Edesa Biotech(EDSA) - 2025 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the company's unaudited interim financial statements and management's analysis of its financial condition and operational results Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed interim consolidated financial statements, including balance sheets, statements of operations, cash flows, and changes in shareholders' equity, along with detailed notes explaining the company's operations, accounting policies, assets, liabilities, equity, and related party transactions for the periods ended June 30, 2025 and 2024 Condensed Interim Consolidated Balance Sheets This statement provides a snapshot of the company's financial position, detailing assets, liabilities, and shareholders' equity at specific points in time Condensed Interim Consolidated Balance Sheets (June 30, 2025 vs. September 30, 2024) | Metric | June 30, 2025 | September 30, 2024 | | :-------------------------------- | :------------ | :----------------- | | Cash and cash equivalents | $12,361,690 | $1,037,320 | | Total current assets | $12,761,092 | $1,675,622 | | Total assets | $14,804,800 | $3,813,982 | | Total current liabilities | $672,674 | $1,832,827 | | Total shareholders' equity | $14,132,126 | $1,981,155 | - Cash and cash equivalents significantly increased to $12.4 million as of June 30, 2025, from $1.0 million at September 30, 2024[10] - Total assets grew substantially to $14.8 million from $3.8 million, while total current liabilities decreased to $0.7 million from $1.8 million[10] Condensed Interim Consolidated Statements of Operations This statement outlines the company's revenues, expenses, and net loss over specific interim periods Condensed Interim Consolidated Statements of Operations (Three and Nine Months Ended June 30) | Metric (USD) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 9 Months Ended June 30, 2025 | 9 Months Ended June 30, 2024 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Research and development | $939,067 | $897,305 | $2,443,191 | $2,778,100 | | General and administrative | $964,676 | $1,035,140 | $2,998,127 | $3,232,248 | | Loss from operations | $(1,903,743) | $(1,932,445) | $(5,441,318) | $(6,010,348) | | Net loss | $(1,749,464) | $(1,668,212) | $(4,957,165) | $(5,207,994) | | Loss per common share - basic and diluted | $(0.25) | $(0.52) | $(0.95) | $(1.64) | - Net loss for the nine months ended June 30, 2025, improved to $5.0 million from $5.2 million in the prior year, with basic and diluted loss per share decreasing to $0.95 from $1.64[12] - Research and development expenses decreased for the nine-month period, while general and administrative expenses also saw a reduction[12] Condensed Interim Consolidated Statements of Cash Flows This statement details the cash inflows and outflows from operating, investing, and financing activities over specific interim periods Condensed Interim Consolidated Statements of Cash Flows (Nine Months Ended June 30) | Cash Flow Activity (USD) | 9 Months Ended June 30, 2025 | 9 Months Ended June 30, 2024 | | :----------------------------------- | :--------------------------- | :--------------------------- | | Net cash used in operating activities | $(5,601,268) | $(3,923,166) | | Net cash provided by financing activities | $16,844,415 | $623,466 | | Net change in cash and cash equivalents | $11,324,370 | $(3,320,513) | | Cash and cash equivalents, end of period | $12,361,690 | $2,040,884 | - Net cash provided by financing activities significantly increased to $16.8 million for the nine months ended June 30, 2025, compared to $0.6 million in the prior year, primarily due to proceeds from common and preferred share issuances[14] - The company experienced a positive net change in cash and cash equivalents of $11.3 million, ending the period with $12.4 million in cash[14] Condensed Interim Consolidated Statements of Changes in Shareholders' Equity This statement tracks the changes in the company's equity components, including common shares, preferred shares, and accumulated deficit, over specific interim periods Shareholders' Equity Changes (Nine Months Ended June 30, 2025) | Metric | September 30, 2024 | June 30, 2025 | | :-------------------------------- | :----------------- | :------------ | | Common Shares (value) | $47,236,024 | $54,271,112 | | Series A-1 Preferred Shares | - | $1,054,735 | | Series B-1 Preferred Shares | - | $8,168,063 | | Additional Paid-in Capital | $13,576,757 | $14,406,511 | | Accumulated Deficit | $(58,589,013) | $(63,645,218) | | Total Shareholders' Equity | $1,981,155 | $14,132,126 | - Total shareholders' equity increased significantly from $2.0 million at September 30, 2024, to $14.1 million at June 30, 2025, driven by the issuance of common and preferred shares[15][16] - The company issued Series A-1 and Series B-1 Preferred Shares, contributing $1.05 million and $8.17 million, respectively, to equity[15][16] 1. Nature of Operations This section describes the company's core business, its financial performance, and its ability to continue as a going concern - Edesa Biotech, Inc. is a biopharmaceutical company focused on acquiring, developing, and commercializing clinical-stage drugs for inflammatory and immune-related diseases[17] - The company incurred a comprehensive loss of $4.8 million for the nine months ended June 30, 2025, resulting in an accumulated deficit of $63.6 million, and had a net cash outflow from operating activities of $5.6 million[20] - The company's ability to continue as a going concern is dependent on obtaining additional funding through financings, strategic activities, and grants[20] 2. Basis of Presentation This section explains the accounting principles, estimates, and currency used in preparing the unaudited condensed interim consolidated financial statements - The unaudited condensed interim consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and include the accounts of the Company and its wholly-owned subsidiaries, with all intercompany balances and transactions eliminated[22][23] - The preparation of financial statements requires management to make estimates and assumptions, particularly in areas such as valuation of assets, deferred income taxes, and share-based compensation[24] - The consolidated financial statements are presented in U.S. dollars, which is the functional currency for the Company and its U.S. subsidiary, while its Canadian subsidiary's functional currency is Canadian dollars[25] 3. Intangible Assets This section details the company's intangible assets, primarily an acquired license, and their associated amortization - The company holds an acquired license for certain monoclonal antibodies (the Constructs), granting exclusive world-wide rights for 25 years from the first commercial sale, recorded as an intangible asset[26][28] Intangible Assets, Net (USD) | Metric | June 30, 2025 | September 30, 2024 | | :-------------------------- | :------------ | :----------------- | | The Constructs | $2,529,483 | $2,529,483 | | Less: accumulated amortization | $(526,514) | $(450,635) | | Total intangible assets, net | $2,002,969 | $2,078,848 | - Amortization expense was $0.03 million for each of the three months ended June 30, 2025 and 2024, and $0.08 million for each of the nine months ended June 30, 2025 and 2024[30] 4. Right-of-Use Lease with Related Party This section describes the company's lease agreement for executive offices with a related party and the associated costs - The company leases executive offices from a related company, with the lease extended until November 30, 2025, after which it will be month-to-month[32] Right-of-Use Lease Cost (USD) | Period | June 30, 2025 | June 30, 2024 | | :-------------------------------- | :------------ | :------------ | | Three Months Ended | $0 | $19,299 | | Nine Months Ended | $17,885 | $59,208 | 5. Commitments This section outlines the company's contractual obligations, including research organization payments and contingent license and royalty commitments Approximate Aggregate Future Contractual Payments (as of June 30, 2025) | Year Ending September 30, | Amount (USD) | | :------------------------ | :----------- | | 2025 | $234,000 | | 2026 | $34,000 | | 2027 | $34,000 | | Total | $302,000 | - The company has commitments for contracted research organizations totaling $302 thousand, primarily due in fiscal year 2025[34] - Contingent license and royalty commitments include up to $356 million for the Constructs, $18.4 million for a pharmaceutical product (2016 agreement), and $68.9 million for global rights to the same product (2021 agreement)[35][36][37] - The company's drug candidate, EB05, was selected for a U.S. government-funded Phase 2 platform trial for Acute Respiratory Distress Syndrome (ARDS), with Edesa providing drug product and technical support[38] 6. Capital Shares This section details the company's equity issuances, warrant activity, and share-based compensation expenses - In February 2025, the company issued 834 Series B-1 Preferred Shares and 3,468,746 Common Shares in a private placement, generating approximately $15.0 million in gross proceeds[39] - In October 2024, the company issued 150 Series A-1 Preferred Shares and warrants to an entity controlled by its CEO for an aggregate purchase price of $1.54 million[44] Warrant Activity (Nine Months Ended June 30) | Metric | June 30, 2025 | June 30, 2024 | | :-------------------------- | :------------ | :------------ | | Balance - September 30 | 609,717 | 720,909 | | Issued | 326,560 | - | | Expired | (1,687) | (111,192) | | Balance - June 30 | 934,590 | 609,717 | - As of June 30, 2025, the company had 934,590 warrants outstanding with a weighted average exercise price of $15.35 and 378,235 share options outstanding with a weighted average exercise price of $24.71[54][58] - The company recorded $0.2 million and $0.3 million in share-based compensation expenses for the three and nine months ended June 30, 2025, respectively[66] 7. Government Contributions This section describes the company's multi-year contribution agreement with the Canadian Government's Strategic Innovation Fund and related grant income - In October 2023, the company entered into a multi-year contribution agreement with the Canadian Government's Strategic Innovation Fund (SIF) for up to C$23 million in partially repayable funding for its EB05 Phase 3 clinical study and related activities[68] Reimbursement Grant Income (USD) | Period | June 30, 2025 | June 30, 2024 | | :-------------------------- | :------------ | :------------ | | Three Months Ended | $0.2 million | $0.2 million | | Nine Months Ended | $0.5 million | $0.7 million | 8. Financial Instruments This section discusses the company's financial instruments, fair value measurements, and exposures to interest rate, credit, and foreign exchange risks - The company uses the fair value measurement framework, categorizing inputs into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)[73][74][80] - Interest rate and credit risks are managed by maintaining bank accounts with credit-worthy institutions and assessing collectability of receivables[76][77] - The company is exposed to foreign exchange risk from Canadian dollar balances; a 10% annual change in the Canadian/U.S. exchange rate would impact loss and other comprehensive loss by approximately $0.3 million[78] 9. Loss per Share This section 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[81] 10. Related Party Transactions This section details transactions with related parties, including equity issuances, investor rights agreements, and lease payments - In February 2025, the CEO, directors, and affiliated entities participated in the Series B-1 private placement, purchasing Series B-1 Preferred Shares and Common Shares[82] - An Investor Rights Agreement grants the lead investor certain nomination rights to the board and protective provisions regarding amendments to governing documents and share rights[83][84][85] - The company paid $20 thousand and $60 thousand for a lease from a CEO-controlled company for the three and nine months ended June 30, 2025, respectively[87] - A $10.0 million revolving credit agreement with a CEO-controlled entity was terminated in October 2024, with no funds borrowed[88] 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 and operational results, highlighting key developments, financial performance comparisons, and liquidity outlook. It emphasizes the company's focus on biopharmaceutical development, recent financing activities, and the need for future funding to support its clinical pipeline Disclosure Regarding Forward-Looking Statements This section cautions readers about forward-looking statements, outlining inherent risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements identified by words such as 'expects,' 'anticipates,' and 'believes,' which are subject to risks and uncertainties that could cause actual results to differ materially[90][92] - Key risk factors include the ability to obtain funding, timing and results of clinical trials, regulatory approvals, market acceptance, competition, intellectual property protection, and general economic conditions[93][94][98] Overview This section introduces Edesa Biotech as a biopharmaceutical company developing therapies for inflammatory and immune-related diseases, highlighting its clinical pipeline - Edesa Biotech is a biopharmaceutical company developing innovative therapies for inflammatory and immune-related diseases, focusing on indications with unmet medical needs and large market opportunities[95] - The clinical pipeline includes EB06 for vitiligo (Phase 2), EB01 for Allergic Contact Dermatitis (Phase 3-ready, partnering stage), and EB05 for Acute Respiratory Distress Syndrome (ARDS) in a U.S. government-funded Phase 2 study[96][97] Recent Developments This section summarizes recent corporate activities, including equity offerings and the creation of new preferred share classes - The company sold 304,057 common shares through an At The Market (ATM) offering program (HCW ATM) for net proceeds of $0.8 million during the nine months ended June 30, 2025[99] - Amended Articles were filed to create Series A-1 and Series B-1 Convertible Preferred Shares, which rank senior to common shares in liquidation[100][101] - The Series A-1 Preferred Shares offering generated $1.54 million from an entity controlled by the CEO, while the Series B-1 Preferred Shares offering generated approximately $15.0 million in gross proceeds from a private placement[102][103] Significant Accounting Policies and Estimates This section confirms that there have been no material changes to the company's significant accounting policies or estimates - There have been no material changes to the company's significant accounting policies or estimates since the Annual Report on Form 10-K for the year ended September 30, 2024[104] Results of Operations - Comparison of the Three Months Ended June 30, 2025 and 2024 This section analyzes the company's financial performance, including operating expenses and net loss, for the three-month periods ended June 30, 2025 and 2024 Key Financials (Three Months Ended June 30) | Metric (USD) | June 30, 2025 | June 30, 2024 | Change ($) | Change (%) | | :-------------------------- | :------------ | :------------ | :--------- | :--------- | | Total operating expenses | $1.9 million | $1.9 million | $0 | 0% | | Research and development | $0.9 million | $0.9 million | $0 | 0% | | General and administrative | $1.0 million | $1.0 million | $0 | 0% | | Net loss | $(1.7 million)| $(1.7 million)| $0 | 0% | | Loss per common share | $(0.25) | $(0.52) | $0.27 | -51.9% | | Total other income | $154,000 | $264,000 | $(110,000) | -41.7% | | Grant income | $183,000 | $236,000 | $(53,000) | -22.5% | | Interest income | $600 | $33,000 | $(32,400) | -98.2% | | Foreign exchange loss | $(30,000) | $(5,000) | $(25,000) | 500% | - Net loss remained consistent at $1.7 million for both periods, but loss per common share improved to $0.25 from $0.52 due to an increased weighted average number of common shares[106] - Total other income decreased by $110 thousand, primarily due to a $53 thousand decrease in grant income and a significant drop in interest income from $33 thousand to $0.6 thousand[106][107] Results of Operations - Comparison of the Nine Months Ended June 30, 2025 and 2024 This section analyzes the company's financial performance, including operating expenses and net loss, for the nine-month periods ended June 30, 2025 and 2024 Key Financials (Nine Months Ended June 30) | Metric (USD) | June 30, 2025 | June 30, 2024 | Change ($) | Change (%) | | :-------------------------- | :------------ | :------------ | :--------- | :--------- | | Total operating expenses | $5.4 million | $6.0 million | $(0.6M) | -10% | | Research and development | $2.4 million | $2.8 million | $(0.4M) | -14.3% | | General and administrative | $3.0 million | $3.2 million | $(0.2M) | -6.3% | | Net loss | $(5.0 million)| $(5.2 million)| $0.2M | -3.8% | | Loss per common share | $(0.95) | $(1.64) | $0.69 | -42.1% | | Total other income | $0.5 million | $0.8 million | $(0.3M) | -37.5% | | Grant income | $0.5 million | $0.6 million | $(0.1M) | -16.7% | | Interest income | $3,000 | $137,000 | $(134,000) | -97.8% | | Foreign exchange loss | $(54,000) | $(10,000) | $(44,000) | 440% | - Total operating expenses decreased by $0.6 million to $5.4 million, driven by a $0.4 million reduction in R&D expenses (lower EB05 costs offset by EB06) and a $0.2 million decrease in G&A expenses[108][111] - Net loss improved to $5.0 million from $5.2 million, and loss per common share decreased to $0.95 from $1.64[109] Capital Expenditures This section reports on the company's capital spending, noting the absence of significant expenditures during the reported periods - There were no significant capital expenditures for the three and nine months ended June 30, 2025 and 2024[110] Liquidity and Capital Resources This section discusses the company's funding sources, cash position, working capital, and future capital requirements - The company's operations are funded through equity issuances, preferred shares, government grants, and tax incentives, as it continues to incur operating losses as a clinical-stage company[112] - Net cash used in operating activities increased to $5.6 million for the nine months ended June 30, 2025, from $3.9 million in the prior year[113] - Recent financing activities include $15.0 million gross proceeds from Series B-1 shares, $0.8 million net proceeds from HCW ATM, and $1.54 million from Series A-1 shares, significantly bolstering cash reserves[114][115][116] - As of June 30, 2025, the company had an accumulated deficit of $63.6 million, working capital of $12.1 million, and $12.4 million in cash and cash equivalents[121] - Management expects current cash and proceeds from recent financings to fund operations through the end of fiscal 2026, but plans to seek additional financing through equity, grants, debt, or strategic arrangements[121] Cash Flows This section provides a detailed breakdown of cash generated from or used in operating, investing, and financing activities - Net cash used in operating activities was $5.6 million for the nine months ended June 30, 2025, compared to $3.9 million for the same period in 2024[123] - Net cash provided by financing activities significantly increased to $16.8 million for the nine months ended June 30, 2025, from $0.6 million in the prior year, primarily due to proceeds from common and preferred share sales[125] - There was no cash used in investing activities for the nine months ended June 30, 2025 and 2024[124] Research and Development This section details the company's research and development expenses and their expected fluctuations based on clinical program activity - R&D expenses were $0.9 million for the three months and $2.4 million for the nine months ended June 30, 2025, reflecting a decrease primarily due to lower clinical expenses for EB05, partially offset by increased costs for EB06[126] - R&D expenses are expected to fluctuate based on clinical program activity, study initiation, and patient recruitment rates[126] Off-Balance Sheet Arrangements This section confirms the absence of any material off-balance sheet arrangements that could impact 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[127] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Edesa Biotech, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide disclosure under this item[128] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, and reported no material changes in internal control over financial reporting during the quarter - Management, including the Principal Executive Officer and Principal Financial Officer, concluded that the disclosure controls and procedures were effective as of June 30, 2025[130] - There were no changes in internal control over financial reporting during the quarter ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[131] PART II - OTHER INFORMATION This section 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 a party to any material legal proceedings or claims outside the ordinary course of business - The company is not currently a party to any material legal proceedings or claims outside the ordinary course of business[133] Item 1A. Risk Factors There have been no material changes to the risk factors previously discussed in the company's Annual Report on Form 10-K - There have been no material changes to the risk factors discussed in Item 1A. Risk Factors in the Annual Report on Form 10-K for the year ended September 30, 2024[134] 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 period - None to report for unregistered sales of equity securities and use of proceeds[135] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the quarter - None to report for defaults upon senior securities[136] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company[137] Item 5. Other Information No Rule 10b-1 or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by the company's directors and officers during the fiscal quarter - None 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 fiscal quarter ended June 30, 2025[138] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including employment agreements, consulting agreements, plan amendments, and certifications - The exhibit index includes employment and consulting agreements, an amendment to the equity incentive compensation plan, and certifications from the CEO and CFO[141]