Document and Entity Information
Document and Entity Information - USD ($) | 9 Months Ended | ||
Sep. 30, 2019 | Dec. 12, 2019 | Mar. 29, 2019 | |
Document And Entity Information | |||
Entity Registrant Name | Edesa Biotech, Inc. | ||
Entity Central Index Key | 0001540159 | ||
Document Type | 10-KT | ||
Document Period End Date | Sep. 30, 2019 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --09-30 | ||
Is Entity a Well-known Seasoned Issuer? | No | ||
Is Entity a Voluntary Filer? | No | ||
Is Entity's Reporting Status Current? | Yes | ||
Entity Filer Category | Non-accelerated Filer | ||
Entity Emerging Growth Company | true | ||
Elected Not To Use the Extended Transition Period | true | ||
Entity Small Business | true | ||
Entity Shell Company | false | ||
Entity Public Float | $ 5,757,940 | ||
Entity Common Stock, Shares Outstanding | 7,504,468 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2019 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) | Sep. 30, 2019 | Dec. 31, 2018 |
Current assets: | ||
Cash and cash equivalents | $ 5,030,583 | $ 3,367,098 |
Accounts and other receivable | 217,101 | 7,339 |
Prepaid expenses and deposits | 397,022 | 16,487 |
Total current assets | 5,644,706 | 3,390,924 |
Property, plant and equipment, net | 73,058 | 7,386 |
Total assets | 5,717,764 | 3,398,310 |
Current liabilities: | ||
Accounts payable and accrued liabilities | 461,634 | 183,820 |
Total current liabilities | 461,634 | 183,820 |
Commitments (Note 5) | ||
Shareholders' equity: | ||
Authorized unlimited common and preferred shares without par value issued and outstanding: 7,504,468 common shares (2018 - 3,239,902) | 12,005,051 | 1,111,253 |
Preferred shares | 0 | 6,064,013 |
Additional paid-in capital | 327,768 | 230,792 |
Accumulated other comprehensive loss | (342,074) | (429,973) |
Accumulated deficit | (6,734,615) | (3,761,595) |
Total shareholders' equity | 5,256,130 | 3,214,490 |
Total liabilities and shareholders' equity | $ 5,717,764 | $ 3,398,310 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - $ / shares | 9 Months Ended | 12 Months Ended |
Sep. 30, 2019 | Dec. 31, 2018 | |
Statement of Financial Position [Abstract] | ||
Capital shares, par value | $ 0 | $ 0 |
Capital shares, authorized | Unlimited | Unlimited |
Capital shares, issued | 7,504,468 | 3,239,902 |
Capital shares, outstanding | 7,504,468 | 3,239,902 |
Preferred stock shares, issued | 0 | 1,007,143 |
Preferred stock shares, outstanding | 0 | 1,007,143 |
Consolidated Statements of Oper
Consolidated Statements of Operations and Comprehensive Loss - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2019 | Dec. 31, 2018 | |
Revenues: | ||
Product sales | $ 410,870 | $ 0 |
Expenses: | ||
Cost of sales | 101,286 | 0 |
Research and development | 1,096,426 | 1,075,491 |
General and administrative | 2,045,296 | 543,155 |
Total expenses | 3,243,008 | 1,618,646 |
Loss from operations | (2,832,138) | (1,618,646) |
Other income (loss): | ||
Interest income | 56,840 | 64,307 |
Foreign exchange gain (loss) | (1,436) | 17,783 |
Total other income (loss) | 55,404 | 82,090 |
Net loss | (2,776,734) | (1,536,556) |
Exchange differences on translation | 87,899 | (328,838) |
Net loss and comprehensive loss | $ (2,688,835) | $ (1,865,394) |
Weighted average number of common shares | 5,036,331 | 3,239,902 |
Loss per share - basic and diluted | $ (0.55) | $ (0.47) |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2019 | Dec. 31, 2018 | |
Cash flows from operating activities: | ||
Net loss | $ (2,776,734) | $ (1,536,556) |
Adjustments for: | ||
Depreciation | 4,779 | 1,655 |
Gain on disposition of fixed assets | (2,172) | 0 |
Share-based compensation | 35,074 | 81,344 |
Change in working capital items: | ||
Accounts and other receivable | 9,737 | 4,029 |
Prepaid expenses and other assets | (311,466) | 81,658 |
Inventory | 77,913 | 0 |
Accounts payable and accrued liabilities | (1,882,918) | 79,040 |
Net cash used in operating activities | (4,845,787) | (1,288,830) |
Cash flows from investing activities: | ||
Cash acquired during reverse acquisition | 6,389,322 | 0 |
Purchases of property and equipment | (8,095) | (6,869) |
Proceeds on sales of property and equipment | 36,741 | 0 |
Net cash provided by (used in) investing activities | 6,417,968 | (6,869) |
Effect of exchange rate changes on cash | 91,304 | (337,325) |
Net change in cash and cash equivalents | 1,663,485 | (1,633,024) |
Cash and cash equivalents, beginning of period or year | 3,367,098 | 5,000,122 |
Cash and cash equivalents, end of period or year | 5,030,583 | 3,367,098 |
Supplemental disclosure of Non-cash investing and financing activities: | ||
Non-cash assets acquired and liabilities assumed in reverse acquisition - See Note 11 | (1,693,921) | 0 |
Preferred shares exchanged for common shares in reverse acquisition | $ 6,260,299 | $ 0 |
Consolidated Statements of Chan
Consolidated Statements of Changes in Shareholders' Equity - USD ($) | Common Shares | Class A Preferred Shares | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total |
Beginning balance, shares at Dec. 31, 2017 | 3,239,902 | 1,007,143 | ||||
Beginning balance, amount at Dec. 31, 2017 | $ 1,111,253 | $ 5,616,801 | $ 149,448 | $ (101,135) | $ (1,777,827) | $ 4,998,540 |
Preferred return for Class A preferred shares | 447,212 | (447,212) | 0 | |||
Effect of reverse acquisition, shares | ||||||
Effect of reverse acquisition, amount | ||||||
Share-based compensation | 81,344 | 81,344 | ||||
Net loss and comprehensive loss | (328,838) | (1,536,556) | (1,865,394) | |||
Ending balance, shares at Dec. 31, 2018 | 3,239,902 | 1,007,143 | ||||
Ending balance, amount at Dec. 31, 2018 | $ 1,111,253 | $ 6,064,013 | 230,792 | (429,973) | (3,761,595) | 3,214,490 |
Preferred return for Class A preferred shares | $ 196,286 | (196,286) | 0 | |||
Effect of reverse acquisition, shares | 888,454 | (1,007,143) | ||||
Effect of reverse acquisition, amount | $ 4,633,499 | $ (6,260,299) | 61,902 | 4,695,401 | ||
Share-based compensation | 35,074 | 35,074 | ||||
Net loss and comprehensive loss | 87,899 | (2,776,734) | (2,688,835) | |||
Ending balance, shares at Sep. 30, 2019 | 7,504,468 | 0 | ||||
Ending balance, amount at Sep. 30, 2019 | $ 12,005,051 | $ 0 | $ 327,768 | $ (342,074) | $ (673,615) | $ 5,256,130 |
Nature of Operations
Nature of Operations | 9 Months Ended |
Sep. 30, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Nature of Operations | Edesa Biotech, Inc. (the “Company” or “Edesa”) is a biopharmaceutical company focused on acquiring, developing and commercializing clinical stage drugs for dermatological and gastrointestinal indications with clear unmet medical needs. The Company is organized under the laws of British Columbia, Canada and is headquartered in Markham, Ontario. In June 2019, the Company changed its name from Stellar Biotechnologies, Inc. to Edesa Biotech, Inc. following a reverse acquisition with Edesa Biotech Research, Inc., formerly known as Edesa Biotech Inc., a company organized under the laws of the province of Ontario. At the closing of the transaction, which occurred on June 7, 2019, the Company acquired the entire issued share capital of Edesa Biotech Research, Inc., with Edesa Biotech Research, Inc., becoming a wholly-owned subsidiary of the Company. Also, on June 7, 2019, in connection with and following the completion of the reverse acquisition, the Company effected a 1- for-6 reverse split of its common shares. The Company’s common shares trade on The Nasdaq Capital Market in the United States under the symbol “EDSA”. Liquidity Our operations have historically been funded through issuances of preferred shares that were converted into common shares, loans that were converted into common shares and government grants. For the short-period fiscal year September 30, 2019 and year ended December 31, 2018, the Company reported net losses of approximately $2.78 million and $1.54 million, respectively. At September 30, 2019, we had cash and cash equivalents of $5.03 million, working capital of $5.17 million, shareholders’ equity of $5.26 million and an accumulated deficit of $6.73 million. We plan to finance company operations for at least the next twelve months with cash and investments on hand and sales of surplus product inventory obtained in the reverse acquisition. Management expects to continue incurring losses for the foreseeable future and will need to raise additional capital to pursue our business plan beyond December 2020. 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, staffing levels, and the acquisition or in-licensing of new product candidates. Management also expects to seek additional financing through debt and/or equity financings, including transactions with strategic companies that may include debt and/or equity arrangements. |
Basis of Preparation
Basis of Preparation | 9 Months Ended |
Sep. 30, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Preparation | The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and include the accounts of the Company and its wholly-owned subsidiaries, Edesa Biotech Research, Inc., an Ontario corporation, and Stellar Biotechnologies, Inc., a California corporation in the U.S. All intercompany balances and transactions have been eliminated in consolidation. Upon the completion of the reverse acquisition, Edesa Biotech Research, Inc. changed its fiscal year end from December 31 to September 30 to align with the Company’s fiscal year end. The accompanying consolidated financial statements include the short-period fiscal year ended September 30, 2019 and the year ended December 31, 2018. |
Significant Accounting Policies
Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2019 | |
Accounting Policies [Abstract] | |
Significant Accounting Policies | Use of estimates The preparation of 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 receivable; valuation and useful lives of property and equipment; deferred income taxes; classification of Class A convertible preferred shares as liability or equity; the determination of fair value of share-based compensation; the determination of fair value of shares and replacement warrants for the reverse acquisition; 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. The functional currency of the Company and its wholly-owned subsidiary, Edesa Biotech Research, Inc., as determined by management, is Canadian dollars. The functional currency of the Company’s wholly-owned subsidiary, Stellar Biotechnologies, Inc. is U.S. dollars. Cash and cash equivalents Cash and cash equivalents consist of demand deposits with financial institutions and highly liquid investments which are readily convertible into cash with maturities of three months or less when purchased. The carrying amount of cash and cash equivalents approximates its fair value due to its short-term nature. Investments Investments during the year consisted of U.S. Treasury bills with original maturities between 13 and 52 weeks. They are classified as held-to-maturity and are reported at amortized cost, which approximates fair value. The Company regularly reviews these investments to determine whether any decline in fair value below the amortized cost basis has occurred that is other than temporary. If a decline in fair value has occurred that is determined to be other than temporary, the cost basis of the investment is written down to fair value. There were no investments outstanding at September 30, 2019 or December 31, 2018. Accounts receivable The Company assesses the collectability of its accounts receivable through a review of its current aging, as well as an analysis of its historical collection rate, general economic conditions and credit status of its customers. Accounts receivable include Harmonized Sales Tax (HST) refunds receivable. As of September 30, 2019, all outstanding accounts and HST refunds receivable were deemed to be fully collectible, and therefore, no allowance for doubtful accounts was recorded. Property and equipment Property and equipment are recorded at historical cost less accumulated depreciation and any accumulated impairment losses. Depreciation is recorded to write off the cost of assets less their residual values over their useful lives, using the declining balance and straight-line methods. Assets not in use and on consignment for sale are carried at the expected net proceeds value. Maintenance and repair expenditures that do not improve or extend the life are expensed in the period incurred. Any gain or loss arising on the disposal or retirement of an item of property and equipment is recognized as the difference between the sales proceeds and the carrying amount of the asset. The estimated useful lives, residual values and depreciation methods are reviewed at the end of each year, with the effect of any changes in estimate accounted for on a prospective basis. Impairment of long-lived assets Long-lived assets are tested for impairment when indicators of impairment exist. When a significant change in the expected timing or amount of the future cash flows of the financial asset is identified, the carrying amount of the financial asset is reduced and the amount of the write-down is recognized as a loss. A previously recognized impairment loss may be reversed to the extent of the improvement, provided it is not greater than the amount that would have been reported at the date of the reversal had the impairment not been recognized previously, and the amount of the reversal is recognized in net income (loss). Fair value measurement The Company uses the fair value measurement framework for valuing financial assets and liabilities. See Note 8. Revenue Recognition Revenues and accounts receivable are recognized when the promised goods or services are transferred to customers, in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those goods or services. Revenues consist of sales of product inventory obtained in the reverse acquisition completed in June 2019, which are recognized upon shipment when the customer obtains control of the product and the Company has no further performance obligations. Research and development Research and development expenses principally consist of (i) contract research organizations for clinical trial management services, (ii) contract manufacturing organizations for manufacturing the drug compound(s) for use in clinical trials and (iii) salaries of employees directly involved in research and development efforts. Research and development costs are expensed as incurred. Share-based compensation The Company measures the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted since the fair value of the goods or services received by the Company cannot be reliably estimated. The Company grants options to buy common shares of the Company to its directors, officers, employees and consultants, and grants other equity-based instruments such as warrants to non-employees. The fair value of share-based compensation is measured on the date of grant, using the Black-Scholes option valuation model and is recognized over the vesting period net of estimated forfeitures for employees or the service period for non-employees. The provisions of the Company's share-based compensation plans do not require the Company to settle any options by transferring cash or other assets, and therefore the Company classifies the awards as equity. The Black-Scholes option valuation model requires the input of subjective assumptions, including price volatility of the underlying stock, risk-free interest rate, dividend yield, and expected life of the option. Translation of foreign currency transactions The Company's reporting currency is the U.S. dollar. The financial statements of the parent Company and its wholly-owned Canadian subsidiary are measured using the Canadian dollar as the functional currency. Assets and liabilities of the Canadian operations have been translated at year-end exchange rates and related revenue and expenses have been translated at average exchange rates for the year. Accumulated gains and losses resulting from the translation of the financial statements of the Canadian operations are included as part of accumulated other comprehensive loss, a separate component of shareholders' equity. For other transactions denominated in currencies other than the Company’s functional currency, the monetary assets and liabilities are translated at the year-end rates. Revenue and expenses are translated at rates of exchange prevailing on the transaction dates. Non-monetary balance sheet and related income statement accounts are remeasured into U.S. dollar using historical exchange rates. All of the exchange gains or losses resulting from these other transactions are recognized in the statements of operations and comprehensive loss. Income taxes Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax bases of assets and liabilities and their financial statement reported amounts using enacted tax rates and laws in effect in the year in which the differences are expected to reverse. A valuation allowance is provided against deferred tax assets when it is determined to be more likely than not that the deferred tax asset will not be realized. The Company assesses the likelihood of the financial statement effect of a tax position that should be recognized when it is more likely than not that the position will be sustained upon examination by a taxing authority based on the technical merits of the tax position, circumstances, and information available as of the reporting date. The Company is subject to examination by taxing authorities in Canada and the U.S. Management does not believe that there are any uncertain tax positions that would result in an asset or liability for taxes being recognized in the accompanying financial statements. The Company recognizes tax-related interest and penalties, if any, as a component of income tax expense. The Company accounts for income taxes on a tax jurisdictional basis. The Company files income tax returns in Canada, the provinces of British Columbia and Ontario, the U.S. and the state of California. Earnings (loss) per share Basic earnings (loss) per share is calculated by dividing income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. The computation of diluted earnings (loss) per share assumes the conversion, exercise or contingent issuance of securities only when such conversion, exercise or issuance would have a dilutive effect on earnings (loss) per share. The dilutive effect of convertible securities is reflected in diluted earnings per share by application of the “if converted” method. The dilutive effect of outstanding options and warrants and their equivalents is reflected in diluted earnings per share by application of the treasury stock method. Conversion of outstanding options and warrants would have an antidilutive effect on loss per share for the nine-month transition period ended September 30, 2019 and year ended December 31, 2018 and are therefore excluded from the computation of diluted loss per share. 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 consolidated financial statements for loss, comprehensive loss, depreciation and total assets also represent segmented amounts. Adoption of Recent Accounting Pronouncements On October 1, 2018, the Company adopted Accounting Standards Codification (ASC) 606 Revenue Recognition – Revenue from Contracts with Customers The Company recognizes revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The Company recognizes revenue following the five-step model prescribed under ASC Topic 606: (1) identify contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenues when (or as) the Company satisfies the performance obligation(s). Revenues consist of sales of product inventory obtained in the reverse acquisition, which are recognized upon shipment when the customer obtains control of the product and the Company has no further performance obligations. Future accounting pronouncements In February 2016, the FASB issued new guidance, ASU No. 2016-02, Leases (Topic 842). The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. Additional qualitative and quantitative disclosures are also required by the new guidance. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. Topic 842 is effective for annual reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company will adopt the new standard on October 1, 2019 and use the effective date as its date of initial application. The new standard provides a number of optional practical expedients in transition. The Company expects to elect the ‘package of practical expedients’, which permits the Company not to reassess under the new standard prior conclusions about lease identification, lease classification and initial direct costs. The Company expects that this standard will have a material effect on the consolidated financial statements. The Company has assessed that the most significant effects relate to (1) the recognition of new ROU assets and lease liabilities on the balance sheet for the Company’s operating leases; and (2) providing significant new disclosures about the Company’s leasing activities. The Company does not expect a significant change in leasing activities between now and adoption. Currently, the Company estimates that the discounted value of operating lease commitments at September 30, 2019 totaling approximately $305,000 will be recognized as a right-of-use asset and corresponding lease liability at the transition date, with no impact to opening retained earnings at that date. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . |
Property and Equipment
Property and Equipment | 9 Months Ended |
Sep. 30, 2019 | |
Property, Plant and Equipment [Abstract] | |
Property and Equipment | Property and equipment, net consisted of the following: September 30, December 31, 2019 2018 Computer equipment $ 42,910 $ 4,828 Furniture and equipment 7,932 5,578 50,842 10,406 Less: accumulated depreciation (29,194 ) (3,020 ) Depreciable assets, net 21,648 7,386 Assets not in service 51,410 — Total property and equipment, net $ 73,058 $ 7,386 Assets not in service represent equipment acquired in the reverse acquisition and held for sale on consignment by a third party. Depreciation expense amounted to approximately $4,800 and $1,700 for the nine-month transition period ended September 30, 2019 and year ended December 31, 2018, respectively. |
Commitments
Commitments | 9 Months Ended |
Sep. 30, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments | Operating leases The Company leases facilities used for executive offices from a related company for a six-year term through December 2022, with options to renew for another two-year term. The Company leases buildings and facilities used by its California subsidiary under three lease agreements. The Company intends to allow the leases to expire at the end of their current respective terms in June 2020, September 2020 and October 2020. Aggregate future minimum lease payments at September 30, 2019 are as follows: Year Ending September 30, 2020 $ 245,000 September 30, 2021 85,000 September 30, 2022 80,000 September 30, 2023 20,000 $ 430,000 Total rent Related party commitments On August 14, 2002, through its California subsidiary, the Company entered into a patent royalty agreement with a director of the Company, whereby he would receive royalty payments in exchange for assignment of his patent rights to the Company. The royalty is 5% of gross receipts from products using this invention in excess of $500,000 annually. Other license and royalty commitments 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 as of September 30, 2019 and December 31, 2018. 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 nine-month transition period ended September 30, 2019 and year ended December 31, 2018. In 2016, also through its Ontario subsidiary, the Company entered into an exclusive license agreement with another third party to obtain exclusive rights to certain know-how, patents and data relating to a pharmaceutical product. No intangible assets have been recognized under the license agreement as of September 30, 2019 and December 31, 2018. Under the license agreement, the Company is committed to payments of up to a total of $18.5 million upon meeting certain milestones outlined in the license agreement. The Company also has a commitment to pay a royalty based on net sales of the product in the countries where the Company directly commercializes the product and a percentage of sublicensing revenue received by the Company and its affiliates in the countries where it does not directly commercialize the product. No license or royalty payments were made to the third party during the nine-month transition period ended September 30, 2019 and year ended December 31, 2018. Other commitments The Company contracted research organizations who perform clinical trials for the Company’s on-going clinical studies and other service providers. Aggregate future contractual payments to those service organizations at September 30, 2019 are as follows: Year Ending September 30, 2020 $ 2,253,000 September 30, 2021 18,000 September 30, 2022 5,000 $ 2,276,000 Retirement savings plan 401(k) contributions Executive officers and employees of our California subsidiary are eligible to receive the Company’s non-elective contribution of 3% of eligible compensation under a 401(k) plan to provide retirement benefits. during the nine-month transition period ended September 30, 2019. |
Capital Shares
Capital Shares | 9 Months Ended |
Sep. 30, 2019 | |
Stockholders' Equity Note [Abstract] | |
Capital Shares | Reverse Share Split On June 7, 2019, the Company effected a reverse split of the Company's common shares at a ratio of 1-for-6. As a result of the reverse split, every six shares of the issued and outstanding common shares, without par value, consolidated into one newly issued outstanding common share, without par value, after fractional rounding. All shares and exercise prices are presented on a post-split basis in these consolidated financial statements. 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. Option valuation models require the input of highly subjective assumptions including the expected price volatility. The Company has used historical volatility to estimate the volatility of the share price. 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 warrants activity is as follows: Weighted Number of Average Warrants (#) Exercise Price Balance – December 31, 2018 and 2017 — $ — Effect of reverse acquisition 362,430 31.60 Black-Scholes value payout (313,516 ) 33.01 Balance – September 30, 2019 48,914 $ 11.19 The fair value of warrants acquired in the reverse acquisition that subsequently had a Black-Scholes value payout totaled $1,187,124. The weighted average contractual life remaining on the outstanding warrants at September 30, 2019 is 49 months. The following table summarizes information about the warrants outstanding at September 30, 2019: Number of Warrants (#) Exercise Prices Expiry Dates 28,124 $ 15.90 May 2023 20,790 4.81 June 2024 48,914 Share Options The Company adopted an Equity Incentive Compensation Plan in 2019 (the 2019 Plan) administered by the Board of Directors, which amended and restated the 2017 Incentive Compensation Plan (the 2017 Plan). Options, restricted shares and restricted share units are eligible for grant under the 2019 Plan. The number of shares available for issuance under the 2019 Plan is 1,153,147, including shares available for the exercise of outstanding options under the 2017 Plan. The Company's 2019 Plan allows options to be granted to directors, officers, employees and certain external consultants and advisers. Under the 2019 Plan, the option term is not to exceed 10 years. The term, vesting and exercise price of each option is determined by the independent members of the Board of Directors upon grant. Options have been granted allowing the holders to purchase common shares of the Company as follows: Weighted Number of Average Options (#) Exercise Price Balance – December 31, 2017 289,203 $ 1.65 Granted 25,920 1.65 Balance – December 31, 2018 315,123 $ 1.65 Effect of reverse acquisition 7,787 124.80 Expired (3,265 ) 125.75 Balance – September 30, 2019 319,645 $ 3.39 The weighted average contractual life remaining on the outstanding options at September 30, 2019 is 96 months. The following table summarizes information about the options under the 2019 Plan outstanding and exercisable at September 30, 2019: Exercisable at Range of Number of Options (#) September 30, 2019 (#) Exercise Prices Expiry Dates 315,123 242,428 C$ 2.16 Aug 2027-Dec 2028 333 333 C$ 105.00-243.60 Dec 2019-May 2020 214 214 C$ 638.40 Nov 2021 3,499 3,499 $ 35.28-93.24 Sep 2023-Mar 2025 238 238 $ 304.08 Dec 2022 238 238 $ 768.60 Nov 2020 319,645 246,950 The fair value of options granted during the year ended December 31, 2018 was estimated using the Black-Scholes Option Pricing Model using the following assumptions: Risk free interest rate 1.98 % Expected life (years) 4 Expected share price volatility 79.46 % Expected dividend yield 0 % No share options were granted during the nine-month transition period ended September 30, 2019, however share options were assumed in the reverse acquisition. The Company recorded approximately $35,000 and $81,000 of share-based compensation expenses for the nine-month transition period ended September 30, 2019 and year ended December 31, 2018 respectively. As of September 30, 2019, the Company had approximately $30,000 of unrecognized share-based compensation expense, which is expected to be recognized over a period of 27 months. Issued and outstanding common shares: Number of Common Shares (#) Common Shares Balance – December 31, 2018 and 2017 3,239,902 $ 1,111,253 Conversion of preferred shares upon reverse acquisition 3,376,112 6,260,299 Share consideration transferred upon reverse acquisition 888,454 4,633,499 Balance – September 30, 2019 7,504,468 $ 12,005,051 Issued and outstanding preferred shares: Class A Preferred Class A Preferred Shares (#) Shares Balance – December 31, 2017 1,007,143 $ 5,616,801 Preferred return on Class A preferred shares — 447,212 Balance – December 31, 2018 1,007,143 $ 6,064,013 Preferred return on Class A preferred shares — 196,286 Conversion upon reverse acquisition (1,007,143 ) (6,260,299 ) Balance – September 30, 2019 — $ — The Class A preferred shares are voting and convertible into common shares at the option of the holder at any time. Upon the occurrence of a liquidation event, as defined in the resolutions of the shareholders dated August 28, 2017, the Class A preferred shares have a liquidation amount preference over the rights of holders of common shares or any class of shares ranking junior to Class A preferred shares. The Class A preferred shares also contain an 8% preferred return that accrues daily and compounds annually and is payable in shares upon conversion. The Company has evaluated the convertible preferred shares and the embedded conversion option. The embedded conversion option does not meet the criteria for bifurcation and has therefore been classified to equity. Following the completion of the reverse acquisition on June 7, 2019, all the outstanding Class A preferred shares and accumulated accrued preferred return were fully converted to 3,376,112 common shares based on the fair market value upon conversion. |
Income Tax
Income Tax | 9 Months Ended |
Sep. 30, 2019 | |
Income Tax Disclosure [Abstract] | |
Income Tax | The reconciliation of the combined Canadian federal and provincial statutory income tax rate to the approximate effective tax rate is as follows: Nine-month Period Ended September 30, 2019 Year Ended December 31, 2018 Net loss before recovery of income taxes $ (2,776,734 ) $ (1,536,556) Canadian federal and provincial statutory income tax rate 26.5 % 26.5 % Expected income tax recovery $ (736,000 ) $ (407,000 ) Permanent differences 11,000 41,000 Effect of foreign currency and foreign tax rate differences (60,000 ) — Change in valuation allowance 785,000 366,000 Income tax (recovery) expense $ — $ — Unrecognized deferred tax assets Deferred taxes are provided as a result of temporary differences that arise due to the difference between the income tax values and the carrying amount of assets and liabilities. Approximate deferred tax assets are as follows: September 30, 2019 December 31, 2018 Non-capital losses carried forward - Canada $ 3,592,000 $ 575,000 Non-capital losses carried forward - U.S. 1,587,000 — Share issuance and financing costs 517,000 26,000 Research and development tax credits 626,000 121,000 Other temporary differences 28,000 15,000 Total deferred tax assets $ 6,350,000 $ 737,000 Valuation allowance (6,350,000 ) (737,000 ) Net deferred taxes $ — $ — Realization of the deferred tax assets is dependent upon the generation of future taxable income, the amount and timing of which are uncertain. It is more likely than not that a tax benefit will not be realized. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. Non-capital losses, capital losses, and research and development credits generated by Stellar Biotechnologies, Inc. prior to changes in share ownership that occurred as a result of the reverse acquisition are substantially limited. It is unlikely that tax losses totaling $25.5 millin and credits totaling $0.6 million will be utilized to offset potential future taxable income before expiration and they are excluded from deferred tax assets above. The approximate Canadian non-capital losses carried forward at September 30, 2019 expire as follows: 2028 C$ 21,000 2029 56,000 2030 346,000 2031 688,000 2032 860,000 2033 685,000 2034 780,000 2035 1,369,000 2036 1,705,000 2037 1,909,000 2038 3,243,000 2039 6,058,000 Total C$ 17,720,000 Share issuance and financing costs will be fully amortized in 2024. The U.S. non-capital losses carried forward at September 30, 2019 totalled approximately $7,536,000, which do not expire for federal taxes and include $70,000 that expires in 2039 for state taxes. |
Financial Instruments
Financial Instruments | 9 Months Ended |
Sep. 30, 2019 | |
Fair Value Disclosures [Abstract] | |
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 receivable, accounts payable and accrued liabilities approximates fair value due to the short-term nature of such instruments. Short-term investments in U.S. Treasury Bills are recorded at amortized cost, which approximates fair value using level 1 inputs. (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 receivables. The Company manages this risk by maintaining bank accounts with Canadian Chartered Banks, U.S. banks believed to be credit worthy and U.S. Treasury Bills. 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 is not considered significant since amounts are due from the Canada Revenue Agency. (c) Foreign exchange risk The Company and its subsidiary have balances in Canadian dollars that give rise to exposure to foreign exchange (“FX”) risk relating to the impact of translating certain non-U.S. 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 September 30, 2019, the Company and its Canadian subsidiary had assets of C$2.4 million and the U.S. dollar was equal to 1.324 Canadian dollars. Based on the exposure at September 30, 2019, a 10% annual change in the Canadian/U.S. exchange rate would impact the Company’s loss and other comprehensive loss by approximately $182,000. (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. |
Related Party Transactions
Related Party Transactions | 9 Months Ended |
Sep. 30, 2019 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | During the periods presented, the Company incurred the following related party transactions: ● During the nine-month transition period ended September 30, 2019 and year ended December 31, 2018, the Company incurred rent expense of approximately $58,000 and $79,000 from a related company, respectively. 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. Included in accounts payable and accrued liabilities at December 31, 2018 was rent payable of approximately $14,000. No rent was payable at September 30, 2019. ● During the nine-month transition period ended September 30, 2019, the Company incurred royalty expenses of approximately $20,000 to a director related to products sales by the California subsidiary. Included in accounts payable and accrued liabilities at September 30, 2019 was royalty payable of approximately $23,000 to that director, including for products sales by the California subsidiary prior to the completion of the reverse acquisition. |
Comparative Figures
Comparative Figures | 9 Months Ended |
Sep. 30, 2019 | |
Comparative Figures | |
Comparative Figures | Certain reclassifications have been made to the prior year’s financial statements to enhance comparability with the current year’s financial statements. In the accompanying year ended December 31, 2018 Statement of Operations and Comprehensive Loss, depreciation of $1,655 was reclassified to general and administrative expenses and share based compensation expense of $27,139 and $54,205 was reclassified to research and development expenses and general and administrative expenses, respectively. Unaudited summary comparative financial information for the transition period is as follows: (Unaudited) Nine Months Ended September 30, 2018 Total Expenses $ (1,212,905 ) Other Income 41,198 Net Loss (1,171,707 ) Exchange differences on translation (346,598 ) Net Loss and Comprehensive Loss $ (1,518,305 ) Weighted average number of common shares 3,239,902 Loss per share - basic and diluted $ (0.36 ) |
Business Combination
Business Combination | 9 Months Ended |
Sep. 30, 2019 | |
Business Combinations [Abstract] | |
Business Combination | On June 7, 2019, the Edesa Biotech Research, Inc., formerly known as Edesa Biotech Inc., a company organized under the laws of the province of Ontario, Canada (“Edesa Research”), completed its business combination with Stellar Biotechnologies, Inc. a company organized under the laws of British Columbia, Canada (“Stellar”), in accordance with the terms of the Share Exchange Agreement, dated March 7, 2019 (the “Exchange Agreement”), by and among Stellar, Edesa Research and the shareholders of Edesa Research (the “Edesa Research Shareholders”). At the closing of the transaction (the “Closing”), Stellar acquired the entire issued share capital of Edesa Research, with Edesa Research becoming a wholly-owned subsidiary of Stellar (the “Exchange”). The Edesa Research Shareholders exchanged their shares for 88% of the outstanding shares of Stellar on a fully diluted basis. Edesa Research is considered the accounting acquirer of Stellar. Upon closing, Stellar changed its name to Edesa Biotech, Inc. Edesa Research entered into the Exchange primarily to provide greater liquidity to its shareholders, broaden its investment base, increase its profile, and facilitate the process of raising capital as the Company contemplates pursuing new growth opportunities including acquisition of new clinical assets. The fair value of consideration transferred in the reverse acquisition is calculated as follows: Fair value of 888,454 share consideration transferred, net of liquidity discount $ 4,633,499 Excess fair value of replacement warrants 61,902 Total acquisition date fair value of consideration transferred $ 4,695,401 The fair value of the replacement warrants was determined using Black-Scholes valuation model based on exercise price of C$6.45, expected life of 5 years, risk free rate of 1.34% and volatility of 130%. The major classes of assets acquired and liabilities assumed in the reverse acquisition are as follows: Cash and cash equivalents $ 6,389,322 Other current assets 418,837 Noncurrent assets 42,045 Fair value of warrants payable (1,187,124 ) Other current liabilities (967,679 ) Net assets of Stellar $ 4,695,401 The following are the unaudited supplemental pro forma results of operations for the nine-month period ended September 30, 2019 and year ended December 31, 2018. These pro forma results are reported as if the reverse acquisition had been completed on January 1, 2018 and include estimates and assumptions that management believes are reasonable. Since these pro forma results include all one-time reverse acquisition costs and do not include any anticipated cost savings or other effects of the planned integration of the entities, they are not necessarily indicative of the actual results that would have occurred if the combined business had been in effect beginning January 1, 2018. (Unaudited) Supplemental Pro Forma Combined Financial Information Nine-month Period Ended Year Ended September 30, 2019 December 31, 2018 Total Revenues $ 930,565 $ 244,395 Net Loss $ (8,126,749) $ (6,580,463) Weighted average number of common shares 7,504,468 7,504,468 Loss per share - basic and diluted $ (1.08) $ (0.88) |
Significant Accounting Polici_2
Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2019 | |
Accounting Policies [Abstract] | |
Use of Estimates | The preparation of 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 receivable; valuation and useful lives of property and equipment; deferred income taxes; classification of Class A convertible preferred shares as liability or equity; the determination of fair value of share-based compensation; the determination of fair value of shares and replacement warrants for the reverse acquisition; 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. The functional currency of the Company and its wholly-owned subsidiary, Edesa Biotech Research, Inc., as determined by management, is Canadian dollars. The functional currency of the Company’s wholly-owned subsidiary, Stellar Biotechnologies, Inc. is U.S. dollars. |
Cash and Cash Equivalents | Cash and cash equivalents consist of demand deposits with financial institutions and highly liquid investments which are readily convertible into cash with maturities of three months or less when purchased. The carrying amount of cash and cash equivalents approximates its fair value due to its short-term nature. |
Investments | Investments during the year consisted of U.S. Treasury bills with original maturities between 13 and 52 weeks. They are classified as held-to-maturity and are reported at amortized cost, which approximates fair value. The Company regularly reviews these investments to determine whether any decline in fair value below the amortized cost basis has occurred that is other than temporary. If a decline in fair value has occurred that is determined to be other than temporary, the cost basis of the investment is written down to fair value. There were no investments outstanding at September 30, 2019 or December 31, 2018. |
Accounts Receivable | The Company assesses the collectability of its accounts receivable through a review of its current aging, as well as an analysis of its historical collection rate, general economic conditions and credit status of its customers. Accounts receivable include Harmonized Sales Tax (HST) refunds receivable. As of September 30, 2019, all outstanding accounts and HST refunds receivable were deemed to be fully collectible, and therefore, no allowance for doubtful accounts was recorded. |
Property and Equipment | Property and equipment are recorded at historical cost less accumulated depreciation and any accumulated impairment losses. Depreciation is recorded to write off the cost of assets less their residual values over their useful lives, using the declining balance and straight-line methods. Assets not in use and on consignment for sale are carried at the expected net proceeds value. Maintenance and repair expenditures that do not improve or extend the life are expensed in the period incurred. Any gain or loss arising on the disposal or retirement of an item of property and equipment is recognized as the difference between the sales proceeds and the carrying amount of the asset. The estimated useful lives, residual values and depreciation methods are reviewed at the end of each year, with the effect of any changes in estimate accounted for on a prospective basis. |
Impairment of Long-lived Assets | Long-lived assets are tested for impairment when indicators of impairment exist. When a significant change in the expected timing or amount of the future cash flows of the financial asset is identified, the carrying amount of the financial asset is reduced and the amount of the write-down is recognized as a loss. A previously recognized impairment loss may be reversed to the extent of the improvement, provided it is not greater than the amount that would have been reported at the date of the reversal had the impairment not been recognized previously, and the amount of the reversal is recognized in net income (loss). |
Fair Value Measurement | The Company uses the fair value measurement framework for valuing financial assets and liabilities. See Note 8. |
Revenue Recognition | Revenues and accounts receivable are recognized when the promised goods or services are transferred to customers, in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those goods or services. Revenues consist of sales of product inventory obtained in the reverse acquisition completed in June 2019, which are recognized upon shipment when the customer obtains control of the product and the Company has no further performance obligations. |
Research and development | Research and development expenses principally consist of (i) contract research organizations for clinical trial management services, (ii) contract manufacturing organizations for manufacturing the drug compound(s) for use in clinical trials and (iii) salaries of employees directly involved in research and development efforts. Research and development costs are expensed as incurred. |
Share-based Compensation | The Company measures the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted since the fair value of the goods or services received by the Company cannot be reliably estimated. The Company grants options to buy common shares of the Company to its directors, officers, employees and consultants, and grants other equity-based instruments such as warrants to non-employees. The fair value of share-based compensation is measured on the date of grant, using the Black-Scholes option valuation model and is recognized over the vesting period net of estimated forfeitures for employees or the service period for non-employees. The provisions of the Company's share-based compensation plans do not require the Company to settle any options by transferring cash or other assets, and therefore the Company classifies the awards as equity. The Black-Scholes option valuation model requires the input of subjective assumptions, including price volatility of the underlying stock, risk-free interest rate, dividend yield, and expected life of the option. |
Translation of Foreign Currency Transactions | The Company's reporting currency is the U.S. dollar. The financial statements of the parent Company and its wholly-owned Canadian subsidiary are measured using the Canadian dollar as the functional currency. Assets and liabilities of the Canadian operations have been translated at year-end exchange rates and related revenue and expenses have been translated at average exchange rates for the year. Accumulated gains and losses resulting from the translation of the financial statements of the Canadian operations are included as part of accumulated other comprehensive loss, a separate component of shareholders' equity. For other transactions denominated in currencies other than the Company’s functional currency, the monetary assets and liabilities are translated at the year-end rates. Revenue and expenses are translated at rates of exchange prevailing on the transaction dates. Non-monetary balance sheet and related income statement accounts are remeasured into U.S. dollar using historical exchange rates. All of the exchange gains or losses resulting from these other transactions are recognized in the statements of operations and comprehensive loss. |
Income Taxes | Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax bases of assets and liabilities and their financial statement reported amounts using enacted tax rates and laws in effect in the year in which the differences are expected to reverse. A valuation allowance is provided against deferred tax assets when it is determined to be more likely than not that the deferred tax asset will not be realized. The Company assesses the likelihood of the financial statement effect of a tax position that should be recognized when it is more likely than not that the position will be sustained upon examination by a taxing authority based on the technical merits of the tax position, circumstances, and information available as of the reporting date. The Company is subject to examination by taxing authorities in Canada and the U.S. Management does not believe that there are any uncertain tax positions that would result in an asset or liability for taxes being recognized in the accompanying financial statements. The Company recognizes tax-related interest and penalties, if any, as a component of income tax expense. The Company accounts for income taxes on a tax jurisdictional basis. The Company files income tax returns in Canada, the provinces of British Columbia and Ontario, the U.S. and the state of California. |
Earnings (Loss) per Share | Basic earnings (loss) per share is calculated by dividing income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. The computation of diluted earnings (loss) per share assumes the conversion, exercise or contingent issuance of securities only when such conversion, exercise or issuance would have a dilutive effect on earnings (loss) per share. The dilutive effect of convertible securities is reflected in diluted earnings per share by application of the “if converted” method. The dilutive effect of outstanding options and warrants and their equivalents is reflected in diluted earnings per share by application of the treasury stock method. Conversion of outstanding options and warrants would have an antidilutive effect on loss per share for the nine-month transition period ended September 30, 2019 and year ended December 31, 2018 and are therefore excluded from the computation of diluted loss per share. |
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 consolidated financial statements for loss, comprehensive loss, depreciation and total assets also represent segmented amounts. |
Accounting Pronouncements | Adoption of Recent Accounting Pronouncements On October 1, 2018, the Company adopted Accounting Standards Codification (ASC) 606 Revenue Recognition – Revenue from Contracts with Customers The Company recognizes revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The Company recognizes revenue following the five-step model prescribed under ASC Topic 606: (1) identify contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenues when (or as) the Company satisfies the performance obligation(s). Revenues consist of sales of product inventory obtained in the reverse acquisition, which are recognized upon shipment when the customer obtains control of the product and the Company has no further performance obligations. Future accounting pronouncements In February 2016, the FASB issued new guidance, ASU No. 2016-02, Leases (Topic 842). The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. Additional qualitative and quantitative disclosures are also required by the new guidance. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. Topic 842 is effective for annual reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company will adopt the new standard on October 1, 2019 and use the effective date as its date of initial application. The new standard provides a number of optional practical expedients in transition. The Company expects to elect the ‘package of practical expedients’, which permits the Company not to reassess under the new standard prior conclusions about lease identification, lease classification and initial direct costs. The Company expects that this standard will have a material effect on the consolidated financial statements. The Company has assessed that the most significant effects relate to (1) the recognition of new ROU assets and lease liabilities on the balance sheet for the Company’s operating leases; and (2) providing significant new disclosures about the Company’s leasing activities. The Company does not expect a significant change in leasing activities between now and adoption. Currently, the Company estimates that the discounted value of operating lease commitments at September 30, 2019 totaling approximately $305,000 will be recognized as a right-of-use asset and corresponding lease liability at the transition date, with no impact to opening retained earnings at that date. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . |
Property and Equipment (Tables)
Property and Equipment (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Property, Plant and Equipment [Abstract] | |
Property and equipment | September 30, December 31, 2019 2018 Computer equipment $ 42,910 $ 4,828 Furniture and equipment 7,932 5,578 50,842 10,406 Less: accumulated depreciation (29,194 ) (3,020 ) Depreciable assets, net 21,648 7,386 Assets not in service 51,410 — Total property and equipment, net $ 73,058 $ 7,386 |
Commitments (Tables)
Commitments (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
Future minimum lease payments | Year Ending September 30, 2020 $ 245,000 September 30, 2021 85,000 September 30, 2022 80,000 September 30, 2023 20,000 $ 430,000 |
Future contractual payments | Year Ending September 30, 2020 $ 2,253,000 September 30, 2021 18,000 September 30, 2022 5,000 $ 2,276,000 |
Capital Shares (Tables)
Capital Shares (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Stockholders' Equity Note [Abstract] | |
Warrant activity | Weighted Number of Average Warrants (#) Exercise Price Balance – December 31, 2018 and 2017 — $ — Effect of reverse acquisition 362,430 31.60 Black-Scholes value payout (313,516 ) 33.01 Balance – September 30, 2019 48,914 $ 11.19 |
Warrants outstanding | Number of Warrants (#) Exercise Prices Expiry Dates 28,124 $ 15.90 May 2023 20,790 4.81 June 2024 48,914 |
Stock option activity | Weighted Number of Average Options (#) Exercise Price Balance – December 31, 2017 289,203 $ 1.65 Granted 25,920 1.65 Balance – December 31, 2018 315,123 $ 1.65 Effect of reverse acquisition 7,787 124.80 Expired (3,265 ) 125.75 Balance – September 30, 2019 319,645 $ 3.39 |
Stock options outstanding | Exercisable at Range of Number of Options (#) September 30, 2019 (#) Exercise Prices Expiry Dates 315,123 242,428 C$ 2.16 Aug 2027-Dec 2028 333 333 C$ 105.00-243.60 Dec 2019-May 2020 214 214 C$ 638.40 Nov 2021 3,499 3,499 $ 35.28-93.24 Sep 2023-Mar 2025 238 238 $ 304.08 Dec 2022 238 238 $ 768.60 Nov 2020 319,645 246,950 |
Fair value of options granted assumptions | Risk free interest rate 1.98 % Expected life (years) 4 Expected share price volatility 79.46 % Expected dividend yield 0 % |
Issued and outstanding common and preferred shares | Issued and outstanding common shares: Number of Common Shares (#) Common Shares Balance – December 31, 2018 and 2017 3,239,902 $ 1,111,253 Conversion of preferred shares upon reverse acquisition 3,376,112 6,260,299 Share consideration transferred upon reverse acquisition 888,454 4,633,499 Balance – September 30, 2019 7,504,468 $ 12,005,051 Issued and outstanding preferred shares: Class A Preferred Class A Preferred Shares (#) Shares Balance – December 31, 2017 1,007,143 $ 5,616,801 Preferred return on Class A preferred shares — 447,212 Balance – December 31, 2018 1,007,143 $ 6,064,013 Preferred return on Class A preferred shares — 196,286 Conversion upon reverse acquisition (1,007,143 ) (6,260,299 ) Balance – September 30, 2019 — $ — |
Income Tax (Tables)
Income Tax (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Income Tax Disclosure [Abstract] | |
Income tax rate reconciliation | Nine-month Period Ended September 30, 2019 Year Ended December 31, 2018 Net loss before recovery of income taxes $ (2,776,734 ) $ ( 1,536,556 Canadian federal and provincial statutory income tax rate 26.5 % 26.5 % Expected income tax recovery $ (736,000 ) $ (407,000 ) Permanent differences 11,000 41,000 Effect of foreign currency and foreign tax rate differences (60,000 ) — Change in valuation allowance 785,000 366,000 Income tax (recovery) expense $ — $ — |
Deferred tax assets | September 30, 2019 December 31, 2018 Non-capital losses carried forward - Canada $ 3,592,000 $ 575,000 Non-capital losses carried forward - U.S. 1,587,000 — Share issuance and financing costs 517,000 26,000 Research and development tax credits 626,000 121,000 Other temporary differences 28,000 15,000 Total deferred tax assets $ 6,350,000 $ 737,000 Valuation allowance (6,350,000 ) (737,000 ) Net deferred taxes $ — $ — |
Non-capital income tax losses | 2028 C$ 21,000 2029 56,000 2030 346,000 2031 688,000 2032 860,000 2033 685,000 2034 780,000 2035 1,369,000 2036 1,705,000 2037 1,909,000 2038 3,243,000 2039 6,058,000 Total C$ 17,720,000 |
Comparative Figures (Tables)
Comparative Figures (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Comparative Figures | |
Comparative financial information | (Unaudited) Nine Months Ended September 30, 2018 Total Expenses $ (1,212,905 ) Other Income 41,198 Net Loss (1,171,707 ) Exchange differences on translation (346,598 ) Net Loss and Comprehensive Loss $ (1,518,305 ) Weighted average number of common shares 3,239,902 Loss per share - basic and diluted $ (0.36 ) |
Business Combination (Tables)
Business Combination (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Business Combinations [Abstract] | |
Consideration transferred | Fair value of 888,454 share consideration transferred, net of liquidity discount $ 4,633,499 Excess fair value of replacement warrants 61,902 Total acquisition date fair value of consideration transferred $ 4,695,401 |
Assets acquired and liabilites assumed | Cash and cash equivalents $ 6,389,322 Other current assets 418,837 Noncurrent assets 42,045 Fair value of warrants payable (1,187,124 ) Other current liabilities (967,679 ) Net assets of Stellar $ 4,695,401 |
Supplemental Pro Forma Information | (Unaudited) Supplemental Pro Forma Combined Financial Information Nine-month Period Ended Year Ended September 30, 2019 December 31, 2018 Total Revenues $ 930,565 $ 244,395 Net Loss $ (8,126,749) $ (6,580,463) Weighted average number of common shares 7,504,468 7,504,468 Loss per share - basic and diluted $ (1.08) $ (0.88) |
Nature of Operations (Details N
Nature of Operations (Details Narrative) - USD ($) | 9 Months Ended | 12 Months Ended | ||
Sep. 30, 2019 | Sep. 30, 2018 | Dec. 31, 2018 | Dec. 31, 2017 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||
Net loss | $ (2,776,734) | $ (1,171,707) | $ (1,536,556) | |
Cash and cash equivalents | 5,030,583 | 3,367,098 | $ 5,000,122 | |
Working capital | 5,170,000 | |||
Shareholders' equity | 5,256,130 | 3,214,490 | $ 4,998,540 | |
Accumulated deficit | $ (6,734,615) | $ (3,761,595) |
Property and Equipment (Details
Property and Equipment (Details) - USD ($) | Sep. 30, 2019 | Dec. 31, 2018 |
Property and equipment, gross | $ 50,842 | $ 10,406 |
Less: accumulated depreciation | (29,194) | (3,020) |
Total property and equipment, net | 73,058 | 7,386 |
Computer Equipment | ||
Property and equipment, gross | 42,910 | 4,828 |
Furniture and Equipment | ||
Property and equipment, gross | 7,932 | 5,578 |
Depreciable Assets, Net | ||
Total property and equipment, net | 21,648 | 7,386 |
Assets Not in Service | ||
Total property and equipment, net | $ 51,410 | $ 0 |
Property and Equipment (Detai_2
Property and Equipment (Details Narrative) - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2019 | Dec. 31, 2018 | |
Property, Plant and Equipment [Abstract] | ||
Depreciation expense | $ 4,800 | $ 1,700 |
Commitments (Details)
Commitments (Details) | Sep. 30, 2019USD ($) |
Year Ending September 30, | |
2020 | $ 245,000 |
2021 | 85,000 |
2022 | 80,000 |
2023 | 20,000 |
Total | $ 430,000 |
Commitments (Details 1)
Commitments (Details 1) | Sep. 30, 2019USD ($) |
Year Ending September 30, | |
2020 | $ 2,253,000 |
2021 | 18,000 |
2022 | 5,000 |
Total | $ 2,276,000 |
Commitments (Details Narrative)
Commitments (Details Narrative) - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2019 | Dec. 31, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | ||
Rent expense | $ 126,000 | $ 79,000 |
Capital Shares (Details)
Capital Shares (Details) - $ / shares | 9 Months Ended | 12 Months Ended |
Sep. 30, 2019 | Dec. 31, 2018 | |
Stockholders' Equity Note [Abstract] | ||
Number of warrants, beginning balance | 0 | 0 |
Effect of reverse acquisition | 362,430 | |
Black-Scholes value payout | (313,516) | |
Number of warrants, ending balance | 48,914 | 0 |
Weighted average exercise price, beginning balance | $ .00 | $ .00 |
Effect of reverse acquisition | 31.60 | |
Black-Scholes value payout | 33.01 | |
Weighted average exercise price, ending balance | $ 11.19 | $ .00 |
Capital Shares (Details 1)
Capital Shares (Details 1) - $ / shares | 9 Months Ended | ||
Sep. 30, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
Number of warrants | 48,914 | 0 | 0 |
Exercise price | $ 11.19 | $ .00 | $ .00 |
Warrant 1 | |||
Number of warrants | 28,124 | ||
Exercise price | $ 15.90 | ||
Expiry date | May 2023 | ||
Warrant 2 | |||
Number of warrants | 20,790 | ||
Exercise price | $ 4.81 | ||
Expiry date | June 2024 |
Capital Shares (Details 2)
Capital Shares (Details 2) - $ / shares | 9 Months Ended | 12 Months Ended |
Sep. 30, 2019 | Dec. 31, 2018 | |
Stockholders' Equity Note [Abstract] | ||
Number of options, beginning balance | 315,123 | 289,203 |
Number of options granted | 25,920 | |
Number of options effect of reverse acquisition | 7,787 | |
Number of options expired | (3,265) | |
Number of options, ending balance | 319,645 | 315,123 |
Weighted average exercise price, beginning balance | $ 1.65 | $ 1.65 |
Weighted average exercise price granted | 1.65 | |
Weighted average exercise price effect of reverse acquisition | 124.80 | |
Weighted average exercise price expired | 125.75 | |
Weighted average exercise price, ending balance | $ 3.39 | $ 1.65 |
Capital Shares (Details 3)
Capital Shares (Details 3) | 9 Months Ended | |||
Sep. 30, 2019$ / sharesshares | Sep. 30, 2019$ / sharesshares | Dec. 31, 2018$ / sharesshares | Dec. 31, 2017$ / sharesshares | |
Options outstanding | 319,645 | 319,645 | 315,123 | 289,203 |
Options exercisable | 246,950 | 246,950 | ||
Range of exercise prices | $ / shares | $ 3.39 | $ 1.65 | $ 1.65 | |
Stock Option 1 | ||||
Options outstanding | 315,123 | 315,123 | ||
Options exercisable | 242,428 | 242,428 | ||
Range of exercise prices | $ / shares | $ 2.16 | |||
Expiry dates | August 2027 - December 2028 | |||
Stock Option 2 | ||||
Options outstanding | 333 | 333 | ||
Options exercisable | 333 | 333 | ||
Expiry dates | December 2019 - May 2020 | |||
Stock Option 2 | Minumum | ||||
Range of exercise prices | $ / shares | $ 105 | |||
Stock Option 2 | Maxumum | ||||
Range of exercise prices | $ / shares | $ 243.60 | |||
Stock Option 3 | ||||
Options outstanding | 214 | 214 | ||
Options exercisable | 214 | 214 | ||
Range of exercise prices | $ / shares | $ 638.40 | |||
Expiry dates | November 2021 | |||
Stock Option 4 | ||||
Options outstanding | 3,499 | 3,499 | ||
Options exercisable | 3,499 | 3,499 | ||
Expiry dates | September 2023 - March 2025 | |||
Stock Option 4 | Minumum | ||||
Range of exercise prices | $ / shares | $ 35.28 | |||
Stock Option 4 | Maxumum | ||||
Range of exercise prices | $ / shares | $ 93.24 | |||
Stock Option 5 | ||||
Options outstanding | 238 | 238 | ||
Options exercisable | 238 | 238 | ||
Range of exercise prices | $ / shares | $ 304.08 | |||
Expiry dates | December 2022 | |||
Stock Option 6 | ||||
Options outstanding | 238 | 238 | ||
Options exercisable | 238 | 238 | ||
Range of exercise prices | $ / shares | $ 768.60 | |||
Expiry dates | November 2020 |
Capital Shares (Details 4)
Capital Shares (Details 4) | 9 Months Ended |
Sep. 30, 2019 | |
Stockholders' Equity Note [Abstract] | |
Risk free interest rate | 1.98% |
Expected life (years) | 4 years |
Expected share price volatility | 79.46% |
Expected dividend yield | 0.00% |
Capital Shares (Details 5)
Capital Shares (Details 5) - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2019 | Dec. 31, 2018 | |
Beginning balance, amount | $ 3,214,490 | $ 4,998,540 |
Preferred return for Class A preferred shares, amount | 0 | 0 |
Share consideration transferred upon reverse acquisition, amount | 4,695,401 | |
Ending balance, amount | $ 5,256,130 | $ 3,214,490 |
Common Shares | ||
Beginning balance, shares | 3,239,902 | 3,239,902 |
Beginning balance, amount | $ 1,111,253 | $ 1,111,253 |
Conversion of preferred shares upon reverse acquisition, shares | 3,376,112 | |
Conversion of preferred shares upon reverse acquisition, amount | $ 6,260,299 | |
Share consideration transferred upon reverse acquisition, shares | 888,454 | |
Share consideration transferred upon reverse acquisition, amount | $ 4,633,499 | |
Ending balance, shares | 7,504,468 | 3,239,902 |
Ending balance, amount | $ 12,005,051 | $ 1,111,253 |
Class A Preferred Shares | ||
Beginning balance, shares | 1,007,143 | 1,007,143 |
Beginning balance, amount | $ 6,064,013 | $ 5,616,801 |
Preferred return on Class A preferred shares, shares | ||
Preferred return for Class A preferred shares, amount | $ 196,286 | $ 447,212 |
Share consideration transferred upon reverse acquisition, shares | (1,007,143) | |
Share consideration transferred upon reverse acquisition, amount | $ (6,260,299) | |
Ending balance, shares | 0 | 1,007,143 |
Ending balance, amount | $ 0 | $ 6,064,013 |
Capital Shares (Details Narrati
Capital Shares (Details Narrative) - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2019 | Dec. 31, 2018 | |
Stockholders' Equity Note [Abstract] | ||
Weighted average contractual life remaining on outstanding warrants | 49 months | |
Shares remaining under 2019 Plan | 1,153,147 | |
Weighted average contractual life remaining on outstanding options | 96 months | |
Share-based compensation | $ 35,074 | $ 81,344 |
Unrecognized share-based compensation | $ 30,000 | |
Unrecognized share-based compensation recognition period | 27 months |
Income Tax (Details)
Income Tax (Details) - USD ($) | 9 Months Ended | 12 Months Ended | |
Sep. 30, 2019 | Sep. 30, 2018 | Dec. 31, 2018 | |
Income Tax Disclosure [Abstract] | |||
Net loss before recovery of income taxes | $ (2,776,734) | $ (1,171,707) | $ (1,536,556) |
Canadian federal and provincial statutory income tax rate | 26.50% | 26.50% | |
Expected income tax recovery | $ (736,000) | $ (407,000) | |
Permanent differences | 11,000 | 41,000 | |
Effect of foreign currency and foreign tax rate differences | (60,000) | 0 | |
Change in valuation allowance | 785,000 | 366,000 | |
Income tax (recovery) expense | $ 0 | $ 0 |
Income Tax (Details 1)
Income Tax (Details 1) - USD ($) | Sep. 30, 2019 | Dec. 31, 2018 |
Income Tax Disclosure [Abstract] | ||
Non-capital losses carried forward - Canada | $ 3,592,000 | $ 575,000 |
Non-capital losses carried forward - US | 587,000 | 0 |
Share issuance and financing costs | 517,000 | 26,000 |
Research and development tax credits | 626,000 | 121,000 |
Other temporary differences | 28,000 | 15,000 |
Total deferred tax assets | 6,350,000 | 737,000 |
Valuation allowance | (6,350,000) | (737,000) |
Net deferred taxes | $ 0 | $ 0 |
Income Tax (Details 2)
Income Tax (Details 2) | Sep. 30, 2019USD ($) |
Non-capital income tax losses | $ 17,720,000 |
2028 | |
Non-capital income tax losses | 21,000 |
2029 | |
Non-capital income tax losses | 56,000 |
2030 | |
Non-capital income tax losses | 346,000 |
2031 | |
Non-capital income tax losses | 688,000 |
2032 | |
Non-capital income tax losses | 860,000 |
2033 | |
Non-capital income tax losses | 685,000 |
2034 | |
Non-capital income tax losses | 780,000 |
2035 | |
Non-capital income tax losses | 1,369,000 |
2036 | |
Non-capital income tax losses | 1,705,000 |
2037 | |
Non-capital income tax losses | 1,909,000 |
2038 | |
Non-capital income tax losses | 3,243,000 |
2039 | |
Non-capital income tax losses | $ 6,058,000 |
Related Party Transactions (Det
Related Party Transactions (Details Narrative) - USD ($) | 9 Months Ended | 12 Months Ended | |
Sep. 30, 2019 | Dec. 31, 2019 | Dec. 31, 2018 | |
Related Party Transactions [Abstract] | |||
Rent expense | $ 58,000 | $ 79,000 | |
Rent payable | 0 | $ 14,000 | |
Royalty expenses | 20,000 | ||
Royalty payable | $ 23,000 |
Comparative Figures (Details)
Comparative Figures (Details) - USD ($) | 9 Months Ended | 12 Months Ended | |
Sep. 30, 2019 | Sep. 30, 2018 | Dec. 31, 2018 | |
Comparative Figures | |||
Total expenses | $ 3,243,008 | $ 1,212,905 | $ 1,618,646 |
Other income | 55,404 | 41,198 | 82,090 |
Net loss | (2,776,734) | (1,171,707) | (1,536,556) |
Exchange differences on translation | 87,899 | (346,598) | (328,838) |
Net loss and comprehensive loss | $ (2,688,835) | $ (1,518,305) | $ (1,865,394) |
Weighted average number of common shares | 5,036,331 | 3,239,902 | 3,239,902 |
Loss per share - basic and diluted | $ (0.55) | $ (0.36) | $ (0.47) |
Business Combination (Details)
Business Combination (Details) | 9 Months Ended |
Sep. 30, 2019USD ($) | |
Business Combinations [Abstract] | |
Fair value of 888,454 share consideration to be transferred, net of liquidity discount | $ 4,633,499 |
Excess fair value of replacement warrants | 61,902 |
Total acquisition date fair value of consideration transferred | $ 4,695,401 |
Business Combination (Details 1
Business Combination (Details 1) | 9 Months Ended |
Sep. 30, 2019USD ($) | |
Business Combinations [Abstract] | |
Cash and cash equivalents | $ 6,389,322 |
Other current assets | 418,837 |
Noncurrent assets | 42,045 |
Fair value of warrants payable | (1,187,124) |
Other current liabilities | (967,679) |
Estimated fair value of share consideration to be transferred | $ 4,695,401 |
Business Combination (Details 2
Business Combination (Details 2) - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2019 | Dec. 31, 2018 | |
Business Combinations [Abstract] | ||
Total Revenues | $ 930,565 | $ 244,395 |
Net Loss | $ (8,126,749) | $ (6,580,463) |
Weighted average number of common shares | 7,504,468 | 7,504,468 |
Loss per share - basic and diluted | $ (1.08) | $ (0.88) |