activities at our current and targeted clinical study sites due to COVID-19, as well as staffing shortages and concerns managing logistics and protocol compliance for patients discharged from the hospital to an intermediate care facility. While we are encouraged that COVID-19 related hospitalizations are down compared to prior year periods and while we are taking certain actions to assist study sites in overcoming these issues when enrollment resumes, no assurances can be provided as we commenced preparation for our ReMEDy2 clinical study. to if and when these issues will resolve.

We expect that our R&D expenses will continue to increase in the future as we initiate the ReMEDy2 clinical study and if we are successful in advancing DM199, or any of our preclinical programs, into advancedthrough the required stages of clinical development. The process of conducting clinical studiestrials necessary to obtain regulatory approval and manufacturing scale-up to support expanded development and potential future commercialization is costly and time consuming. Any failure by us or delay in completing clinical studies,trials, such as the clinical hold currently imposed on our Phase 2/3 ReMEDy2 trial, manufacturing scale-up or in obtaining regulatory approvals could lead to increased R&D expenses and, in turn, have a material adverse effect on our results of operations.

General and Administrative Expenses

G&A expenses consist primarily of salaries and relatedemployee benefits, including share-based compensation related to our executive, finance, business development and support functions. G&A expenses also include insurance, including directors and officers liability coverage, rent and utilities, travel expenses, patent costs, and professional fees, including for auditing, tax and legal services. We expectservices and milestone payments under our G&A expenses will continue to increase in the future as we expand our development and operating activities.technology license agreement with Catalent Pharma Solutions, LLC.

We have instituted a number of procedural changes related to protecting the health and safety of our employees in response to the COVID-19 pandemic.Our office was closed in the second quarter of 2020 and remained closed during the first quarter of 2021 and our employees worked remotely. In the second quarter of 2021, we opened our office and allowed, but did not require, employees to work in the office two days of each week. Non-essential travel continues to be on hold and we encourage our employees to interact with each other and vendors through audio and video conferencing. We did not incur significant additional G&A expenses during the three and six months ended June 30, 2021 related to these changes, or the COVID-19 pandemic, nor do we expect to incur significant additional G&A expenses related to the COVID-19 pandemic going forward. Provided conditions related to COVID-19 do not deteriorate, we expect to continue to work on a modified in-person/remote schedule and restrict non-essential travel for the foreseeable future.

Other (Income) ExpenseIncome

Other (income) expenseincome, net, consists primarily of interest income and foreign currency exchange gains and losses. In past years, governmental assistance – research incentives, which were associated with the ReMEDy Phase 2 stroke study, were a significant component of this line item.gains.

Results of Operations

Comparison of the Three and Six Months ended June 30, 20212022 and 20202021

The following table summarizes our unaudited results of operations for the three and six months ended June 30, 20212022 and 20202021 (in thousands):

Research and Development Expenses

R&D expenses increaseddecreased to $2.0 million for the three months ended June 30, 2022, down $0.2 million from $2.2 million for the three months ended June 30, 2021, up from $1.62021. R&D expenses decreased to $3.9 million for the threesix months ended June 30, 2020, an increase of $0.6 million. R&D expenses increased to2022, down $0.7 million from $4.6 million for the six months ended June 30, 2021, compared to $2.9 million2021. The decrease for the six months ended June 30, 2020, an increase of $1.7 million. The increase for the six monthsix-month comparison was primarily due to a number of factors, including reduced costs incurred for our pivotal ReMEDy2 clinical study, increased year-over-year costs related to manufacturing process development andduring the wrap-up of our REDUX Phase 2 CKD study, as well astrial, decreased non-clinical testing costs which were incurred in preparation for our Phase 2/3 ReMEDy2 trial which initiated during 2021 and decreased manufacturing process development costs. These decreases were partially offset by increased costs incurred in performing our Phase 2/3 ReMEDy2 trial and increased personnel costs associated with additional staff added to support R&D operations. These increases were partially offset by decreased costs incurred for our ReMEDy Phase 2 stroke study which completed in the prior year.

General and Administrative Expenses

G&A expenses were $1.4 million for the three months ended June 30, 2022, up from $1.2 million for the three months ended June 30, 2021, up from $1.12021. G&A expenses were $3.0 million for the threesix months ended June 30, 2020. G&A expenses increased to2022, up from $2.4 million for the six months ended June 30, 2021, up $0.2 million from $2.2 million for the six months ended June 30, 2020.2021. The increase for the six-month comparison was primarily due to increased directors’ and officers’ liability insurance, personnel and professional services costs and increased personnel costs to support our expanding clinical programs. The increases for the six-month comparison were partially offset by a reduction in non-cash share-based compensation.

Liquidity and Capital Resources

The following tables summarize our liquidity and capital resources as of June 30, 20212022 and December 31, 2020,2021, and our sources and uses of cash for each of the six month periods ended June 30, 20212022 and 2020,2021, and is intended to supplement the more detailed discussion that follows (in thousands):

Working Capital

We had aggregate cash, and cash equivalents of $2.2 million,and marketable securities of $19.1$38.4 million, current liabilities of $1.4$1.5 million and working capital of $20.2$37.6 million as of June 30, 2021,2022, compared to $7.4 million inaggregate cash, and cash equivalents and marketable securities of $20.1$45.1 million, $2.0$1.5 million in current liabilities and $25.9$43.9 million in working capital as of December 31, 2020.2021. The decreases in our combined cash, cash equivalents and marketable securities and in our working capital are due primarily to cash used to fund our increased clinical study costs associated with preparing for our ReMEDy2 Phase 2/3 stroke study, costs related to our REDUX Phase 2 CKD study and increased costs related manufacturing development.operating activities during the six months ended June 30, 2022.

Cash Flows

Operating Activities

Net cash used in operating activities for each of the six months ended June 30, 2022 and June 30, 2021 was $6.4 million compared to $3.8 million for the six months ended June 30, 2020. This increase relatesmillion. Cash used in operating activities is driven primarily to the increase in theby our net loss, partially offset by non-cash share-based compensation and the effects of the changes in operating assets and liabilities.

Investing Activities

Investing activities consist primarily of purchases and maturities of marketable securities. Net cash provided by investing activities was $4.7 million and $1.0 million for the six months ended June 30, 2022 and 2021, comparedrespectively. The current year increase relates primarily to netthe timing of maturities of marketable securities.

Financing Activities

Net cash used in investingfinancing activities of $2.8 millionwas $3,000 for the six months ended June 30, 2020.

Financing Activities

Financing2022 and consisted of principal payments on finance lease obligations, and net cash provided by financing activities consist primarilywas $241,000 for the six months ended June 30, 2021 and consisted of net proceeds from the exercise of stock options and in the prior year period from the sale of common shares in our February 2020 underwritten public offering. Net cash provided by financing activities was $0.2 million for the six months ended June 30, 2021 compared to $7.7 million for the six months ended June 30, 2020.options.

Capital Requirements

Since our inception, we have incurred losses while advancing the R&D of our DM199 product candidate. We have not generated any revenues from product sales and do not expect to do so for at least three to five years. We do not know when or if, we will generate any revenues from product sales of our DM199 product candidate or any future product candidate. We do not expect to generate any revenue from product sales unless and until we obtain regulatory approval. We expect to continue to incur substantial operating losses until such time as any future product sales, royalty payments, licensing fees and/or milestone payments are sufficient to generate revenues to fund our continuing operations. We expect our operating losses to increase in the near term as compared to prior periods as we continue the research, development and clinical studies of and seek regulatory approval for, our DM199 product candidate. In the long-term, subject to obtaining regulatory approval of our DM199 product candidate, or any future product candidate, and in the absence of the assistance of a strategic partner, we expectwould further require us to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution.

Accordingly, we expect we will need substantial additional capital to further our R&D activities, planned clinical studies, regulatory activities and otherwise develop our product candidate, DM199, or any future product candidates,candidate, to a point where theythe product candidate may be licensed or commercially sold. Although we are striving to achieve these plans, there is no assurance that these and other strategies will be achieved, that additional funding will be required after licensing or that additional funding will be obtained on favorable terms or at all. WhileWe expect our rate of future negative cash flow per month will vary due todepending on our clinical activities and the timing of expenses incurred, weincurred. We expect our current cash resources will be sufficient to allow us to work with the FDA to lift the clinical hold and once lifted continue our Phase 2/3 ReMEDy2 trial in patients with AIS, complete the remaining two cohortspatient follow-up in our REDUX Phase 2 studytrial in patients with CKD, initiate our pending Phase 2/3 study in patients with AIS and to otherwise fund our currently planned operations intofor at least the third quarter of 2022, but not at leastnext twelve months from the date of issuance of thesethe condensed consolidated financial statements.statements included in this report. However, the amount and timing of our future funding requirements will depend on many factors, including the timing and results of our ongoing development efforts, includingand specifically the initiation of new sites 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 programs and operations, and related G&A support. 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 additional capital are favorable.

Since our inception,

Historically we have financed our operations primarily from public and private sales of equity securities and the exercise of warrants and stock options, interest income on funds available for investment, and government incentive grants, and we expect to continue this practice for the foreseeable future. We do not have any existing credit facilities under which we could borrow funds. We may seek to raise additional funds through various sources, such as equity or debt financings, or through strategic collaborations and license agreements. We can give no assurances that we will be able to secure additional sources of funds to support our operations, or if such funds are available to us, that such additional financing will be sufficient to meet our needs or on terms acceptable to us. This is particularly true if our clinical data is not positive or economic and market conditions deteriorate.

To the extent we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our shareholders will be diluted. Debt financing, if available, may involve agreements that include conversion discounts or covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through government or other third-party funding, marketing and distribution arrangements or other collaborations, or strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. The availability of financing will be affected by our clinical data and other results of scientific and clinical research; the ability to attain regulatory approvals; market acceptance of our product candidates; the state of the capital markets generally with particular reference to pharmaceutical, biotechnology and medical companies; the status of strategic alliance agreements; and other relevant commercial considerations.

If adequate funding is not available when needed, we may be required to scale back our operations by taking actions that may include, among other things, implementing cost reduction strategies, such as reducing use of outside professional service providers, reducing the number of our employees or employee compensation, modifying or delaying the development of our DM199 product candidate; licensing to third parties the rights to commercialize our DM199 product candidate for AIS, CKD or other indications that we would otherwise seek to pursue, or otherwise relinquishing significant rights to our technologies, future revenue streams, research programs or product candidates or granting licenses on terms that may not be favorable to us; and/or divesting assets or ceasing operations through a merger, sale, or liquidation of our company.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements (as defined by applicable SEC regulations) that could have a current material effect or that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies and estimates from the information provided in “Part II. Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies,” included in our annual report on Form 10-K for the fiscal year ended December 31, 2020.2021.

As a smaller reporting company, we are not required to provide disclosure pursuant to this item.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the United States Securities Exchange Act of 1934, as amended (Exchange Act)) that are designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered in this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of such period to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the three months ended June 30, 20212022 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

In March 2013, we entered into a clinical research agreement with PRA Netherlands to perform a double-blinded, placebo-controlled, single-dose and multiple-dose study to evaluate the safety, tolerability, pharmacokinetics, pharmacodynamics and proof of concept of DM199 in healthy subjects and in patients with Type 2 diabetes mellitus. In one arm of this study, we enrolled 36 patients with Type 2 diabetes who were treated with two subcutaneous dose levels of DM199 over a 28-day period. This study achieved its primary endpoint and demonstrated that DM199 was well-tolerated. The secondary endpoints for this study, however, were not met. The secondary efficacy endpoints were confounded due to what we believe were significant execution errors caused by protocol deviations occurring at the clinical study site that were unable to be reconciled. To date, we have been unable to obtain the complete study records from PRA Netherlands and generate a final study report. On November 14, 2017, we initiated litigation with PRA Netherlands in the United States District Court, Southern District of New York, to compel PRA Netherlands to comply with the terms of the clinical research agreement, including providing full study records and to recover damages. After PRA Netherlands objected to personal jurisdiction and venue, on August 24, 2018, we re-filed our complaint against both PRA Netherlands and its U.S. parent, PRA Health Sciences, Inc. (PRA USA and collectively with PRA Netherlands, PRA), in the United States District Court, District of Delaware. PRA again objected to the venue and personal jurisdiction. The complaint alleges, among other things, that PRA failed to conduct the study in accordance with the study protocol and with generally accepted standards for conducting such clinical studies and that PRA further refused to provide us with all data, records and documentation, and/or access thereto, related to the study in accordance with the clinical trial study agreement. The complaint sought to compel PRA to comply with the terms of the clinical trial study agreement, including providing full study records and to recover damages. On November 19, 2018, PRA Netherlands and PRA USA filed motions to dismiss the lawsuit. On February 20, 2019, we filed a motion seeking to transfer the Delaware action to the United States District Court, District of Minnesota. PRA Netherlands and PRA USA filed an opposition to our motion. On September 21, 2020, the District Court judge issued a ruling denying our motion to transfer indicating that DiaMedica had not met the required standards to support a venue transfer. We believe that, based upon the rationale utilized in the opinion, that the case will likely be dismissed for lack of personal jurisdiction over PRA Netherlands. On November 2, 2020, a final dismissal order was issued by the District Court judge. Due to the uncertainty inherent in appealing this ruling, we have chosen to cease action in the United States and file our claims against PRA Netherlands directly in a Dutch Court. On November 13, 2020, PRA Netherlands was served with our complaint. PRA Netherlands and PRA USA filed their initial appearances with the Dutch Court on February 24, 2021, and are due to submit their defense, bringing forward all procedural and substances defenses. We have filed a motion to move the case to the Netherlands Commercial Court (NCC), which specializes in handling international commercial disputes and provides more flexibility to accommodate the specific needs of an individual case and PRA has agreed to move to the NCC. We are currently waiting for the NCC to assign judges to this matter, after which they will evaluate the adequacy of the documentation submitted in support of our claims and PRA’s response in order to determine the activities or additional information required and determine a schedule accordingly.

From time to time, we may be subject to other various ongoing or threatened legal actions and proceedings, including those that arise in the ordinary course of business, which may include employment matters and breach of contract disputes. Such matters are subject to many uncertainties and to outcomes that are not predictable with assurance and that may not be known for extended periods of time. Other than the PRA matter noted above, weWe are not currently engaged in or aware of any threatened legal actions.actions which we believe could have a material adverse effect on our consolidated result of operations or financial position.

AsAlthough Item 1A. is inapplicable to us as a smaller reporting company, we are not required to provide disclosure pursuant to this item.hereby disclose the following new risk factor and revised risk factor.

It may take considerable time and expense to respond to the clinical hold that has been placed on our Phase 2/3 ReMEDy2 trial by the FDA, and no assurance can be given that the FDA will remove the clinical hold, in which case our business and prospects will likely suffer material adverse consequences.

On July 6, 2022, we announced that the FDA placed a clinical hold on our Phase 2/3 ReMEDy2 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. It may take a considerable period of time, the length of which is not certain at this time, and expense for us to fully address the FDA’s concerns. Although we believe that these adverse hypotension events likely resulted from a changing to a new formulation of IV bag in the ReMEDy2 trial, as compared to the IV bag used in the ReMEDy1 trial,  it is possible that our belief may be incorrect. In addition, our intent to propose modifications to the protocol for our ReMEDy2 trial to decrease the dose to be comparable to the dose that was well tolerated in the 46 patients in the previous ReMEDy1 trial may not sufficiently mitigate the risk of future hypotension events or resolve the issues raised in our clinical hold letter from the FDA. Therefore, there is no assurance that our belief as to the cause of the hypotension events or our response to prevent future events is correct, such that we would be able to convince the FDA to lift the clinical hold. There is also no assurance that we will be able to fully respond to the FDA’s questions. Even if our belief as to the cause of the hypotension events or our response to prevent future events is correct and we are able to fully respond to the FDA’s initial questions, 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. It is possible that we will be unable to fully address the FDA’s questions and as a result, the clinical hold may never be lifted and we may never be able to resume enrollment in our Phase 2/3 ReMEDy2 trial. At this time, the full extent of this event on our Phase 2/3 ReMEDy2 trial is unclear.

Not applicableWe did not sell any unregistered equity securities of our Company during the quarter ended June 30, 2022.

Not applicable.

Not applicable.

Not applicable.

The following exhibits are being filed or furnished with this quarterly report on Form 10-Q:

SIGNATURES

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