Edesa Biotech(EDSA) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION This part details Edesa Biotech's unaudited interim consolidated financial statements and related notes for the specified periods Item 1. Financial Statements (Unaudited) This chapter provides the unaudited condensed interim consolidated financial statements and accompanying notes for Edesa Biotech, Inc Condensed Interim Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and shareholders' equity at specific interim dates | Metric | March 31, 2025 | September 30, 2024 | | :-------------------------------- | :------------- | :----------------- | | Cash and cash equivalents | $13,896,650 | $1,037,320 | | Total current assets | $14,387,289 | $1,675,622 | | Total assets | $16,454,299 | $3,813,982 | | Total current liabilities | $914,701 | $1,832,827 | | Total shareholders' equity | $15,539,598 | $1,981,155 | Condensed Interim Consolidated Statements of Operations This section outlines the company's financial performance, including research and development, general and administrative expenses, and net loss for interim periods | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | | Research and development | $484,306 | $1,176,337 | $1,504,124 | $1,880,795 | | General and administrative | $1,154,580 | $1,044,137 | $2,033,451 | $2,197,108 | | Loss from operations | $(1,638,886) | $(2,220,474) | $(3,537,575) | $(4,077,903) | | Net loss | $(1,590,448) | $(1,861,331) | $(3,207,701) | $(3,539,782) | | Net comprehensive loss | $(1,654,179) | $(1,872,514) | $(3,252,776) | $(3,551,537) | | Loss per common share - basic and diluted | $(0.30) | $(0.58) | $(0.74) | $(1.12) | Condensed Interim Consolidated Statements of Cash Flows This section details the cash inflows and outflows from operating, investing, and financing activities for interim periods | Cash Flow Activity | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 | | :-------------------------------- | :------------------------------ | :------------------------------ | | Net cash used in operating activities | $(3,900,501) | $(3,066,687) | | Net cash provided by financing activities | $16,844,415 | $517,441 | | Net change in cash and cash equivalents | $12,859,330 | $(2,561,766) | | Cash and cash equivalents, end of period | $13,896,650 | $2,799,631 | Condensed Interim Consolidated Statements of Changes in Shareholders' Equity This section tracks changes in shareholders' equity, including net loss and share issuances, over interim periods - Total shareholders' equity significantly increased from $1,981,155 at September 30, 2024, to $15,539,598 at March 31, 2025, primarily due to the issuance of common shares, Series A-1 preferred shares, and Series B-1 preferred shares[17][18] - The company issued 3,772,803 common shares, 150 Series A-1 preferred shares, and 834 Series B-1 preferred shares during the six months ended March 31, 2025, contributing to the increase in capital shares[17][18] Notes to Condensed Interim Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed interim consolidated financial statements 1. Nature of Operations This note describes Edesa Biotech's business as a biopharmaceutical company and its going concern dependency on future funding - Edesa Biotech, Inc. is a biopharmaceutical company focused on acquiring, developing, and commercializing clinical-stage drugs for inflammatory and immune-related diseases[20] - The company's ability to continue as a going concern is dependent on obtaining additional funding, as it incurred a comprehensive loss of $3.3 million and had a net cash outflow from operating activities of $3.9 million for the six months ended March 31, 2025, resulting in an accumulated deficit of $61.9 million[23] 2. Basis of Presentation This note explains the accounting principles, significant estimates, and functional currencies used in preparing the interim financial statements - The financial statements are prepared in accordance with U.S. GAAP for interim financial information and do not include all disclosures required for complete financial statements[25] - Significant estimates are involved in areas such as valuation of accounts receivable, intangible assets, right-of-use assets, deferred income taxes, fair value of share-based compensation and warrants, and forecasting future cash flows for going concern assessment[27] - The Company's functional currency is U.S. dollars, while its Canadian subsidiary, Edesa Biotech Research, Inc., uses Canadian dollars[29] 3. Intangible Assets This note details the company's acquired license for 'The Constructs' as an intangible asset, including its amortization schedule - The company holds an acquired license for 'The Constructs' with exclusive world-wide rights, recorded as an intangible asset and amortized over an estimated useful life of 25 years[30][32] | Metric | March 31, 2025 | September 30, 2024 | | :-------------------------- | :------------- | :----------------- | | The Constructs | $2,529,483 | $2,529,483 | | Less: accumulated amortization | $(501,221) | $(450,635) | | Total intangible assets, net | $2,028,262 | $2,078,848 | - Amortization expense was $0.05 million for both the six months ended March 31, 2025, and March 31, 2024[34] 4. Right-of-Use Lease with Related Party This note describes the company's lease agreement for executive offices with a related party and associated costs - The company leases executive offices from a related company, with the lease extended until November 30, 2025, and then month-to-month[36] | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | | Right-of-use lease cost | $0 | $19,793 | $17,885 | $39,909 | 5. Commitments This note outlines the company's contractual obligations, including contingent license and royalty payments and clinical study responsibilities | Year Ending September 30, | Contractual Payments | | :------------------------ | :------------------- | | 2025 | $232,000 | | 2026 | $34,000 | | 2027 | $34,000 | | Total | $300,000 | - The company has significant contingent license and royalty commitments, including up to $356 million for 'The Constructs' and up to $18.4 million for another pharmaceutical product, contingent on meeting certain milestones[39][40] - An additional $68.9 million in remaining payments are committed for global rights to a pharmaceutical product, with $25,000 and $50,000 expenses recorded for milestones met in the three and six months ended March 31, 2025, respectively[41] - The drug candidate EB05 was selected for a U.S. government-funded Phase 2 clinical study for ARDS, with Edesa responsible for providing drug product and technical support[42] 6. Capital Shares This note details the company's equity transactions, including private placements, preferred share issuances, and warrant activity - On February 12, 2025, the company completed a private placement of Series B-1 Preferred Shares and common shares, generating approximately $15.0 million in gross proceeds[43] - On October 30, 2024, an entity controlled by the CEO purchased 150 Series A-1 Preferred Shares and warrants for an aggregate purchase price of $1,540,819[48][49] | Warrant Activity | Number of Warrant Shares () | Weighted Average Exercise Price | | :----------------------- | :--------------------------- | :------------------------------ | | Balance - Sep 30, 2024 | 609,717 | $21.74 | | Issued | 326,560 | $3.45 | | Expired | (1,687) | $22.40 | | Balance - Mar 31, 2025 | 934,590 | $15.35 | - The company recorded $0.1 million in share-based compensation expenses for both the three and six months ended March 31, 2025[67] 7. Government Contributions This note describes the company's funding agreement with the Canadian Government for its Phase 3 clinical study and related grant income - Under the 2023 SIF Agreement with the Canadian Government, the company is committed to C$23 million in partially repayable funding for its Phase 3 clinical study of EB05 and related activities[72][73] - Grant income recorded under the 2023 SIF Agreement was $0.1 million for the three months ended March 31, 2025, and $0.4 million for the six months ended March 31, 2025[76] 8. Financial Instruments This note explains the company's fair value measurement framework and exposure to foreign currency exchange rate risk - The company uses a fair value measurement framework, categorizing inputs into Level 1 (quoted prices), Level 2 (observable inputs), and Level 3 (unobservable inputs)[77][78][82] - A 10% annual change in the Canadian/U.S. exchange rate would impact the company's loss and other comprehensive loss by approximately $0.4 million, due to exposure from Canadian dollar denominated assets[83] 9. Loss per Share This note explains the calculation of basic and diluted loss per share, noting the anti-dilutive effect of certain securities - Securities that could potentially dilute basic earnings per share were excluded from the computation of diluted loss per share because their effect would have been anti-dilutive[85] 10. Related Party Transactions This note discloses transactions with the CEO, directors, and affiliated entities, including private placements and a terminated credit agreement - The CEO, directors, and affiliated entities participated in the Series B-1 private placement, purchasing 834 Series B-1 Preferred Shares and 3,468,746 common shares for approximately $15.0 million in gross proceeds[86] - An Investor Rights Agreement grants the lead investor certain rights, including nominating a director to the board and protective provisions restricting company actions without lead investor consent[87][88] - An entity controlled by the CEO purchased 150 Series A-1 Preferred Shares and warrants for $1,540,819[90][91] - The revolving credit agreement with a CEO-controlled entity was terminated in October 2024, with no funds borrowed and no termination penalties incurred[93] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, operational results, liquidity, capital resources, and forward-looking statements DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This section warns that the report contains forward-looking statements subject to risks and uncertainties that may cause actual results to differ - The report contains forward-looking statements subject to risks and uncertainties, and actual results may differ materially from those projected[95][97] - Key factors that could cause actual results to differ include funding ability, estimates of expenses and capital requirements, timing and results of clinical trials, regulatory approvals, market acceptance, competition, intellectual property protection, and compliance with Nasdaq listing requirements[98] Overview This section provides an overview of Edesa Biotech's focus on developing therapies for inflammatory and immune-related diseases and its clinical pipeline - Edesa Biotech is a biopharmaceutical company developing innovative therapies for inflammatory and immune-related diseases, focusing on areas with unmet medical needs and large market opportunities[100] - The clinical pipeline includes EB06 for vitiligo (Medical Dermatology) and EB05 (paridiprubart) for Acute Respiratory Distress Syndrome (ARDS) (Respiratory), with EB05 currently in a U.S. government-funded Phase 2 platform study[101][102] Recent Developments This section highlights recent corporate activities, including equity offerings, preferred share designations, and private placements - In October 2024, the company entered into an At The Market Offering Agreement (HCW ATM) to sell common shares for up to $3.87 million in gross proceeds, with $0.8 million net proceeds realized by March 31, 2025[103] - Amended Articles were filed in October 2024 and February 2025 to designate Series A-1 and Series B-1 Convertible Preferred Shares, respectively, both ranking senior to common shares in liquidation[104][105] - A Series A-1 Preferred Shares offering in October 2024 involved the sale of 150 shares and warrants to a CEO-controlled entity for $1,540,819[106] - A Series B-1 Preferred Shares offering in February 2025 generated approximately $15.0 million in gross proceeds from the sale of 834 Series B-1 Preferred Shares and 3,468,746 common shares in a private placement[107] Significant Accounting Policies and Estimates This section confirms no material changes to the company's significant accounting policies or estimates since the last annual report - There have been no material changes to the company's significant accounting policies or estimates since the Annual Report on Form 10-K for the year ended September 30, 2024[108] Results of Operations This section analyzes the company's financial performance by comparing operating expenses, grant income, and net loss across interim periods Comparison of the Three Months Ended March 31, 2025 and 2024 This section compares the company's operating expenses, grant income, and net loss for the three-month periods ended March 31, 2025 and 2024 - Total operating expenses decreased by $0.6 million to $1.6 million for the three months ended March 31, 2025, compared to $2.2 million in the prior year[109] | Expense Category | 3 Months Ended Mar 31, 2025 | 3 Months Ended Mar 31, 2024 | Change ($) | | :-------------------------------- | :---------------------------- | :---------------------------- | :--------- | | Research and development | $484,306 | $1,176,337 | $(692,031) | | General and administrative | $1,154,580 | $1,044,137 | $110,443 | | Grant income | $52,268 | $304,002 | $(251,734) | | Interest income | $265 | $43,193 | $(42,928) | | Net loss | $(1,590,448) | $(1,861,331) | $270,883 | | Loss per common share | $(0.30) | $(0.58) | $0.28 | - R&D expenses decreased primarily due to lower external research expenses for EB05, partially offset by increased EB06-related expenses[112] - G&A expenses increased due to higher salaries and related costs, partially offset by decreased noncash share-based compensation and professional service fees[112] Comparison of the Six Months Ended March 31, 2025 and 2024 This section compares the company's operating expenses, grant income, and net loss for the six-month periods ended March 31, 2025 and 2024 - Total operating expenses decreased by $0.6 million to $3.5 million for the six months ended March 31, 2025, compared to $4.1 million in the prior year[112] | Expense Category | 6 Months Ended Mar 31, 2025 | 6 Months Ended Mar 31, 2024 | Change ($) | | :-------------------------------- | :---------------------------- | :---------------------------- | :--------- | | Research and development | $1,504,124 | $1,880,795 | $(376,671) | | General and administrative | $2,033,451 | $2,197,108 | $(163,657) | | Grant income | $353,463 | $424,836 | $(71,373) | | Interest income | $1,931 | $104,159 | $(102,228) | | Net loss | $(3,207,701) | $(3,539,782) | $332,081 | | Loss per common share | $(0.74) | $(1.12) | $0.38 | - R&D expenses decreased primarily due to lower external research expenses for EB05, partially offset by increased EB06-related costs[118] - G&A expenses decreased due to lower noncash share-based compensation and professional service fees, partially offset by increased salaries and related costs[118] Capital Expenditures This section states that there were no significant capital expenditures during the reported three and six-month interim periods - There were no significant capital expenditures for the three and six months ended March 31, 2025, and 2024[115] Liquidity and Capital Resources This section discusses the company's financial position, funding sources, and plans for future financing to support operations and development - As a clinical-stage company, Edesa has not generated significant revenue and expects to incur operating losses, historically funded through equity issuances, warrants, preferred shares, government grants, and tax incentives[116] - At March 31, 2025, the company had an accumulated deficit of $61.9 million, working capital of $13.5 million, and cash and cash equivalents of $13.9 million[126] - Recent financing activities include $15.0 million gross proceeds from Series B-1 Preferred Shares and common shares, $1.5 million from Series A-1 Preferred Shares, and $0.8 million net proceeds from the HCW ATM[119][120][122] - The company expects current cash and equivalents, along with SIF reimbursements, to fund operations through the end of fiscal 2026, but plans to seek additional financing through equity, grants, debt, or strategic transactions to support long-term growth and product development[126][127] Cash Flows This section analyzes changes in cash flows from operating, investing, and financing activities for the six-month interim periods - Net cash used in operating activities increased to $3.9 million for the six months ended March 31, 2025, compared to $3.1 million in the prior year, primarily due to an investment in working capital[128] - Net cash provided by financing activities significantly increased to $16.8 million for the six months ended March 31, 2025, from $0.5 million in the prior year, driven by proceeds from common and preferred share sales[130] - There was no cash used in investing activities for the six months ended March 31, 2025, and 2024[129] Research and Development This section details the decrease in R&D expenses, primarily due to lower EB05 clinical costs, partially offset by increased EB06 expenses - R&D expenses decreased to $0.5 million for the three months ended March 31, 2025 (from $1.2 million in 2024) and to $1.5 million for the six months ended March 31, 2025 (from $1.9 million in 2024)[131] - The decrease in R&D expenses was primarily due to lower clinical expenses related to EB05, partially offset by increased costs for EB06 as the company prepares for its Phase 2 clinical study[131] Off-Balance Sheet Arrangements This section confirms the absence of any material off-balance sheet arrangements impacting the company's financial condition - The company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on its financial condition or results of operations[132] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Edesa Biotech, Inc. is exempt from providing quantitative and qualitative market risk disclosures - The company is a smaller reporting company and is not required to provide disclosure under this item[133] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and procedures and reports no material changes in internal control over financial reporting Disclosure Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as of March 31, 2025 - Management, including the CEO and CFO, concluded that the disclosure controls and procedures were effective as of March 31, 2025, providing reasonable assurance that material information is known to senior management[134][135] Changes in Internal Control over Financial Reporting This section reports no material changes in internal control over financial reporting during the quarter ended March 31, 2025 - There were no changes in internal control over financial reporting during the quarter ended March 31, 2025, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[136] PART II — OTHER INFORMATION This part provides additional information not covered in the financial statements, including legal proceedings, risk factors, and other disclosures Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings or claims beyond the ordinary course of business - The company is not currently involved in any material legal proceedings or claims beyond the ordinary course of business[138] Item 1A. Risk Factors No material changes to the risk factors previously discussed in the Annual Report on Form 10-K for the year ended September 30, 2024 - No material changes to the risk factors discussed in the Annual Report on Form 10-K for the year ended September 30, 2024[139] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the quarter - No unregistered sales of equity securities and use of proceeds to report[140] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the quarter - No defaults upon senior securities were reported[141] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to Edesa Biotech, Inc.'s operations - Mine safety disclosures are not applicable to the company[142] Item 5. Other Information This section discloses no changes in trading arrangements by directors or officers and details a consulting agreement with the former CFO - No directors or officers adopted, modified, or terminated Rule 10b-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter ended March 31, 2025[143] - Edesa Biotech Research, Inc. entered into a two-year Consulting Agreement with former CFO Stephen Lemieux for financial and accounting services at CAD $250.00 per hour, plus prorated 2025 bonus and potential restricted stock units[144] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including amended articles, various agreements, and certifications - The exhibit index includes Amended Articles, Securities Purchase Agreements, Investor Rights Agreement, Employment Agreement, Consulting Agreement, and various certifications (CEO, CFO)[147]