British Columbia, Canada | N/A | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
100 Spy Court | ||
Markham, Ontario, Canada | L3R 5H6 | |
(Address of principal executive offices) | (Zip Code) |
Title of each class | Trading Symbol | Name of exchange on which registered | ||
Common Shares, without par value | EDSA | The Nasdaq Stock Market LLC |
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
Emerging growth company | ☒ |
3 | |
3 | |
3 | |
4 | |
5 | |
6 | |
7 | |
December 31, 2020 | September 30, 2020 | March 31, 2021 | September 30, 2020 | |
Assets: | ||||
Current assets: | ||||
Cash and cash equivalents | $6,305,293 | $7,213,695 | $10,966,194 | $7,213,695 |
Accounts and other receivable | 168,030 | 87,446 | 7,810,139 | 87,446 |
Prepaid expenses and other current assets | 1,194,002 | 802,877 | 2,642,026 | 802,877 |
Total current assets | 7,667,325 | 8,104,018 | 21,418,359 | 8,104,018 |
Non-current assets: | ||||
Property and equipment, net | 14,788 | 14,815 | 16,129 | 14,815 |
Intangible asset, net | 2,458,243 | 2,483,536 | 2,432,950 | 2,483,536 |
Operating lease right-of-use assets | 150,413 | 160,006 | 134,252 | 160,006 |
Total assets | $10,290,769 | $10,762,375 | $24,001,690 | $10,762,375 |
Liabilities, shareholders' equity and temporary equity: | ||||
Current liabilities: | ||||
Accounts payable and accrued liabilities | $831,450 | $1,460,127 | $4,543,123 | $1,460,127 |
Short-term operating lease liabilities | 74,877 | 69,730 | 77,012 | 69,730 |
Total current liabilities | 906,327 | 1,529,857 | 4,620,135 | 1,529,857 |
�� | ||||
Non-current liabilities: | ||||
Long-term payables | 47,082 | 29,928 | 47,646 | 29,928 |
Long-term operating lease liabilities | 79,923 | 94,460 | 61,125 | 94,460 |
Total liabilities | 1,033,332 | 1,654,245 | 4,728,906 | 1,654,245 |
Commitments (Note 6) | ||||
Temporary equity: | ||||
Convertible preferred shares | 1,372,213 | 2,476,955 | - | 2,476,955 |
Shareholders' equity: | ||||
Capital shares | ||||
Authorized unlimited common and preferred shares without par value | Authorized unlimited common and preferred shares without par value | |||
Issued and outstanding: | ||||
10,523,087 common shares (September 30, 2020 - 9,615,119) | 21,696,459 | 18,500,853 | ||
13,246,559 common shares (September 30, 2020 - 9,615,119) | 34,602,637 | 18,500,853 | ||
Additional paid-in capital | 2,156,719 | 1,550,480 | 2,914,482 | 1,550,480 |
Accumulated other comprehensive loss | (183,777) | (287,204) | (194,257) | (287,204) |
Accumulated deficit | (15,784,177) | (13,132,954) | (18,050,078) | (13,132,954) |
Total shareholders' equity | 7,885,224 | 6,631,175 | 19,272,784 | 6,631,175 |
Total liabilities, shareholders' equity and temporary equity | $10,290,769 | $10,762,375 | $24,001,690 | $10,762,375 |
Three Months Ended | Three Months Ended | Six Months Ended | ||||
December 31, 2020 | December 31, 2019 | March 31, 2021 | March 31, 2020 | March 31, 2021 | March 31, 2020 | |
Revenues: | ||||||
Product sales | $- | $107,800 | $- | $110,516 | $- | $218,316 |
Expenses: | ||||||
Cost of sales | - | 3,778 | - | 10,037 | - | 13,815 |
Research and development | 1,379,654 | 527,998 | 7,975,304 | 502,814 | 9,354,958 | 1,030,812 |
General and administrative | 1,234,148 | 681,706 | 1,535,127 | 1,113,917 | 2,769,275 | 1,795,623 |
2,613,802 | 1,213,482 | 9,510,431 | 1,626,768 | 12,124,233 | 2,840,250 | |
Loss from Operations | (2,613,802) | (1,105,682) | (9,510,431) | (1,516,252) | (12,124,233) | (2,621,934) |
Other Income (Loss): | ||||||
Reimbursement grant income | 7,170,465 | - | 7,170,465 | - | ||
Interest income | 922 | 14,192 | 747 | 18,771 | 1,669 | 32,963 |
Foreign exchange loss | (24,732) | (2,043) | ||||
Foreign exchange gain | 80,032 | 7,845 | 55,300 | 5,802 | ||
(23,810) | 12,149 | 7,251,244 | 26,616 | 7,227,434 | 38,765 | |
Loss before income taxes | (2,637,612) | (1,093,533) | (2,259,187) | (1,489,636) | (4,896,799) | (2,583,169) |
Income tax expense | - | 800 | 800 | - | 800 | 800 |
Net Loss | (2,637,612) | (1,094,333) | (2,259,987) | (1,489,636) | (4,897,599) | (2,583,969) |
Exchange differences on translation | 103,427 | 18,114 | (10,480) | (39,908) | 92,947 | (21,794) |
Net Comprehensive Loss | $(2,534,185) | $(1,076,219) | $(2,270,467) | $(1,529,544) | $(4,804,652) | $(2,605,763) |
Weighted average number of common shares | 10,277,750 | 7,504,468 | 11,641,201 | 8,740,065 | 10,894,441 | 8,118,891 |
Loss per common share - basic and diluted | $(0.26) | $(0.15) | $(0.19) | $(0.17) | $(0.45) | $(0.32) |
Three Months Ended | Six Months Ended | |||
December 31, 2020 | December 31, 2019 | March 31, 2021 | March 31, 2020 | |
Cash Flows From Operating Activities: | ||||
Cash Flows from Operating Activities: | ||||
Net loss | $(2,637,612) | $(1,094,333) | $(4,897,599) | $(2,583,969) |
Adjustments for: | ||||
Depreciation and amortization | 28,843 | 2,403 | 58,647 | 5,054 |
Share-based compensation | 722,909 | 8,775 | 1,190,347 | 388,775 |
Change in working capital items: | ||||
Accounts and other receivable | (75,127) | 108,882 | (7,564,714) | 127,146 |
Prepaid expenses and other current assets | (377,308) | 9,263 | (1,928,522) | 27,030 |
Accounts payable and accrued liabilities | (672,234) | 175,298 | 2,951,784 | 75,805 |
Net cash used in operating activities | (3,010,529) | (789,712) | (10,190,057) | (1,960,159) |
Cash Flows From Investing Activities: | ||||
Cash Flows from Investing Activities: | ||||
Proceeds on sales of property and equipment | - | 22,497 | - | 43,184 |
Purchase of property and equipment | (1,135) | - | (4,098) | (825) |
Purchase of short-term investments | - | (499,790) | - | (500,000) |
Proceeds from maturities of short-term investments | - | 500,000 | ||
Net cash used in investing activities | (1,135) | (477,293) | ||
Net cash provided by (used in) investing activities | (4,098) | 42,359 | ||
Cash Flows From Financing Activities: | ||||
Proceeds from issuance of common shares | 1,026,528 | - | ||
Proceeds from issuance of common shares subscribed | - | 45,000 | ||
Cash Flows from Financing Activities: | ||||
Proceeds from issuance of common shares and warrants | 12,793,591 | 4,360,500 | ||
Proceeds from exercise of warrants | 995,038 | - | 1,467,536 | - |
Payments for issuance costs of common shares | (41,940) | - | ||
Proceeds from borrowings | 15,346 | - | ||
Proceeds from exercise of share options | 26,079 | - | ||
Payments for issuance costs | (349,408) | (468,699) | ||
Net cash provided by financing activities | 1,994,972 | 45,000 | 13,937,798 | 3,891,801 |
Effect of exchange rate changes on cash and cash equivalents | 108,290 | 18,472 | 8,856 | (14,654) |
Net change in cash and cash equivalents | (908,402) | (1,203,533) | 3,752,499 | 1,959,347 |
Cash and cash equivalents, beginning of period | 7,213,695 | 5,030,583 | 7,213,695 | 5,030,583 |
Cash and cash equivalents, end of period | $6,305,293 | $3,827,050 | $10,966,194 | $6,989,930 |
Supplemental Disclosure of Non-cash Financing Activities: | ||||
Supplemental Disclosure of Non-Cash Financing Activities: | ||||
Preferred shares converted from temporary equity to common shares | $1,118,353 | - | $2,496,480 | $- |
Issuance costs withheld from gross proceeds from issuance of common shares | 955,950 | - | ||
Fair value of compensation warrants to underwriter | 407,023 | - | ||
Fair value of placement agent warrants | - | 18,051 |
Shares # | Common Shares | Common Shares Subscribed | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Shareholders' Equity | Shares # | Common Shares | Common Shares Subscribed | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Shareholders' Equity | |
Balance - September 30, 2020 | 9,615,119 | $18,500,853 | $- | $1,550,480 | $(287,204) | $(13,132,954) | 6,631,175 | |||||||
Three Months Ended March 31, 2021 | ||||||||||||||
Balance - December 31, 2020 | 10,523,087 | $21,696,459 | $- | $2,156,719 | $(183,777) | $(15,784,177) | $7,885,224 | |||||||
Issuance of common shares in equity offering | 169,753 | 1,026,528 | - | 1,026,528 | ||||||||||
Issuance costs | - | (60,983) | - | (60,983) | ||||||||||
Issuance of common shares in equity offerings | 1,979,210 | 12,723,013 | - | 12,723,013 | ||||||||||
Issuance costs including fair value of underwriter warrants | - | (1,810,237) | - | 407,023 | - | (1,403,214) | ||||||||
Issuance of common shares upon exercise of warrants | 243,369 | 1,111,708 | - | (116,670) | - | 995,038 | 98,437 | 570,228 | - | (97,731) | - | 472,497 | ||
Issuance of common shares upon conversion of preferred shares | 494,846 | 1,118,353 | 1,118,353 | |||||||||||
Issuance of common shares upon exercise of share options | 10,746 | 45,047 | - | (18,968) | - | 26,079 | ||||||||
Preferred return on convertible preferred shares | - | (13,611) | - | (5,914) | ||||||||||
Conversion of convertible preferred shares | 635,079 | 1,378,127 | - | 1,378,127 | ||||||||||
Share-based compensation | - | 722,909 | - | 722,909 | - | 467,439 | - | 467,439 | ||||||
Net loss and comprehensive loss | - | 103,427 | (2,637,612) | (2,534,185) | - | (10,480) | (2,259,987) | (2,270,467) | ||||||
Balance - December 31, 2020 | 10,523,087 | $21,696,459 | $- | $2,156,719 | $(183,777) | $(15,784,177) | $7,885,224 | |||||||
Balance - March 31, 2021 | 13,246,559 | $34,602,637 | $- | $2,914,482 | $(194,257) | $(18,050,078) | $19,272,784 | |||||||
Balance - September 30, 2019 | 7,504,468 | $12,005,051 | $- | $327,768 | $(342,074) | $(6,734,615) | $5,256,130 | |||||||
Three Months Ended March 31, 2020 | ||||||||||||||
Balance - December 31, 2019 | 7,504,468 | $12,005,051 | $45,000 | $336,543 | $(323,960) | $(7,828,948) | $4,233,686 | |||||||
Common shares subscribed | - | 45,000 | - | 45,000 | ||||||||||
Issuance of common shares and warrants in equity offering | 1,354,691 | 3,070,358 | (45,000) | 1,290,142 | - | 4,315,500 | ||||||||
Issuance costs | - | (342,735) | - | (125,964) | - | (468,699) | ||||||||
Share-based compensation | - | 8,775 | - | 8,775 | - | 380,000 | - | 380,000 | ||||||
Net loss and comprehensive loss | - | 18,114 | (1,094,333) | (1,076,219) | - | (39,908) | (1,489,636) | (1,529,544) | ||||||
Balance - December 31, 2019 | 7,504,468 | $12,005,051 | $45,000 | $336,543 | $(323,960) | $(7,828,948) | $4,233,686 | |||||||
Balance - March 31, 2020 | 8,859,159 | $14,732,674 | $- | $1,880,721 | $(363,868) | $(9,318,584) | $6,930,943 | |||||||
Six Months Ended March 31, 2021 | ||||||||||||||
Balance - September 30, 2020 | 9,615,119 | $18,500,853 | $- | $1,550,480 | $(287,204) | $(13,132,954) | $6,631,175 | |||||||
Issuance of common shares in equity offerings | 2,148,963 | 13,749,541 | - | 13,749,541 | ||||||||||
Issuance costs including fair value of underwriter warrants | - | (1,871,220) | - | 407,023 | - | (1,464,197) | ||||||||
Issuance of common shares upon exercise of warrants | 341,806 | 1,681,936 | - | (214,400) | - | 1,467,536 | ||||||||
Issuance of common shares upon exercise of share options | 10,746 | 45,047 | - | (18,968) | - | 26,079 | ||||||||
Preferred return on convertible preferred shares | - | (19,525) | ||||||||||||
Conversion of convertible preferred shares | 1,129,925 | 2,496,480 | - | 2,496,480 | ||||||||||
Share-based compensation | - | 1,190,347 | - | 1,190,347 | ||||||||||
Net loss and comprehensive loss | - | 92,947 | (4,897,599) | (4,804,652) | ||||||||||
Balance - March 31, 2021 | 13,246,559 | $34,602,637 | $- | $2,914,482 | $(194,257) | $(18,050,078) | $19,272,784 | |||||||
Six Months Ended March 31, 2020 | ||||||||||||||
Balance - September 30, 2019 | 7,504,468 | $12,005,051 | $- | $327,768 | $(342,074) | $(6,734,615) | $5,256,130 | |||||||
Issuance of common shares and warrants in equity offering | 1,354,691 | 3,070,358 | - | 1,290,142 | - | 4,360,500 | ||||||||
Issuance costs | - | (342,735) | - | (125,964) | - | (468,699) | ||||||||
Share-based compensation | - | 388,775 | - | 388,775 | ||||||||||
Net loss and comprehensive loss | - | (21,794) | (2,583,969) | (2,605,763) | ||||||||||
Balance - March 31, 2020 | 8,859,159 | $14,732,674 | $- | $1,880,721 | $(363,868) | $(9,318,584) | $6,930,943 |
December 31, 2020 | September 30, 2020 | March 31, 2021 | September 30, 2020 | |
Computer equipment | $36,376 | $34,651 | $39,550 | $34,651 |
Furniture and equipment | 5,972 | 5,694 | 6,043 | 5,694 |
42,348 | 40,345 | 45,593 | 40,345 | |
Less: accumulated depreciation | (27,560) | (25,530) | (29,464) | (25,530) |
Total property and equipment, net | $14,788 | $14,815 | $16,129 | $14,815 |
December 31, 2020 | September 30, 2020 | March 31, 2021 | September 30, 2020 | |
The Constructs | $2,529,483 | $2,529,483 | $2,529,483 | $2,529,483 |
Less: accumulated amortization | (71,240) | (45,947) | (96,533) | (45,947) |
Total intangible assets, net | $2,458,243 | $2,483,536 | $2,432,950 | $2,483,536 |
Year Ending | |
September 30, 2021 | $ |
September 30, 2022 | 101,172 |
September 30, 2023 | 101,172 |
September 30, 2024 | 101,172 |
September 30, 2025 | 101,172 |
Thereafter | 1,977,676 |
$ |
The gross amounts of assets and liabilities related to operating leases on the Balance Sheets were as follows:
The components of lease cost were as follows:
Edesa Biotech, Inc. Notes to Condensed Interim Consolidated Financial Statements (Unaudited) Lease terms and discount rates were as follows:
The approximate future minimum lease payments under operating leases at
Cash flow information was as follows:
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 6. Commitments 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
Edesa Biotech, Inc. Notes to Condensed Interim Consolidated Financial Statements (Unaudited) 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 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. 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. The Company will use the exclusive rights to develop the product for therapeutic, prophylactic and diagnostic uses in topical dermal applications and anorectal applications. No intangible assets have been recognized under the license agreement with the third party. 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 $18.6 million. 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 license or royalty payments were made to the third party during the three and six months ended Related party patent royalty commitments 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 7. Temporary Equity Series A-1 Convertible Preferred Shares As described in Notes 4 and 6, in April 2020, Edesa Biotech, Inc. Notes to Condensed Interim Consolidated Financial Statements (Unaudited) Because the convertible preferred shares are redeemable outside the control of the Company, they are presented as temporary equity rather than permanent shareholders’ Issued and outstanding Series A-1 Convertible Preferred Shares:
Edesa Biotech, Inc. Notes to Condensed Interim Consolidated Financial Statements (Unaudited) 8. Capital Shares Equity 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. 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. 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 warrants are considered contracts on the Company’s own shares and are classified as equity. The Company allocated gross proceeds with 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 Black-Scholes option valuation model The Company uses the Black-Scholes option valuation model to determine the fair value of share-based compensation for share options and compensation warrants granted and the fair value of warrants issued. Option valuation models require the input of highly subjective assumptions including the expected price volatility. The Company calculates expected volatility based on historical volatility of the Company’s share price. When there is insufficient data available, the Company uses a peer group that is publicly traded to calculate expected volatility. The Company adopted interest-free rates by reference to the U.S. treasury yield rates. The Company calculated the fair value of share options granted based on the expected life of 5 years, Edesa Biotech, Inc. Notes to Condensed Interim Consolidated Financial Statements (Unaudited) Warrants A summary of the Company’s warrants activity is as follows:
The following table summarizes information about the warrants outstanding at
The fair value of warrants issued during the
Share Options The Company adopted an Equity Incentive Compensation Plan in 2019 (the 2019 Plan) administered by the Board of 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. Edesa Biotech, Inc. Notes to Condensed Interim Consolidated Financial Statements (Unaudited) Options have been granted under the 2019 Plan allowing the holders to purchase common shares of the Company as follows:
The following table summarizes information about the options under the Incentive Plan outstanding and exercisable at March 31, 2021:
The weighted average contractual life remaining on the outstanding options at March 31, 2021 is 101 months. On On February 12, 2020, the independent directors of the Board of Directors granted a total of 352,365 options to directors, officers and employees of the Company pursuant to the 2019 Plan. The options have a term of 10 years with 33% vesting on the grant date, with a pro rata amount of the balance vesting monthly for the next 36 months and an exercise price equal to the Nasdaq closing price on the grant date.
Edesa Biotech, Inc. Notes to Condensed Interim Consolidated Financial Statements (Unaudited) The fair value of options granted during the six months ended March 31, 2021 and 2020 was estimated using the Black-Scholes option valuation model using the following assumptions:
The Company recorded $467,439 and $380,000 of share-based compensation expenses for the three months ended March 31, 2021 and 2020, respectively and $1,190,347 and $388,775 of share-based compensation expenses for the six months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, the Company had approximately $1,447,000 of unrecognized share-based compensation expense, which is expected to be recognized over a period of 36 months.
9. Grant Income and Receivable 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 three months ended March 31, 2021 included reimbursement of eligible costs from the eligibility date in the SIF contribution agreement to March 31, 2021. At March 31, 2021, grant reimbursements receivable of $7,170,465 were included in accounts and other receivable. Edesa Biotech, Inc. Notes to Condensed Interim Consolidated Financial Statements (Unaudited) 10. 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. 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. 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. Observable inputs are inputs that reflect assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. There are three levels of inputs that may be used to measure fair value: ● Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. ● Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets and liabilities in markets that are not active. ● Level 3 - Unobservable inputs for the asset or liability that are supported by little or no market activity. 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. (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. The Company does not believe that the results of operations or cash flows would be affected to any significant degree by a significant change in market interest rates, relative to interest rates on cash and cash equivalents due to the short-term nature of these balances. The Company is also exposed to credit risk at period end from the carrying value of its cash and cash equivalents and accounts and other receivable. 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. government securities. 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. Credit risk for HST refunds receivable and reimbursement grant receivable is not considered significant since amounts are due from the Canada Revenue (c) Foreign exchange risk 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. dollar balance sheet accounts as these statements are presented in U.S. dollars. A strengthening U.S. dollar will lead to a FX loss while a weakening U.S. dollar will lead to a FX gain. The Company has not entered into any agreements or purchased any instruments to hedge possible currency risks. At (d) Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty raising liquid funds to meet commitments as they fall due. 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) 11. 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. 12. Loss per The Company had securities outstanding which could potentially dilute basic EPS in the future but were excluded from the computation of diluted loss per share in the periods presented, as their effect would have been anti-dilutive. 13. Related During the periods presented, the Company incurred the following related party transactions: ● During the three months ended ● 14. Subsequent Subsequent to The following management’s discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed interim consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q as of This Quarterly Report on Form 10-Q contains forward-looking statements. When used in this report, the words “expects,” “anticipates,” “suggests,” “believes,” “intends,” “estimates,” “plans,” “projects,” “continue,” “ongoing,” “potential,” “expect,” “predict,” “believe,” “intend,” “may,” “will,” “should,” “could,” “would” and similar expressions are intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described in our Annual Report on Form 10-K for the year ended September 30, 2020 and other reports we file with the Securities and Exchange Commission. Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made. We do not intend to update any of the forward-looking statements after the date of this report to conform these statements to actual results or to changes in our expectations, except as required by law. The discussion and analysis of our financial condition and results of operations are based on our unaudited condensed interim consolidated financial statements as of Overview We are a biopharmaceutical company focused on acquiring, developing and commercializing clinical-stage drugs for inflammatory and immune-related diseases with clear unmet medical needs. Our two lead product candidates, EB05 and EB01, are in later stage clinical studies. EB05 is a monoclonal antibody therapy that we are developing as a treatment for Acute Respiratory Distress Syndrome (ARDS) in COVID-19 patients. ARDS is a life-threatening form of respiratory failure, and the leading cause of death among COVID-19 patients. ARDS can be also caused by bacterial pneumonia, sepsis, chest injury and other causes. Specifically, EB05 inhibits toll-like receptor 4 (TLR4), a key immune signaling protein and an important mediator of inflammation that has been shown to be activated by SARS-COV2 as well as other respiratory infections such as influenza. In multiple third-party studies, high serum levels of alarmins (damage signaling molecules) that bind to and activate TLR4 are associated with poor outcomes and disease progression in COVID-19 patients. Since EB05 has demonstrated the ability to block signaling irrespective of the presence or concentration of the various molecules that frequently bind with TLR4, we believe that EB05 could ameliorate TLR4-mediated inflammation cascades in ARDS patients, thereby reducing lung injury, ventilation rates and mortality. In November 2020, we initiated a Phase 2/Phase 3 clinical study of EB05 and are currently enrolling subjects. In addition to EB05, we are developing an sPLA2 inhibitor, designated as EB01, as a topical treatment for chronic allergic contact dermatitis (ACD), a common, potentially debilitating condition and occupational illness. EB01 employs a novel, non-steroidal mechanism of action and in two clinical studies has demonstrated statistically significant improvement of multiple symptoms in ACD patients. We initiated a Phase 2B clinical study evaluating EB01 for chronic ACD in the fourth calendar quarter of 2019 and are currently enrolling subjects. In addition to our current clinical programs, we intend to expand the utility of our technologies and clinical-stage assets across other indications. Recent Developments Clinical Study Enrollment Updates As of May 12, 2021, we have randomized more than 285 patients in an ongoing Phase 2/Phase 3 clinical study evaluating our EB05 drug candidate as a potential single-dose treatment for hospitalized COVID-19 patients with or at risk of developing ARDS. As currently designed, the Phase 2 part of the study may enroll up to 396 patients in order to provide a dataset of at least 316 evaluable subjects. As of March 9, 2021, we completed enrollment of the first cohort of a Phase 2b clinical study evaluating the company's drug candidate EB01 as a monotherapy for chronic ACD. At present, all 46 subjects have completed the 28-day treatment, and the company is currently analyzing the blinded interim data. The interim results will determine the number of patients for the final part of the Phase 2b study. Reimbursement Grant On February 2, 2021, our wholly owned subsidiary Edesa Biotech Research, Inc. entered into a multi-year contribution agreement with the Canadian government’s Strategic Innovation Fund, or SIF (the “Agreement”). Under this Agreement, the Government of Canada committed up to C$14.05 million ($11 million) in nonrepayable funding toward (i) the Phase 2 portion of our ongoing Phase 2/3 study of our investigation therapy EB05 in hospitalized COVID-19 patients, and (ii) certain pre-clinical research intended to potentially broaden the application of our experimental therapy (collectively, the “Project”). Pursuant to the contribution agreement, Edesa will conduct work, incur expenses and fund all costs from our own cash resources. On a quarterly basis, we may submit claims to the SIF for 75% of eligible reimbursable expenses. Under the Agreement, Edesa has agreed to certain obligations in relation to the completion of the Project. In the event that we breach our obligations under the Agreement, subject to applicable cure, the SIF may exercise a number of remedies, including suspending or terminating funding under the Agreement, demanding repayment of funding previously received and/or terminating the Agreement. The performance obligations of Edesa Biotech Research under the contribution agreement are guaranteed by the Company. Significant Accounting Policies and Estimates Edesa’s significant accounting policies are described in Note 3 to our audited consolidated financial statements for the Results of Operations Comparison of the Three Months Ended There were no revenues for the three months ended Total operating expenses increased by ● There was no cost of sales for the three months ended ● Research and development expenses increased by ● General and administrative expenses increased by Total other For the three months ended Comparison of the Six Months Ended March 31, 2021 and 2020 There were no revenues for the six months ended March 31, 2021 compared to $0.22 million for the six months ended March 31, 2020, reflecting the winddown and discontinuation of sales of product inventory from legacy operations. Total operating expenses increased by $9.28 million to $12.12 million for the six months ended March 31, 2021 compared to $2.84 million for the same period last year: ● There was no cost of sales for the six months ended March 31, 2021 compared to $0.01 million for the six months ended March 31, 2020, reflecting the winddown and discontinuation of sales of product inventory from legacy operations. ● Research and development expenses increased by $8.32 million to $9.35 million for the six months ended March 31, 2021 compared to $1.03 million for the same period last year primarily due to milestone payments related to advancement of our EB05 clinical program, increased external research expenses related to accelerated activity in our ongoing clinical studies, increased investigational drug product expenses and an increase in non-cash share-based compensation. Higher salary and related personnel expenses and patent fees also contributed to the increase. ● General and administrative expenses increased by $0.97 million to $2.77 million for the six months ended March 31, 2021 compared to $1.80 million for the same period last year primarily as a result of higher salary and related personnel expenses, non-cash share-based compensation and increased headcount. Higher legal and other professional services also contributed to the increase. Total other income increased by $7.19 million to $7.23 million for the six months ended March 31, 2021 compared to $0.04 million for the same period last year primarily due to increased grant income related to the initiation of reimbursements under our federal grant with the Canadian government’s Strategic Innovation Fund. For the six months ended March 31, 2021, Edesa reported a net loss of $4.90 million, or $0.45 per common share, compared to a net loss of $2.58 million, or $0.32 per common share, for the six months ended March 31, 2020. Capital Expenditures Our capital expenditures primarily consist of purchases of computer and office equipment. There were no significant capital expenditures for the Liquidity and Capital Resources As a clinical-stage company we have not generated significant revenue, and we expect to incur operating losses as we continue our efforts to acquire, develop, seek regulatory approval for and commercialize product candidates and execute on our strategic initiatives. Our operations have historically been funded through issuances of common shares, convertible preferred shares, convertible loans, exercises of common share purchase warrants, On March 2, 2021, we completed a registered public offering of an aggregate of 1,562,500 common shares, no par value, of the Company at an offering prices of $6.40 per share for estimated net proceeds of $8.85 million, after deducting underwriter fees and related offering expenses. For the six months ended March 31, 2021, the exercise of warrants and options as well as sales under our equity distribution agreement with RBC Capital Markets, LLC resulted in the issuance of 939,015 common shares and net cash proceeds to the Company of $4.94 million. At March 31, 2021, we had cash and cash equivalents of $10.97 million, working capital of $16.80 million, shareholders’ equity of $19.27 million and an accumulated deficit of $18.05 million. We plan to finance company operations over the course of the next twelve months with cash and cash equivalents on hand and reimbursements of eligible research and development expenses under our agreement with the Canadian government’s SIF. Management has flexibility to adjust this timeline by a making changes to planned expenditures related to, among other factors, the size and timing of clinical trial expenditures, staffing levels, and the acquisition or in-licensing of new product candidates. To help fund our operations and meet our obligations, we may also seek additional financing through the sale of equity, government grants, debt financings or other capital sources, including potential future licensing, collaboration or similar arrangements with third parties or other strategic transactions. If we determine it is advisable to raise additional funds, there is no assurance that adequate funding will be available to us or, if available, that such funding will be available on terms that we or our shareholders view as favorable. Market volatility and concerns over a global slowdown related to the COVID-19 pandemic may have a significant impact on the availability of funding sources and the terms at which any funding may be available. Research and Development Our primary business is the development of innovative therapeutics for inflammatory and immune-related diseases with clear unmet medical needs. We focus our resources on research and development activities, including the conduct of clinical studies and product development, and expense such costs as they are incurred. Our research and development expenses have primarily consisted of employee-related expenses, including salaries, benefits, taxes, travel, and share-based compensation expense for personnel in research and development functions; expenses related to process development and production of product candidates paid to contract manufacturing organizations, including the cost of acquiring, developing, and manufacturing research material; costs associated with clinical activities, including expenses for contract research organizations; and clinical trials and activities related to regulatory filings for our product candidates, including regulatory consultants. Research and development expenses, which have historically varied based on the level of activity in our clinical programs, are significantly influenced by study initiation expenses and patient recruitment rates, and as a result are expected to continue to fluctuate, sometimes substantially. Research and development expenses for any interim period are not necessarily indicative of the results to be expected for the full year or for any other future year or interim period. Our research and development costs were Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. As a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act, and pursuant to Item 305 of Regulation S-K, we are not required to provide quantitative and qualitative disclosures about market risk. Disclosure Controls and Procedures Our management is responsible for establishing and maintaining disclosure controls and procedures to provide reasonable assurance that material information related to our Company, including our consolidated subsidiaries, is made known to senior management, including our Chief Executive Officer and Chief Financial Officer, by others within those entities on a timely basis so that appropriate decisions can be made regarding public disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and our Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Securities and Exchange Act of 1934, as amended) as of Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting that occurred during the quarter ended From time to time, we may be involved in legal proceedings, claims and litigation arising in the ordinary course of business. We are not currently a party to any material legal proceedings or claims outside the ordinary course of business. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. There have been no material changes to the risk factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended September 30, 2020, filed with the Securities and Exchange Commission on December 7, 2020. None. None. Not applicable. None. EXHIBIT INDEX
** The information in this exhibit is furnished and deemed not filed with the Securities and Exchange Commission for purposes of section 18 of the Exchange Act of 1934, as amended, and + Portions of this exhibit have been omitted pursuant to Rule 601(b)(10)(iv) of Regulation S-K. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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