What changed in this filing

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Item 1. Financial Statements

2022-02-14 compared with 2021-08-13 · 106 added, 263 removed, 275 unchanged (57% of the section changed)

12 unchanged sentences

Operating lease right-of-use assets

Liabilities, shareholders' equity and temporary equity:

Liabilities and shareholders’ equity:

Current liabilities:

7 unchanged sentences

Commitments (Note 5)

Temporary equity:

Convertible preferred shares

Shareholders’ equity:

9 unchanged sentences

Total shareholders’ equity

Total liabilities, shareholders' equity and temporary equity

Total liabilities and shareholders’ equity

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

2 unchanged sentences

Three Months Ended

Nine Months Ended

Product sales

Cost of sales

Research and development

3 unchanged sentences

( 2,613,802 )

( 18,196,812 )

( 4,390,368 )

Other Income (Loss):

1 unchanged sentence

Interest income

Foreign exchange gain (loss)

Loss on disposition of property and equipment

Loss before income taxes

( 4,759,510 )

( 1,765,763 )

( 9,656,309 )

( 4,348,932 )

Income tax expense

( 4,759,510 )

( 1,765,763 )

Foreign exchange loss

( 4,378,677 )

4 unchanged sentences

$ (2,534,185 )

$ ( 9,390,034 )

$ ( 4,302,554 )

Weighted average number of common shares

3 unchanged sentences

Condensed Interim Consolidated Statements of Cash Flows

Nine Months Ended

Three Months Ended

Cash Flows from Operating Activities:

3 unchanged sentences

Depreciation and amortization

Loss on disposition of property and equipment

Share-based compensation

1 unchanged sentence

Accounts and other receivable

( 4,008,512 )

Prepaid expenses and other current assets

( 1,389,083 )

Accounts payable and accrued liabilities

3 unchanged sentences

Cash Flows from Investing Activities:

Proceeds on sales of property and equipment

Purchase of property and equipment

Purchase of intangible assets

Purchase of short-term investments

Proceeds from maturities of short-term investments

Net cash provided by (used in) investing activities

Net cash used in investing activities

Cash Flows from Financing Activities:

1 unchanged sentence

Proceeds from exercise of warrants

Proceeds from exercise of share options

Payments for issuance costs of common shares

Payments for issuance costs of convertible preferred shares

Proceeds from borrowings

2 unchanged sentences

Net change in cash and cash equivalents

( 1,958,510 )

Cash and cash equivalents, beginning of period

2 unchanged sentences

Preferred shares converted from temporary equity to common shares

Issuance costs withheld from gross proceeds from issuance of common shares

Fair value of compensation warrants to underwriter

Issuance of convertible preferred shares to acquire license

Fair value of placement agent warrants

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

6 unchanged sentences

Total Shareholders' Equity

Three Months Ended June 30, 2021

Balance - March 31, 2021

$ ( 194,257 )

$ ( 18,050,078 )

Issuance of common shares upon exercise of share options

Share-based compensation

Net loss and comprehensive loss

( 4,759,510 )

( 4,585,382 )

Balance - June 30, 2021

$ ( 22,809,588 )

Three Months Ended June 30, 2020

Balance - March 31, 2020

Three Months Ended December 31, 2021

Balance - September 30, 2021

$ ( 205,262 )

$ ( 26,495,629 )

Issuance of common shares upon exercise of warrants

Preferred return on convertible preferred shares

Issuance of common shares in equity offerings

Issuance costs

Share-based compensation

2 unchanged sentences

( 4,346,828 )

Balance - June 30, 2020

Balance - December 31, 2021

$ ( 173,413 )

$ ( 30,874,306 )

Nine Months Ended June 30, 2021

Three Months Ended December 31, 2020

Balance - September 30, 2020

2 unchanged sentences

Issuance of common shares in equity offerings

Issuance costs including fair value of underwriter warrants

( 1,871,220 )

( 1,464,197 )

Issuance costs

Issuance of common shares upon exercise of warrants

Issuance of common shares upon exercise of share options

Preferred return on convertible preferred shares

Conversion of convertible preferred shares

Share-based compensation

Net loss and comprehensive loss

( 9,657,109 )

( 9,390,034 )

Balance - June 30, 2021

$ ( 22,809,588 )

Nine Months Ended June 30, 2020

Balance - September 30, 2019

$ ( 342,074 )

$ ( 6,734,615 )

Issuance of common shares and warrants in equity offering

Issuance of common shares upon exercise of warrants

Preferred return on convertible preferred shares

Issuance costs

Share-based compensation

Net loss and comprehensive loss

( 4,349,732 )

( 4,302,554 )

Balance - June 30, 2020

$ ( 294,896 )

Balance - December 31, 2020

$ (15,784,177 )

10 unchanged sentences

The full impact of the pandemic remains uncertain and ongoing developments related to the pandemic may cause material impacts to the Company’s future operations, clinical study timelines and financial results.

While the full impact of the COVID-19 pandemic to business and operating results presents additional uncertainty, the Company’s management continues to use reasonably available information to assess impacts of COVID-19 on the Company’s business plans and financial condition.

Basis of Presentation

While the full impact of the COVID-19 pandemic to business and operating results presents additional uncertainty, the Company’s management continues to use reasonably available information to assess impacts to the Company’s business plans and financial condition.

Basis of Preparation

The accompanying unaudited condensed interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S.

2 unchanged sentences

GAAP for complete financial statements.

These condensed interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended September 30, 2020, which were filed with the Securities and Exchange Commission (SEC) on December 7, 2020.

These condensed interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended September 30, 2021, which was filed with the Securities and Exchange Commission (SEC) on December 28, 2021.

The accompanying condensed interim consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Edesa Biotech Research, Inc., an Ontario corporation, and Edesa Biotech USA, Inc., a California corporation in the U.S.

1 unchanged sentence

All adjustments (consisting of normal recurring adjustments and accruals) considered necessary for a fair presentation of the results of operations for the periods presented have been included in the interim periods.

Operating results for the nine months ended June 30, 2021 are not necessarily indicative of the results that may be expected for other interim periods or the fiscal year ending September 30, 2021.

Operating results for the three months ended December 31, 2021 are not necessarily indicative of the results that may be expected for other interim periods or the fiscal year ending September 30, 2022.

Use of estimates

The preparation of the unaudited condensed interim consolidated financial statements in conformity with U.S.

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 unaudited condensed interim consolidated financial statements and the reported amounts of revenue and expenses during the period.

The preparation of consolidated financial statements in conformity with U.S.

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 the reported amounts of revenue and expenses during the period or year.

Actual results could differ from those estimates.

6 unchanged sentences

the determination of fair value of share-based compensation;

the determination of fair value of warrants in order to allocate proceeds from equity issuances and assign value to underwriter warrants;

the determination of fair value of warrants in order to allocate proceeds from equity issuances;

and forecasting future cash flows for assessing the going concern assumption.

Functional and reporting currencies

The condensed interim consolidated financial statements of the Company are presented in U.S.

dollars, unless otherwise stated, which is the Company’s and its wholly owned subsidiary’s, Edesa Biotech USA, Inc., functional currency.

The functional currency of the Company’s wholly owned subsidiary, Edesa Biotech Research, Inc., as determined by management, is Canadian dollars.

The consolidated financial statements of the Company are presented in U.S.

dollars, unless otherwise stated, which is the functional currency of the Company and its U.S.

The functional currency of the Company’s Canadian subsidiary, as determined by management, is Canadian dollars.

EDESA BIOTECH, INC.

Notes to Condensed Interim Consolidated Financial Statements (Unaudited)

Future accounting pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , which includes provisions that require the measurement of an estimate of all current expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts.

Financial assets measured at amortized cost basis are to be presented at the net amount expected to be collected and credit losses relating to available-for-sale debt securities are to be recorded through an allowance for credit losses.

The guidance is effective for public entities for fiscal years beginning after December 15, 2019, including interim periods within those years, with early adoption permitted for fiscal years beginning after December 15, 2018, however the effective date is delayed by one year for smaller reporting companies as defined by the SEC.

These standards are effective for the Company during the fiscal year ending September 30, 2022.

Management expects that ASU 2016-13, as updated, will not have a significant impact on the Company’s consolidated financial statements.

Property and Equipment

Property and equipment, net consisted of the following:

September 30,

Computer equipment

Furniture and equipment

accumulated depreciation

Total property and equipment, net

Depreciation expense amounted to $ 2,481 and $ 1,992 for the three months ended June 30, 2021 and 2020, respectively, and $ 6,414 and $ 7,046 for the nine months ended June 30, 2021 and 2020, respectively.

Intangible Assets

6 unchanged sentences

The Company has determined that the license has multiple alternative future uses in research and development projects and sublicensing in other countries or for other disease indications.

The value of the acquired license is recorded as an intangible asset with amortization over the estimated useful life of 25 years and evaluation for impairment quarterly.

The required upfront license payment of $2.5 million was paid by the issuance of Series A-1 Convertible Preferred Shares .

The value of the acquired license is recorded as an intangible asset with amortization over the estimated useful life of 25 years and evaluation for impairment at the end of each reporting period.

The required upfront license payment of $2.5 million was paid by issuance of Series A-1 Convertible Preferred Shares which were subsequently converted to common shares.

The value of the license includes acquisition legal costs.

The license agreement requires certain development, approval and commercialization milestone payments contingent on certain future events.

The Company also has a commitment to pay royalties based on any net sales of licensed products and a percentage of any sublicensing revenue.

See Note 6 for license commitments and Note 7 for convertible preferred shares in temporary equity.

Edesa Biotech, Inc.

Notes to Condensed Interim Consolidated Financial Statements (Unaudited)

See Note 5 for license commitments.

Intangible assets, net consisted of the following:

December 31, 2021

September 30, 2021

2 unchanged sentences

Total intangible assets, net

Amortization expense amounted to $ 25,293 and $ 20,654 for the three months ended June 30, 2021 and 2020, respectively, and $ 75,879 and $ 20,654 for the nine months ended June 30, 2021 and 2020, respectively.

Amortization expense amounted to $ 0.03 million for each of the three months ended December 31, 2021, and 2020.

Total estimated future amortization of intangible assets for each fiscal year is as follows:

4 unchanged sentences

September 30, 2026

Related party operating lease The Company leases facilities used for executive offices from a company controlled by the Company's CEO for a six-year term through December 2022, with an option to renew for an additional two-year term.

EDESA BIOTECH, INC.

Notes to Condensed Interim Consolidated Financial Statements (Unaudited)

Related Party Operating Lease

The Company leases facilities used for executive offices from a company controlled by the Company’s CEO for a six-year term through December 2022, with options to renew for another two-year term.

The option period is not included in the operating lease right-of-use assets and liabilities.

The gross amounts of assets and liabilities related to operating leases on the Balance Sheets were as follows:

September 30,

Operating lease right-of-use assets

Short-term operating lease liabilities

Long-term operating lease liabilities

Total lease liabilities

The components of lease cost were as follows:

Three Months Ended

Nine Months Ended

December 31, 2021

December 31, 2020

Operating lease cost, included in general and administrative on the Statements of Operations

Edesa Biotech, Inc.

Notes to Condensed Interim Consolidated Financial Statements (Unaudited)

Lease terms and discount rates were as follows:

December 31, 2021

September 30, 2021

1 unchanged sentence

Estimated incremental borrowing rate:

The approximate future minimum lease payments under operating leases at June 30, 2021 were as follows:

September 30, 2021

The approximate future minimum lease payments under operating leases at December 31, 2021 were as follows:

September 30, 2022

2 unchanged sentences

Less imputed interest

Present value of lease liabilities

Less current installments

Long-term lease liabilities excluding current installments

Present value of lease liabilities, short-term

Cash flow information was as follows:

June 30, 2021

June 30, 2020

Three Months Ended

December 31, 2021

December 31, 2020

Cash paid for amounts included in the measurement of lease liabilities, included in accounts payable and accrued liabilities on the Statements of Cash Flows

The Company leased facilities through its California subsidiary under two operating leases that expired in September 2020.

Total rent under these leases included in general and administrative expenses was $ 55,068 and $ 164,915 for the three and nine months ended June 30, 2020, respectively.

There was no rent under these leases during the three and nine months ended June 30, 2021.

EDESA BIOTECH, INC.

Notes to Condensed Interim Consolidated Financial Statements (Unaudited)

Research and other commitments

The Company has commitments for contracted research organizations who perform clinical trials for the Company’s ongoing clinical studies, other service providers and the drug substance acquired in connection with a license agreement.

Aggregate future contractual payments at June 30, 2021 are as follows:

The Company has commitments for contracted research organizations that perform clinical trials for the Company’s ongoing clinical studies, other service providers and the drug substance acquired in connection with a license agreement.

Aggregate future contractual payments at December 31, 2021 are as follows:

September 30, 2022

2 unchanged sentences

September 30, 2025

Edesa Biotech, Inc.

Notes to Condensed Interim Consolidated Financial Statements (Unaudited)

License commitments

License and royalty commitments

In April 2020, through its Ontario subsidiary, the Company entered into a license agreement with a third party to obtain exclusive world-wide rights to certain know-how, patents and data relating to certain monoclonal antibodies (“the Constructs”), including sublicensing rights.

An intangible asset for the acquired license has been recognized.

See Note 4 for intangible asset.

Under the license agreement, the Company recorded an expense of $ 3.5 million as a result of meeting a milestone during the nine months ended June 30, 2021 and is committed to remaining payments of up to an aggregate amount of $ 352.5 million contingent upon meeting certain milestones outlined in the license agreement, primarily relating to future potential commercial approval and sales milestones.

The Company also has a commitment to pay royalties based on any net sales of the products in the countries where the Company directly commercializes the products containing the Constructs and a percentage of any sublicensing revenue received by the Company and its affiliates in the countries where it does not directly commercialize the products containing the Constructs.

No royalty or sublicensing payments were made to the third party during the nine months ended June 30, 2021 and 2020.

In connection with this license agreement and pursuant to a purchase agreement entered into in April 2020, the Company acquired drug substance of one of the Constructs for an aggregate purchase price of $5.0 million, payable in two future installments, the first when the Company is ready to initiate a Phase 2 trial and the second when the Company is ready to initiate a Phase 3 trial.

A payment of $2.5 million was made for the drug substance during the nine months ended June 30, 2021 .

See Note 3 for intangible assets.

Under the license agreement, the Company recorded an expense of $ 3.5 million as a result of meeting a milestone during the year ended September 30, 2021 and is committed to remaining payments of up to an aggregate amount of $ 352.5 million contingent upon meeting certain milestones outlined in the license agreement, primarily relating to future potential commercial approval and sales milestones.

The Company also has a commitment to pay royalties based on any net sales of products containing the Constructs in the countries where the Company directly commercializes the products containing the Constructs and a percentage of any sublicensing revenue received by the Company and its affiliates in the countries where it does not directly commercialize the products containing the Constructs.

No royalty or sublicensing payments were made to the third party during the three months ended December 31, 2021 and 2020.

In connection with this license agreement and pursuant to a purchase agreement entered into in April 2020, the Company acquired drug substance of one of the Constructs for an aggregate purchase price of $5.0 million, payable in two future installments based on the earlier of certain clinical trial progress or fixed dates.

A payment of $2.5 million was made for the drug substance during the year September 30, 2021.

The remaining purchase commitment is included in the table above for the year ending September 30, 2022.

5 unchanged sentences

The Company also has a commitment to pay the third party a royalty based on net sales of the product in countries where the Company, or an affiliate, directly commercializes the product and a percentage of sublicensing revenue received by the Company and its affiliates in the countries where it does not directly commercialize the product.

No license or royalty payments were made to the third party during the nine months ended June 30, 2021 and 2020.

No milestone, license or royalty payments were made to the third party during the three months ended December 31, 2021 and 2020.

In March 2021, through its Ontario subsidiary, the Company entered into a license agreement with the inventor of the same pharmaceutical product to acquire global rights for all fields of use beyond those named under the 2016 license agreement.

For the nine months ended June 30, 2021, the Company recorded an expense of $ 106,000 as a result of meeting a milestone outlined in the 2021 license agreement.

For the three months ended December 31, 2021, the Company recorded an expense of $ 0.03 million as a result of meeting milestones outlined in the 2021 license agreement.

The Company is committed to remaining payments of up to an aggregate amount of $ 68.9 million, primarily relating to future potential commercial approval and sales milestones.

In addition, if the Company fails to file an investigational new drug application or foreign equivalent (“IND”) for the product within a certain period of time following the date of the agreement, the Company is required to remit to the inventor a fixed license fee annually as long as the requirement to file an IND remains unfulfilled.

Related party patent royalty commitments

In August 2002, through its California subsidiary, the Company entered into a patent royalty agreement with a director of the Company, whereby he would receive royalty payments in exchange for assignment of his patent rights to the Company.

The royalty is 5% of gross receipts in excess of $500,000 annually from legacy products using this invention.

There were no royalty expenses during the three and nine months ended June 30, 2021 and 2020.

Retirement savings plan 401(k) contributions

Executive officers and employees of the California subsidiary are eligible to receive the Company’s non-elective safe harbor employer contribution of 3 % of eligible compensation under a 401(k) plan to provide retirement benefits.

Employees are 100% vested in employer contributions and in any voluntary employee contributions.

Contributions to the 401(k) plan were $ 4,552 and $ 3,461 during the three months ended June 30, 2021 and 2020, respectively and $ 19,181 and $ 7,996 during the nine months ended June 30, 2021 and 2020, respectively.

EDESA BIOTECH, INC.

Notes to Condensed Interim Consolidated Financial Statements (Unaudited)

Temporary Equity

Series A-1 Convertible Preferred Shares

As described in Notes 4 and 6, in April 2020, the Company issued 250 convertible preferred shares valued at $ 2.5 million designated as Series A-1 Convertible Preferred Shares (the “Series A-1 Shares).

The Series A-1 Shares had no par value, a stated value of $ 10,000 per share and ranked, with respect to redemption payments, rights upon liquidation, dissolution or winding-up of the Company, or otherwise, senior in preference and priority to the Company’s common shares.

Subject to certain exceptions and adjustments for share splits, each Series A-1 Share was convertible six months after its date of issuance into a number of the Company’s common shares calculated by dividing (i) the sum of the stated value of such Series A-1 Share plus a return equal to 3% of the stated value of such Series A-1 Share per annum (collectively, the “Preferred Amount”) by (ii) a fixed conversion price of $2.26 .

Because the convertible preferred shares were redeemable outside the control of the Company, they were presented as temporary equity rather than permanent shareholders’ equity until they were converted or redeemed.

At June 30, 2021 all 250 Series A-1 Shares have been converted to common shares.

Issued and outstanding Series A-1 Convertible Preferred Shares:

Series A-1 Convertible Preferred Shares (#)

Series A-1 Convertible Preferred Shares

Balance September 30, 2019

Issuance of convertible preferred shares

Convertible preferred share issuance costs

Preferred return on convertible preferred shares

Balance September 30, 2020

Preferred return on convertible preferred shares

Conversion to common shares

( 2,496,480 )

Balance June 30, 2021

Capital Shares

1 unchanged sentence

On March 2, 2021, the Company closed an underwritten offering of 1,562,500 common shares, no par value, at a price to the public of $ 6.40 per share less underwriting discounts and commissions.

Gross proceeds from the offering amounted to $ 10,000,000 .

The Company granted to the underwriters a 30-day option to purchase up to an additional 234,375 common shares.

The underwriters option expired subsequent to March 31, 2021 with no further shares issued.

Gross proceeds from the offering amounted to $ 10.0 million.

The Company granted to the underwriters a 30-day option to purchase up to an additional 234,375 common shares, which expired with no further shares issued.

On the closing date the Company issued underwriter warrants to purchase an aggregate of up to 109,375 common shares at an exercise price of $8.00 per share, expiring on February 26, 2026 .

The direct costs related to the issuance of the common shares were $ 1,145,010 .

The direct costs related to the issuance of the common shares were $ 1.11 million.

These direct costs were recorded as an offset against gross proceeds.

The Company also recorded the fair value of underwriter warrants in the amount of $ 407,023 as share-based compensation to nonemployees under additional paid-in capital and an offset against gross proceeds.

On January 8, 2020, the Company closed a registered direct offering of 1,354,691 common shares, no par value and a concurrent private placement of Class A Purchase Warrants to purchase an aggregate of up to 1,016,036 common shares and Class B Purchase Warrants to purchase an aggregate of up to 677,358 common shares.

Gross proceeds from the offering amounted to $ 4,360,500 .

The Class A Purchase Warrants were exercisable on or after July 8, 2020, at an exercise price of $ 4.80 per share and will expire on July 8, 2023.

The Class B Purchase Warrants were exercisable on or after July 8, 2020, at an exercise price of $ 4.00 per share and expired on November 8, 2020.

In connection with the offering, the Company also issued warrants to purchase an aggregate of 12,364 common shares to certain affiliated designees of the placement agent as part of the placement agent’s compensation.

The placement agent warrants were exercisable on or after July 6, 2020, at an exercise price of $ 3.20 per share, and will expire on January 6, 2025 .

The Company also recorded the fair value of underwriter warrants in the amount of $ 0.41 million as share-based compensation to non-employees under additional paid-in capital and an offset against gross proceeds.

Equity distribution agreements

On November 22, 2021, the Company entered into an equity distribution agreement with RBC Capital Markets, LLC (RBCCM), as sales agent.

On December 28, 2021, the Company reset the size of the at-the-market equity offering program with RBCCM, such that the Company may offer and sell, from time to time, common shares having an aggregate offering price of up to $ 10.7 million in gross cash proceeds.

RBCCM will use commercially reasonable efforts to sell the common shares from time to time, based upon the Company’s instructions.

The Company has no obligation to sell any of the shares, and may at any time suspend sales under the distribution agreement or terminate the agreement in accordance with its terms.

The total amount of cash that may be generated under this distribution agreement is uncertain and depends on a variety of factors, including market conditions and the trading price of the Company’s common shares.

During the three months ended December 31, 2021, 223,396 common shares were sold under the distribution agreement, resulting in $ 1.29 million in gross proceeds.

The commissions and direct costs of the offering program totaled approximately $ 0.06 million and were recorded as an offset against gross proceeds.

EDESA BIOTECH, INC.

Notes to Condensed Interim Consolidated Financial Statements (Unaudited)

The warrants are considered contracts on the Company’s own shares and are classified as equity.

The Company allocated gross proceeds with $ 3,070,358 as the value of common shares and $ 1,008,743 as the value of Class A Purchase Warrants and $ 281,399 as the value of Class B Purchase Warrants under additional paid-in capital in the condensed interim consolidated statements of changes in shareholders’ equity on a relative fair value basis.

The direct costs related to the issuance of the common shares and warrants were $ 468,699 .

These direct costs were recorded as an offset against gross proceeds with $ 330,025 being recorded under common shares and $ 138,674 being recorded under additional paid-in capital on a relative fair value basis.

The Company also recorded the fair value of placement agent warrants in the amount of $ 18,051 as share-based compensation to nonemployees under additional paid-in capital and an offset against gross proceeds with $ 12,710 being recorded under common shares and $ 5,341 being recorded under additional paid-in capital on a relative fair value basis.

Equity Distribution Agreement

In September 2020, the Company entered into an Equity Distribution Agreement with RBC Capital Markets, LLC (“RBCCM”), as sales agent, pursuant to which the Company could offer and sell, from time to time, common shares through an at-the-market equity offering program for up to $ 9.2 million in gross cash proceeds.

The agreement was terminated on February 25, 2021.

During the nine months ended June 30, 2021, 586,463 shares were sold under the distribution agreement, resulting in $ 13,749,541 in gross proceeds.

The commissions and direct costs of the offering program totaled $ 319,188 and were recorded as an offset against gross proceeds.

Black-Scholes option valuation model

13 unchanged sentences

Balance – September 30, 2020

Balance September 30, 2020

Balance June 30, 2021

The following table summarizes information about the warrants outstanding at June 30, 2021:

Balance – December 31, 2021 and September 30, 2021

The weighted average contractual life remaining on the outstanding warrants at December 31, 2021 is 22 months.

The following table summarizes information about the warrants outstanding at December 31, 2021:

Number of Warrants (#)

3 unchanged sentences

Notes to Condensed Interim Consolidated Financial Statements (Unaudited)

The weighted average contractual life remaining on the outstanding warrants at June 30, 2021 is 27 months.

The fair value of warrants issued during the nine months ended June 30, 2021 and 2020 was estimated using the Black-Scholes option valuation model using the following assumptions:

Nine Months Ended June 30, 2021

Nine Months Ended June 30, 2020

Placement Agent

Risk free interest rate

Expected life

Expected share price volatility

Expected dividend yield

There were no warrants issued during the three months ended December 31, 2021 and 2020.

Share Options

The Company adopted an Equity Incentive Compensation Plan in 2019 (the 2019 Plan) administered by the Board of Directors.

The Company adopted an Equity Incentive Compensation Plan in 2019 (the “2019 Plan”) administered by the independent members of the Board of Directors, which amended and restated the 2017 Incentive Compensation Plan (the “2017 Plan”).

Options, restricted shares and restricted share units are eligible for grant under the 2019 Plan.

The number of shares available for issuance under the 2019 Plan at June 30, 2021 was 2,625,951 , including shares available for the exercise of outstanding options.

The number of shares available for issuance under the 2019 Plan is 849,946 including shares available for the exercise of outstanding options under the 2017 Plan.

The Company's 2019 Plan allows options to be granted to directors, officers, employees and certain external consultants and advisers.

Under the 2019 Plan, the option term is not to exceed 10 years and the exercise price and vesting of each option is determined by the independent members of the Board of Directors.

Under the 2019 Plan, the option term is not to exceed 10 years and the exercise price of each option is determined by the independent members of the Board of Directors.

Options have been granted under the 2019 Plan allowing the holders to purchase common shares of the Company as follows:

Number of Options (#)

Weighted Average Exercise Price

Weighted Average Grant Date Fair Value

Balance – September 30, 2020

Balance – September 30, 2021

Balance – June 30, 2021

The following table summarizes information about the options under the 2019 Plan outstanding and exercisable at June 30, 2021:

Balance – December 31, 2021

During the year ended September 30, 2021, the independent members of the Board of Directors granted a total of 112,000 options to new employees of the Company pursuant to the 2019 Plan.

The options have a term of 10 years with vesting in equal proportions over 36 months beginning on the monthly anniversary of the grant date following 90 days of employment, and an exercise price equal to the Nasdaq closing price on the grant dates.

In October 2020 and April 2021, the independent directors of the Board of Directors granted a total of 430,000 and 603,000 options, respectively, to directors, officers and employees of the Company pursuant to the 2019 Plan.

The options have a term of 10 years and an exercise price equal to the Nasdaq closing price on the grant dates.

Options for directors have monthly vesting in equal proportions over 12 months beginning on the grant date and options for officers and current employees have monthly vesting in equal proportions over 36 months beginning on the grant date.

The weighted average contractual life remaining on the outstanding options at December 31, 2021 is 100 months.

EDESA BIOTECH, INC.

Notes to Condensed Interim Consolidated Financial Statements (Unaudited)

The following table summarizes information about the options under the 2019 Plan outstanding and exercisable at December 31, 2021:

Number of Options (#)

Exercisable at June 30, 2021 (#)

Exercisable at

December 31, 2021 (#)

Range of Exercise Prices

5 unchanged sentences

$ 5.25 - 5.65

Jan 2031 - April 2031

The weighted average contractual life remaining on the outstanding options at June 30, 2021 is 101 months.

Edesa Biotech, Inc.

Notes to Condensed Interim Consolidated Financial Statements (Unaudited)

During the nine months ended June 30, 2021, the independent directors of the Board of Directors granted a total of 105,000 options to new employees of the Company pursuant to the 2019 Plan.

The options have a term of 10 years with monthly vesting in equal proportions over 36 months beginning on the monthly anniversary of the grant date following 90 days of employment, and an exercise price equal to the Nasdaq closing price on the grant dates.

The options have a term of 10 years and an exercise price equal to the Nasdaq closing price on the grant dates.

The fair value of options granted during the nine months ended June 30, 2021 and 2020 was estimated using the Black-Scholes option valuation model using the following assumptions:

June 30, 2021

June 30, 2020

Jan 2031 - Sep 2031

The fair value of options granted during the three months ended December 31, 2020 was estimated using the Black-Scholes option valuation model using the following assumptions:

Three Months Ended December 31, 2020

Risk free interest rate

0.31 %- 0.90 %

Expected life

Expected share price volatility

94.00 %- 97.28 %

Expected dividend yield

The Company recorded $ 1,100,450 and $ 123,191 of share-based compensation expenses for the three months ended June 30, 2021 and 2020, respectively and $ 2,290,794 and $ 511,966 of share-based compensation expenses for the nine months ended June 30, 2021 and 2020, respectively.

As of June 30, 2021, the Company had approximately $ 2.74 million of unrecognized share-based compensation expense, which is expected to be recognized over a period of 36 months.

Issued and outstanding common shares

Number of Common Shares (#)

Common Shares

Balance September 30, 2019

Common shares issued in equity offering

Common shares issued upon exercise of warrants

Common shares issued upon exercise of share options

Share issuance costs

Balance September 30, 2020

Common shares issued in equity offerings

Common shares issued upon exercise of warrants

Common shares issued upon exercise of share options

Common shares issued upon conversion of preferred shares

Share issuance costs

( 1,871,220 )

Balance June 30, 2021

There were no options granted during the three months ended December 31, 2021.

The Company recorded $ 0.61 million and $ 0.72 million of share-based compensation expenses for the three months ended December 31, 2021 and 2020, respectively.

As of December 31, 2021, the Company had approximately $ 1.57 million of unrecognized share-based compensation expense, which is expected to be recognized over a period of 35 months.

Reimbursement Grant Income and Receivable

Reimbursement grant income for the Company’s federal grant with the Canadian government’s Strategic Innovation Fund (SIF) is recorded based on the claim period.

Claims during the nine months ended June 30, 2021 included reimbursement of eligible costs from the eligibility date in the SIF contribution agreement to June 30, 2021.

At June 30, 2021, grant reimbursements receivable of $ 3,991,683 were included in accounts and other receivable.

Edesa Biotech, Inc.

Notes to Condensed Interim Consolidated Financial Statements (Unaudited)

Reimbursement grant income for the Company’s federal grant with the Canadian government’s Strategic Innovation Fund (SIF) is recorded based on the claim period of eligible costs.

At December 31, 2021, grant reimbursements receivable of $ 2,629,060 were included in accounts and other receivable.

Financial Instruments

2 unchanged sentences

Fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

EDESA BIOTECH, INC.

Notes to Condensed Interim Consolidated Financial Statements (Unaudited)

The Company follows the fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

12 unchanged sentences

The Company manages this risk by maintaining bank accounts with Canadian Chartered Banks, U.S.

banks believed to be credit worthy, U.S.

Treasury Bills and money market mutual funds of U.S.

banks believed to be credit worthy and money market mutual funds of U.S.

government securities.

1 unchanged sentence

The Company assesses the collectability of accounts receivable through a review of the current aging, as well as an analysis of historical collection rates, general economic conditions and credit status of customers.

Credit risk for HST refunds receivable and reimbursement grant receivable is not considered significant since amounts are due from the Canada Revenue Agency and Canadian Strategic Innovation Fund.

Credit risk for reimbursement grant and HST refunds receivable are not considered significant since amounts are due from the Canadian government’s Strategic Innovation Fund (SIF) and the Canada Revenue Agency.

The Company’s subsidiary has balances in Canadian dollars that give rise to exposure to foreign exchange (“FX”) risk relating to the impact of translating certain non-U.S.

The Company and its subsidiary have balances in Canadian dollars that give rise to exposure to foreign exchange (“FX”) risk relating to the impact of translating certain non-U.S.

dollar balance sheet accounts as these statements are presented in U.S.

3 unchanged sentences

The Company has not entered into any agreements or purchased any instruments to hedge possible currency risks.

At June 30, 2021, the Company’s Ontario subsidiary had assets of C$ 11.1 million and the U.S.

dollar was equal to 1.2398 Canadian dollars.

Based on the exposure at June 30, 2021, a 10% annual change in the Canadian/U.S.

exchange rate would impact the Company’s loss and other comprehensive loss by approximately $0.89 million.

At December 31, 2021, the Company and its Canadian subsidiary had assets denominated in Canadian dollars of approximately C$ 7.3 million and the U.S.

dollar exchange rate as at this date was equal to 1.27 Canadian dollars.

Based on the exposure at December 31, 2021, a 10% annual change in the Canadian/U.S.

exchange rate would impact the Company’s loss and other comprehensive loss by approximately $575,000.

(d) Liquidity risk

1 unchanged sentence

In meeting its liquidity requirements, the Company closely monitors its forecasted cash requirements with expected cash drawdown.

Edesa Biotech, Inc.

Notes to Condensed Interim Consolidated Financial Statements (Unaudited)

Segmented Information

The Company's operations comprise a single reportable segment engaged in the research and development, manufacturing and commercialization of innovative pharmaceutical products.

As the operations comprise a single reportable segment, amounts disclosed in the financial statements for loss for the period, depreciation and total assets also represent segmented amounts.

Loss per Share

1 unchanged sentence

Related Party Transactions

During the periods presented, the Company was party to the following related party transactions:

During the three months ended June 30, 2021 and 2020, the Company incurred rent expense of $ 20,887 and $ 18,508 , respectively, from a company controlled by the Company's CEO and $ 60,828 and $ 57,079 for the nine months ended June 30, 2021 and 2020, respectively.

During the three months ended December 31, 2021 and 2020, the Company incurred rent expense of $ 0.2 million each period from a company controlled by the Company’s CEO.

These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by both parties.

During the nine months ended June 30, 2020, accounts payable and accrued liabilities of $ 23,457 at September 30, 2019 was paid to a director for royalties on product sales by the California subsidiary during 2019.

No royalty expenses were incurred since 2019.

Subsequent Events

In July and August 2021, through its Ontario subsidiary, the Company entered into license agreements with a third party to obtain world-wide rights to intellectual property and manufacturing systems related to two of the Company’s product candidates.

The license agreements require future milestone payments, sublicensing fees and royalties contingent upon certain future events.

Subsequent to December 31, 2021 and through January 28, 2021, 256,455 common shares were sold under the equity distribution agreement with RBCCM, resulting in $ 1.19 million in gross proceeds.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements