What changed in this filing

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Item 1. Financial Statements

2023-02-10 compared with 2022-08-12 · 114 added, 186 removed, 266 unchanged (53% of the section changed)

2 unchanged sentences

Condensed Interim Consolidated Balance Sheets

June 30, 2022

September 30,

6 unchanged sentences

Property and equipment, net

Long-term deposits

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

Short-term right-of-use lease liabilities

Total current liabilities

1 unchanged sentence

Long-term payables

Long-term operating lease liabilities

Long-term right-of-use lease liabilities

Total liabilities

16 unchanged sentences

Three Months Ended

Nine Months Ended

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

December 31, 2022

December 31, 2021

Research and development

3 unchanged sentences

( 5,161,723 )

( 15,534,479 )

( 18,196,812 )

Other income (loss):

1 unchanged sentence

Interest income

Foreign exchange gain (loss)

Loss before income taxes

( 5,787,020 )

( 4,759,510 )

( 14,734,213 )

( 9,656,309 )

Income tax expense

( 5,787,020 )

( 4,759,510 )

Foreign exchange loss

( 2,334,817 )

4 unchanged sentences

$ ( 4,346,828 )

$ ( 14,655,539 )

$ ( 9,390,034 )

Weighted average number of common shares

3 unchanged sentences

Condensed Interim Consolidated Statements of Cash Flows

Nine Months Ended

June 30, 2022

June 30, 2021

Three Months Ended

December 31, 2022

December 31, 2021

Cash flows from operating activities:

6 unchanged sentences

Accounts and other receivable

( 4,008,512 )

Prepaid expenses and other current assets

( 1,389,083 )

Accounts payable and accrued liabilities

7 unchanged sentences

Proceeds from issuance of common shares and warrants

Proceeds from exercise of warrants

Proceeds from exercise of share options

Payments for issuance costs of common shares and warrants

2 unchanged sentences

Net change in cash and cash equivalents

( 1,958,510 )

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Supplemental Disclosure of Noncash Financing Activities:

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.

1 unchanged sentence

Condensed Interim Consolidated Statements of Changes in Shareholders' Equity

Common Shares

Comprehensive Loss

Other Comprehensive

Shareholders'

Three Months Ended June 30, 2022

Balance - March 31, 2022

$ ( 160,347 )

$ ( 35,443,622 )

Share-based compensation

Net loss and comprehensive loss

( 5,787,020 )

( 5,752,461 )

Balance - June 30, 2022

$ ( 125,788 )

$ ( 41,230,642 )

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 )

Nine Months Ended June 30, 2022

Three Month Ended December 31, 2022

Balance - September 30, 2022

2 unchanged sentences

Issuance of common shares and warrants in equity offering

Issuance costs including fair value of placement agent warrants

( 1,311,559 )

Issuance costs

Share-based compensation

2 unchanged sentences

( 2,359,884 )

Balance - June 30, 2022

Balance - December 31, 2022

$ ( 238,669 )

$ ( 46,379,370 )

Nine Months Ended June 30, 2021

Three Months Ended December 31, 2021

Balance - September 30, 2021

1 unchanged sentence

$ ( 26,495,629 )

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

Issuance of common shares in equity offering

Issuance costs

Share-based compensation

2 unchanged sentences

( 4,346,828 )

Balance - June 30, 2021

Balance - December 31, 2021

$ ( 173,413 )

$ ( 30,874,306 )

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

4 unchanged sentences

(the Company or Edesa) is a biopharmaceutical company focused on acquiring, developing and commercializing clinical-stage drugs for inflammatory and immune-related diseases with clear unmet medical needs.

The Company is organized under the laws of British Columbia, Canada and is headquartered in Markham, Ontario, Canada.

The Company is organized under the laws of British Columbia, Canada and is headquartered in Markham, Ontario.

It operates under its wholly owned subsidiaries, Edesa Biotech Research, Inc., an Ontario, Canada corporation, and Edesa Biotech USA, Inc., a California, USA corporation.

The Company’s common shares trade on The Nasdaq Capital Market in the United States under the symbol “EDSA”.

Impact of COVID-19

The ongoing COVID-19 pandemic has severely impacted global economic activity and has caused material disruptions to almost every industry directly or indirectly.

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 to the Company’s business plans and financial condition.

Basis of Presentation

4 unchanged sentences

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, 2022, which was filed with the Securities and Exchange Commission (SEC) on December 16, 2022.

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.

The accompanying unaudited condensed interim consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.

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 and nine months ended June 30, 2022 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 months ended December 31, 2022 are not necessarily indicative of the results that may be expected for other interim periods or the fiscal year ending September 30, 2023.

Use of estimates

5 unchanged sentences

intangible assets;

right-of-use assets;

operating lease right-of-use assets;

deferred income taxes;

4 unchanged sentences

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.

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.

Intangible Assets

7 unchanged sentences

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 required upfront license payment of $2.5 million was paid by issuance of Series A-1 Convertible Preferred Shares, which have been fully converted to common shares .

The value of the license includes acquisition legal costs.

1 unchanged sentence

Intangible assets, net consisted of the following:

June 30, 2022

December 31, 2022

September 30, 2022

2 unchanged sentences

Total intangible assets, net

Amortization expense amounted to $ 0.25 million for each of the three months ended June 30, 2022 and 2021 and $ 0.76 million for each of the nine months ended June 30, 2022 and 2021.

Amortization expense amounted to $0.03 million for each of the three months ended December 31, 2022 and 2021.

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

4 unchanged sentences

September 30, 2027

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 an option to renew for another two-year term.

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

The components of lease cost were as follows:

Right-of-Use Lease with Related Party

The Company leases facilities used for executive offices from a related company.

The original lease expired in December 2022, and the Company executed a two-year extension through December 2024.

The components of right-of-use lease cost were as follows:

Three Months Ended

Nine Months Ended

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

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

Right-of-use lease cost, included in general and administrative on the Statements of Operations

Lease terms and discount rates were as follows:

June 30, 2022

September 30,

1 unchanged sentence

Estimated incremental borrowing rate:

The approximate future minimum lease payments under operating leases at June 30, 2022 were as follows:

The future minimum lease payments under right-of-use leases at December 31, 2022 were as follows:

September 30, 2023

September 30, 2024

Total lease payment

September 30, 2025

Total lease payments

Less imputed interest

Present value of lease liabilities, short-term

Present value of right-of-use lease liabilities

Present value included in current liabilities

Present value included in long-term liabilities

Cash flow information was as follows:

Nine Months Ended

June 30, 2022

June 30, 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

Three Months Ended

December 31, 2022

December 31, 2021

Cash paid for amounts included in the measurement of right-of-use lease liabilities, included in accounts payable and accrued liabilities on the Statements of Cash Flow.

Research and other commitments

The Company has commitments for contracted research organizations that perform clinical trials for the Company’s ongoing clinical studies and other service providers.

Aggregate future contractual payments at June 30, 2022 are as follows:

The Company has commitments for contracted research organizations who perform clinical trials for the Company’s ongoing clinical studies and other service providers.

Approximate aggregate future contractual payments at December 31, 2022 are as follows:

September 30, 2023

2 unchanged sentences

September 30, 2026

September 30, 2027

License and royalty commitments

2 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 three and 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.

No milestone payments were made to the third party during the three and nine months ended June 30, 2022.

Under the license agreement, the Company is committed to payments of up to an aggregate amount of $ 356 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 and nine months ended June 30, 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.

The Company recorded expense of $2.5 million during each of the three and nine months ended June 30, 2022 and 2021 .

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

In 2016, through its Ontario subsidiary, the Company entered into a license agreement with a third party to obtain exclusive rights to certain know- how, patents and data relating to a pharmaceutical product.

1 unchanged sentence

No intangible assets have been recognized under the license agreement with the third party.

Upon divestiture of substantially all of the assets of the Company, the Company would pay the third party a percentage of the valuation of the licensed technology sold as determined by an external objective expert.

Under the license agreement, the Company is committed to payments of various amounts to the third party upon meeting certain milestones outlined in the license agreement, up to an aggregate amount of $18.4 million after deducting $0.14 million that is included in the commitments table above for the year ending September 30, 2023 .

Upon divestiture of substantially all of the assets of the Company, the Company shall pay the third party a percentage of the valuation of the licensed technology sold as determined by an external objective expert.

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 and nine months ended June 30, 2022 and 2021.

A milestone payment of $ 0.06 million was made to the third party during the three months ended December 31, 2022 and no milestone payments were made during the three months ended December 31, 2021.

No royalty or sublicensing payments were made to the third party during the three months ended December 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.

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 June 30, 2021 and $ 0.03 million and $ 0.11 million for the nine months ended June 30, 2022 and 2021, respectively.

No milestones were met during the three months ended June 30, 2022.

A milestone payment of $ 0.03 million was made during the three months ended December 31, 2021 and no milestone payments were made during the three months ended December 31, 2022.

The Company is committed to remaining payments of up to an aggregate amount of $ 69.1 million, primarily relating to future potential commercial approval and sales milestones.

2 unchanged sentences

Equity offerings

On November 2, 2022, the Company completed a private placement of units consisting of 2,691,337 common shares, Class A warrants to purchase up to an aggregate of 1,345,665 common shares and Class B warrants to purchase up to an aggregate of 1,345,665 common shares.

Net proceeds from the offering were $ 2.91 million, which were allocated between the relative fair values of the common shares (using a fair value of $ 2.69 million) and the common share purchase warrants (using a total fair value of $ 1.22 million).

The warrants became exercisable December 23, 2022.

The Class A warrants have an exercise price of $ 1.50 per share and will expire on December 23, 2025 .

The Class B warrants have an exercise price of $ 1.00 per share and will expire on December 23, 2023 .

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

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.

Net proceeds from the offering were $ 9.01 million, which were allocated between the relative fair values of the common shares and pre-funded warrants (using a total fair value of $ 5.87 million) and the common share purchase warrants (using a total fair value of 4.13 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.

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 $ 0.99 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 $ 0.41 million as share-based compensation to non-employees under additional paid-in capital and an offset against gross proceeds.

In connection with the offering, the Company 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 with a fair value of $ 0.41 million.

Equity distribution agreements

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

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.

From November 22, 2021 to 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.

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

Pursuant to the terms of the agreement, as amended March 4, 2022, the Company could offer and sell common shares through an at-the-market equity offering program having an aggregate offering price of up to $ 15.4 million.

During the three months ended December 31, 2021, the Company sold a total of 223,396 common shares pursuant to the agreement for net proceeds of $ 1.23 million.

The distribution agreement was terminated effective March 21, 2022.

Black-Scholes option valuation model

12 unchanged sentences

Weighted Average Exercise Price

Nine Months Ended June 30, 2022

Balance - September 30, 2021

Balance - June 30, 2022

Nine Months Ended June 30, 2021

Three Months Ended December 31, 2022

Balance - September 30, 2022

Balance - June 30, 2021

The weighted average contractual life remaining on the outstanding warrants at June 30, 2022 is 53 months.

The following table summarizes information about the warrants outstanding at June 30, 2022:

Balance -December 31, 2022

Three Months Ended December 31, 2021

Balance - September 30, 2021 and December 31, 2021

The weighted average contractual life remaining on the outstanding warrants at December 31, 2022 is 37 months.

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

Number of Warrants (#)

Exercise Prices

December 2023

February 2025

December 2025

September 2027

The fair value of warrants granted during the three and nine months ended June 30, 2022 and 2021 was estimated using the Black-Scholes option valuation model using the following assumptions:

Nine Months Ended June 30, 2022

Nine Months Ended June 30, 2021

Common Warrants

Placement Agent Warrants

Underwriter Warrants

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

Three Months Ended

December 31, 2022

Class A Warrants

Class B Warrants

Risk free interest rate

2 unchanged sentences

Expected dividend yield

Pre-funded Warrants

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

Number of Pre-funded Warrant Shares (#)

Balance - September 30, 2021

Balance - June 30, 2022

Share Options

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).

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 prior plans.

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

The remaining number of options available for grant is 422,252 .

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.

At December 31, 2022, the total number of shares available for issuance is 2,625,951 including shares available for the exercise of outstanding options under the 2019 Plan.

The remaining number of options available for grant at December 31, 2022 is 418,990.

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 of each option is determined by the independent members of the Board of Directors.

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

Options granted for employees normally have monthly vesting in equal proportions over 36 months beginning on the grant date.

Options granted for new employees normally have monthly vesting in equal proportions over 36 months beginning on the monthly anniversary of the grant date following 90 days of employment.

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

2 unchanged sentences

Weighted Average Grant Date Fair Value

Nine Months Ended June 30, 2022

Three Months Ended December 31, 2022

Balance - September 30, 2022

Balance - June 30, 2022

Nine Months Ended June 30, 2021

Balance - December 31, 2022

Three Months Ended December 31, 2021

Balance - September 30, 2021

Balance - June 30, 2021

During the nine months ended June 30, 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 nine months ended June 30, 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.

The weighted average contractual life remaining on the outstanding options at June 30, 2022 is 99 months.

The following table summarizes information about the options under the 2019 Plan outstanding and exercisable at June 30, 2022:

Balance - December 31, 2021

During the three months ended December 31, 2022, the independent members of the Board of Directors granted 3,500 employee options 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 date.

The weighted average contractual life remaining on the outstanding options at December 31, 2022 is 93 months.

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

Number of Options (#)

Exercisable at

June 30, 2022 (#)

Exercisable at December 31, 2022 (#)

Range of Exercise Prices

5 unchanged sentences

Feb 2032 - Mar 2032

The fair value of options granted during the nine months ended June 30, 2022 and 2021 was estimated using the Black-Scholes option valuation model using the following assumptions:

Nine Months Ended

June 30, 2022

June 30, 2021

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

Three Months Ended

December 31, 2022

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

The Company recorded $ 0.57 million and $ 1.10 million of share-based compensation expenses for the three months ended June 30, 2022 and 2021, respectively and $ 1.80 million and $ 2.29 million for the nine months ended June 30, 2022 and 2021, respectively.

As of June 30, 2022, the Company had approximately $ 1.49 million of unrecognized share-based compensation expense, which is expected to be recognized over a period of 31 months.

The Company recorded $ 0.33 million and $ 0.61 million of share-based compensation expenses for the three months ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, the Company had $ 0.71 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 of eligible costs.

At June 30, 2022, grant reimbursements receivable of $ 1.1 million were included in accounts and other receivable.

At December 31, 2022, all grant reimbursements have been received.

Financial Instruments

(a) Fair values

The Company uses the fair value measurement framework for valuing financial assets and liabilities measured on a recurring basis in situations where other accounting pronouncements either permit or require fair value measurements.

10 unchanged sentences

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

Interest rate and credit risk

(b) Interest rate and credit risk

Interest rate risk is the risk that the value of a financial instrument might be adversely affected by a change in interest rates.

5 unchanged sentences

The Company’s cash is not subject to any external restrictions.

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.

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

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.

Foreign exchange risk

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.

4 unchanged sentences

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

At June 30, 2022, the Company and its Canadian subsidiary had assets denominated in Canadian dollars of approximately C$ 7 million and the U.S.

dollar exchange rate as at this date was equal to 1.2893 Canadian dollars.

Based on the exposure at June 30, 2022, a 10% annual change in the Canadian/U.S.

exchange rate would impact the Company’s loss and other comprehensive loss by approximately $541,000 .

Liquidity risk

At December 31, 2022, the Company and its Canadian subsidiary had assets denominated in Canadian dollars of approximately C$ 6.78 million and the U.S.

dollar exchange rate at this date was equal to 1.355 Canadian dollars.

Based on the exposure at December 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 $0.5 million.

(d) Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty raising liquid funds to meet commitments as they fall due.

3 unchanged sentences

Related Party Transactions

The Company incurred rent expense of $ 0.20 million and $ 0.21 million for the three months ended June 30, 2022 and 2021, respectively, and $ 0.61 million for each of the nine months ended June 30, 2022 and 2021, from a company controlled by the Company’s CEO.

During each of three months ended December 31, 2022 and 2021, the Company paid cash of $ 0.02 million for right of use lease 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.

On December 31, 2022, the Company executed a two-year lease extension through December 31, 2024 in accordance with the terms of the original lease agreement.

Subsequent Events

Subsequent to December 31, 2022 and through the date of this filing, 705,314 shares have been issued upon the exercise of Class A and Class B warrants with proceeds to the Company of $ 0.77 million.

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