Exhibit 99.2
Financial Statements
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Report
of Independent Registered Public Accounting Firm
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F-1
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Balance Sheets
– Years Ended December 31, 2018 and 2017
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F-2
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Statements of
Operations and Comprehensive Loss – Years Ended December 31,
2018 and 2017
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F-3
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Statements of
Changes in Shareholders’ Equity – Years Ended December
31, 2018 and 2017
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F-4
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Statements of Cash
Flows – Years Ended December 31, 2018 and 2017
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F-5
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Notes
to Financial Statements
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F-6
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Report of Independent Registered Public Accounting
Firm
To the
Board of Directors and Shareholders of Edesa Biotech
Inc.:
Opinion on the Financial Statements
We have
audited the accompanying balance sheets of Edesa Biotech Inc. (the
“Company”), as of December 31, 2018 and 2017, and the
related statements of operations and comprehensive loss, changes in
shareholders’ equity and cash flows for each of the years in
the two-year period ended December 31, 2018, and the related notes
(collectively referred to as the financial
statements).
In our
opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as at December 31,
2018 and 2017, and the results of its operations and its cash flows
for each of the years in the two-year period ended December 31,
2018, in conformity with accounting principles generally accepted
in the United States of America.
Basis for Opinion
These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a
public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required
to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the
PCAOB.
We
conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States)
(“PCAOB”). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
/s/ MNP LLP
Chartered
Professional Accountants
Licensed
Public Accountants
Toronto,
Canada
March
26, 2019
We have
served as the Company's auditor since 2019.
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Balance
sheets
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As at
December 31, 2018 and 2017
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(Stated
in United States dollars)
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Assets
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Current
assets:
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Cash and cash
equivalents
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$3,367,098
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$5,000,122
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Prepaid expenses
and deposits
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16,487
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102,266
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Other
receivable
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7,339
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12,142
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3,390,924
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5,114,530
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Property and
equipment
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7,386
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2,272
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$3,398,310
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$5,116,802
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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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$183,820
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$118,262
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183,820
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118,262
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Shareholders'
equity:
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Capital
stock
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Authorized
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Unlimited common
shares without par value
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Issued and
outstanding
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1,000,000 common
shares (2017 - 1,000,000)
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1,111,253
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1,111,253
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1,007,143 Class A
preferred shares (2017 - 1,007,143)
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6,064,013
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5,616,801
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Additional paid-in
capital
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230,792
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149,448
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Accumulated other
comprehensive loss
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(429,973)
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(101,135)
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Accumulated
deficit
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(3,761,595)
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(1,777,827)
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3,214,490
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4,998,540
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$3,398,310
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$5,116,802
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Signed
on behalf of the Board:
“
Pardeep Nijhawan ”
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“
Sean MacDonald ”
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Director
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Director
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The
accompanying notes are an integral part of these financial
statements.
Edesa Biotech Inc.
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Statements
of operations and comprehensive loss
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For the
years ended December 31, 2018 and 2017
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(Stated
in United States dollars)
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Expenses:
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Research and
development
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13
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$1,048,352
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$301,776
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General and
administrative
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13
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487,295
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451,029
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Stock-based
compensation
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8
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81,344
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149,448
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Depreciation
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6
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1,655
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595
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Loss from
operations
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1,618,646
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902,848
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Interest
income
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(64,307)
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(16,569)
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Foreign exchange
gain
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(17,783)
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(10,572)
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Loss
before income taxes
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1,536,556
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875,707
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Income tax
expense
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9
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-
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-
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Net
loss
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1,536,556
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875,707
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Exchange
differences on translation
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328,838
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101,135
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Net
loss and comprehensive loss
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$1,865,394
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$976,842
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Weighted average
number of common shares
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1,000,000
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342,531
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Loss per share -
basic and diluted
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15
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$(1.54)
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$(2.56)
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Nature
of operations (Note 1)
Commitments
and contingencies (Note 10)
The
accompanying notes are an integral part of these financial
statements.
Edesa Biotech Inc.
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Statements
of changes in shareholders’ equity
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For the
years ended December 31, 2018 and 2017
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(Stated
in United States dollars)
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Additional
paid-in capital
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Accumulated
other
comprehensive
loss
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Total
shareholders' equity
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Balance at December
31, 2016
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7
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100
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79
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-
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-
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(753,382)
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-
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(753,303)
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Common stock issued
for settlement of debt
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7
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999,900
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1,111,174
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-
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-
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-
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-
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1,111,174
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Share issuance of
Class A preferred shares, net of share issuance costs
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7
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-
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-
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5,468,063
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-
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-
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-
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5,468,063
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Preferred return
for Class A preferred shares
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7
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-
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-
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148,738
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-
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(148,738)
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-
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-
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Stock-based
compensation
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8
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-
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-
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-
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149,448
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-
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-
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149,448
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Net loss and
comprehensive loss
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-
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-
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-
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-
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(875,707)
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(101,135)
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(976,842)
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Balance
at December 31, 2017
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1,000,000
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$1,111,253
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$5,616,801
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$149,448
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$(1,777,827)
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$(101,135)
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$4,998,540
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Preferred return
for Class A preferred shares
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-
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-
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447,212
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-
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(447,212)
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-
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-
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Stock-based
compensation
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-
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-
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-
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81,344
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-
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-
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81,344
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Net loss and
comprehensive loss
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-
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-
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-
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-
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(1,536,556)
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(328,838)
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(1,865,394)
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Balance
at December 31, 2018
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1,000,000
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$1,111,253
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$6,064,013
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$230,792
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$(3,761,595)
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$(429,973)
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$3,214,490
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The
accompanying notes are an integral part of these financial
statements.
Edesa Biotech Inc.
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Statements
of cash flows
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For the
years ended December 31, 2018 and 2017
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(Stated
in United States dollars)
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Cash
flows used in operating activities:
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Net
loss
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$(1,536,556)
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$(875,707)
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Adjustments
for
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Depreciation
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1,655
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595
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Stock-based
compensation
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81,344
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149,448
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Change in non-cash
operating working capital
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Other
receivable
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4,029
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8,568
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Prepaid
expenses
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81,658
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(89,731)
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Accounts payable
and accrued liabilities
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79,040
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(75,863)
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(1,288,830)
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(882,690)
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Cash
flows from financing activities:
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Cash proceeds from
issuance of preferred shares, net of share issuance
costs
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-
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5,468,063
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Advances from
related party
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-
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325,794
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Advances of
shareholder loan
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-
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117,049
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-
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5,910,906
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Cash
flows used in investing activities:
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Purchases of
property and equipment
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(6,869)
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(958)
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(6,869)
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(958)
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Effect of cash held
in foreign currency
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(337,325)
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(43,429)
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Increase
(decrease) in cash and cash equivalents during the
year
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(1,633,024)
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4,983,829
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Cash and cash
equivalents, beginning of year
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5,000,122
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16,293
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Cash
and cash equivalents, end of year
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$3,367,098
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$5,000,122
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The
accompanying notes are an integral part of these financial
statements.
Edesa Biotech Inc.
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Notes
to the financial statements
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For the
years ended December 31, 2018 and 2017
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(Stated
in United States dollars)
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1.
Nature
of operations
Edesa
Biotech Inc. (the “Company”) was incorporated on July
9, 2015 under the Business
Corporations Act (Ontario). The Company is a
biopharmaceutical company engaged in the business of developing,
manufacturing and commercializing innovative pharmaceutical
products. The Company’s registered office is located at 100
Spy Court, Markham, Ontario, Canada.
2.
Basis
of preparation
The
accounting policies set out below have been applied consistently in
the financial statements.
3.
Significant
accounting policies
Use of estimates
The
preparation of the financial statements in conformity with
accounting principles generally accepted in the United States of
America (“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 year. Actual
results could differ from those estimates.
Areas
where significant judgment is involved in making estimates are: the
classification of Class A preferred shares as liability or equity;
deferred income taxes; the determination of fair value of
stock-based compensation; the useful lives of property and
equipment; and forecasting future cash flows for assessing the
going concern assumption.
Basis of measurement
The
financial statements have been prepared on the historical cost
basis except as otherwise noted.
Functional and reporting currencies
The
Company’s functional currency, as determined by management,
is Canadian dollars. The Company’s reporting currency is U.S.
dollars.
Cash and cash equivalents
The
Company considers all highly liquid securities with an original
maturity of three months or less to be cash equivalents. Cash and
cash equivalents comprise of cash on hand and cash held in trust
related to share issuances. Any cash held in trust is readily
available to the Company and is classified as current.
The
financial risks associated with these instruments are minimal and
the Company has not experienced any losses from investments in
these securities. The carrying amount of cash and cash equivalents
approximates its fair value due to its short-term
nature.
Edesa Biotech Inc.
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Notes
to the financial statements
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For the
years ended December 31, 2018 and 2017
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(Stated
in United States dollars)
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3.
Significant
accounting policies (continued)
Property and equipment
Property
and equipment are carried at historical cost less accumulated
depreciation and any accumulated impairment losses. Each component
of an item of property and equipment with a cost that is
significant in relation to the total cost of the item is
depreciated separately. Maintenance and repair expenditures that do
not improve or extend the life are expensed in the period
incurred.
Depreciation
is recognized to write off the cost or valuation of assets (other
than land) less their residual values over their useful lives,
using the declining balance. The estimated useful lives, residual
values and depreciation methods are reviewed at the end of each
year, with the effect of any changes in estimate accounted for on a
prospective basis.
An item
of property and equipment is derecognized upon disposal or when no
future economic benefits are expected to arise from the continued
use of the asset. Any gain or loss arising on the disposal or
retirement of an item of property and equipment is determined as
the difference between the sales proceeds and the carrying amount
of the asset and is recognized in profit or loss.
The
depreciation policy for the principal asset categories are
calculated as follows:
Computer
equipment
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30%
declining method
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Furniture
and equipment
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20%
declining method
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Impairment of long-lived assets
Long-lived
assets are tested for impairment when indicators of impairment
exist. When a significant change in the expected timing or amount
of the future cash flows of the financial asset is identified, the
carrying amount of the financial asset is reduced and the amount of
the write-down is recognized in net income. A previously recognized
impairment loss may be reversed to the extent of the improvement,
provided it is not greater than the amount that would have been
reported at the date of the reversal had the impairment not been
recognized previously, and the amount of the reversal is recognized
in net income (loss).
Research and development
Research
and development costs related to continued research and development
programs are expensed as incurred in accordance with Accounting
Standard Codification (“ASC”) topic 730.
Investment tax credits
The
investment tax credits (“ITC") receivable are amounts
considered recoverable from the Canadian federal and provincial
governments under the Scientific Research & Experimental
Development (“SR&ED”) incentive program. The
amounts claimed under the program represent the amounts based on
management estimates of eligible research and development costs
incurred during the year. Realization is subject to government
approval. Any adjustment to the amounts claimed will be recognized
in the year in which the adjustment occurs. Refundable ITCs claimed
relating to capital expenditures are credited to property and
equipment. Refundable ITCs claimed relating to current expenditures
are netted against research and development
expenditures.
Edesa Biotech Inc.
|
Notes
to the financial statements
|
For the
years ended December 31, 2018 and 2017
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(Stated
in United States dollars)
|
3.
Significant
accounting policies (continued)
Share issue costs
Share
issue costs are recorded as a reduction of the proceeds from the
issuance of capital stock.
Translation of foreign currency transactions
The
financial statements of the Company are measured using the Canadian
dollar as the functional currency. The Company's reporting currency
is the U.S. dollar. Assets and liabilities of the Canadian
operations have been translated at year end exchange rates and
related revenue and expenses have been translated at average
exchange rates for the year. Accumulated gains and losses resulting
from the translation of the financial statements of the Canadian
operations are included as part of accumulated other comprehensive
loss, a separate component of shareholders' equity.
In
respect of other transactions denominated in currencies other than
the Company’s functional currency, the monetary assets and
liabilities are translated at the year-end rates. Revenue and
expenses are translated at rates of exchange prevailing on the
transaction dates. Non-monetary balance sheet and related income
statement accounts are remeasured into U.S. dollar using historical
exchange rates. All of the exchange gains or losses resulting from
these other transactions are recognized in the statement of
operations and comprehensive loss.
Stock-based compensation
The
Company measures the cost of equity-settled transactions by
reference to the fair value of the equity instruments at the date
at which they are granted if the fair value of the goods or
services received by the Company cannot be reliably
estimated.
The
Company calculates stock-based compensation using the fair value
method, under which the fair value of the options at the grant date
is calculated using the Black-Scholes Option Pricing Model, and
subsequently expensed over the vesting period of the option. The
provisions of the Company's stock-based compensation plans do not
require the Company to settle any options by transferring cash or
other assets, and therefore the Company classifies the awards as
equity. Stock-based compensation expense recognized during the year
is based on the value of stock-based payment awards that are
ultimately expected to vest.
The
Company estimates forfeitures at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from
those estimates.
Comprehensive loss
The
Company follows ASC topic 220. This statement establishes standards
for reporting and display of comprehensive income (loss) and its
components. Comprehensive loss is net loss plus certain items that
are recorded directly to shareholders' equity. Other than foreign
exchange gains and losses arising from cumulative translation
adjustments, the Company has no other comprehensive income (loss)
items.
Edesa Biotech Inc.
|
Notes
to the financial statements
|
For the
years ended December 31, 2018 and 2017
|
(Stated
in United States dollars)
|
3.
Significant
accounting policies (continued)
Fair value measurement
Under
ASC topic 820, fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date (i.e. an exit price). ASC topic 820 establishes a hierarchy
for inputs to valuation techniques used in measuring fair value
that maximizes the use of observable inputs and minimizes the use
of unobservable inputs by requiring that the most observable inputs
be used when available. 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 to the hierarchy based on the reliability of
inputs, as follows:
●
Level 1 -
Observable inputs that reflect quoted prices (unadjusted) for
identical assets or liabilities in active markets.
●
Level 2 - Inputs
other than quoted prices included in Level 1 that are observable
for the asset or liability, either directly or indirectly. Level 2
inputs include quoted prices for similar assets or liabilities in
active markets, or quoted prices for identical or similar assets
and liabilities in markets that are not active.
●
Level 3 -
Unobservable inputs for the asset or liability.
The
degree of judgment exercised by the Company in determining fair
value is greatest for instruments categorized in Level
3.
Income taxes
The
Company accounts for income taxes in accordance with ASC 740,
Income Taxes, on a tax jurisdictional basis. The Company files
income tax returns in Canada and the Province of
Ontario.
Deferred
tax assets and liabilities are recognized for the expected future
tax consequences of temporary differences between the tax bases of
assets and liabilities and their financial statement reported
amounts using enacted tax rates and laws in effect in the year in
which the differences are expected to reverse. A valuation
allowance is provided against deferred tax assets when it is
determined to be more likely than not that the deferred tax asset
will not be realized.
The
Company assesses the likelihood of the financial statement effect
of a tax position that should be recognized when it is more likely
than not that the position will be sustained upon examination by a
taxing authority based on the technical merits of the tax position,
circumstances, and information available as of the reporting date.
The Company is subject to examination by taxing authorities in
Canada. Management does not believe that there are any uncertain
tax positions that would result in an asset or liability for taxes
being recognized in the accompanying financial statements. The
Company recognizes tax-related interest and penalties, if any, as a
component of income tax expense.
ASC 740
prescribes recognition threshold and measurement attributes for the
financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. ASC 740 also
provides guidance on de-recognition, classification, interest and
penalties, accounting in periods, disclosure and transition. At
December 31, 2018 and 2017, the Company has not taken any tax
positions that would require disclosure under ASC 740.
Edesa Biotech Inc.
|
Notes
to the financial statements
|
For the
years ended December 31, 2018 and 2017
|
(Stated
in United States dollars)
|
3.
Significant
accounting policies (continued)
Recently adopted accounting pronouncements
In
January 2016, the FASB issued Accounting Standard Update
(“ASU”) No. 2016-01, which makes limited amendments to
the guidance in U.S. GAAP on the classification and measurement of
financial instruments. The new standard significantly revises an
entity’s accounting related to (1) the classification and
measurement of investments in equity securities and (2) the
presentation of certain fair value changes for financial
liabilities measured at fair value. It also amends certain
disclosure requirements associated with the fair value of financial
instruments. ASU No. 2016-01 is effective for fiscal years
beginning after December 15, 2017, and interim periods within those
annual periods. The Company has evaluated the amendments and
determined that the new standard did not have a material impact on
the Company’s financial position, results of operations, cash
flows.
In May
2017, the FASB issued ASU 2017-09 in relation to Compensation
—Stock Compensation (Topic 718), Modification Accounting. The
amendments provide guidance about which changes to the terms or
conditions of a share-based payment award require an entity to
apply modification accounting in Topic 718. The amendments are
effective for all entities for annual periods, and interim periods
within those annual periods, beginning after December 15, 2017.
Early adoption is permitted, including adoption in any interim
period, for (1) public business entities for reporting periods for
which financial statements have not yet been issued and (2) all
other entities for reporting periods for which financial statements
have not yet been made available for issuance. The amendments
should be applied prospectively to an award modified on or after
the adoption date. The Company has evaluated the amendments and
determined that the new standard did not have a material impact on
the Company’s financial position, results of operations or
cash flow.
In July
2017, the FASB has issued ASU No. 2017-11 related to Distinguishing
Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic
815): (Part I) Accounting for Certain Financial Instruments with
Down Round Features, (Part II) Replacement of the Indefinite
Deferral for Mandatorily Redeemable Financial Instruments of
Certain Non-public Entities and Certain Mandatorily Redeemable
Noncontrolling Interests with a Scope Exception (ASU 2017-11). Part
I of ASU 2017-11 simplifies the accounting for certain financial
instruments with down round features, a provision in an
equity-linked financial instrument (or embedded feature) that
provides a downward adjustment of the current exercise price based
on the price of future equity offerings. Current accounting
guidance creates cost and complexity for organizations that issue
financial instruments with down round features by requiring, on an
ongoing basis, fair value measurement of the entire instrument or
conversion option. ASU 2017-11 requires companies to
disregard the down round feature when assessing whether the
instrument is indexed to its own stock, for purposes of determining
liability or equity classification. Companies that provide earnings
per share (“EPS”) data will adjust their basic EPS
calculation for the effect of the feature when triggered (i.e. when
the exercise price of the related equity-linked financial
instrument is adjusted downward because of the down round feature)
and will also recognize the effect of the trigger within
equity.
The
provisions of the new ASU related to down rounds are effective for
public business entities for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2018
(fiscal 2019 for the Company). Early adoption is permitted for all
entities and the Company has early adopted this standard for the
year ended December 31, 2017. The Company has therefore not
evaluated any down round provisions of the preferred share
agreement as disclosed in Note 7.
Edesa Biotech Inc.
|
Notes
to the financial statements
|
For the
years ended December 31, 2018 and 2017
|
(Stated
in United States dollars)
|
3.
Significant
accounting policies (continued)
Future accounting pronouncements
In
February 2016, the FASB issued new guidance, ASU No. 2016-02,
Leases (Topic 842). The new standard establishes a right-of-use
model (“ROU”) that requires a lessee to recognize a ROU
asset and lease liability on the balance sheet for all leases with
a term longer than 12 months. Leases will be classified as finance
or operating, with classification affecting the pattern and
classification of expense recognition in the income statement.
Additional qualitative and quantitative disclosures are also
required by the new guidance. Topic 842 is effective for annual
reporting periods (including interim reporting periods) beginning
after December 15, 2018. Early adoption is permitted. A modified
retrospective transition approach is required, applying the new
standard to all leases existing at the date of initial application.
The Company will adopt the new standard on January 1, 2019 and use
the effective date as its date of initial application.
Consequently, financial information will not be updated, and the
disclosures required under the new standard will not be provided
for dates and periods before January 1, 2019.
The new
standard provides a number of optional practical expedients in
transition. The Company expects to elect the ‘package of
practical expedients’, which permits the Company not to
reassess under the new standard prior conclusions about lease
identification, lease classification and initial direct
costs.
The
Company expects that this standard will have a material effect on
the financial statements. While the Company continues to assess all
of the effects of adoption, the Company has assessed that the most
significant effects relate to (1) the recognition of new ROU assets
and lease liabilities on the balance sheet for the Company’s
operating leases; and (2) providing significant new disclosures
about the Company’s leasing activities. The Company does not
expect a significant change in leasing activities between now and
adoption. Currently, the Company estimates that the discounted
value of operating lease commitments as at December 31, 2018 (total
commitments of $321,186 as disclosed in Note 10) will be recognized
as a right-of-use asset and corresponding lease liability at the
transition date, with no impact to opening retained earnings as at
that date.
4.
Critical
accounting judgments and key sources of estimation
uncertainty
The
preparation of financial statements requires management to make
judgments, estimates and assumptions that affect the application of
policies and reported amounts of assets and liabilities, and
revenue and expenses. The estimates and associated assumptions are
based on historical experience and various other factors that are
believed to be reasonable under the circumstances, the results of
which form the basis of making the judgments about carrying values
of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these
estimates.
The
estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognized in the
period in which the estimate is revised if the revision affects
only that period or in the period of the revision and further
periods if the review affects both current and future
periods.
Critical areas of estimation and judgements in applying accounting
policies include the following:
Going concern
These
financial statements have been prepared in accordance with U.S.
GAAP on a going concern basis, which assumes the realization of
assets and discharge of liabilities in the normal course of
business within the foreseeable future. Management uses judgment in
determining assumptions for cash flow projections, such as
anticipated financing, anticipated sales and future commitments to
assess the Company’s ability to continue as a going concern.
A critical judgment is that the Company continues to raise funds
going forward and satisfy their obligations as they become
due.
Edesa Biotech Inc.
|
Notes
to the financial statements
|
For the
years ended December 31, 2018 and 2017
|
(Stated
in United States dollars)
|
4.
Critical
accounting judgments and key sources of estimation uncertainty
(continued)
Useful lives and recoverability of property and
equipment
As
described in Note 3 above, the Company reviews the estimated useful
lives of property and equipment with definite useful lives at the
end of each year and assesses whether the useful lives of certain
items should be shortened or extended, due to various factors
including technology, competition and revised service offerings.
During the years ended December 31, 2018 and 2017, the Company was
not required to adjust the useful lives of any assets based on the
factors described above. Long-lived assets are reviewed for
impairment when events or circumstances indicate that the carrying
value of an asset may not be recoverable. During the years ended
December 31, 2018 and 2017, the Company did not identify any events
or circumstances to indicate that the carrying value of property
and equipment was not recoverable.
Deferred income taxes
The
calculation of deferred income taxes is based on assumptions which
are subject to uncertainty as to timing and which tax rates are
expected to apply when temporary differences reverse. Deferred tax
recorded is also subject to uncertainty regarding the magnitude of
non-capital losses available for carry forward and of the balances
in various tax pools. By their nature, these estimates are subject
to measurement uncertainty, and the effect on the financial
statements from changes in such estimates in future period could be
material. Deferred tax assets are recognized to the extent that it
is probable that they will be able to be utilized against future
taxable income. Deferred tax assets are reviewed at each balance
sheet date and adjusted to the extent that it is no longer probable
that the related tax benefit will be realized.
Stock-based payments
The
Company estimates the fair value of stock options using the
Black-Scholes Option Pricing Model which requires significant
estimation around assumptions and inputs such as expected term to
maturity, expected volatility and expected dividends.
Accounting for convertible preferred shares
The
Company exercises judgment in determining whether the conversion
feature embedded within the preferred share instrument needs to be
bifurcated from the host instrument and whether the preferred
shares should be recorded as liability or equity in the balance
sheet.
5.
Prepaid
expenses and deposits
As at
December 31, 2018, the Company has classified $16,487 as a current
asset in the balance sheet (December 31, 2017 - $102,266) as all
prepaids are expected to be utilized within one year.
Edesa Biotech Inc.
|
Notes
to the financial statements
|
For the
years ended December 31, 2018 and 2017
|
(Stated
in United States dollars)
|
6.
Property
and equipment
|
|
|
|
Cost
|
|
|
|
Balance at December
31, 2016
|
$2,840
|
$-
|
$2,840
|
Additions
|
958
|
-
|
958
|
Exchange
adjustment
|
49
|
-
|
49
|
Balance at December
31, 2017
|
3,847
|
-
|
3,847
|
Additions
|
1,291
|
5,578
|
6,869
|
Exchange
adjustment
|
(309)
|
-
|
(309)
|
Balance at December
31, 2018
|
4,829
|
5,578
|
10,407
|
|
|
|
|
Accumulated
depreciation
|
|
|
|
Balance at December
31, 2016
|
1,037
|
-
|
1,037
|
Depreciation
|
595
|
-
|
595
|
Exchange
adjustment
|
(57)
|
-
|
(57)
|
Balance at December
31, 2017
|
1,575
|
-
|
1,575
|
Depreciation
|
1,097
|
558
|
1,655
|
Exchange
adjustment
|
(209)
|
-
|
(209)
|
Balance at December
31, 2018
|
2,463
|
558
|
3,021
|
|
|
|
|
Net
book value as at:
|
|
|
|
December 31,
2017
|
$2,272
|
$-
|
$2,272
|
December 31,
2018
|
$2,366
|
$5,020
|
$7,386
|
7.
Capital
stock
The
Company is authorized to issue an unlimited number of common shares
and an unlimited number of Class A preferred shares, all without
par value.
Issued and outstanding common shares:
|
Number of common
shares (#)
|
|
Balance at December
31, 2016
|
100
|
$79
|
Stock issuance to
settle amounts due with shareholder and related
parties
|
999,900
|
1,111,174
|
Balance at December
31, 2017 and 2018
|
1,000,000
|
$1,111,253
|
During
the year ended December 31, 2017, the Company settled its due to
shareholder and amounts owing to related parties totalling
$1,111,174 ($1,386,888 CAD) in exchange for 999,900 common shares.
The Company has recorded the transaction directly in equity as a
transfer between the Company and its shareholder acting in that
capacity.
Edesa Biotech Inc.
|
Notes
to the financial statements
|
For the
years ended December 31, 2018 and 2017
|
(Stated
in United States dollars)
|
7. Capital
stock (continued)
Issued and outstanding preferred shares:
|
Number of Class
A Preferred shares (#)
|
|
Balance at December
31, 2016
|
-
|
$-
|
Issuance of Class A
preferred shares
|
1,007,143
|
5,648,460
|
Preferred return on
Class A preferred shares - 2017
|
-
|
148,738
|
Stock issuance
costs
|
-
|
(180,397)
|
Balance at December
31, 2017
|
1,007,143
|
5,616,801
|
Preferred return on
Class A preferred shares - 2018
|
-
|
447,212
|
Balance at December
31, 2018
|
1,007,143
|
$6,064,013
|
On
August 28, 2017, the Company issued 1,007,143 Class A preferred
shares for gross proceeds of $5,648,460 ($7,050,000 CAD)
(“Class A Preferred Shares Issuance”). The Company
recorded $180,397 ($225,159 CAD) of share issuance costs as an
offset to Class A preferred shares.
The
Class A preferred shares are voting and convertible into common
shares at the option of the holder at any time. Upon the occurrence
of a liquidation event, as defined in the resolutions of the
shareholders dated August 28, 2017, the Class A preferred shares
have a liquidation amount preference over the rights of holders of
common shares or any class of shares ranking junior to Class A
preferred shares. The liquidation amount is equal to the original
issue price of each Class A preferred shares plus 8% of the Class A
preferred share price of $7 CAD per share, accruing daily and
compounding annually, on each Class A preferred share.
All
Class A preferred shares can be converted automatically, without
the payment of any additional consideration, into such number of
common shares on a 1:1 basis at the election of the holders of not
less than 66 2/3% of the then outstanding Class A preferred
shares.
All
Class A preferred shares can be converted automatically, without
the payment of any additional consideration, into such number of
common shares:
●
upon the closing of
an offering pursuant to a receipted prospectus under the Securities
Act (Ontario), as amended, or similar document filed under other
applicable securities laws in Canada or the United States, covering
the offer and sale of common shares for the account of the Company
to the public in which:
o
the
common shares are listed on the Toronto Stock Exchange, the New
York Stock Exchange or The NASDAQ Global Market or another
exchange; and
o
the
aggregate net proceeds from such offering to the Company total not
less than $20 million CAD; and
o
the
offering is completed at a price per common share which is not less
than three times the Class A Original Issue Price, subject to
appropriate adjustment for any recapitalization event;
or
●
upon a liquidation
event where the price per stock is at least three times the Class A
Original Issue Price of $7.00 CAD
The
Company has evaluated the convertible preferred shares and the
embedded conversion option. The embedded conversion option does not
meet the criteria for bifurcation and has therefore been classified
to equity under ASC 815.
The
Class A preferred shares also contain an 8% preferred return that
accrues daily and compounds annually and is payable in shares upon
conversion. The Company recognized a preferred return of $447,212
(2017- $148,738) related to the Class A preferred shares in the
statement of changes in shareholders’ equity.
Edesa Biotech Inc.
|
Notes
to the financial statements
|
For the
years ended December 31, 2018 and 2017
|
(Stated
in United States dollars)
|
8.
Stock-based
compensation
The
Company's stock option plan allows options to be granted to
directors, officers, employees and certain external consultants and
advisers. Under the stock option plan, the option term is not to
exceed 10 years and the exercise price of each option is determined
by the Board of Directors.
During
the year ended December 31, 2018, the Company issued 8,000 stock
options, each option entitling the holder to purchase one common
share of the Company. During the year ended December 31, 2018, an
aggregate of $nil options were exercised.
During
the year ended December 31, 2017, the Company issued 89,263 stock
options, each option entitling the holder to purchase one common
share of the Company. During the year ended December 31, 2017, an
aggregate of $nil options were exercised.
The
continuity of stock options is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
beginning of year
|
89,263
|
7.00
|
7.00
|
-
|
-
|
-
|
Granted
|
8,000
|
7.00
|
7.00
|
89,263
|
7.00
|
7.00
|
Expired
|
-
|
-
|
-
|
-
|
-
|
-
|
Balance at the end
of year
|
97,263
|
7.00
|
7.00
|
89,263
|
7.00
|
7.00
|
|
|
|
|
|
|
|
Options exercisable
at the end of the year
|
61,726
|
7.00
|
7.00
|
42,105
|
7.00
|
7.00
|
As of
December 31, 2017, the exercise prices, weighted average remaining
contractual life of outstanding options and weighted average grant
date fair values were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.00
|
89,263
|
7.00
|
9.70
|
7.00
|
42,105
|
7.00
|
7.00
|
|
89,263
|
7.00
|
|
|
42,105
|
7.00
|
7.00
|
As of
December 31, 2018, the exercise prices, weighted average remaining
contractual life of outstanding options and weighted average grant
date fair values were as follows:
Edesa Biotech Inc.
|
Notes
to the financial statements
|
For the
years ended December 31, 2018 and 2017
|
(Stated
in United States dollars)
|
8. Stock-based
compensation (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.00
|
97,263
|
7.00
|
8.81
|
7.00
|
61,726
|
7.00
|
7.00
|
|
97,263
|
7.00
|
|
|
61,726
|
7.00
|
7.00
|
The
fair value of options granted during the years ended December 31,
2018 and 2017 was estimated using the Black-Scholes Option Pricing
Model to determine the fair value of options granted using the
following assumptions:
|
|
August
28,
2017
|
|
|
September
26,
2017
|
|
|
October
16,
2017
|
|
Volatility
|
|
|
72.39
|
%
|
|
|
71.88
|
%
|
|
|
71.90
|
%
|
Risk-free
interest rate
|
|
|
1.99
|
%
|
|
|
2.00
|
%
|
|
|
2.03
|
%
|
Expected
life
|
|
|
4
years
|
|
|
|
4
years
|
|
|
|
4
years
|
|
Dividend
yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Common
share price
|
|
|
CAD
$7.00
|
|
|
|
CAD
$7.00
|
|
|
|
CAD
$7.00
|
|
Strike
price
|
|
|
CAD
$7.00
|
|
|
|
CAD
$7.00
|
|
|
|
CAD
$7.00
|
|
Forfeiture
rate
|
|
|
nil
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
December
28,
2018
|
|
Volatility
|
|
|
79.46
|
%
|
Risk-free
interest rate
|
|
|
1.98
|
%
|
Expected
life
|
|
|
4
years
|
|
Dividend
yield
|
|
|
0
|
%
|
Common
share price
|
|
|
CAD
$7.00
|
|
Strike
price
|
|
|
CAD
$7.00
|
|
Forfeiture
rate
|
|
|
nil
|
|
The
Company recorded $81,344 of stock-based compensation for the year
ended December 31, 2018 and $149,448 of stock-based compensation
for the year ended December 31, 2017.
Volatility
is determined based on volatilities of comparable companies since
the Company does not have sufficient trading history of its own.
The expected term, which represents the period that options granted
are expected to be outstanding, is estimated based on an average of
the term of the options.
The
risk-free rate assumed in valuing the options is based on the
Canadian treasury yield curve in effect at the time of grant for
the expected term of the option. The expected dividend yield
percentage at the date of grant is Nil as the Company is not
expected to pay dividends in the foreseeable future. The Company
has estimated its stock option forfeitures to be Nil for the years
ended December 31, 2018 and 2017.
Edesa Biotech Inc.
|
Notes
to the financial statements
|
For the
years ended December 31, 2018 and 2017
|
(Stated
in United States dollars)
|
9.
Income
taxes
The
reconciliation of the combined Canadian federal and provincial
statutory income tax rate of 26.5% (2017 - 26.5%) to the effective
tax rate is as follows:
|
|
|
|
|
|
Net loss before
recovery of income taxes
|
$(1,536,556)
|
$(875,707)
|
|
|
|
Expected income tax
recovery
|
$(407,188)
|
$(232,062)
|
Permanent
differences
|
41,132
|
40,297
|
Change in tax
benefits not recognized
|
366,056
|
191,765
|
|
|
|
Income tax
(recovery) expense
|
$-
|
$-
|
Unrecognized deferred tax assets
Deferred
taxes are provided as a result of temporary differences that arise
due to the difference between the income tax values and the
carrying amount of assets and liabilities. Deferred tax assets have
not been recognized in respect of the following deductible
temporary differences:
|
|
|
|
|
|
Straight line
rent
|
4,101
|
2,230
|
Share issuance
costs - 20(1)(e )
|
99,025
|
143,579
|
Non-capital losses
carried forward - Canada
|
2,483,069
|
1,318,477
|
Investment tax
credits from schedule 31
|
34,525
|
37,544
|
SR&ED Pool from
T661
|
157,056
|
170,791
|
Other temporary
differences
|
127,062
|
59,589
|
The
Canadian non-capital loss carry-forwards expires as noted in the
table below. Share issuance costs will be fully amortized in 2021.
The Company's Canadian non-capital income tax losses expire as
follows:
2035
|
$116,202
|
2036
|
364,320
|
2037
|
731,928
|
2038
|
1,270,619
|
Total
|
$2,483,069
|
Edesa Biotech Inc.
|
Notes
to the financial statements
|
For the
years ended December 31, 2018 and 2017
|
(Stated
in United States dollars)
|
10.
Commitments
and contingencies
The
minimum rent, exclusive of occupancy charges, payable to a related
company under an operating lease for the Company's premise, is
approximately as follows:
2019
|
$79,216
|
2020
|
79,216
|
2021
|
81,377
|
2022
|
81,377
|
Total
|
$321,186
|
In
2016, the Company entered into an exclusive license agreement with
a third party to obtain exclusive rights to certain know-how,
patents and data relating to a pharmaceutical product. The Company
will use the exclusive rights to develop the product for
therapeutic, prophylactic and diagnostic uses in topical dermal
applications and anorectal applications.
No
intangible assets have been recognized under the license agreement
with the third party as of December 31, 2018 and 2017. Payments to
the third party are included in the statement of operations and
comprehensive loss as research and development
expenditures.
Under
the license agreement, the Company is committed to payments of
various amounts to the third party upon meeting certain milestones
outlined in the license agreement, up to an aggregate amount of
$18,600,000.
Upon
divestiture of substantially all of the assets of the Company, the
Company shall pay the third party a percentage of the valuation of
the licensed technology sold as determined by an external objective
expert.
The
Company also has a commitment to pay the third party a royalty
based on net sales of the product in countries where the Company,
or an affiliate, directly commercializes the product and a
percentage of sublicensing revenue received by the Company and its
affiliates in the countries where it does not directly
commercialize the product.
In
2016, the Company also entered into an exclusive license agreement
with another third party to obtain exclusive rights to certain
know-how, patents and data relating to a pharmaceutical product. No
intangible assets have been recognized under the license agreement
as of December 31, 2018 and 2017. No fees were paid as of December
31, 2018 and December 31, 2017.
Under
the license agreement, the Company is committed to payments of up
to a total of $18,500,000 upon meeting certain milestones outlined
in the license agreement.
The
Company also has a commitment to pay a royalty based on net sales
of the product in the countries where the Company directly
commercializes the product and a percentage of sublicensing revenue
received by the Company and its affiliates in the countries where
it does not directly commercialize the product.
Edesa Biotech Inc.
|
Notes
to the financial statements
|
For the
years ended December 31, 2018 and 2017
|
(Stated
in United States dollars)
|
11.
Financial instruments
(a)
Fair values
The
Company follows ASC topic 820, “Fair Value
Measurements” which defines fair value, establishes a
framework for measuring fair value, and expands disclosures about
fair value measurements. The provisions of ASC topic 820 apply to
other accounting pronouncements that require or permit fair value
measurements. ASC topic 820 defines fair value as the exchange
price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between
market participants at the measurement date; and establishes a
three level hierarchy for fair value measurements based upon the
transparency of inputs to the valuation of an asset or liability as
of the measurement date. Inputs refers broadly to the assumptions
that market participants would use in pricing the asset or
liability, including assumptions about risk. To increase
consistency and comparability in fair value measurements and
related disclosures, the fair value hierarchy prioritizes the
inputs to valuation techniques used to measure fair value into
three broad levels. The three levels of the hierarchy are defined
as follows:
Level 1
inputs are quoted prices (unadjusted) in active markets for
identical assets or liabilities.
Level 2
inputs are inputs other than quoted prices included within Level 1
that are observable for the assets or liabilities, either directly
or indirectly for substantially the full term of the financial
instrument.
Level 3
inputs are unobservable inputs for assets or
liabilities.
The
categorization within the valuation hierarchy is based upon the
lowest level of input that is significant to the fair value
measurement.
(i)
The
Company calculates expected volatility based on historical
volatility of the Company’s peer group that is publicly
traded for options.
An
increase/decrease in the volatility would have resulted in an
increase/decrease in the fair value of the options.
The
carrying values of cash, other receivable, accounts payable and
accrued liabilities approximates their fair values because of the
short-term nature of these 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 sudden
change in market interest rates, relative to interest rates on cash
and cash equivalents due to the short-term nature of these
balances.
Edesa Biotech Inc.
|
Notes
to the financial statements
|
For the
years ended December 31, 2018 and 2017
|
(Stated
in United States dollars)
|
11. Financial instruments (continued)
The
Company is also exposed to credit risk at period end from the
carrying value of its cash. The Company manages this risk by
maintaining bank accounts with a Canadian Chartered Bank. The
Company’s cash is not subject to any external
restrictions.
(c)
Foreign exchange risk
The
Company has 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. For each Canadian dollar balance of
$1.0 million, a +/- 10% movement in the Canadian currency held
by the Company versus the U.S. dollar would affect the
Company’s loss and other comprehensive loss by
$0.1 million. The Company had assets of $4.6 million CAD as at
December 31, 2018 (2017- $6.4 million CAD).
(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.
The
following are the contractual maturities of the undiscounted cash
flows of financial liabilities as at December 31, 2018 and
2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
and accrued liabilities
|
183,820
|
-
|
-
|
-
|
-
|
183,820
|
|
183,820
|
-
|
-
|
-
|
-
|
183,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
and accrued liabilities
|
118,262
|
-
|
-
|
-
|
-
|
118,262
|
|
118,262
|
-
|
-
|
-
|
-
|
118,262
|
12.
Segmented
information
The
Company's operations comprise of a single reportable segment
engaged in the research and development, manufacturing and
commercializing innovative pharmaceutical products. As the
operations comprise a single reportable segment, amounts disclosed
in the financial statements for loss for the period, depreciation
and total assets also represent segmented amounts.
Edesa Biotech Inc.
|
Notes
to the financial statements
|
For the
years ended December 31, 2018 and 2017
|
(Stated
in United States dollars)
|
13.
Schedule
of expenses
|
For the year
ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
Clinical
research
|
$691,271
|
$-
|
Salaries, bonus and
benefits
|
297,758
|
269,277
|
Rent
|
-
|
79,214
|
Patent
fees
|
59,323
|
-
|
Travel and
conferences
|
-
|
56,303
|
Office
supplies
|
-
|
45,499
|
Professional
fees
|
-
|
21,988
|
Insurance
|
-
|
15,014
|
Total
|
$1,048,352
|
$487,295
|
|
For the year
ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
Clinical
research
|
$102,516
|
$-
|
Salaries, bonus and
benefits
|
166,312
|
227,015
|
Rent
|
-
|
68,872
|
Patent
fees
|
32,948
|
-
|
Travel and
conferences
|
-
|
49,861
|
Office
supplies
|
-
|
51,945
|
Professional
fees
|
-
|
39,574
|
Insurance
|
-
|
13,762
|
Total
|
$301,776
|
$451,029
|
14.
Capital
risk management
The
capital of the Company includes equity, which is comprised of
issued common capital stock, Class A preferred shares, additional
paid-in capital, and accumulated deficit. The Company's objective
when managing its capital is to safeguard the ability to continue
as a going concern in order to provide returns for its
shareholders, and other stakeholders and to maintain a strong
capital base to support the Company's core activities.
Edesa Biotech Inc.
|
Notes
to the financial statements
|
For the
years ended December 31, 2018 and 2017
|
(Stated
in United States dollars)
|
15.
Loss
per share
|
For the year
ended December 31,
2018
|
For the year
ended December 31,
2017
|
|
|
|
Numerator
|
|
|
Net loss for the
year
|
$1,536,556
|
$875,707
|
Denominator
|
|
|
Weighted average
common shares - basic
|
1,000,000
|
342,531
|
Stock
options
|
-
|
-
|
Denominator for
diluted loss per share
|
1,000,000
|
342,531
|
|
|
|
Loss per share -
basic and diluted
|
$(1.54)
|
$(2.56)
|
For the
above-mentioned years, the Company had securities outstanding which
could potentially dilute basic EPS in the future, but were excluded
from the computation of diluted loss per share in the periods
presented, as their effect would have been
anti-dilutive.
16.
Related
party transactions
During
the years ended December 31, 2018 and 2017, the Company incurred
the following related party transactions:
●
Included in
accounts payable and accrued liabilities are balances owed to
related companies owned by a shareholder of $17,247 (2017 -
$17,755) relating to reimbursement of payment by the related
parties for the Company's operating expenses. The balances are
non-interest bearing, unsecured, and have no specific repayment
terms.
●
During the year,
the Company incurred rent expense in the amount of $79,214 (2017 -
$68,872) from a company owned by an individual related to the
shareholder of which $13,953 (2017 - $nil) is included in accounts
payable and accrued liabilities. These transactions are in the
normal course of operations and are measured at the exchange
amount, which is the amount of consideration established and agreed
to by both parties.
●
During the year
ended December 31, 2017, funds of $294,162 were received from
related companies under common control and the entire amount
advanced as at the date of Class A Preferred Shares Issuance was
settled with issuance of 834,158 common shares.
●
During the year
ended December 31, 2017, funds of $117,049 were received from a
shareholder of the Company and the entire loan balance as at the
date of Class A Preferred Shares Issuance was exchanged for 165,742
common shares.
17.
Subsequent
events
On
March 7, 2019, under the terms of the share exchange agreement, the
Company’s shareholders agreed to exchange their shares of the
Company for newly-issued common shares of Stellar Biotechnologies,
Inc. (“Stellar”). At the closing, the Company will
become a wholly-owned subsidiary of Stellar. Following the closing,
current Stellar shareholders are expected to own approximately 10%,
and the current shareholders of the Company are expected to own
approximately 90%, of the combined company on a fully-diluted
basis, subject to a 2% upward or downward adjustment based upon the
amount of Stellar's working capital balance immediately prior to
the closing.
Exhibit 99.3
Financial Statements (Unaudited)
|
|
Condensed Interim Balance Sheets – March
31, 2019 and December 31, 2018
|
F-2
|
Condensed Interim Statements of Operations and
Comprehensive Loss – Three Months Ended March 31, 2019 and
2018
|
F-3
|
Condensed Interim Statements of Changes in
Shareholders’ Equity – Three Months Ended March 31,
2019 and 2018
|
F-4
|
Condensed Interim Statements of Cash Flows
– Three Months Ended March 31, 2019 and 2018
|
F-5
|
Notes to the Condensed Interim Financial
Statements
|
F-6
|
Edesa Biotech Inc.
Condensed
Interim Balance Sheets
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
Cash
and cash equivalents
|
|
$3,042,141
|
$3,367,098
|
Prepaid
expenses and deposits
|
3
|
31,392
|
16,487
|
Other
receivable
|
|
26,811
|
7,339
|
|
|
3,100,344
|
3,390,924
|
|
|
|
|
Property
and equipment
|
|
8,551
|
7,386
|
|
|
$3,108,895
|
$3,398,310
|
|
|
|
|
Liabilities and shareholders' equity
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$336,536
|
$183,820
|
|
|
336,536
|
183,820
|
|
|
|
|
Shareholders' equity:
|
|
|
|
Capital
shares
|
|
|
|
Authorized unlimited common shares and preferred
shares
|
|
|
|
without
par value issued and outstanding
|
|
|
|
1,000,000
common shares (2018 - 1,000,000)
|
|
1,111,253
|
1,111,253
|
1,007,143
Class A preferred shares (2018 - 1,007,143)
|
|
6,176,993
|
6,064,013
|
Additional
paid-in capital
|
|
244,238
|
230,792
|
Accumulated
other comprehensive loss
|
|
(356,720)
|
(429,973)
|
Accumulated
deficit
|
|
(4,403,405)
|
(3,761,595)
|
|
|
2,772,359
|
3,214,490
|
|
|
|
|
|
|
$3,108,895
|
$3,398,310
|
The accompanying notes are an integral part of these financial
statements.
Edesa Biotech Inc.
Condensed
Interim Statements of Operations and Comprehensive
Loss
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
Research
and development
|
10
|
$111,702
|
$280,045
|
General
and administrative
|
10
|
429,076
|
151,250
|
Loss
from operations
|
|
540,778
|
431,295
|
Interest
income
|
|
(15,920)
|
(16,658)
|
Foreign
exchange loss
|
|
3,972
|
619
|
Loss before income taxes
|
|
528,830
|
415,256
|
Income
tax expense
|
|
-
|
-
|
Net loss
|
|
528,830
|
415,256
|
Exchange
differences on translation
|
|
(73,253)
|
382,265
|
Net loss and comprehensive loss
|
|
$455,577
|
$797,521
|
|
|
|
|
Weighted
average number of common shares
|
|
1,000,000
|
1,000,000
|
|
|
|
|
Loss
per share - basic and diluted
|
12
|
$0.53
|
$0.42
|
Nature
of operations (Note 1)
Commitments
and contingencies (Note 7)
The accompanying notes are an integral part of these financial
statements.
Edesa Biotech Inc.
Condensed
Interim Statements of Changes in Shareholders’
Equity
(Unaudited)
|
|
Number
of common shares #
|
|
|
Additional
paid-in capital
|
Accumulated
other comprehensive loss
|
|
Total
shareholders' equity
|
Balance
at December 31, 2017
|
5
|
$1,000,000
|
$1,111,253
|
$5,616,801
|
$149,448
|
$ (101,135)
|
$ (1,777,827)
|
$4,998,540
|
Preferred
return for Class A preferred shares
|
5
|
-
|
-
|
107,331
|
-
|
-
|
(107,331)
|
-
|
Stock-based
compensation
|
6
|
-
|
-
|
-
|
23,211
|
-
|
-
|
23,211
|
Net
loss and comprehensive loss
|
|
-
|
-
|
-
|
-
|
(382,265)
|
(415,256)
|
(797,521)
|
Balance at March 31, 2018
|
|
1,000,000
|
$1,111,253
|
$5,724,132
|
$ 172,659
|
$ (483,400)
|
$ (2,300,414)
|
$ 4,224,230
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2018
|
|
1,000,000
|
$1,111,253
|
$6,064,013
|
$230,792
|
$ (429,973)
|
$ (3,761,595)
|
$3,214,490
|
Preferred
return for Class A preferred shares
|
|
-
|
-
|
112,980
|
-
|
-
|
(112,980)
|
-
|
Stock-based
compensation
|
|
-
|
-
|
-
|
13,446
|
-
|
-
|
13,446
|
Net
loss and comprehensive loss
|
|
-
|
-
|
-
|
-
|
73,253
|
(528,830)
|
(455,577)
|
Balance at March 31, 2019
|
|
1,000,000
|
$1,111,253
|
$6,176,993
|
$244,238
|
$ (356,720)
|
$ (4,403,405)
|
$2,772,359
|
The accompanying
notes are an integral part of these financial
statements.
Edesa Biotech Inc.
Condensed
Interim Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Cash flows used in operating activities:
|
|
|
|
Net
loss
|
|
$(528,830)
|
$(415,256)
|
Adjustments
for
|
|
|
|
Depreciation
|
4
|
505
|
379
|
Stock-based
compensation
|
6
|
13,446
|
23,211
|
Change
in working capital items
|
|
|
|
Prepaid
expenses and deposits
|
|
(14,905)
|
88,475
|
Other
receivable
|
|
(19,472)
|
9,243
|
Accounts
payable and accrued liabilities
|
|
152,716
|
59,684
|
|
|
(396,540)
|
(234,264)
|
|
|
|
|
Cash flows used in investing activities:
|
|
|
|
Purchases
of property and equipment
|
|
(1,505)
|
(6,869)
|
|
|
(1,505)
|
(6,869)
|
|
|
|
|
Effect
of exchange rate changes on cash and cash
equivalents
|
|
73,088
|
(382,101)
|
|
|
|
|
Decrease in cash and cash equivalents during the
period
|
|
(324,957)
|
(623,234)
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
3,367,098
|
5,000,122
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$3,042,141
|
$4,376,888
|
The accompanying
notes are an integral part of these financial
statements.
Edesa Biotech Inc.
Notes
to the Condensed Interim Financial Statements
(Unaudited)
Edesa
Biotech Inc. (the “Company”) was incorporated on July
9, 2015 under the Business
Corporations Act (Ontario). The Company is a
biopharmaceutical company engaged in the business of developing,
manufacturing and commercializing innovative pharmaceutical
products. The Company’s registered office is located at 100
Spy Court, Markham, Ontario, Canada.
The
accompanying condensed unaudited interim financial statements have
been prepared in accordance with accounting principles generally
accepted in the United States (U.S. GAAP) for interim financial
information. 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 condensed interim financial statements
should be read in conjunction with the audited financial statements
and related notes for the year ended December 31,
2018.
The
accounting policies set out below have been applied consistently in
the condensed unaudited interim financial statements.
Use of estimates
The
preparation of the condensed unaudited interim financial statements
in conformity with accounting principles generally accepted in the
United States of America (“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 condensed
unaudited interim financial statements and the reported amounts of
revenue and expenses during the period. Actual results could differ
from those estimates.
Areas
where significant judgment is involved in making estimates are: the
fair values of financial assets and liabilities; the determination
of fair value of share-based compensation; and the useful lives of
property and equipment.
Basis of measurement
The
condensed unaudited interim financial statements have been prepared
on the historical cost basis except as otherwise
noted.
Functional and reporting currencies
The
Company’s functional currency, as determined by management,
is Canadian dollars. The Company’s reporting currency is U.S.
dollars.
The
accounting policies set out below have been applied consistently to
all periods presented in the condensed unaudited interim financial
statements.
Research and development
Research
and development costs related to continued research and development
programs are expensed as incurred in accordance with ASC topic
730.
Edesa Biotech Inc.
Notes
to the Condensed Interim Financial Statements
(Unaudited)
2.
Basis
of preparation (continued)
Share issue costs
Share
issue costs are recorded as a reduction of the proceeds from the
issuance of capital shares.
Translation of foreign currencies
The
financial statements of the Company are measured using the Canadian
dollar as the functional currency. The Company’s reporting
currency is in the U.S. dollar. Assets and liabilities are
translated at the period end rates. Revenue and expenses are
translated at average exchange rates for the period. Accumulated
gains and losses resulting from the translation of the condensed
unaudited interim statements are included as part of accumulated
other comprehensive loss, a separate component of
shareholders’ equity.
Share-based compensation
The
Company measures the cost of equity-settled transactions by
reference to the fair value of the equity instruments at the date
at which they are granted if the fair value of the goods or
services received by the Company cannot be reliably
estimated.
The
Company calculates share-based compensation using the fair value
method, under which the fair value of the options at the grant date
is calculated using the Black-Scholes Option Pricing Model, and
subsequently expensed over the vesting period of the option. The
provisions of the Company's share-based compensation plans do not
require the Company to settle any options by transferring cash or
other assets, and therefore the Company classifies the awards as
equity. Share-based compensation expense recognized during the
period is based on the value of share-based payment awards that are
ultimately expected to vest.
The
Company estimates forfeitures at the time of grant and revises, if
necessary, in subsequent periods if actual forfeitures differ from
those estimates.
Loss per share
Basic
loss per share (“EPS”) is computed by dividing the loss
attributable to common shareholders by the weighted average number
of common shares outstanding. Diluted EPS reflects the potential
dilution that could occur from common shares issuable through the
exercise or conversion of share options and preferred shares. In
certain circumstances, the conversion of options is excluded from
diluted EPS if the effect of such inclusion would be
anti-dilutive.
The
dilutive effect of share options is determined using the treasury
stock method. Share options to purchase common shares of the
Company during the period were not included in the computation of
diluted EPS because the Company has incurred a loss for the three
months ended March 31, 2019 as the effect would be
anti-dilutive.
Comprehensive loss
The
Company follows ASC topic 220. This statement establishes standards
for reporting and display of comprehensive (loss) income and its
components. Comprehensive loss is net loss plus certain items that
are recorded directly to shareholders' equity.
Edesa Biotech Inc.
Notes
to the Condensed Interim Financial Statements
(Unaudited)
2.
Basis
of preparation (continued)
Future accounting pronouncements
In
February 2016, the FASB issued new guidance, ASU No. 2016-02,
Leases (Topic 842). The new standard establishes a right-of-use
model (“ROU”) that requires a lessee to recognize a ROU
asset and lease liability on the balance sheet for all leases with
a term longer than 12 months. Leases will be classified as finance
or operating, with classification affecting the pattern and
classification of expense recognition in the income statement.
Additional qualitative and quantitative disclosures are also
required by the new guidance. Topic 842 is effective for annual
reporting periods beginning after December 15, 2018. Early adoption
is permitted. As a result of the change of fiscal year end as
disclosed in note 14, the Company will adopt the new standard on
October 1, 2019 and use the effective date as its date of initial
application.
A
modified retrospective transition approach is required, applying
the new standard to all leases existing at the date of initial
application. The Company is in the process of determining the
impact of the new standard.
3.
Prepaid expenses and
deposits
As at
March 31, 2019, the Company has classified $31,392 as a current
asset in the balance sheet (December 31, 2018 - $16,487) as all
prepaids are expected to be utilized within one year.
4.
Property
and equipment
|
|
|
Computer
equipment
|
$6,439
|
$4,829
|
Furniture
and equipment
|
5,701
|
5,578
|
|
12,140
|
10,407
|
Less:
accumulated depreciation
|
(3,589)
|
(3,021)
|
|
|
|
Depreciable
assets, net
|
$8,551
|
$7,386
|
Depreciation expense amounted to $505 and $379 for the three months
ended March 31, 2019 and 2018, respectively.
The Company is authorized to issue an unlimited number of common
shares and an unlimited number of Class A preferred shares, all
without par value.
Issued and outstanding common shares:
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2018 and March 31, 2019
|
1,000,000
|
$1,111,253
|
Edesa Biotech Inc.
Notes
to the Condensed Interim Financial Statements
(Unaudited)
5.
Capital
shares (continued)
Issued and outstanding preferred shares:
|
|
|
|
|
|
Balance
at December 31, 2017
|
1,007,143
|
$5,616,801
|
Preferred
return on Class A preferred shares - 2018
|
-
|
447,212
|
Balance
at December 31, 2018
|
1,007,143
|
$6,064,013
|
Preferred
return on Class A preferred shares - 2019
|
-
|
112,980
|
Balance
at March 31, 2019
|
1,007,143
|
$6,176,993
|
The
Class A preferred shares are voting and convertible into common
shares at the option of the holder at any time. Upon the occurrence
of a liquidation event, as defined in the resolutions of the
shareholders dated August 28, 2017, the Class A preferred shares
have a liquidation amount preference over the rights of holders of
common shares or any class of shares ranking junior to Class A
preferred shares. The liquidation amount is equal to the original
issue price of each Class A preferred shares plus 8% of the Class A
preferred share price of $7 CAD per share, accruing daily and
compounding annually, on each Class A preferred share.
All
Class A preferred shares can be converted automatically, without
the payment of any additional consideration, into such number of
common shares on a 1:1 basis at the election of the holders of not
less than 66 2/3% of the then outstanding Class A preferred
shares.
All
Class A preferred shares can be converted automatically, without
the payment of any additional consideration, into such number of
common shares:
●
upon the closing of
an offering pursuant to a receipted prospectus under the Securities
Act (Ontario), as amended, or similar document filed under other
applicable securities laws in Canada or the United States, covering
the offer and sale of common shares for the account of the Company
to the public in which:
o
the common shares
are listed on the Toronto Stock Exchange, the New York Stock
Exchange or The NASDAQ Global Market or another exchange;
and
o
the aggregate net
proceeds from such offering to the Company total not less than $20
million CAD; and
o
the offering is
completed at a price per common share which is not less than three
times the Class A Original Issue Price, subject to appropriate
adjustment for any recapitalization event; or
●
upon a liquidation
event where the price per share is at least three times the Class A
Original Issue Price of $7.00 CAD
The
Company has evaluated the convertible preferred shares and the
embedded conversion option. The embedded conversion option does not
meet the criteria for bifurcation and has therefore been classified
to equity under ASC 815.
The
Class A preferred shares also contain an 8% preferred return that
accrues daily and compounds annually and is payable in shares upon
conversion.
Edesa Biotech Inc.
Notes
to the Condensed Interim Financial Statements
(Unaudited)
6.
Share-based
compensation
The
Company's share option plan allows options to be granted to
directors, officers, employees and certain external consultants and
advisers. Under the share option plan, the option term is not to
exceed 10 years and the exercise price of each option is determined
by the Board of Directors.
During
the three months ended March 31, 2019 and 2018, the Company did not
issue any share options, and no options were exercised.
During
the year ended December 31, 2018, the Company issued 8,000 share
options, each option entitling the holder to purchase one common
share of the Company. During the year ended December 31, 2018, no
options were exercised.
As of
March 31, 2019, the exercise prices, weighted average remaining
contractual life of outstanding options and weighted average grant
date fair values were as follows:
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|
7.00
|
97,263
|
7.00
|
8.56
|
7.00
|
65,656
|
7.00
|
7.00
|
|
97,263
|
7.00
|
|
|
65,656
|
7.00
|
7.00
|
As of
December 31, 2018, the exercise prices, weighted average remaining
contractual life of outstanding options and weighted average grant
date fair values were as follows:
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|
7.00
|
97,263
|
7.00
|
8.81
|
7.00
|
61,726
|
7.00
|
7.00
|
|
97,263
|
7.00
|
|
|
61,726
|
7.00
|
7.00
|
The
Company recorded $13,446 and $23,211 of share-based compensation
for the three months ended March 31, 2019 and 2018.
Edesa Biotech Inc.
Notes
to the Condensed Interim Financial Statements
(Unaudited)
7.
Commitments
and contingencies
The
minimum rent, exclusive of occupancy charges, payable to a related
company under an operating lease for the Company's premise, is
approximately as follows:
Year
Ending
|
|
September 30,
2019
|
$ 38,000
|
September 30,
2020
|
77,000
|
September 30,
2021
|
78,000
|
September 30,
2022
|
79,000
|
September 30,
2023
|
20,000
|
Total
|
$ 292,000
|
In
2016, the Company entered into an exclusive license agreement with
a third party to obtain exclusive rights to certain know-how,
patents and data relating to a pharmaceutical product. The Company
will use the exclusive rights to develop the product for
therapeutic, prophylactic and diagnostic uses in topical dermal
applications and anorectal applications.
No
intangible assets have been recognized under the license agreement
with the third party as of March 31, 2019 and December 31, 2018.
Payments to the third party are included in the statement of
operations and comprehensive loss as research and development
expenditures.
Under
the license agreement, the Company is committed to payments of
various amounts to the third party upon meeting certain milestones
outlined in the license agreement, up to an aggregate amount of
$18.6 million.
Upon
divestiture of substantially all of the assets of the Company, the
Company shall pay the third party a percentage of the valuation of
the licensed technology sold as determined by an external objective
expert.
The
Company also has a commitment to pay the third party a royalty
based on net sales of the product in countries where the Company,
or an affiliate, directly commercializes the product and a
percentage of sublicensing revenue received by the Company and its
affiliates in the countries where it does not directly
commercialize the product.
In
2016, the Company also entered into an exclusive license agreement
with another third party to obtain exclusive rights to certain
know-how, patents and data relating to a pharmaceutical product. No
intangible assets have been recognized under the license agreement
as of March 31, 2019 and December 31, 2018. No fees were paid as of
March 31, 2019 and December 31, 2018.
Under
the license agreement, the Company is committed to payments of up
to a total of $18.5 million upon meeting certain milestones
outlined in the license agreement.
The
Company also has a commitment to pay a royalty based on net sales
of the product in the countries where the Company directly
commercializes the product and a percentage of sublicensing revenue
received by the Company and its affiliates in the countries where
it does not directly commercialize the product.
Edesa Biotech Inc.
Notes
to the Condensed Interim Financial Statements
(Unaudited)
The
Company follows ASC topic 820, “Fair Value
Measurements” which defines fair value, establishes a
framework for measuring fair value, and expands disclosures about
fair value measurements. The provisions of ASC topic 820 apply to
other accounting pronouncements that require or permit fair value
measurements. ASC topic 820 defines fair value as the exchange
price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between
market participants at the measurement date; and establishes a
three level hierarchy for fair value measurements based upon the
transparency of inputs to the valuation of an asset or liability as
of the measurement date. Inputs refer broadly to the assumptions
that market participants would use in pricing the asset or
liability, including assumptions about risk. To increase
consistency and comparability in fair value measurements and
related disclosures, the fair value hierarchy prioritizes the
inputs to valuation techniques used to measure fair value into
three broad levels. The three levels of the hierarchy are defined
as follows:
Level 1
inputs are quoted prices (unadjusted) in active markets for
identical assets or liabilities.
Level 2
inputs are inputs other than quoted prices included within Level 1
that are observable for the assets or liabilities, either directly
or indirectly for substantially the full term of the financial
instrument.
Level 3
inputs are unobservable inputs for assets or
liabilities.
The
categorization within the valuation hierarchy is based upon the
lowest level of input that is significant to the fair value
measurement.
(i)
The Company
calculates expected volatility based on historical volatility of
the Company’s peer group that is publicly traded for
options.
An
increase/decrease in the volatility would have resulted in an
increase/decrease in the fair value of the options.
The
carrying values of cash, other receivable, accounts payable and
accrued liabilities approximates their fair values because of the
short-term nature of these 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. The Company manages this risk by
maintaining bank accounts with a Canadian Chartered Bank. The
Company’s cash is not subject to any external
restrictions.
(c)
Foreign exchange risk
The
Company has 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. For each Canadian dollar balance of
$1.0 million, a +/- 10% movement in the Canadian currency held
by the Company versus the U.S. dollar would affect the
Company’s loss and other comprehensive loss by
$0.1 million. The Company had assets of $4.1 million CAD as at
March 31, 2019 (December 31, 2018 - $4.6 million CAD).
Edesa Biotech Inc.
Notes
to the Condensed Interim Financial Statements
(Unaudited)
8.
Financial
instruments (continued)
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.
The
following are the contractual maturities of the undiscounted cash
flows of financial liabilities as at March 31, 2019 and December
31, 2018:
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|
$
|
$
|
$
|
$
|
$
|
$
|
Accounts payable
and accrued liabilities
|
336,536
|
-
|
-
|
-
|
-
|
336,536
|
|
336,536
|
-
|
-
|
-
|
-
|
336,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
$
|
$
|
$
|
Accounts payable
and accrued liabilities
|
183,820
|
-
|
-
|
-
|
-
|
183,820
|
|
183,820
|
-
|
-
|
-
|
-
|
183,820
|
Edesa Biotech Inc.
Notes
to the Condensed Interim Financial Statements
(Unaudited)
The
Company's operations comprise a single reportable segment engaged
in the research and development, manufacturing and commercializing
innovative pharmaceutical products. As the operations comprise a
single reportable segment, amounts disclosed in the financial
statements for loss for the period, depreciation and total assets
also represent segmented amounts.
|
Three Months Ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
Clinical
research
|
$19,267
|
$-
|
Salaries,
bonus and benefits
|
84,939
|
65,333
|
Share
based compensation
|
5,575
|
7,871
|
Rent
|
-
|
19,302
|
Patent
fees
|
1,921
|
-
|
Travel
and conferences
|
-
|
23,289
|
Office
supplies
|
-
|
14,549
|
Professional
fees
|
-
|
293,667
|
Insurance
|
-
|
4,560
|
Depreciation
|
-
|
505
|
Total
|
$111,702
|
$429,076
|
|
Three Months Ended March 31, 2018
|
|
|
|
|
|
|
|
|
|
Clinical
research
|
$175,013
|
$-
|
Salaries,
bonus and benefits
|
56,381
|
67,378
|
Share
based compensation
|
7,731
|
15,480
|
Rent
|
-
|
19,804
|
Patent
fees
|
40,920
|
-
|
Travel
and conferences
|
-
|
22,872
|
Office
supplies
|
-
|
20,410
|
Professional
fees
|
-
|
924
|
Insurance
|
-
|
4,003
|
Depreciation
|
-
|
379
|
Total
|
$280,045
|
$151,250
|
11.
Capital
risk management
The
capital of the Company includes equity, which comprises issued
common shares, Class A preferred shares, additional paid-in
capital, and accumulated deficit. The Company's objective when
managing its capital is to safeguard the ability to continue as a
going concern in order to provide returns for its shareholders, and
other stakeholders and to maintain a strong capital base to support
the Company's core activities.
Edesa Biotech Inc.
Notes
to the Condensed Interim Financial Statements
(Unaudited)
|
|
|
|
|
|
|
|
Numerator
|
|
|
Net
loss for the period
|
$528,830
|
$415,256
|
Denominator
|
|
|
Weighted
average common shares - basic
|
1,000,000
|
1,000,000
|
Stock
options
|
-
|
-
|
Denominator
for diluted loss per share
|
1,000,000
|
1,000,000
|
|
|
|
Loss
per share - basic and diluted
|
$0.53
|
$0.42
|
For the
above-mentioned periods, the Company had securities outstanding
which could potentially dilute basic EPS in the future but were
excluded from the computation of diluted loss per share in the
periods presented, as their effect would have been
anti-dilutive.
13.
Related
party transactions
During
the periods presented, the Company incurred the following related
party transactions:
●
Included in
accounts payable and accrued liabilities as at December 31, 2018
were balances owed to related companies owned by a shareholder of
$17,247 relating to reimbursement of payment by the related parties
for the Company's operating expenses. As at March 31, 2019, the
Company recorded receivables of $1,457 from those related
companies. Those balances are non-interest bearing, unsecured, and
have no specific repayment terms.
●
During the three
months ended March 31, 2019, the Company incurred rent expense in
the amount of $19,302 (three months ended March 31, 2018 - $19,804)
from a company owned by an individual related to the shareholder.
These transactions are in the normal course of operations and are
measured at the exchange amount, which is the amount of
consideration established and agreed to by both
parties.
On
March 7, 2019, under the terms of the share exchange agreement, the
Company’s shareholders agreed to exchange their shares of the
Company for newly-issued common shares of Stellar Biotechnologies,
Inc. (“Stellar”) (“The
Transaction”).
The
Transaction was completed on June 7, 2019, and the Company became a
wholly-owned subsidiary of Stellar. Current Stellar shareholders
own approximately 12%, and the current shareholders of the Company
own approximately 88%, of the combined company on a fully-diluted
basis. Following the closing, Stellar was renamed to Edesa Biotech,
Inc. and commenced trading on the Nasdaq Capital Market
on June 10, 2019 under the symbol "EDSA." Upon completion
of the Transaction, the Company changed its fiscal year end from
December 31 to September
30.
Certain
reclassifications have been made to the prior year’s
financial statements to enhance comparability with the current
year’s financial statements.