What changed in this filing

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Item 1. Financial Statements

2022-05-13 compared with 2022-02-14 · 178 added, 89 removed, 292 unchanged (48% of the section changed)

2 unchanged sentences

Condensed Interim Consolidated Balance Sheets

March 31, 2022

September 30, 2021

7 unchanged sentences

Intangible asset, net

Operating lease right-of-use assets

Right-of-use assets

Liabilities and shareholders' equity:

1 unchanged sentence

Accounts payable and accrued liabilities

Short-term operating lease liabilities

Lease obligations on right-of-use assets

Total current liabilities

1 unchanged sentence

Long-term payables

Long-term operating lease liabilities

Long-term lease obligations on right-of-use assets

Total liabilities

16 unchanged sentences

Three Months Ended

Six Months Ended

March 31, 2022

March 31, 2021

March 31, 2022

March 31, 2021

Research and development

3 unchanged sentences

( 9,510,431 )

( 9,736,954 )

( 12,124,233 )

Other Income (Loss):

1 unchanged sentence

Interest income

Foreign exchange loss

Foreign exchange gain (loss)

Loss before income taxes

( 4,568,516 )

( 2,259,187 )

( 8,947,193 )

( 4,896,799 )

Income tax expense

( 4,569,316 )

( 2,259,987 )

( 8,947,993 )

( 4,897,599 )

Exchange differences on translation

2 unchanged sentences

$ ( 2,270,467 )

$ ( 8,903,078 )

$ ( 4,804,652 )

Weighted average number of common shares

3 unchanged sentences

Condensed Interim Consolidated Statements of Cash Flows

Three Months Ended

Six Months Ended

March 31, 2022

March 31, 2021

Cash Flows from Operating Activities:

6 unchanged sentences

Accounts and other receivable

( 7,564,714 )

Prepaid expenses and other current assets

( 1,928,522 )

Accounts payable and accrued liabilities

8 unchanged sentences

Proceeds from exercise of warrants

Payments for issuance costs of common shares

Proceeds from borrowings

Proceeds from exercise of share options

Payments for issuance costs of common shares and warrants

Net cash provided by financing activities

1 unchanged sentence

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 and warrants

Fair value of placement agent/underwriter warrants

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

6 unchanged sentences

Total Shareholders' Equity

Three Months Ended December 31, 2021

Balance - September 30, 2021

Three Months Ended March 31, 2022

Balance - December 31, 2021

$ ( 173,413 )

$ ( 30,874,306 )

Issuance of common shares in equity offerings

Issuance costs

Issuance of common shares and warrants in equity offering

Issuance costs including fair value of placement agent warrants

( 1,252,896 )

Share-based compensation

2 unchanged sentences

( 4,556,250 )

Balance - March 31, 2022

$ ( 160,347 )

$ ( 35,443,622 )

Three Months Ended March 31, 2021

Balance - December 31, 2020

1 unchanged sentence

$ ( 15,784,177 )

Three Months Ended December 31, 2020

Balance - September 30, 2020

Issuance of common shares and warrants in equity offering

Issuance costs including fair value of underwriter warrants

( 1,810,237 )

( 1,403,214 )

Issuance of common shares in equity offerings

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

( 2,259,987 )

( 2,270,467 )

Balance - March 31, 2021

$ ( 194,257 )

$ ( 18,050,078 )

Six Months Ended March 31, 2022

Balance - September 30, 2021

$ ( 205,262 )

$ ( 26,495,629 )

Issuance of common shares and warrants in equity offering

Issuance costs including fair value of placement agent warrants

( 1,311,559 )

Share-based compensation

Net loss and comprehensive loss

( 8,947,993 )

( 8,903,078 )

Balance - March 31, 2022

$ ( 160,347 )

$ ( 35,443,622 )

Six Months Ended March 31, 2021

Balance - September 30, 2020

$ ( 287,204 )

$ ( 13,132,954 )

Issuance of common shares and warrants in equity offering

Issuance costs including fair value of underwriter warrants

( 1,871,220 )

( 1,464,197 )

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

Balance - December 31, 2020

( 4,897,599 )

( 4,804,652 )

Balance - March 31, 2021

$ ( 194,257 )

$ ( 18,050,078 )

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

Edesa Biotech, Inc.

Notes to Condensed Interim Consolidated Financial Statements (Unaudited)

Notes to Condensed Interim Consolidated Financial Statements

Nature of Operations

12 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, 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.

All intercompany balances and transactions have been eliminated in consolidation.

These unaudited 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 unaudited 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.

All intercompany balances and transactions have been eliminated on consolidation.

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 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.

Operating results for the three and six months ended March 31, 2022 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

5 unchanged sentences

intangible assets;

operating lease right-of-use assets;

right-of-use assets;

deferred income taxes;

classification of convertible preferred shares as liability or equity;

the determination of fair value of share-based compensation;

5 unchanged sentences

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)

Intangible Assets

11 unchanged sentences

Intangible assets, net consisted of the following:

December 31, 2021

March 31, 2022

September 30, 2021

2 unchanged sentences

Total intangible assets, net

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

Amortization expense amounted to $ 0.25 million for each of the three months ended March 31, 2022 and 2021 and $ 0.51 million for each of the six months ended March 31, 2022 and 2021.

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

4 unchanged sentences

September 30, 2026

EDESA BIOTECH, INC.

Notes to Condensed Interim Consolidated Financial Statements (Unaudited)

Related Party Operating Lease

Lease with Related Party

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 option period is not included in the right-of-use assets and related lease obligation.

The components of lease cost were as follows:

Three Months Ended

December 31, 2021

December 31, 2020

Six Months Ended

March 31, 2022

March 31, 2021

March 31, 2022

March 31, 2021

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

Lease terms and discount rates were as follows:

December 31, 2021

March 31, 2022

September 30, 2021

1 unchanged sentence

Estimated incremental borrowing rate:

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

The approximate future minimum lease payments under operating leases at March 31, 2022 were as follows:

September 30, 2022

4 unchanged sentences

Cash flow information was as follows:

Three Months Ended

December 31, 2021

December 31, 2020

Six Months Ended

March 31, 2022

March 31, 2021

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

EDESA BIOTECH, INC.

Notes to Condensed Interim Consolidated Financial Statements (Unaudited)

Research and other commitments

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:

Aggregate future contractual payments at March 31, 2022 are as follows:

September 30, 2022

6 unchanged sentences

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.

Under the license agreement, the Company recorded an expense of $ 3.5 million as a result of meeting a milestone during the three and six months ended March 31, 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.

No milestone payments were made to the third party during the three and six months ended March 31, 2022.

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.

No royalty or sublicensing payments were made to the third party during the three and six months ended March 31, 2022 and 2021.

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.

A payment of $2.5 million was made for the drug substance during the three and six months ended March 31, 2021 .

No payments for drug substance were made during the three and six months ended March 31, 2022.

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 milestone, license or royalty payments were made to the third party during the three months ended December 31, 2021 and 2020.

No milestone, license or royalty payments were made to the third party during the three and six months ended March 31, 2022 and 2021.

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 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 recorded an expense of $ 0.11 million as a result of meeting milestones outlined in the 2021 license agreement for the three months ended March 31, 2021 and $ 0.03 and $ 0.11 for the six months ended March 31, 2022 and 2021, respectively.

No milestones were met during the three months ended March 31, 2022.

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.

EDESA BIOTECH, INC.

Notes to Condensed Interim Consolidated Financial Statements (Unaudited)

Capital Shares

Equity offerings

On March 24, 2022, the Company completed a registered direct offering of 1,540,000 common shares, no par value, and pre-funded warrants to purchase up to an aggregate of 1,199,727 common shares.

In a concurrent private placement, the Company issued common share purchase warrants to purchase an aggregate of up to 2,739,727 common shares.

Aggregate gross proceeds to the Company were approximately $ 10.0 million.

The common share purchase warrants were immediately exercisable at an exercise price of $ 3.52 per share and will expire on September 24, 2027 .

The pre-funded warrants were immediately exercisable at an exercise price of $ 0.0001 per share and do not expire.

In connection with the offering, the Company also issued warrants to purchase an aggregate of 191,780 common shares to certain affiliated designees of the placement agent as part of the placement agent’s compensation.

The placement agent warrants are exercisable on or after March 24, 2022, at an exercise price of $ 4.5625 per share, and will expire on March 21, 2027.

The direct costs related to the issuance of the common shares and warrants were $ 0.99 million.

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

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

The Company allocated gross proceeds with $ 5.87 million as the value of common shares and pre-funded warrants and $ 4.13 million as the value of common share purchase warrants under additional paid-in capital in the unaudited condensed interim consolidated statements of changes in shareholders’ equity on a relative fair value basis.

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.

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.

7 unchanged sentences

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.

Pursuant to the terms of the agreement, as amended March 4, 2022, the Company could offer and sell common shares having an aggregate offering price of up to $ 15.4 million from time to time through RBCCM.

For the six months ended March 21, 2022, the Company sold a total of 626,884 common shares pursuant to the agreement for gross proceeds of $ 2.94 million.

The commissions and direct costs of the offering program totaled approximately $ 0.32 million and were recorded as an offset against gross proceeds.

EDESA BIOTECH, INC.

Notes to Condensed Interim Consolidated Financial Statements (Unaudited)

On March 21, 2022, the Company and RBCCM entered into an agreement terminating the agreement effective March 21, 2022.

Black-Scholes option valuation model

9 unchanged sentences

Changes in the subjective input assumptions can materially affect the fair value estimates, and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the Company’s warrants and share options.

A summary of the Company’s warrants activity is as follows:

A summary of the Company’s warrant activity is as follows:

Number of Warrant Shares (#)

Weighted Average Exercise Price

Six Months Ended March 31, 2022

Balance – September 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:

Balance – March 31, 2022

Six Months Ended March 31, 2021

Balance – September 30, 2020

Balance – March 31, 2021

The weighted average contractual life remaining on the outstanding warrants at March 31, 2022 is 56 months.

The following table summarizes information about the warrants outstanding at March 31, 2022:

Number of Warrants (#)

1 unchanged sentence

February 2025

EDESA BIOTECH, INC.

Notes to Condensed Interim Consolidated Financial Statements (Unaudited)

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

September 2027

The fair value of warrants granted during the three and six months ended March 31, 2022 and 2021 was estimated using the Black-Scholes option valuation model using the following assumptions:

Six Months Ended March 31, 2022

Six Months Ended March 31, 2021

Common Warrants

Placement Agent Warrants

Underwriter Warrants

Risk free interest rate

Expected life

Expected share price volatility

Expected dividend yield

Pre-funded Warrants

A summary of the Company’s pre-funded warrants activity is as follows:

Number of Pre-funded Warrant Shares (#)

Six Months Ended March 31, 2022

Balance – September 30, 2021

Balance – March 31, 2022

There were no pre-funded warrants during the six months ended March 31, 2021.

Share Options

1 unchanged sentence

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

The remaining number of options available for grant is 364,617 .

The total number of shares available for issuance is 2,625,951 including shares available for the exercise of outstanding options under the 2019 and 2017 Plans as described below.

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

4 unchanged sentences

Weighted Average Grant Date Fair Value

Six Months Ended March 31, 2022

Balance – September 30, 2021

Balance – March 31, 2022

Six Months Ended March 31, 2021

Balance – September 30, 2020

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.

Balance – March 31, 2021

During the quarter ended March 31, 2022, the independent members of the Board of Directors granted a total of 415,083 options to 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 for new employees), and an exercise price equal to the Nasdaq closing price on the grant dates.

During the quarter ended March 31, 2022, the independent directors of the Board of Directors granted a total of 85,000 options, respectively, to directors 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:

Options for directors have monthly vesting in equal proportions over 12 months beginning on the grant date.

The weighted average contractual life remaining on the outstanding options at March 31, 2022 is 102 months.

The following table summarizes information about the options under the 2019 Plan outstanding and exercisable at March 31, 2022:

Number of Options (#)

Exercisable at

December 31, 2021 (#)

March 31, 2022 (#)

Range of Exercise Prices

2 unchanged sentences

Aug 2027 - Dec 2028

$ 7.44 - 8.07

Sep 2030 - Oct 2030

$ 5.25 - 5.65

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

Feb 2032 - Mar 2032

The fair value of options granted during the three and six months ended March 31, 2022 and 2021 was estimated using the Black-Scholes option valuation model using the following assumptions:

Six Months Ended March 31, 2022

Six Months Ended March 31, 2021

Risk free interest rate

1.71 % - 2.54 %

0.31 % - 0.90 %

Expected life

Expected share price volatility

85.91 % - 86.59 %

94.27 % - 97.28 %

Expected dividend yield

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.

The Company recorded $ 0.63 million and $ 0.47 million of share-based compensation expenses for the three months ended March 31, 2022 and 2021, respectively and $ 1.24 million and $ 1.19 million for the six months ended March 31, 2022 and 2021.

As of March 31, 2022, the Company had approximately $ 2.16 million of unrecognized share-based compensation expense, which is expected to be recognized over a period of 34 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 of eligible costs.

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

At March 31, 2022, grant reimbursements receivable of $ 1.1 million 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.

7 unchanged sentences

The carrying value of certain financial instruments such as cash and cash equivalents, accounts and other receivable, accounts payable and accrued liabilities approximates fair value due to the short-term nature of such instruments.

The fair value of lease obligations on right-of-use assets approximates carrying value due to a fixed lease rate, which represents market rate.

(b) Interest rate and credit risk

15 unchanged sentences

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

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.

At March 31, 2022, the Company and its Canadian subsidiary had assets denominated in Canadian dollars of approximately C$ 5.3 million and the U.S.

dollar exchange rate as at this date was equal to 1.2508 Canadian dollars.

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

Based on the exposure at March 31, 2022, a 10% annual change in the Canadian/U.S.

exchange rate would impact the Company’s loss and other comprehensive loss by approximately $425,000.

5 unchanged sentences

Related Party Transactions

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.

The Company incurred rent expense of $ 0.20 million during each of the three months ended March 31, 2022 and 2021 and $ 0.41 million and $ 0.40 million for the six months ended March 31, 2022 and 2021, respectively 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.

Subsequent 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