EDSA 10-Q
Edesa Biotech, Inc. (EDSA)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number:
(Exact name of registrant as specified in its charter)
| British Columbia, |
N/A |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| ( |
|
| (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 | ||
| The |
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.
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).
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 | ☐ | |
| ☒ | 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
As of February 14, 2025, the registrant had
EDESA BIOTECH, INC.
QUARTERLY REPORT ON FORM 10-Q
Quarter Ended December 31, 2024
Table of Contents
PART 1 – FINANCIAL INFORMATION
Condensed Interim Consolidated Balance Sheets
|
December 31, 2024 |
September 30, 2024 |
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| Audited | ||||||||
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Assets: |
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Current assets: |
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Cash and cash equivalents |
$ | $ | ||||||
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Accounts and other receivable |
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Prepaid expenses and other current assets |
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Total current assets |
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Non-current assets: |
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Long-term deposits |
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Intangible asset, net |
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Right-of-use assets |
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Total assets |
$ | $ | ||||||
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Liabilities and shareholders' equity: |
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Current liabilities: |
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Accounts payable and accrued liabilities |
$ | $ | ||||||
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Short-term right-of-use lease liabilities |
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Total current liabilities |
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Shareholders' equity: |
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Capital shares |
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Authorized common and preferred shares par value |
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Issued and outstanding: |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
( |
) | ( |
) | ||||
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Accumulated deficit |
( |
) | ( |
) | ||||
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Total shareholders' equity |
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Total liabilities and shareholders' equity |
$ | $ | ||||||
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
Condensed Interim Consolidated Statements of Operations
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Three Months Ended |
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December 31, 2024 |
December 31,2023 |
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Expenses: |
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Research and development |
$ | $ | ||||||
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General and administrative |
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Loss from operations |
( |
) | ( |
) | ||||
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Other income (loss): |
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Reimbursement grant income |
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Interest income |
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Foreign exchange loss |
( |
) | ( |
) | ||||
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Net loss |
( |
) | ( |
) | ||||
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Exchange differences on translation |
( |
) | ||||||
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Net comprehensive loss |
$ | ( |
) | $ | ( |
) | ||
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Weighted average number of common shares |
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|
Loss per common share - basic and diluted |
$ | ( |
) | $ | ( |
) | ||
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
Condensed Interim Consolidated Statements of Cash Flows
|
Three Months Ended |
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|
December 31, 2024 |
December 31,2023 |
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Cash flows from operating activities: |
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Net loss |
$ | ( |
) | $ | ( |
) | ||
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Adjustments for: |
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Depreciation and amortization |
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Share-based compensation |
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Changes in working capital items: |
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Accounts and other receivable |
( |
) | ( |
) | ||||
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Prepaid expenses and other current assets |
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Accounts payable and accrued liabilities |
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Net cash used in operating activities |
( |
) | ( |
) | ||||
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Cash flows from financing activities: |
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Proceeds from issuance of common shares |
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Proceeds from issuance of Series A-1 preferred shares and warrants |
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Payments for issuance costs of common shares and warrants |
( |
) | ( |
) | ||||
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Net cash provided by financing activities |
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Effect of exchange rate changes on cash and cash equivalents |
( |
) | ||||||
|
Net change in cash and cash equivalents |
( |
) | ||||||
|
Cash and cash equivalents, beginning of period |
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|
Cash and cash equivalents, end of period |
$ | $ | ||||||
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
Condensed Interim Consolidated Statements of Changes in Shareholders' Equity
|
Shares # |
Common Shares |
Series A-1 Preferred Shares |
Additional Paid-in Capital |
Accumulated Other Comprehensive Loss |
Accumulated Deficit |
Total Shareholders' Equity |
||||||||||||||||||||||
|
Three Months Ended December 31, 2024 |
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|
Balance - September 30, 2024 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
|
Issuance of common shares |
||||||||||||||||||||||||||||
|
Issuance of Series A-1 preferred shares and warrants |
- | - | - | - | ||||||||||||||||||||||||
|
Issuance costs |
- | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||
|
Preferred return on Series A-1 preferred shares |
- | - | - | - | ( |
) | ||||||||||||||||||||||
|
Share-based compensation |
- | - | - | |||||||||||||||||||||||||
|
Net loss and comprehensive loss |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||
|
Balance - December 31, 2024 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
|
Three Months Ended December 31, 2023 |
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|
Balance - September 30, 2023 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
|
Issuance of common shares |
- | |||||||||||||||||||||||||||
|
Issuance costs |
- | ( |
) | - | ( |
) | ||||||||||||||||||||||
|
Share-based compensation |
- | - | - | |||||||||||||||||||||||||
|
Net loss and comprehensive loss |
- | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||
|
Balance - December 31, 2023 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
Notes to Condensed Interim Consolidated Financial Statements
(Unaudited)
1. Nature of Operations
Edesa Biotech, Inc. (the “Company” or “Edesa”) is a biopharmaceutical company focused on acquiring, developing and commercializing clinical stage drugs for inflammatory and immune-related diseases with clear unmet medical needs. The Company is organized under the laws of British Columbia, Canada and is headquartered in Markham, Ontario. It operates under its wholly owned subsidiaries, Edesa Biotech Research, Inc., an Ontario, Canada corporation, and Edesa Biotech USA, Inc., a California, USA corporation.
The Company’s common shares trade on The Nasdaq Capital Market in the United States under the symbol “EDSA”.
Going Concern
These unaudited condensed consolidated financial statements have been prepared on a going concern basis which presumes the realization of assets and the discharge of liabilities in the normal course of operations for at least the next twelve months.
For the three months ended December 31, 2024, the Company incurred a comprehensive loss of $
These unaudited condensed consolidated financial statements do not give effect to any adjustments which would be necessary should the Company be unable to continue as a going concern and, therefore, be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the accompanying consolidated financial statements. These adjustments could be material.
2. Basis of Presentation
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, 2024, which was filed with the Securities and Exchange Commission (SEC) on December 13, 2024.
The accompanying unaudited condensed interim consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated on consolidation. All adjustments (consisting of normal recurring adjustments and accruals) considered necessary for a fair presentation of the results of operations for the periods presented have been included in the interim periods. Operating results for the three months ended December 31, 2024 are not necessarily indicative of the results that may be expected for other interim periods or the fiscal year ending September 30, 2025.
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; intangible assets; 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 Company’s and its wholly owned subsidiary’s, Edesa Biotech USA, Inc., functional currency. The functional currency of the Company’s wholly owned subsidiary, Edesa Biotech Research, Inc., as determined by management, is Canadian dollars.
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 (the Constructs), including sublicensing rights. Unless earlier terminated, the term of the license agreement will remain in effect for
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
The required upfront license payment of $
Intangible assets, net consisted of the following:
|
December 31, 2024 |
September 30, 2024 |
|||||||
|
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 |
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|
September 30, 2025 |
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|
September 30, 2026 |
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|
September 30, 2027 |
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|
September 30, 2028 |
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|
September 30, 2029 |
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|
Thereafter |
||||
| $ |
4. Right-of-Use Lease with Related Party
The Company leases a facility used for executive offices from a related company. The original lease expired in December 2022 and the Company executed a -year extension through December 2024. The Company extended the lease until November 30, 2025, and upon expiry, the arrangement will be month to month and either party will have the right to terminate on 30 days’ notice.
The components of right-of-use lease cost were as follows:
|
Three Months Ended |
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|
December 31, 2024 |
December 31, 2023 |
|||||||
|
Right-of-use lease cost, included in general and administrative on the Statements of Operations |
$ | $ | ||||||
Lease terms and discount rates were as follows:
|
December 31, 2024 |
September 30, 2024 |
|||||||
|
Remaining lease term (months): |
||||||||
|
Estimated incremental borrowing rate: |
% | % | ||||||
Cash flow information was as follows:
|
Three Months Ended |
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|
December 31, 2024 |
December 31,2023 |
|||||||
|
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. |
$ | $ | ||||||
5. Commitments
Research and other commitments
The Company has commitments for contracted research organizations who perform clinical trials for the Company’s ongoing clinical studies and other service providers. Approximate aggregate future contractual payments at December 31, 2024 are as follows:
|
Year Ending |
||||
|
September 30, 2025 |
$ | |||
|
September 30, 2026 |
||||
|
September 30, 2027 |
||||
|
September 30, 2028 |
||||
|
September 30, 2029 |
||||
| $ |
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 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 is committed to payments of up to an aggregate amount of $
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. 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 $
In March 2021, through its Ontario subsidiary, the Company entered into a license agreement with the inventor of the same pharmaceutical product to acquire global rights for all fields of use beyond those named under the 2016 license agreement. The Company is committed to remaining payments of up to an aggregate amount of $
In June 2024, the Company’s drug candidate, EB05, was selected by the Biomedical Advanced Research and Development Authority (BARDA), part of the Administration for Strategic Preparedness and Response within the U.S. Department of Health and Human Services, for evaluation in a U.S. government-funded clinical study. The Phase 2 platform trial will be a randomized, double-blinded, placebo-controlled, multi-center U.S. clinical trial to investigate novel threat-agnostic host-directed therapeutics, including EB05, in hospitalized adult patients with ARDS due to a variety of causes. For the EB05 cohort of the study, patients will be randomized one-to-one to either EB05 plus Standard of Care (SOC) or to a placebo plus SOC control arm. Edesa plans to provide drug product for the study as well as technical support. The Company is responsible for providing drug product and placebo for the Phase 2 platform trial.
6. Capital Shares
Series A-1 Preferred Shares Offering
On October 30, 2024, the Company entered into a Securities Purchase Agreement (Series A-1Purchase Agreement) with an entity controlled by the Company’s Chief Executive Officer, Secretary and member of the board of directors of the Company (Series A-1 Purchaser), pursuant to which the Company agreed to issue and sell to the Series A-1 Purchaser in a private placement, up to $
The Warrants expire years from the issuance date. The Warrants may only be exercised on a cashless basis if there is no registration statement registering, or the prospectus contained therein is not available for, the issuance or resale of the common shares issuable upon exercise of the Warrants to or by the holders thereof. The exercise price of the Warrants is subject to customary antidilution adjustments in the event of share splits, reclassifications, recapitalizations and similar events. The Series A-1 Purchaser will not have the right to exercise any portion of its Warrants if, together with its affiliates, it would beneficially own in excess of
The Company has the right to require the Series A-1 Purchaser to purchase additional Series A-1 Preferred Shares and Warrants (up to an aggregate investment of $
The Series A-1 Purchase Agreement contains customary representations and warranties and agreements of the Company and the Purchaser and customary indemnification rights and obligations of the parties.
The Company has the option to redeem the Series A-1 Preferred Shares, and upon conversion or liquidation, holders are entitled to receive the stated value plus a
The Series A-1 Preferred Shares are presented as permanent shareholders’ equity. The total proceeds were allocated between the Series A-1 Preferred Shares and warrants using relatively fair value. The fair value of the Series A-1 Preferred Shares was determined as a reference to the fair value of common shares on the issuance date and the fair value of the warrants was determined using Black-Scholes option pricing model as detailed below.
The Series A-1 Convertible Preferred Shares did not exist in the comparative period; therefore, no prior-period disclosure is presented.
Issued and Outstanding Series A-1 Preferred Shares
|
Series A-1 Preferred Shares (#) |
Series A-1 Preferred Shares |
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|
Three Months Ended December 31, 2024 |
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|
Balance - September 30, 2024 |
||||||||
|
Issuance of Series A-1 Preferred Shares |
$ | |||||||
|
Series A-1 Preferred Shares issuance costs |
- | ( |
) | |||||
|
Preferred return on Series A-1 Preferred Shares |
- | |||||||
|
Balance - December 31, 2024 |
$ | |||||||
Equity distribution agreements
In October 2024, the Company entered into an At The Market Offering Agreement with H.C. Wainwright & Co., LLC as a sales agent (HCW ATM) pursuant to which the Company may offer and sell, from time to time, common shares through an at-the-market equity offering program for up to $
On March 27, 2023, the Company entered into an equity distribution agreement with Canaccord Genuity LLC (Canaccord), pursuant to which the Company was able to offer and sell, from time to time, common shares through an at-the-market equity offering program for up to $
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
Warrants
A summary of the Company’s warrant activity is as follows:
|
Number of Warrant Shares (#) |
Weighted Average Exercise Price |
|||||||
|
Three Months Ended December 31, 2024 |
||||||||
|
Balance - September 30, 2024 |
$ | |||||||
|
Issued |
||||||||
|
Balance - December 31, 2024 |
$ | |||||||
|
Three Months Ended December 31, 2023 |
||||||||
|
Balance - September 30, 2023 |
$ | |||||||
|
Expired |
( |
) | ||||||
|
Balance - December 31, 2023 |
$ | |||||||
The weighted average contractual life remaining on the outstanding warrants at December 31, 2024 is
The following table summarizes information about the warrants outstanding at December 31, 2024:
|
Number of Warrants (#) |
Exercise Prices |
Expiry Dates |
|||
| $ |
|
||||
| $ |
|
||||
| $ |
|
||||
| $ |
|
||||
| $ |
|
||||
| $ |
October 2029 |
||||
The fair value of warrants granted during the three months ended December 31, 2024 was estimated using the Black-Scholes option valuation model using the following assumptions:
|
Three Months Ended December 31, 2024 |
||||
|
Class A Pref Share |
||||
|
Risk free interest rate |
% | |||
|
Expected life |
|
|||
|
Expected share price volatility |
% | |||
|
Expected dividend yield |
% | |||
Share options
The Company adopted an Equity Incentive Compensation Plan in 2019 (the 2019 Plan) administered by the independent members of the board of directors, which amended and restated prior plans. Options, restricted shares and restricted share units are eligible for grant under the 2019 Plan. The total number of shares available for issuance under the terms of the 2019 Plan is
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
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 |
||||||||||
|
Three Months Ended December 31, 2024 |
||||||||||||
|
Balance - September 30, 2024 |
$ | $ | ||||||||||
|
Balance - December 31, 2024 |
$ | $ | ||||||||||
|
Three Months Ended December 31, 2023 |
||||||||||||
|
Balance - September 30, 2023 |
$ | $ | ||||||||||
|
Granted |
||||||||||||
|
Expired |
( |
) | ||||||||||
|
Balance - December 31, 2023 |
$ | $ | ||||||||||
During the three months ended December 31 2024, there were employee or director options granted. During the three months ended December 31, 2023, there were
The weighted average contractual life remaining on the outstanding options at December 31, 2024 is
The following table summarizes information about the options under the 2019 Plan outstanding and exercisable at December 31, 2024:
|
Number of Options (#) |
Exercisable at |
Range of Exercise Prices |
Expiry Dates |
||||||||
| $ |
March 2025 |
||||||||||
| C$ |
August 2027 - Dec 2028 |
||||||||||
| $ |
Feb 2030 |
||||||||||
| $ |
September 2030 - Oct 2030 |
||||||||||
| $ |
March 2025 - Sep 2031 |
||||||||||
| $ |
March 2025 - Feb 2032 |
||||||||||
| $ |
March 2025 - Oct 2033 |
||||||||||
The options exercisable at December 31, 2024 had a weighted average exercise price of $
The fair value of options granted during the three months ended December 31 2023 was estimated using the Black-Scholes option valuation model using the following assumptions:
|
Three Month Ended |
||||
|
December 31,2023 |
||||
|
Risk free interest rate |
% | |||
|
Expected life |
|
|||
|
Expected share price volatility |
% | |||
|
Expected dividend yield |
% | |||
The Company recorded $
As of December 31, 2024, the Company had approximately $
Restricted share units (RSU)
The Company’s 2019 Plan allows restricted share units (RSUs) to be granted to directors, officers, employees and certain external consultants and advisers. Under the 2019 Plan, the RSU term is not to exceed
The following is a summary of changes in the status of RSUs from October 1, 2024 through December 31, 2024:
|
Number of RSU (#) |
Weighted Average Grant Date Fair Value |
|||||||
|
Three Months Ended December 31, 2024 |
||||||||
|
Balance - September 30, 2024 |
$ | |||||||
|
Granted |
||||||||
|
Balance - December 31, 2024 |
$ | |||||||
|
Three Months Ended December 31, 2023 |
||||||||
|
Balance - September 30, 2023 |
$ | |||||||
|
Balance - December 31, 2023 |
$ | |||||||
The following table summarizes information about the RSUs under the 2019 Plan outstanding and exercisable at December 31, 2024:
|
Number of RSU (#) |
Expiry Date |
||||
|
Fully-vested RSUs |
August 2033 - December 2034 |
||||
All RSUs that were granted vested immediately upon the grant date. The outstanding RSUs can be converted to common shares by the holder at any time prior to the expiry date. There is future unrecorded compensation expense for the RSUs.
7. Government Contributions
Reimbursement grant income for the Company’s federal grant with the Canadian government’s SIF is recorded based on the claim period of eligible costs.
In October 2023, the Company entered into a multi-year contribution agreement (the 2023 SIF Agreement) with the Canadian Government’s Strategic Innovation Fund. Under the 2023 SIF Agreement, the Government of Canada committed up to C$
Under the 2023 SIF Agreement, the Company agreed to certain financial and non-financial covenants and other obligations in relation to the Project. Pursuant to the 2023 SIF Agreement, certain customary events of default, such as the Company’s or Edesa Biotech Research’s breach of their covenants and obligations under the 2023 SIF Agreement, their insolvency, winding up or dissolution, and other similar events, may permit the Government of Canada to declare an event of default under the 2023 SIF Agreement. Upon an event of default, subject to applicable cure, the Government of Canada may exercise a number of remedies, including suspending or terminating funding under the 2023 SIF Agreement, demanding repayment of funding previously received and/or terminating the 2023 SIF Agreement.
The funding and any associated conditional repayments are not secured by any assets of Edesa Biotech Research or the Company.
The Agreement will expire on the later of December 31, 2042 or the date of the last repayment, unless earlier terminated, subject to certain provisions that extend three (
Under the October 2023 SIF Agreement the Company recorded grant income of $
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.
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:
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Level 1 – Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. |
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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. |
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Level 3 – Unobservable inputs for the asset or liability that are supported by little or no market activity. |
The carrying value of certain financial instruments such as cash and cash equivalents, accounts and other receivable, accounts payable and accrued liabilities approximates fair value due to the short-term nature of such instruments.
(b) Interest rate and credit risk
Interest rate risk is the risk that the value of a financial instrument might be adversely affected by a change in interest rates. The Company does not believe that the results of operations or cash flows would be affected to any significant degree by a significant change in market interest rates, relative to interest rates on cash and cash equivalents due to the short-term nature of these balances.
The Company is also exposed to credit risk at period end from the carrying value of its cash and cash equivalents and accounts and other receivable. The Company manages this risk by maintaining bank accounts with a Canadian Chartered Bank and a U.S. bank 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 government agencies. Credit risk for the reimbursement grant and HST refunds receivable are not considered significant since amounts are due from the Canadian government’s SIF and 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 December 31, 2024, the Company and its Canadian subsidiary had assets denominated in Canadian dollars of approximately C$
(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 earnings per share 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
On October 30, 2024, the Company entered into the Series A-1 Purchase Agreement with the Series A-1 Purchaser, an entity controlled by the Company’s Chief Executive Officer, Secretary and member of the board of directors of the Company, pursuant to which the Company agreed to issue and sell to the Series A-1 Purchaser in a private placement, up to $
During the three months ended December 31, 2024 and 2023, the Company paid cash of $
In October 2023, the Company entered into $
11. Subsequent Events
Series B-1 Preferred Shares Offering
On February 12, 2025, the Company entered into a Securities Purchase Agreement (the Series B-1 Purchase Agreement) with a lead investor and several additional investors signatory thereto (the Investors), pursuant to which the Company sold to the Investors in a private placement, an aggregate of (i)
As a result of the foregoing transaction and as of the date of this filing, the Company believes it has shareholders’ equity of at least $2.5 million and therefore satisfies the minimum Nasdaq listing requirement set forth in Nasdaq Listing Rule 5550(b)(1).
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 December 31, 2024 and our audited consolidated financial statements for the year ended September 30, 2024 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or the SEC, on December 13, 2024, as amended.
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, 2024 and other reports we file with the Securities and Exchange Commission. Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made. We do not intend to update any of the forward-looking statements after the date of this report to conform these statements to actual results or to changes in our expectations, except as required by law.
The discussion and analysis of our financial condition and results of operations are based on our unaudited condensed interim consolidated financial statements as of December 31, 2024 and September 30, 2024, as amended and for the three months ended December 31, 2024 and 2023 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.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties, and other factors, which may be beyond our control, and which may cause our actual results, performance, or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “can,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “seek,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future.
There are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking statement made by us. These factors include, but are not limited to:
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our ability to obtain funding for our operations; |
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our estimates regarding our expenses, revenues, anticipated capital requirements and our needs for additional financing; |
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the timing of the commencement, progress and receipt of data from any of our preclinical and clinical trials; |
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the expected results of any preclinical or clinical trial and the impact on the likelihood or timing of any regulatory approval; |
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the therapeutic benefits, effectiveness and safety of our product candidates; |
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the timing or likelihood of regulatory filings and approvals; |
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changes in our strategy or development plans; |
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the volatility of our common share price; |
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the rate and degree of market acceptance and clinical utility of any future products; |
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the effect of competition; |
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our ability to protect our intellectual property as well as comply with the terms of license agreements with third parties; |
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our ability to comply with the continued listing requirements of Nasdaq; |
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our ability to identify, develop and commercialize additional products or product candidates; |
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reliance on key personnel; |
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general changes in economic or business conditions; and |
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other risks and uncertainties, including those listed under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2024, as amended |
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. You should refer to the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended September 30, 2024, filed with the SEC, on December 13, 2024, as amended, for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. We operate in an evolving environment and new risk factors and uncertainties may emerge from time to time. It is not possible for management to predict all risk factors and uncertainties. As a result of these factors, we cannot assure you that the forward-looking statements in this report will prove to be accurate. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. You should review the factors and risks and other information we describe in the reports we will file from time to time with the SEC.
Overview
We are a biopharmaceutical company developing innovative ways to treat inflammatory and immune-related diseases. 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 needs, and where there are large addressable market opportunities, among other factors. Our clinical pipeline is focused on two therapeutic areas: Medical Dermatology and Respiratory.
In Medical Dermatology we are developing EB06, an anti-CXCL10 monoclonal antibody candidate, as a therapy for vitiligo, a common autoimmune disorder that causes skin to lose its color in patches. CXCL10 has been shown to play a key role in the disease, and neutralization of CXCL10 has been demonstrated to both prevent and reverse depigmentation in animal models. To date, EB06 has demonstrated a favorable safety and tolerability profile. We have received regulatory approval from Health Canada to conduct a Phase 2 proof of concept study of EB06 in patients with moderate-to-severe nonsegmental vitiligo and we are in discussions with the U.S. Food and Drug Administration (FDA) for the same study. Preparation for the manufacturing campaign is underway, with data anticipated to be submitted to the FDA during the middle of 2025. Our medical dermatology assets also include EB01 (1.0% daniluromer cream), a Phase 3-ready asset developed for use as a potential therapy for moderate-to-severe chronic Allergic Contact Dermatitis (ACD), a common occupational skin condition. This asset is at the partnering stage.
Our most advanced Respiratory drug candidate is EB05 (paridiprubart). Paridiprubart represents a new class of emerging therapies called Host-Directed Therapeutics (HDTs) that are designed to modulate the body’s own immune response when confronted with infectious diseases or even chemical agents. EB05 is currently being evaluated in a U.S. government-funded platform study investigating three novel threat-agnostic HDTs in hospitalized adult patients with Acute Respiratory Distress Syndrome (ARDS), a life-threatening form of respiratory failure. Certain development expenses, including manufacturing scale-up, for our EB05 program are also eligible for reimbursement from the Government of Canada under a 2023 grant and funding award. In addition to EB05, we are also preparing an investigational new drug application (IND) in the United States to conduct a future Phase 2 study for EB07 (paridiprubart) in patients with pulmonary fibrosis.
Recent Developments
HCW ATM
In October 2024, we entered into an At The Market Offering Agreement with H.C. Wainwright & Co., LLC as a sales agent (HCW ATM) pursuant to which we may offer and sell, from time to time, common shares through an at-the-market equity offering program for up to $3.87 million in gross proceeds. We have no obligation to sell any of the common shares and may at any time suspend sales or terminate the equity distribution agreement in accordance with its terms. For the three months ended December 31, 2024, we sold a total of 220,269 common shares pursuant to the agreement for net proceeds of $0.6 million after deducting sales agent commissions of $19,000. We have not sold any common shares pursuant to the HCW ATM subsequent to December 31, 2024.
Amended Articles
On October 30, 2024, we filed Amended Articles to amend the rights, preferences, restrictions and other matters pertaining to our newly designated Series A-1 Convertible Preferred Shares (Series A-1 Preferred Shares). The Series A-1 Preferred Shares have no par value and a stated value of $10,000 per share and rank, with respect to redemption payments, rights upon liquidation, dissolution or winding-up of the Company, or otherwise, senior in preference and priority to our common shares.
On February 12, 2025, we filed Amended Articles to create the rights, preferences, restrictions and other matters pertaining to our newly designated Series B-1 Convertible Preferred Shares (Series B-1 Preferred Shares). The Series B-1 Preferred Shares have no par value and a stated value of $10,000 per share and rank, with respect to rights upon liquidation, dissolution or winding-up of the Company, or otherwise, senior in preference and priority to our common shares and each other class or series of shares that rank junior to the Series B-1 Preferred Shares.
Series A-1 Preferred Shares Offering
On October 30, 2024, we entered into a Securities Purchase Agreement (Series A-1 Purchase Agreement) with Pardeep Nijhawan Medicine Professional Corporation (Series A-1 Purchaser), an entity controlled by Pardeep Nijhawan, our Chief Executive Officer, Secretary and member of our board of directors, pursuant to which we agreed to issue and sell to the Series A-1 Purchaser in a private placement, up to $5,000,000 of the Series A-1 Preferred Shares, each of which is initially convertible into approximately 2,903 common shares at a conversion price of $3.445 per Series A-1 Conversion Share, and warrants (Warrants) to purchase common shares (Warrant Shares) at an exercise price of $3.445 per Warrant Share. The Series A-1 Preferred Shares and the Warrants are being sold together in a fixed combination of one Series A-1 Preferred Share and a Warrant to purchase a number of common shares equal to 75% of the underlying Series A-1 Conversion Shares at a combined purchase price of $10,272.13 per Series A-1 Preferred Share and related Warrants. Under the Series A-1 Purchase Agreement, the Series A-1 Purchaser has purchased 150 Series A-1 Preferred Shares initially convertible into an aggregate of 435,414 Series A-1 Conversion Shares and Warrants to purchase up to an aggregate of 326,560 Warrant Shares for an aggregate purchase price of $1,540,819. The offering of the Series A-1 Preferred Shares and Warrants was structured as an at-market offering under the rules of The Nasdaq Stock Market. The Series A-1 Purchaser will not have the right to convert any portion of its Series A-1 Preferred Shares, or exercise any portion of the Warrants, if, together with its affiliates, it would beneficially own in excess of 19.99% of the number of common shares outstanding immediately after giving effect to such conversion or exercise.
Series B-1 Preferred Shares Offering
On February 12, 2025, we entered into a Securities Purchase Agreement (Series B-1 Purchase Agreement) with a lead investor and several additional investors signatory thereto (the Investors), pursuant to which we sold to the Investors in a private placement, an aggregate of (i) 834 Series B-1 Preferred Shares, each of which is initially convertible into approximately 5,208 common shares (Series B-1 Conversion Shares) at a conversion price of $1.92 per Series B-1 Conversion Share, and (ii) 3,468,746 common shares. The purchase price per Series B-1 Preferred Share was $10,000 and the purchase price per common share was $1.92. The gross proceeds were approximately $15.0 million, prior to deducting offering expenses payable by us. A holder of Series B-1 Preferred Shares will not have the right to convert any portion of its Series B-1 Preferred Shares, if, together with its affiliates, it would beneficially own in excess of 4.99% (or, at the option of the holder, 9.99%) of the number of common shares outstanding immediately after giving effect to such conversion, provided, however, that a holder may increase or decrease the beneficial ownership limitation by giving 61 days’ notice to the Company, but not to any percentage in excess of 19.99%.
Significant Accounting Policies and Estimates
See Note 2 to our financial statements included in our Annual Report on Form 10-K for the year ended September 30, 2024 for a discussion of our significant accounting policies and estimates. There have been no material changes to such significant accounting policies or estimates.
Results of Operations
Comparison of the Three Months Ended December 31, 2024 and 2023
Total operating expenses were unchanged at $1.9 million for each of the three months ended December 31, 2024 and December 31, 2023:
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Research and development (R&D) expenses increased by $0.3 million to $1.0 million for the three months ended December 31, 2024 compared to $0.7 million for the same period last year primarily due to increased external research expenses related to manufacturing paridiprubart. Our R&D expenses consist primarily of employee-related expenses, including salaries, benefits, taxes, travel, and share-based compensation expense for personnel in R&D functions; expenses related to process development and production of product candidates paid to contract manufacturing organizations, including the cost of acquiring, developing, and manufacturing research material; costs associated with clinical activities, including expenses for contract research organizations; and clinical trials and activities related to regulatory filings for our product candidates, including regulatory consultants. |
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General and administrative (G&A) expenses decreased by $0.3 million to $0.9 million for the three months ended December 31, 2024 compared to $1.2 million for the same period last year primarily due to a decrease in salaries and related costs, noncash share-based compensation and professional service fees. Our G&A expenses consist primarily of salaries and related costs for our employees in administrative, executive and finance functions. G&A expenses also include professional fees for legal, accounting, audit, tax and consulting services, insurance, office, and travel expenses. |
Total other income increased by $102,000 to $281,000 for the three months ended December 31, 2024 compared to $179,000 for the same period last year and was composed of the following:
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Grant income increased by $0.2 million to $0.3 million for the three months ended December 31, 2024 compared to $0.1 million for the three months ended December 31, 2023. The increase is related to the grant income associated with the activities under the 2023 SIF Agreement. |
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Interest income decreased by $59,000 to $2,000 for the three months ended December 31, 2024 compared to $61,000 for the same period last year primarily due to lower cash balances. |
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Foreign exchange gain was $21,000 for the three months ended December 31, 2024 compared to a gain of $2,800 for the three months ended December 31, 2023. |
For the three months ended December 31, 2024, our net loss was $1.6 million, or $0.48 per common share, compared to a net loss of $1.7 million, or $0.54 per common share for the three months ended December 31, 2023.
Capital Expenditures
Our capital expenditures primarily consist of computer and office equipment. There were no significant capital expenditures for the three months ended December 31, 2024 and 2023.
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.
Our primary use of cash is to fund our operating expenses, which consist of R&D and G&A expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in accounts payable and accrued expenses. Net cash used in operating activities was $1.5 million and $1.4 million for the three months ended December 31, 2024 and 2023, respectively. We incurred net losses of $1.6 million and $1.7 million, respectively, for those same periods.
On February 12, 2025, we entered into the Series B-1 Purchase Agreement the Investors, pursuant to which we sold to the Investors in a private placement, an aggregate of (i) 834 Series B-1 Preferred Shares, each of which is initially convertible into approximately 5,208 common shares (Series B-1 Conversion Shares) at a conversion price of $1.92 per Series B-1 Conversion Share, and (ii) 3,468,746 common shares. The purchase price per Series B-1 Preferred Share was $10,000 and the purchase price per common share was $1.92. The gross proceeds were approximately $15.0 million, prior to deducting offering expenses payable by us. A holder of Series B-1 Preferred Shares will not have the right to convert any portion of its Series B-1 Preferred Shares if, together with its affiliates, it would beneficially own in excess of 4.99% (or, at the option of the holder, 9.99%) of the number of common shares outstanding immediately after giving effect to such conversion, provided, however, that a holder may increase or decrease the beneficial ownership limitation by giving 61 days’ notice to the Company, but not to any percentage in excess of 19.99%.
In October 2024, we entered into the HCW ATM pursuant to which we may offer and sell, from time to time, common shares through an at-the-market equity offering program for up to $3.87 million in gross proceeds. For the three months ended December 31, 2024, we sold a total of 220,269 common shares pursuant to the agreement for net proceeds of $0.6 million after deducting sales agent commissions of $19,000. We have not sold any common shares pursuant to the HCW ATM subsequent to December 31, 2024.
In October 2024, we entered into the Series A-1 Purchase Agreement with the Series A-1 Purchaser, an entity controlled by our Chief Executive Officer, Secretary and member of our board of directors, pursuant to which we agreed to issue and sell to the Series A-1 Purchaser in a private placement, up to $5 million of Series A-1 Preferred Shares, each of which is initially convertible into approximately 2,903 Series A-1 Conversion Shares, at a conversion price of $3.445 per Series A-1 Conversion Share, and Warrants to purchase the Warrant Shares at an exercise price of $3.445 per Warrant Share. The Series A-1 Preferred Shares and the Warrants were being sold together in a fixed combination of one Series A-1 Preferred Share and a Warrant to purchase a number of common shares equal to 75% of the underlying Series A-1 Conversion Shares at a combined purchase price of $10,272.13 per Series A-1 Preferred Share and related Warrants. Under the Series A-1 Purchase Agreement, the Series A-1 Purchaser has purchased 150 Series A-1 Preferred Shares initially convertible into an aggregate of 435,414 Series A-1 Conversion Shares and Warrants to purchase up to an aggregate of 326,560 Warrant Shares for an aggregate purchase price of $1,540,819. The Warrants expire five years from the issuance date. We have the right to require the Series A-1 Purchaser to purchase additional Series A-1 Preferred Shares and Warrants (up to an aggregate investment of $5.0 million); provided however, no more than an aggregate of $2.0 million of Series A-1 Preferred Shares and Warrants may be issued and sold pursuant to the Series A-1 Purchase Agreement without shareholder approval in accordance with applicable Canadian securities laws.
In October 2023, we entered into the 2023 SIF Agreement with the Canadian Government’s SIF. Under the 2023 SIF Agreement, the Government of Canada committed up to C$23 million in partially repayable funding. Of the C$23 million committed by SIF, up to C$5.8 million is not repayable by us. The remaining C$17.2 million is conditionally repayable starting in 2029 only if and when we earn gross revenue. For the three months ended December 31, 2024 and 2023, we recorded grant income of $0.3 million and $0.1 million, respectively, related to the 2023 SIF Agreement.
In October 2023, we entered into $10.0 million revolving credit agreement with an entity controlled by the Company’s Chief Executive Officer and Secretary and member of our board of directors (Credit Agreement), providing an unsecured revolving credit facility, with a credit limit of $3.5 million (Credit Limit) which was available immediately. The line of credit bore interest at the Canadian Imperial Bank of Commerce US Base-Interest Rate plus 3% per annum and has a maturity date of March 31, 2026, unless terminated earlier by either party with 90 days’ notice. Advances under the line of credit were tied to a borrowing base (Borrowing Base) consisting of eligible grant receivables from SIF, future potential license fee receivables and any other accounts receivable. At no time could the aggregate principal amount of all advances outstanding have exceeded the lesser of (i) the Credit Limit and (ii) an amount equal to 85% of the Borrowing Base. The Credit Agreement was terminated in October 2024. Prior to the termination of the Credit Agreement, we had not borrowed any funds thereunder. We incurred no termination penalties in connection with the termination of the Credit Agreement.
In August 2022, we filed a $150.0 million shelf registration statement. In March 2023, we entered into an equity distribution agreement with Canaccord, as sales agent, pursuant to which we may offer and sell, from time to time, common shares through an at-the-market equity offering program for up to $20 million in gross proceeds, subject to certain offering limitations that currently allow us to offer and sell common shares having an aggregate gross sales price of up to $8.4 million (Canaccord ATM). During the three months ended December 31, 2023, the Company sold a total of 89,249 common shares pursuant to the agreement for gross proceeds of approximately $0.3 million after deducting sales agent commissions of $9,000. The Canaccord ATM was terminated in October 2024.
At December 31, 2024, we had an accumulated deficit of $60.2 million and working capital of $0.2 million, including $1.6 million in cash and cash equivalents. In the three months ended, December 31, 2024, we received proceeds of $1.5 million from the initial sale of Series A-1 Preferred Shares to the Series A-1 Purchaser. Subsequent to the quarter, we received gross proceeds of $15.0 million from the sale of common shares and Series B-1 Preferred Shares in a private placement. We expect that our cash and cash equivalents at December 31, 2024, including the net proceeds from the Series A-1 Purchase Agreement, the $15.0 million in gross proceeds from the sale of common shares and Series B-1 Preferred Shares, HCW ATM and reimbursements of eligible R&D expenses under the 2023 SIF Agreement, will be used to fund our operating expenses including the advancement of the Vitiligo program through the end of fiscal 2026. 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 plan to seek additional financing through the sale of equity, government grants, debt financings or other capital sources, including potential future licensing, collaboration or similar arrangements with third parties or other strategic transactions. If we raise additional funds by issuing equity securities, our shareholders will experience dilution. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any debt financing or additional equity that we raise may contain terms, such as liquidation and other preferences that are not favorable to us or our existing shareholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us. Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development of our product candidates.
We expect to continue to incur substantial additional operating losses for at least the next several years as we continue to develop our product candidates and seek marketing approval and, subject to obtaining such approval, the eventual commercialization of our product candidates. If we obtain marketing approval for our product candidates, we will incur significant sales, marketing and outsourced manufacturing expenses. In addition, we expect to incur additional expenses to add operational, financial and information systems and personnel, including personnel to support our planned product commercialization efforts. We also expect to incur significant costs to comply with corporate governance, internal controls and similar requirements applicable to us as a public company. To continue to grow our business over the longer term, we plan to commit substantial resources to research and development, clinical trials of our product candidates, and other operations and potential product acquisitions and in licensing. We have evaluated and expect to continue to evaluate a wide array of strategic transactions as part of our plan to acquire or in license and develop additional products and product candidates to augment our internal development pipeline. Strategic transaction opportunities that we may pursue could materially affect our liquidity and capital resources and may require us to incur additional indebtedness, seek equity capital or both. In addition, we may pursue development, acquisition or in licensing of approved or development products in new or existing therapeutic areas or continue the expansion of our existing operations. Accordingly, we expect to continue to opportunistically seek access to additional capital to license or acquire additional products, product candidates or companies to expand our operations, or for general corporate purposes. Strategic transactions may require us to raise additional capital through one or more public or private debt or equity financings or could be structured as a collaboration or partnering arrangement. We have no arrangements, agreements, or understandings in place at the present time to enter into any acquisition, in licensing or similar strategic business transaction.
Cash Flows
Net cash used in operating activities
Net cash used in operating activities was $1.5 million for the three months ended December 31, 2024 compared to $1.4 million for the three months ended December 31, 2023 primarily due to a slight increase in operating expenses and an investment in working capital of $24,000, compared to a recovery of working capital $42,000 in the comparable period.
Net cash used in investing activities
There was no cash used in investing activities for the three months ended December 31, 2024 and 2023, respectively.
Net cash provided by financing activities
Net cash provided by financing activities was $2.1 million for the three months ended December 31, 2024, as compared to $0.3 million for the three months ended December 31, 2023. In the current period, we received $1.5 million in proceeds from the sale of the Series A-1 Preferred Shares, in addition to proceeds of $0.6 million from the HCW ATM, partially offset by issuance costs of $96,000. In the comparative period, we received $0.3 million in net proceeds from the Canaccord ATM.
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 R&D activities, including the conduct of clinical studies and product development, and expense such costs as they are incurred. R&D 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 R&D expenses were $1.0 million for the three months ended December 31, 2024, compared to $0.7 million for the three months ended December 31, 2023. The increase was due primarily to manufacturing expenses related to paridiprubart.
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 the 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 our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2024. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures as of December 31, 2024, were effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
From time to time, we may be involved in legal proceedings, claims and litigation arising in the ordinary course of business. We are not currently a party to any material legal proceedings or claims outside the ordinary course of business. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
There have been no material changes to the risk factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended September 30, 2024, filed with the Securities and Exchange Commission on December 13, 2024, as amended.
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.
of the Company's directors and officers adopted, modified, or terminated a Rule 10b-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company's fiscal quarter ended December 31, 2024 (each as defined in Item 408 of Regulation S-K under the Securities Exchange Act of 1934, as amended).
EXHIBIT INDEX
* The information in this exhibit is furnished and deemed not filed with the Securities and Exchange Commission for purposes of section 18 of the Exchange Act of 1934, as amended, and 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.
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: February 14, 2025 | EDESA BIOTECH, INC. | |
| /s/ Pardeep Nijhawan | ||
| Pardeep Nijhawan, MD, Director, Chief Executive Officer and Corporate Secretary | ||
| (Principal Executive Officer) | ||
| Date: February 14, 2025 | ||
| /s/ Stephen Lemieux | ||
| Stephen Lemieux, Chief Financial Officer | ||
| (Principal Financial Officer and Duly Authorized Officer) | ||