UNITED STATES
ONG>SECURITIES AND EXCHANGE COMMISSIONONG>COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ |
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For the quarterly period ended MarchDecember 31, 2022
OR
☐ |
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For the transition period from to
Commission file number: 001-37619
EDESA BIOTECH, INC. |
(Exact name of registrant as specified in its charter) |
British Columbia, Canada |
| N/A |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
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100 Spy Court, Markham, |
| (289) 800-9600 |
(Address of principal executive offices and zip code) |
| (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol |
| Name of each exchange on which registered |
Common Shares, without par value |
| EDSA |
| The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated | ☒ | Smaller reporting company | ☒ |
|
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of May 12, 2022,February 9, 2023, the registrant had 15,462,28720,058,665 common shares issued and outstanding.
EDESA BIOTECH, INC.
QUARTERLY REPORT ON FORM 10-Q
Quarter Ended MarchDecember 31, 2022
Table of Contents
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Condensed Interim Consolidated Balance Sheets – |
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Notes to Condensed Interim Consolidated Financial Statements |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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2 |
Table of Contents |
PART 1 – FINANCIAL INFORMATION
Item 1. Financial Statements
Edesa Biotech, Inc.
Condensed Interim Consolidated Balance Sheets
(Unaudited)
Edesa Biotech, Inc. | Edesa Biotech, Inc. | |||||||||||||||
Condensed Interim Consolidated Balance Sheets | Condensed Interim Consolidated Balance Sheets | |||||||||||||||
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| March 31, 2022 |
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| September 30, 2021 |
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| December 31, 2022 |
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| September 30, 2022 |
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Assets: |
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Current assets: |
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Cash and cash equivalents |
| $ | 15,887,199 |
| $ | 7,839,259 |
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| $ | 8,270,207 |
| $ | 7,090,919 |
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Accounts and other receivable |
| 1,249,371 |
| 3,302,827 |
|
| 125,477 |
| 1,255,451 |
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Prepaid expenses and other current assets |
|
| 863,319 |
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| 948,645 |
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| 690,945 |
|
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| 745,543 |
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Total current assets |
| 17,999,889 |
| 12,090,731 |
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| 9,086,629 |
| 9,091,913 |
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Non-current assets: |
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Property and equipment, net |
| 16,093 |
| 14,989 |
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| 11,809 |
| 12,694 |
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Long-term deposits |
| 173,891 |
| 171,464 |
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Intangible asset, net |
| 2,331,778 |
| 2,382,364 |
|
| 2,255,899 |
| 2,281,192 |
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Right-of-use assets |
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| 59,863 |
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| 96,571 |
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| 146,534 |
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| 18,465 |
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Total assets |
| $ | 20,407,623 |
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| $ | 14,584,655 |
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| $ | 11,674,762 |
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| $ | 11,575,728 |
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Liabilities and shareholders' equity: |
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Current liabilities: |
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Accounts payable and accrued liabilities |
| $ | 3,273,699 |
| $ | 1,379,842 |
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| $ | 1,210,493 |
| $ | 2,121,802 |
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Lease obligations on right-of-use assets |
|
| 61,541 |
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| 78,808 |
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Short-term right-of-use lease liabilities |
|
| 69,911 |
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| 18,975 |
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Total current liabilities |
| 3,335,240 |
| 1,458,650 |
|
| 1,280,404 |
| 2,140,777 |
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Non-current liabilities: |
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Long-term payables |
| 47,970 |
| 47,202 |
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| 44,280 |
| 43,662 |
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Long-term lease obligations on right-of-use assets |
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| 0 |
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| 20,512 |
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Long-term right-of-use lease liabilities |
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| 76,622 |
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| - |
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Total liabilities |
| 3,383,210 |
| 1,526,364 |
|
| 1,401,306 |
| 2,184,439 |
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Commitments (Note 5) |
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Shareholders' equity: |
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Capital shares |
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Authorized unlimited common and preferred shares without par value |
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Issued and outstanding: |
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15,462,287 common shares (September 30, 2021 - 13,295,403) |
| 40,264,080 |
| 34,887,721 |
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19,353,351 common shares (September 30, 2022 - 16,662,014) |
| 44,473,823 |
| 42,473,099 |
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Additional paid-in capital |
| 12,364,302 |
| 4,871,461 |
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| 12,417,672 |
| 11,176,345 |
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Accumulated other comprehensive loss |
| (160,347 | ) |
| (205,262 | ) |
| (238,669 | ) |
| (213,602 | ) | ||||
Accumulated deficit |
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| (35,443,622 | ) |
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| (26,495,629 | ) |
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| (46,379,370 | ) |
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| (44,044,553 | ) |
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Total shareholders' equity |
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| 17,024,413 |
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| 13,058,291 |
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| 10,273,456 |
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| 9,391,289 |
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Total liabilities and shareholders' equity |
| $ | 20,407,623 |
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| $ | 14,584,655 |
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| $ | 11,674,762 |
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| $ | 11,575,728 |
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The accompanying notes are an integral part of these condensed interim consolidated financial statements.
3 |
Table of Contents |
Edesa Biotech, Inc. |
Condensed Interim Consolidated Statements of Operations
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| Three Months Ended |
| Six Months Ended |
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| Three Months Ended |
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| March 31, 2022 |
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| March 31, 2021 |
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| March 31, 2022 |
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| March 31, 2021 |
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| December 31, 2022 |
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| December 31, 2021 |
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Expenses: |
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Research and development |
| 3,042,815 |
| 7,975,304 |
| 6,993,861 |
| 9,354,958 |
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| 1,357,338 |
| 3,951,046 |
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General and administrative |
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| 1,532,416 |
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| 1,535,127 |
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| 2,743,093 |
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| 2,769,275 |
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| 1,020,967 |
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| 1,210,677 |
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Loss from operations |
| (2,378,305 | ) |
| (5,161,723 | ) | ||||||||||||||||||
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| 4,575,231 |
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| 9,510,431 |
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| 9,736,954 |
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| �� | 12,124,233 |
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Loss from Operations |
| (4,575,231 | ) |
| (9,510,431 | ) |
| (9,736,954 | ) |
| (12,124,233 | ) | ||||||||||||
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Other Income (Loss): |
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Other income (loss): |
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Reimbursement grant income |
| 0 |
| 7,170,465 |
| 780,257 |
| 7,170,465 |
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| - |
| 780,257 |
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Interest income |
| 3,748 |
| 747 |
| 9,868 |
| 1,669 |
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| 49,429 |
| 6,120 |
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Foreign exchange gain (loss) |
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| 2,967 |
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| 80,032 |
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| (364 | ) |
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| 55,300 |
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Foreign exchange loss |
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| (5,941 | ) |
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| (3,331 | ) | ||||||||||||||||
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| 6,715 |
| 7,251,244 |
| 789,761 |
| 7,227,434 |
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| 43,488 |
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| 783,046 |
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Loss before income taxes |
| (4,568,516 | ) |
| (2,259,187 | ) |
| (8,947,193 | ) |
| (4,896,799 | ) | ||||||||||||
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Income tax expense |
|
| 800 |
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| 800 |
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| 800 |
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| 800 |
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Net Loss |
| (4,569,316 | ) |
| (2,259,987 | ) |
| (8,947,993 | ) |
| (4,897,599 | ) | ||||||||||||
Net loss |
| (2,334,817 | ) |
| (4,378,677 | ) | ||||||||||||||||||
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Exchange differences on translation |
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| 13,066 |
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| (10,480 | ) |
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| 44,915 |
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| 92,947 |
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| (25,067 | ) |
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| 31,849 |
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Net Comprehensive Loss |
| $ | (4,556,250 | ) |
| $ | (2,270,467 | ) |
| $ | (8,903,078 | ) |
| $ | (4,804,652 | ) | ||||||||
Net comprehensive loss |
| $ | (2,359,884 | ) |
| $ | (4,346,828 | ) | ||||||||||||||||
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Weighted average number of common shares |
| 13,867,345 |
| 11,641,201 |
| 13,610,164 |
| 10,894,441 |
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| 18,387,980 |
| 13,351,547 |
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Loss per common share - basic and diluted |
| $ | (0.33 | ) |
| $ | (0.19 | ) |
| $ | (0.66 | ) |
| $ | (0.45 | ) |
| $ | (0.13 | ) |
| $ | (0.33 | ) |
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
4 |
Table of Contents |
Edesa Biotech, Inc. |
Condensed Interim Consolidated Statements of Cash Flows |
Edesa Biotech, Inc.
Condensed Interim Consolidated Statements of Cash Flows
(Unaudited)
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| Six Months Ended |
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| Three Months Ended |
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| March 31, 2022 |
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| March 31, 2021 |
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| December 31, 2022 |
| December 31, 2021 |
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Cash Flows from Operating Activities: |
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Cash flows from operating activities: |
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Net loss |
| $ | (8,947,993 | ) |
| $ | (4,897,599 | ) |
| $ | (2,334,817 | ) |
| $ | (4,378,677 | ) |
Adjustments for: |
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Depreciation and amortization |
| 59,633 |
| 58,647 |
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| 27,197 |
| 29,752 |
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Share-based compensation |
| 1,239,286 |
| 1,190,347 |
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| 333,675 |
| 609,278 |
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Changes in working capital items: |
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Accounts and other receivable |
| 2,068,473 |
| (7,564,714 | ) |
| 1,060,378 |
| 432,792 |
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Prepaid expenses and other current assets |
| 97,209 |
| (1,928,522 | ) |
| 57,722 |
| (186,584 | ) | ||||||
Accounts payable and accrued liabilities |
|
| 1,859,124 |
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| 2,951,784 |
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| (935,250 | ) |
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| 285,825 |
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Net cash used in operating activities |
|
| (3,624,268 | ) |
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| (10,190,057 | ) |
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| (1,791,095 | ) |
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| (3,207,614 | ) |
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Cash Flows from Investing Activities: |
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Cash flows from investing activities: |
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Purchase of property and equipment |
|
| (4,339 | ) |
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| (4,098 | ) |
|
| - |
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| (3,140 | ) |
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Net cash used in investing activities |
|
| (4,339 | ) |
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| (4,098 | ) |
|
| - |
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| (3,140 | ) |
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Cash Flows from Financing Activities: |
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Cash flows from financing activities: |
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Proceeds from issuance of common shares and warrants |
| 11,957,567 |
| 12,793,591 |
|
| 3,027,496 |
| 1,287,167 |
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Proceeds from exercise of warrants |
| 0 |
| 1,467,536 |
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Proceeds from exercise of share options |
| 0 |
| 26,079 |
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Payments for issuance costs of common shares and warrants |
|
| (327,653 | ) |
|
| (349,408 | ) |
|
| (115,721 | ) |
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| (58,663 | ) |
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Net cash provided by financing activities |
| 11,629,914 |
| 13,937,798 |
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| 2,911,775 |
| 1,228,504 |
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Effect of exchange rate changes on cash and cash equivalents |
|
| 46,633 |
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| 8,856 |
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| 58,608 |
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| 23,740 |
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Net change in cash and cash equivalents |
| 8,047,940 |
| 3,752,499 |
|
| 1,179,288 |
| (1,958,510 | ) | ||||||
Cash and cash equivalents, beginning of period |
|
| 7,839,259 |
|
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| 7,213,695 |
|
|
| 7,090,919 |
|
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| 7,839,259 |
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Cash and cash equivalents, end of period |
| $ | 15,887,199 |
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| $ | 10,966,194 |
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| $ | 8,270,207 |
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| $ | 5,880,749 |
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Supplemental Disclosure of Noncash Financing Activities: |
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Preferred shares converted from temporary equity to common shares |
| $ | 0 |
| $ | 2,496,480 |
| |||||||||
Issuance costs withheld from gross proceeds from issuance of common shares and warrants |
| 393,461 |
| 955,950 |
| |||||||||||
Fair value of placement agent/underwriter warrants |
| 408,059 |
| 407,023 |
|
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
5 |
Table of Contents |
Edesa Biotech, Inc.
Edesa Biotech, Inc. Condensed Interim Consolidated Statements of Changes in Shareholders' Equity Shares # Common Shares Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Shareholders' Equity Three Months Ended March 31, 2022 Balance - December 31, 2021 Issuance of common shares and warrants in equity offering Issuance costs including fair value of placement agent warrants Share-based compensation Net loss and comprehensive loss Balance - March 31, 2022 Three Months Ended March 31, 2021 Balance - December 31, 2020 Issuance of common shares and warrants in equity offering Issuance costs including fair value of underwriter warrants 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 - March 31, 2021 Six Months Ended March 31, 2022 Balance - September 30, 2021 Issuance of common shares and warrants in equity offering Issuance costs including fair value of placement agent warrants Share-based compensation Net loss and comprehensive loss Balance - March 31, 2022 Six Months Ended March 31, 2021 Balance - September 30, 2020 Issuance of common shares and warrants in equity offering Issuance costs including fair value of underwriter warrants Issuance of common shares upon exercise of warrants Issuance of common shares upon exercise of share options 0 Preferred return on convertible preferred shares Conversion of convertible preferred shares Share-based compensation Net loss and comprehensive loss Balance - March 31, 2021 Shares # Common Shares Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Shareholders' Equity Three Month Ended December 31, 2022 Balance - September 30, 2022 Issuance of common shares and warrants in equity offering Issuance costs Share-based compensation Net loss and comprehensive loss Balance - December 31, 2022 Three Months Ended December 31, 2021 Balance - September 30, 2021 Issuance of common shares in equity offering Issuance costs Share-based compensation Net loss and comprehensive loss Balance - December 31, 2021 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) 1. Nature of Operations Edesa Biotech, Inc. (the The Company’s common shares trade on The Nasdaq Capital Market in the United States under the symbol “EDSA”. 2. Basis of The accompanying unaudited condensed interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q. They do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with U.S. GAAP for complete financial statements. 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, The accompanying unaudited condensed interim consolidated financial statements include the accounts of the Company and its wholly owned Use of estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period or year. Actual results could differ from those estimates. Areas where significant judgment is involved in making estimates are valuation of accounts and other receivable; valuation and useful lives of property and equipment; intangible assets; operating lease right-of-use assets; deferred income taxes; the determination of fair value of share-based compensation; the determination of fair value of warrants in order to allocate proceeds from equity issuances; and forecasting future cash flows for assessing the going concern assumption. Functional and reporting currencies The consolidated financial statements of the Company are presented in U.S. dollars, unless otherwise stated, which is the 3. Intangible Assets Acquired License In April 2020, the Company entered into a license agreement with a pharmaceutical development company to obtain exclusive world-wide rights to know-how, patents and data relating to certain monoclonal antibodies Under the license agreement, the Company is exclusively responsible, at its expense, for the research, development manufacture, marketing, distribution and commercialization of the Constructs and licensed products and to obtain all necessary licenses and rights. The Company is required to use commercially reasonable efforts to develop and commercialize the Constructs in accordance with the terms of a development plan established by the parties. The Company has determined that the license has multiple alternative future uses in research and development projects and sublicensing in other countries or for other disease indications. The value of the acquired license is recorded as an intangible asset with amortization over the estimated useful life of 25 years and evaluation for impairment 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 Intangible assets, net consisted of the following: March 31, 2022 September 30, 2021 December 31, 2022 September 30, 2022 The Constructs Less: accumulated amortization Total intangible assets, net Amortization expense amounted to Total estimated future amortization of intangible assets for each fiscal year is as follows: Year Ending September 30, 2022 September 30, 2023 September 30, 2024 September 30, 2025 September 30, 2026 September 30, 2027 Thereafter 4. Right-of-Use Lease with Related Party The Company leases facilities used for executive offices from a The components of right-of-use lease cost were as follows: Three Months Ended 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 Three Months Ended December 31, 2022 December 31, 2021 Right-of-use lease cost, included in general and administrative on the Statements of Operations Lease terms and discount rates were as follows: March 31, 2022 September 30, 2021 Remaining lease term (months): Estimated incremental borrowing rate: December 31, 2022 September 30, 2022 The Year Ending September 30, 2022 September 30, 2023 September 30, 2024 September 30, 2025 Total lease payment 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: 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 Three Months Ended December 31, 2022 December 31, 2021 5. Commitments Research and other commitments The Company has commitments for contracted research organizations Year Ending September 30, 2022 September 30, 2023 September 30, 2024 September 30, 2025 September 30, 2026 September 30, 2027 License and royalty commitments In April 2020, through its Ontario subsidiary, the Company entered into a license agreement with a third party to obtain exclusive world-wide rights to certain know-how, patents and data relating to certain monoclonal antibodies In 2016, through its Ontario subsidiary, the Company entered into a license agreement with a third party to obtain exclusive rights to certain 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. 6. Capital Shares 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. $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. The warrants are considered contracts on the Company’s own shares and are classified as equity. In connection with the offering, the Company 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 through an at-the-market equity offering program having an aggregate offering price of up to $15.4 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 considering expected forfeitures during the option term of 10 years. Expected life of warrants is based on warrant terms. The Company did not and is not expected to declare any dividends. 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. Warrants A summary of the Company’s Number of Warrant Shares (#) Weighted Average Exercise Price Six Months Ended March 31, 2022 Balance – September 30, 2021 Issued Balance – March 31, 2022 Six Months Ended March 31, 2021 Balance – September 30, 2020 Issued Exercised Balance – March 31, 2021 Number of Warrant Shares (#) Weighted Average Exercise Price Three Months Ended December 31, 2022 Three Months Ended December 31, 2021 The weighted average contractual life remaining on the outstanding warrants at The following table summarizes information about the warrants outstanding at Number of Warrants (#) Exercise Prices Expiry Dates 28,124 May 2023 563,685 July 2023 7,484 June 2024 11,778 January 2025 109,375 February 2025 191,780 March 2027 2,739,727 September 2027 3,651,953 Number of Warrants (#) Exercise Prices Expiry Dates 28,124 May 2023 563,685 July 2023 1,345,665 December 2023 7,484 June 2024 11,778 January 2025 109,375 February 2025 1,345,665 December 2025 191,780 March 2027 2,739,727 September 2027 6,343,283 The fair value of warrants granted during the three 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 5.5 years 5 years 5 years Expected share price volatility Expected dividend yield Three Months Ended December 31, 2022 Class A Warrants Class B Warrants Risk free interest rate Expected life 3.14 years 1.14 years Expected share price volatility Expected dividend yield Share Options The Company adopted an Equity Incentive Compensation Plan in 2019 (the 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: Number of Options (#) Weighted Average Exercise Price Weighted Average Grant Date Fair Value Six Months Ended March 31, 2022 Balance – September 30, 2021 Granted Forfeited Expired Balance – March 31, 2022 Six Months Ended March 31, 2021 Balance – September 30, 2020 Granted Exercised Forfeited Expired Balance – March 31, 2021 Number of Options (#) Weighted Average Exercise Price Weighted Average Grant Date Fair Value Three Months Ended December 31, 2022 Balance - September 30, 2022 Granted Expired Balance - December 31, 2022 Three Months Ended December 31, 2021 Balance - September 30, 2021 Expired Balance - December 31, 2021 During the The weighted average contractual life remaining on the outstanding options at The following table summarizes information about the options under the 2019 Plan outstanding and exercisable at Number of Options (#) Exercisable at March 31, 2022 (#) Range of Exercise Prices Expiry Dates 238 $ Dec 2022 3,499 $ 35.28 - 93.24 Sep 2023-Mar 2025 296,403 C$ Aug 2027-Dec 2028 332,822 $ Feb 2030 418,452 $ 7.44 - 8.07 Sep 2030-Oct 2030 709,837 $ 5.25 - 5.65 Jan 2031-Sep 2031 500,083 $ 2.94 - 3.71 Feb 2032-Mar 2032 2,261,334 Number of Options (#) Exercisable at December 31, 2022 (#) Range of Exercise Prices Expiry Dates 3,499 $ 35.28 - 93.24 Sep 2023-Mar 2025 296,403 $ Aug 2027-Dec 2028 323,976 C$ Feb 2030 397,000 $ 7.44 - 8.07 Sep 2030-Oct 2030 682,500 $ 5.25 - 5.65 Jan 2031-Sep 2031 500,083 $ 2.94 - 3.71 Feb 2032-Mar 2032 3,500 $ Dec 2032 2,206,961 The fair value of options granted during the three 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 5 years 5 years Expected share price volatility 85.91% - 86.59% 94.27% - 97.28% Expected dividend yield Three Months Ended December 31, 2022 Risk free interest rate Expected life 5 years Expected share price volatility Expected dividend yield The Company recorded As of 7. 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 8. 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. 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 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 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 and terms, as well as an analysis of historical collection rates, general economic conditions and credit status of (c) Foreign exchange risk The Company and its subsidiary have balances in Canadian dollars that give rise to exposure to foreign exchange (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. 9. Loss per Share 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. 10. Related Party Transactions 11. 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. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 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, 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 Our approach is to acquire, develop and commercialize drug candidates based on mechanisms of action that have demonstrated proof-of-concept in human subjects. We prioritize our efforts on disease indications where there is compelling scientific rationale, no approved therapies or where there are unmet medical Our most advanced drug candidate is EB05, In addition to EB05, we are developing Recent Developments EB05 Clinical Study In In January 2023, we reported preliminary, topline results from a Phase 2b clinical study evaluating multiple concentrations of our drug candidate, EB01, as a monotherapy for chronic moderate-to-severe ACD. The double-blind, placebo-controlled trial evaluated the safety and efficacy of EB01 in approximately 200 subjects, who were treated for 28 days with either EB01 cream (2.0%, 1.0% or 0.2%) or a placebo/vehicle cream. The primary efficacy outcome measurement was the mean percent improvement in symptoms from baseline at day 29 on the Contact Dermatitis Severity Index (CDSI). A key secondary efficacy measurement was the success rate of subjects achieving a score of "clear" or "almost clear" with at least a 2-point improvement from baseline after treatment at day 29 on the Investigator's Static Global Assessment (ISGA) scale. The 1.0% EB01 cream demonstrated statistically significant improvement over placebo. For the primary endpoint, patients with 1.0% EB01-treated lesions demonstrated an 60% average improvement in symptoms from baseline at day 29 on the CDSI versus 39% for placebo/vehicle (p=0.02). The effect was also observed at 15 days (44% for 1.0% EB01 vs 29% for placebo; p=0.05) and continued at follow-up (64% for 1.0% EB01 vs. 44% for placebo; p=0.04). For the ISGA secondary efficacy endpoint, 53% of patients with 1.0% EB01-treated lesions achieved a score of "clear" or "almost clear" with at least a 2-point improvement from baseline after treatment at day 29 (p=0.04). Only 29% of patients in the placebo group reached the same endpoint. No serious treatment-related adverse events were reported across all concentrations. The 2.0% and 0.2% formulations did not show significant differences compared to placebo. These topline results are preliminary in nature, and should not be considered the complete, final or definitive results of the Phase 2b study. We are preparing for an End of Phase 2 meeting with FDA following full analysis. Results of Operations Comparison of the Three Months Ended Total operating expenses decreased by · Research and development expenses decreased by · General and administrative expenses Total other income For the three months ended Capital Expenditures Our capital expenditures primarily consist 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, exercises of common share purchase warrants, convertible preferred shares, convertible loans, government grants and tax incentives. For the In November 2022, we completed a private placement of units consisting of 2,691,337 common shares, three-year warrants to purchase up to an aggregate of 1,345,665 common shares (Class A warrants) and twelve-month warrants to purchase up to an aggregate of 1,345,665 common shares (Class B warrants). The gross proceeds from this offering are approximately $3.03 million, before offering expenses. 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. In March Under our contribution agreement with the Canadian government’s Strategic Innovation Fund (SIF), we At 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 and contract testing 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. Our research and development costs were Off Balance Sheet Arrangements We do not have any 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. Item 3. Quantitative and Qualitative Disclosures About Market Risk. We are a smaller reporting company and are not required to provide disclosure under this item. Item 4. Controls and Procedures. 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 PART II — OTHER INFORMATION Item 1. Legal Proceedings. 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. Item 1A. Risk 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, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Mine Safety Disclosures. Not applicable. Item 5. Other Information. None. Item 6. Exhibits EXHIBIT INDEX Exhibit No. Description 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Label Linkbase Document 101.PRE XBRL Taxonomy Presentation Linkbase Document * 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. Date: /s/ Kathi Niffenegger (Principal Financial Officer and Duly Authorized Officer) Condensed Interim Consolidated Statements of Changes in Shareholders’(Unaudited)13,518,799 $ 36,116,225 $ 5,480,739 $ (173,413 ) $ (30,874,306 ) $ 10,549,245 1,943,488 4,952,013 6,702,293 0 0 11,654,306 - (804,158 ) (448,738 ) 0 0 (1,252,896 ) - 0 630,008 0 0 630,008 - 0 0 13,066 (4,569,316 ) (4,556,250 ) 15,462,287 $ 40,264,080 $ 12,364,302 $ (160,347 ) $ (35,443,622 ) $ 17,024,413 10,523,087 $ 21,696,459 $ 2,156,719 $ (183,777 ) $ (15,784,177 ) $ 7,885,224 1,979,210 12,723,013 0 0 0 12,723,013 - (1,810,237 ) 407,023 0 0 (1,403,214 ) 98,437 570,228 (97,731 ) 0 0 472,497 10,746 45,047 (18,968 ) 0 0 26,079 - 0 0 0 (5,914 ) (5,914 ) 635,079 1,378,127 0 0 0 1,378,127 - 0 467,439 0 0 467,439 - 0 0 (10,480 ) (2,259,987 ) (2,270,467 ) 13,246,559 $ 34,602,637 $ 2,914,482 $ (194,257 ) $ (18,050,078 ) $ 19,272,784 13,295,403 $ 34,887,721 $ 4,871,461 $ (205,262 ) $ (26,495,629 ) $ 13,058,291 2,166,884 6,239,180 6,702,293 0 0 12,941,473 - (862,821 ) (448,738 ) 0 0 (1,311,559 ) - 0 1,239,286 0 0 1,239,286 - 0 0 44,915 (8,947,993 ) (8,903,078 ) 15,462,287 $ 40,264,080 $ 12,364,302 $ (160,347 ) $ (35,443,622 ) $ 17,024,413 9,615,119 $ 18,500,853 $ 1,550,480 $ (287,204 ) $ (13,132,954 ) $ 6,631,175 2,148,963 13,749,541 0 0 0 13,749,541 - (1,871,220 ) 407,023 0 0 (1,464,197 ) 341,806 1,681,936 (214,400 ) 0 0 1,467,536 10,746 45,047 (18,968 ) 0 26,079 - 0 0 0 (19,525 ) (19,525 ) 1,129,925 2,496,480 0 0 0 2,496,480 - 0 1,190,347 0 0 1,190,347 - 0 0 92,947 (4,897,599 ) (4,804,652 ) 13,246,559 $ 34,602,637 $ 2,914,482 $ (194,257 ) $ (18,050,078 ) $ 19,272,784 16,662,014 $ 42,473,099 $ 11,176,345 $ (213,602 ) $ (44,044,553 ) $ 9,391,289 2,691,337 2,082,669 944,827 - - 3,027,496 - (81,945 ) (37,175 ) - - (119,120 ) - - 333,675 - - 333,675 - - - (25,067 ) (2,334,817 ) (2,359,884 ) 19,353,351 $ 44,473,823 $ 12,417,672 $ (238,669 ) $ (46,379,370 ) $ 10,273,456 13,295,403 $ 34,887,721 $ 4,871,461 $ (205,262 ) $ (26,495,629 ) $ 13,058,291 223,396 1,287,167 - - - 1,287,167 - (58,663 ) - - - (58,663 ) - - 609,278 - - 609,278 - - - 31,849 (4,378,677 ) (4,346,828 ) 13,518,799 $ 36,116,225 $ 5,480,739 $ (173,413 ) $ (30,874,306 ) $ 10,549,245 6 Table of Contents “Company”Company or “Edesa”)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. It operates under its wholly owned subsidiaries, Edesa Biotech Research, Inc., an Ontario, Canada.Canada corporation, and Edesa Biotech USA, Inc., a California, USA corporation.Impact of COVID-19The 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.PreparationPresentation2021,2022, which was filed with the Securities and Exchange Commission (SEC) on December 28, 2021.16, 2022.subsidiaries, Edesa Biotech Research, Inc., an Ontario corporation, and Edesa Biotech USA, Inc., a California corporation in the U.S.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 six months ended MarchDecember 31, 2022 are not necessarily indicative of the results that may be expected for other interim periods or the fiscal year ending September 30, 2022.2023.functional currency of the CompanyCompany’s and its U.S. subsidiary.wholly owned subsidiary’s, Edesa Biotech USA, Inc., functional currency. The functional currency of the Company’s Canadianwholly owned subsidiary, Edesa Biotech Research, Inc., as determined by management, is Canadian dollars.(“the Constructs”)(the Constructs), including sublicensing rights. Unless earlier terminated, the term of the license agreement will remain in effect for 25 years from the date of first commercial sale of licensed products containing the Constructs. Subsequently, the license agreement will automatically renew for five-year periods unless either party terminates the agreement in accordance with its terms.7Table of Contents7 Table of Contents were subsequentlyhave been fully converted to common shares. The value of the license includes acquisition legal costs. See Note 5 for license commitments.$ 2,529,483 $ 2,529,483 $ 2,529,483 $ 2,529,483 (197,705 ) (147,119 ) (273,584 ) (248,291 ) $ 2,331,778 $ 2,382,364 $ 2,255,899 $ 2,281,192 $0.25$0.03 million for each of the three months ended March 31, 2022 and 2021 and $0.51 million for each of the six months ended MarchDecember 31, 2022 and 2021.$ 50,586 101,172 75,879 101,172 101,172 101,172 101,172 101,172 101,172 101,172 1,876,504 1,775,332 $ 2,331,778 $ 2,255,899 company controlled byrelated company. The original lease expired in December 2022, and the Company’s CEO forCompany executed a six-year termtwo-year extension through December 2022, with options to renew for another two-year term. The option period is not included in the right-of-use assets and related lease obligation.2024.$ 20,255 $ 20,253 $ 40,608 $ 39,941 $ 18,898 $ 20,353 8 Table of Contents 9 15 6.5 % 6.5 % Remaining lease term (months): 24 3 Estimated incremental borrowing rate: 9.2 % 6.5 % approximate future minimum lease payments under operatingright-of-use leases at MarchDecember 31, 2022 were as follows:$ 42,146 21,073 $ 59,911 79,881 19,970 63,219 159,762 1,679 13,229 $ 61,540 146,533 69,911 $ 76,622 $ 40,610 $ 39,942 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. $ 18,899 $ 20,354 thatwho perform clinical trials for the Company’s ongoing clinical studies and other service providers and the drug substance acquired in connection with a license agreement. Aggregateproviders. Approximate aggregate future contractual payments at MarchDecember 31, 2022 are as follows:$ 3,871,000 371,000 $ 1,889,000 75,000 373,000 16,000 47,000 35,000 11,000 $ 4,333,000 $ 2,355,000 9 Table of Contents (“the Constructs”)(the Constructs), including sublicensing rights. An intangible asset for the acquired license has been recognized. 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 six months ended March 31, 2021 and is committed to remaining payments of up to an aggregate amount of $352.5$356 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 milestone, royalty or sublicensing payments were made to the third party during the three and six months ended MarchDecember 31, 2022 and 2021.9Table of ContentsIn 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 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.know-how,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.$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. 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 milestone, licenseroyalty or royaltysublicensing payments were made to the third party during the three and six months ended MarchDecember 31, 2022 and 2021.The Company recorded an expenseA milestone payment of $0.11$0.03 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 metwas made during the three months ended MarchDecember 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 $68.9$69.1 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”)(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.Aggregate grossNet proceeds tofrom the Companyoffering were approximately $10.0 million. 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 proceeds2027 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.million.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.10Table of Contentsmillion from time to time through RBCCM. Formillion. During the sixthree months ended March 21, 2022,December 31, 2021, the Company sold a total of 626,884223,396 common shares pursuant to the agreement for grossnet proceeds of $2.94$1.23 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 andistribution agreement terminating the agreementwas terminated effective March 21, 2022.10 Table of Contents warrantwarrants activity is as follows:720,446 $ 5.69 2,931,507 $ 3.59 3,651,953 $ 4.00 992,721 $ 4.92 109,375 8.00 (341,806 ) 4.29 760,290 $ 5.65 Balance - September 30, 2022 3,651,953 $ 4.00 Issued 2,691,330 1.25 Balance -December 31, 2022 6,343,283 $ 2.84 Balance - September 30, 2021 and December 31, 2021 720,446 $ 5.69 MarchDecember 31, 2022 is 5637 months. MarchDecember 31, 2022: $ 15.90 $ 4.80 $ 4.81 $ 3.20 $ 8.00 $ 4.56 $ 3.52 $ 15.90 $ 4.80 $ 1.00 $ 4.81 $ 3.20 $ 8.00 $ 1.50 $ 4.56 $ 3.52 11 Table of Contents and six months ended MarchDecember 31, 2022 and 2021 was estimated using the Black-Scholes option valuation model using the following assumptions:2.37 % 2.37 % 0.67 % 87.09 % 87.09 % 94.20 % 0.00 % 0.00 % 0.00 % Pre-funded WarrantsA summary of the Company’s pre-funded warrants activity is as follows:Number of Pre-funded Warrant Shares (#)Six Months Ended March 31, 2022Balance – September 30, 2021-Issued1,199,727Balance – March 31, 20221,199,727There were no pre-funded warrants during the six months ended March 31, 2021.12Table of Contents4.54 % 4.76 % 90.73 % 89.70 % 0.00 % 0.00 % “2019 Plan”)2019 Plan) administered by the independent members of the Board of Directors, which amended and restated the 2017 Incentive Compensation Plan (the “2017 Plan”).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 364,617. TheAt 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 and 2017 Plans as described below.Plan. The remaining number of options available for grant at December 31, 2022 is 418,990.1,776,219 $ 5.06 $ 3.79 500,083 3.66 2.48 (14,754 ) 6.48 5.06 (214 ) 502.68 477.65 2,261,334 $ 4.70 $ 3.45 675,437 $ 3.30 $ 2.56 450,000 7.35 5.84 (10,746 ) 2.44 1.67 (19,066 ) 6.07 4.76 (238 ) 768.60 715.60 1,095,387 $ 4.79 $ 3.96 2,203,699 $ 4.66 $ 3.42 3,500 0.96 0.71 (238 ) 304.08 304.08 2,206,961 $ 4.61 $ 3.39 1,776,219 $ 5.06 $ 3.79 (214 ) 502.68 477.65 1,776,005 $ 5.00 $ 3.73 12 Table of Contents quarterthree months ended MarchDecember 31, 2022, the independent members of the Board of Directors granted a total of 415,0833,500 employee 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.MarchDecember 31, 2022 is 10293 months.MarchDecember 31, 2022: 238 304.08 3,499 296,403 2.16 266,482 3.16 213,616 307,789 34,724 1,122,751 13Table of Contents 3,499 296,403 2.16 311,897 3.16 297,643 432,081 202,232 97 0.96 1,543,852 and six months ended MarchDecember 31, 2022 and 2021 was estimated using the Black-Scholes option valuation model using the following assumptions:0.00% 0.00% 3.62 % 95.30 % 0.00 % $0.63$0.33 million and $0.47$0.61 million of share-based compensation expenses for the three months ended MarchDecember 31, 2022 and 2021, respectively and $1.24 million and $1.19 million for the six months ended March 31, 2022 and 2021.respectively.MarchDecember 31, 2022, the Company had approximately $2.16$0.71 million of unrecognized share-based compensation expense, which is expected to be recognized over a period of 3435 months.MarchDecember 31, 2022, all grant reimbursements receivable of $1.1 million were included in accounts and other receivable.have been received.13 Table of Contents 14Table of Contentscustomers.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.(“FX”)(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 MarchDecember 31, 2022, the Company and its Canadian subsidiary had assets denominated in Canadian dollars of approximately C$5.36.78 million and the U.S. dollar exchange rate as at this date was equal to 1.25081.355 Canadian dollars. Based on the exposure at MarchDecember 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. $0.5 million.The Company incurred rent expense of $0.20 million duringDuring each of the three months ended MarchDecember 31, 2022 and 2021, and $0.41 million and $0.40the Company paid cash of $0.02 million for the six months ended March 31, 2022 and 2021, respectivelyright 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. 1514Table of Contents MarchDecember 31, 2022 and our audited consolidated financial statements for the year ended September 30, 20212022 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on December 28, 2021.16, 2022.20212022 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.MarchDecember 31, 2022 and September 30, 2021,2022, and for the three and six months ended MarchDecember 31, 2022 and 2021 included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which we have prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate such estimates and judgments, including those described in greater detail below. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.focused on acquiring, developing and commercializing clinical-stage drugs forinnovative ways to treat inflammatory and immune-related diseases with cleardiseases.needs. Our two leadneeds, and where there are large addressable market opportunities, among other factors. We have multiple late-stage product candidates EB05 and EB01, are in later stage clinical studies.our development pipeline. is a monoclonal antibody therapydeveloped for acute and chronic disease indications 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,involve dysregulated innate immunity responses. 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-COV2inflammation. We are currently evaluating EB05 as well as othera potential treatment for Acute Respiratory Distress Syndrome (ARDS), a life-threatening form of 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.failure. In September 2021, an independent data and safety monitoring board pre-emptively unblinded2022, we reported final results from the Phase 2 part of a Phase 2/Phase 3 study of EB05 in ARDS patients who were hospitalized COVID-19for Covid-19-related respiratory disease. Among the findings, EB05 demonstrated statistically significant mortality reductions in critically ill hospitalized patients and identified “a clinically important” mortality benefit. The monitoring board further recommended continuationtreated with EB05 plus Standard of Care treatment (SOC). We are currently enrolling patients in the study into a Phase 3 confirmatory trial. The Phase 2 part of the study was funded primarily by a $11 million (C$14 million) reimbursement grant that was awarded by the Canadian government’s Strategic Innovation Fund (SIF) following a multi-disciplinary technical review of our drug technology and plans.EB05 study.an sPLA2 inhibitor, designated asproduct candidates for a number of chronic dermatological and inflammatory conditions. We recently completed enrollment and reported preliminary topline results of a Phase 2b study of our EB01 as a topical treatment fordrug candidate in moderate-to-severe chronic allergic contact dermatitisAllergic Contact Dermatitis (ACD), a common potentially debilitating conditionoccupational and occupational illness. EB01 employswork-related skin condition. We are also preparing an investigational new drug application (IND) in the United States for our EB07 product candidate to conduct a novel, non-steroidal mechanismfuture Phase 2 study in systemic sclerosis (SSc), an autoimmune rheumatic disorder that causes fibrosis (scarring/hardening) of actionskin and internal organs. In Canada, we are preparing a clinical trial application (CTA) for our EB06 monoclonal antibody candidate to conduct a future Phase 2 study in two clinical studies has demonstrated statistically significant improvement of multiple symptomsvitiligo, a common autoimmune disorder that causes the skin to lose its color in ACD patients. EB01 is currently being evaluated in a Phase 2b clinical study.patches.additionDecember 2022, the U.S. Food and Drug Administration (FDA) granted us Fast Track designation for our EB05 monoclonal antibody candidate. The Fast Track program provides Edesa with the opportunity for more frequent communication with the agency to our currentdiscuss the development path for EB05 as a treatment for ARDS in critically ill Covid-19 patients. Investigational drugs that receive Fast Track designation are also eligible for rolling review of their marketing application as well as potential pathways for accelerated regulatory approval. To receive this designation, drug candidates must both treat a serious disease and have non-clinical or clinical programs, we intenddata that demonstrate the potential to expand the utility of our technologies and clinical-stage assets across other indications.address an unmet medical need. 1615Table of Contents Recent DevelopmentsEB01 Clinical StudyEquity OfferingEB06 Clinical Trial ApplicationOn March 24, 2022, we completedIn January 2023, Health Canada approved our clinical trial application (CTA) for our EB06 monoclonal antibody candidate to conduct a registered direct offering of 1,540,000future Phase 2 study in vitiligo, a common shares, no par value, and pre-funded warrantsautoimmune disorder that causes skin 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. We received net proceeds of $9.01 million, after deducting fees to the placement agent and other offering expenses. 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, we 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 net proceeds will be used for working capital, including research and development expenses, and heldlose its color in temporary investments and cash equivalents until expended.patches.MarchDecember 31, 2022 and 2021$4.93$2.78 million to $4.58$2.38 million for the three months ended MarchDecember 31, 2022 compared to $9.51$5.16 million for the same period last year:$4.94$2.59 million to $3.04$1.36 million for the three months ended MarchDecember 31, 2022 compared to $7.98$3.95 million for the same period last year primarily due to decreased milestone and bulk drug substance payments, lower license fees and decreased external research expenses which were partially offset by higherrelated to our ongoing clinical studies and manufacturing expenses, and increased salary and related personnel expenses.of our investigational drugs.remained relatively unchanged at $1.53decreased by $0.19 million to $1.02 million for the three months ended MarchDecember 31, 2022 compared to $1.54$1.21 million for the same period last year.year primarily due to a decrease in noncash share-based compensation.(loss) decreased by $7.24$0.74 million to an overall gain of $0.01$0.04 million for the three months ended MarchDecember 31, 2022 compared to an overall gain of $7.25$0.78 million for the same period last year primarily due to a decrease in grant income associated with the completion of clinical study activities under our federal reimbursement grant with the Canadian government’s Strategic Innovation Fund.MarchDecember 31, 2022, our net loss was $4.57$2.33 million, or $0.33$0.13 per common share, compared to a net loss of $2.26$4.38 million, or $0.19$0.33 per common share, for the three months ended March 31, 2021.Comparison of the Six Months Ended March 31, 2022 and 2021Total operating expenses decreased by $2.38 million to $9.74 million for the six months ended March 31, 2022 compared to $12.12 million for the same period last year:·Research and development expenses decreased by $2.36 million to $6.99 million for the six months ended March 31, 2022 compared to $9.35 million for the same period last year primarily due to decreased milestone and bulk drug substance payments and lower license fees, which were partially offset by higher external research expenses, higher manufacturing expenses and increased salary and related personnel expenses.·General and administrative expenses decreased by $0.03 million to $2.74 million for the six months ended March 31, 2022 compared to $2.77 million for the same period last year primarily due to lower salary and related personnel expenses, which were partially offset by increased legal and other professional service fees.Total other income (loss) decreased by $6.44 million to an overall gain of $0.79 million for the six months ended March 31, 2022 compared to an overall gain of $7.23 million for the same period last year primarily due to a decrease in grant income associated with the completion of clinical study activities under our federal reimbursement grant with the Canadian government’s Strategic Innovation Fund.For the six months ended March 31, 2022, our net loss was $8.95 million, or $0.66 per common share, compared to a net loss of $4.90 million, or $0.45 per common share, for the six months ended MarchDecember 31, 2021.sixthree months ended MarchDecember 31, 2022 and 2021.17Table of Contentssix-monththree-month periods ended MarchDecember 31, 2022 and 2021, we reported net losses of $8.95$2.33 million and $4.90$4.38 million, respectively.16 Table of Contents On 24, 2022, we 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, we issued common share purchase warrants to purchase an aggregate of up to 2,739,727 common shares. After deducting the placement agent fees and offering expenses, net proceeds to the Company were approximately $9.01 million.OnIn November 22, 2021, we entered into an equity distribution agreement with RBC Capital Markets, LLC (RBCCM), as sales agent.agent, which was subsequently terminated in March 2022. Pursuant to the terms of the agreement, as amended, March 4, 2022, the Company could offer and sell, from time to time, common shares through an at-the-market offering program for up to $15.4 million in gross cash proceeds. ForDuring the six months ended March 21, 2022,term of the agreement, we sold a total of 626,884 common shares pursuant to the agreement.shares. After deducting commissions and direct costs, net proceeds totaled approximately $2.62 million. On March 21, 2022, the Company and RBCCM entered into an agreement terminating the agreement effective March 21, 2022.arewere eligible to receive cash reimbursements up to C$14.05 million (approximately $11 million USD) in the aggregate for certain research and development expenses related to our EB05 clinical development program. For the yearyears ended September 30, 2022 and 2021, we recorded grant income of $0.78 million and $10.34 million inrespectively. All grant income, and for the six months ended Marchreimbursements have been received at December 31, 2022, we recorded $0.78 million in grant income. 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 price of $6.40 per share for net proceeds of $8.89 million, after deducting underwriter fees and related offering expenses.For the year ended September 30, 2021, the exercise of warrants and options as well as sales under an equity distribution agreement with RBCCM resulted in the issuance of 987,859 common shares and net cash proceeds to the Company of $5.12 million.2022.MarchDecember 31, 2022, we had cash and cash equivalents of $15.89$8.27 million, working capital of $14.66$7.81 million, shareholders’ equity of $17.02$10.27 million and an accumulated deficit of $35.44$46.38 million. We plan to finance company operations over the course of the next twelve months with cash and cash equivalents on hand, and reimbursementsincluding proceeds from warrant exercises of eligible research and development expenses under our contribution agreement with the Canadian government.$0.77 million received subsequent to December 31, 2022. Management has flexibility to adjust this timeline by making changes to planned expenditures related to, among other factors, the size and timing of clinical trial expenditures and manufacturing campaigns, staffing levels, and the acquisition or in-licensing of new product candidates. To help fund our operations and meet our obligations in the future, we are planningplan to seek additional financing through the sale of equity, government grants, equity sales, 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, thereThere 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, inflation, interest rates, government policies and concerns related to the COVID-19war in Ukraine and 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.$6.99$1.36 million and $9.35$3.95 million for the sixthree months ended MarchDecember 31, 2022 and 2021, respectively. The decrease was due primarily to decreased milestone and bulk drug substance payments and lower license fees, which were partially offset by higher external research expenses related to theour ongoing Phase 2/Phase 3 clinical studystudies and manufacturing of our EB05 drug candidate, higher manufacturing expenses and increased salary and related personnel expenses.investigational drugs.18Table of Contents17 Table of Contents MarchDecember 31, 2022. Our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures, as of MarchDecember 31, 2022, were effective.MarchDecember 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 1918Table of Contents 2021,2022, filed with the Securities and Exchange Commission on December 28, 2021.16, 2022. 2019Table of Contents Management contract or compensatory plan or arrangement.** 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 is not to be incorporated by reference into any filing of Edesa Biotech, Inc. under the Securities Act of 1933, as amended, or the Exchange Act of 1934, as amended, whether made before or after the date hereof, regardless of any general incorporation language in such filing. 2120Table of Contents EDESA BIOTECH, INC. May 13, 2022February 10, 2023Kathi Niffenegger, Chief Financial Officer 2221