EX-99.1 3 ex991interimfinancialstate.htm Q1 2014 FINANCIAL STATEMENTS

EX 99.1 Interim Financial Statements March 31, 2014

Interim Consolidated Financial Statements

(unaudited)

Oncolytics Biotech^® Inc.

March 31, 2014 and 2013

ONCOLYTICS BIOTECH INC.

INTERM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(unaudited)

As at	Notes	March 31, 2014		December 31, 2013
Assets
Current assets
Cash and cash equivalents	3	20,155,907		25,220,328
Short-term investments	3	2,031,685		2,001,644
Accounts receivable		43,507		105,853
Prepaid expenses		295,802		361,743
Total current assets		22,526,901		27,689,568
Non-current assets
Property and equipment		508,782		532,459
Total non-current assets		508,782		532,459
Total assets		23,035,683		28,222,027
Liabilities And Shareholders’ Equity
Current Liabilities
Accounts payable and accrued liabilities		4,833,423		6,008,661
Total current liabilities		4,833,423		6,008,661
Commitments and contingencies	7
Shareholders’ equity
Share capital   Authorized: unlimited   Issued: March 31, 2014 - 85,810,718 December 31, 2013 - 84,803,818	4	229,801,006		228,612,564
Warrants	4	—		376,892
Contributed surplus	4, 5	25,172,701		24,491,212
Accumulated other comprehensive loss		61,004		79,698
Accumulated deficit		(236,832,451	)	(231,347,000	)
Total shareholders’ equity		18,202,260		22,213,366
Total liabilities and equity		23,035,683		28,222,027

See accompanying notes

2

ONCOLYTICS BIOTECH INC.

INTERIM CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(unaudited)

For the three month period ending March 31	Notes	2014 $		2013 $
Expenses
Research and development	5, 11, 12	4,178,334		5,117,044
Operating	5, 11, 12	1,391,254		1,564,751
Operating loss		(5,569,588	)	(6,681,795	)
Interest		87,987		74,959
Loss before income taxes		(5,481,601	)	(6,606,836	)
Income tax expense		(3,850	)	—
Net loss		(5,485,451	)	(6,606,836	)
Other comprehensive income items that may be reclassified to net loss
Translation adjustment		(18,694	)	34,188
Net comprehensive loss		(5,504,145	)	(6,572,648	)
Basic and diluted loss per common share	6	(0.06	)	(0.08	)
Weighted average number of shares (basic and diluted)	6	85,148,242		79,766,258

See accompanying notes

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ONCOLYTICS BIOTECH INC.

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(unaudited)

	Share Capital $		Contributed Surplus $		Warrants $		Accumulated Other Comprehensive Loss $		Accumulated Deficit $		Total $
As at December 31, 2012	198,155,091		24,126,265		376,892		(57,115	)	(207,814,353	)	14,786,780
Net loss and comprehensive loss	—		—		—		34,188		(6,606,836	)	(6,572,648	)
Issued, pursuant to a public offering	30,207,062		—		—		—		—		30,207,062
Exercise of stock options	139,676		(34,687	)	—		—		—		104,989
Share based compensation	—		120,856		—		—		—		120,856
As at March 31, 2013	228,501,829		24,212,434		376,892		(22,927	)	(214,421,189	)	38,647,039
	Share Capital $		Contributed Surplus $		Warrants $		Accumulated Other Comprehensive Loss $		Accumulated Deficit $		Total $
As at December 31, 2013	228,612,564		24,491,212		376,892		79,698		(231,347,000	)	22,213,366
Net loss and comprehensive loss	—		—		—		(18,694	)	(5,485,451	)	(5,504,145	)
Issued, pursuant to Share Purchase  Agreement	1,188,442		—		—		—		—		1,188,442
Expired warrants	—		376,892		(376,892	)	—		—		—
Share based compensation	—		304,597		—		—		—		304,597
As at March 31, 2014	229,801,006		25,172,701		—		61,004		(236,832,451	)	18,202,260

See accompanying notes

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ONCOLYTICS BIOTECH INC.

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

For the three month period ending March 31	Notes	2014 $		2013 $
Operating Activities
Net loss for the period		(5,485,451	)	(6,606,836	)
Amortization - property and equipment	11	39,657		24,581
Share based compensation	5, 11	304,597		120,856
Unrealized foreign exchange loss	11	24,070		(307,653	)
Net change in non-cash working capital	10	(1,046,951	)	(1,641,170	)
Cash used in operating activities		(6,164,078	)	(8,410,222	)
Investing Activities
Acquisition of property and equipment		(15,980	)	(15,138	)
Purchase of short-term investments		(30,041	)	(32,416	)
Cash used in investing activities		(46,021	)	(47,554	)
Financing Activities
Proceeds from Share Purchase Agreement	4	1,188,442		—
Proceeds from exercise of stock options and warrants		—		104,989
Proceeds from public offering	4	—		30,207,062
Cash provided by financing activities		1,188,442		30,312,051
Increase in cash		(5,021,657	)	21,854,275
Cash and cash equivalents, beginning of period		25,220,328		19,323,541
Impact of foreign exchange on cash and cash equivalents		(42,764	)	341,841
Cash and cash equivalents, end of period		20,155,907		41,519,657

See accompanying notes

5

ONCOLYTICS BIOTECH INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

March 31, 2014

Note 1: Incorporation and Nature of Operations

Oncolytics Biotech Inc. was incorporated on April 2, 1998 under the Business Corporations Act (Alberta) as 779738 Alberta Ltd. On April 8, 1998, we changed our name to Oncolytics Biotech Inc.

Our interim consolidated financial statements for the period ended March 31, 2014, were authorized for issue in accordance with a resolution of the Board of Directors (the "Board") on May 7, 2014. We are a limited company incorporated and domiciled in Canada. Our shares are publicly traded and our registered office is located at 210, 1167 Kensington Crescent NW, Calgary, Alberta, Canada.

We are a development stage biopharmaceutical company that focuses on the discovery and development of pharmaceutical products for the treatment of cancers that have not been successfully treated with conventional therapeutics. Our product being developed may represent a novel treatment for Ras mediated cancers which can be used as an alternative to existing cytotoxic or cytostatic therapies, as an adjuvant therapy to conventional chemotherapy, radiation therapy, or surgical resections, or to treat certain cellular proliferative disorders for which no current therapy exists.

Note 2: Basis of Financial Statement Presentation

Our interim consolidated financial statements include our financial statements and the financial statements of our subsidiaries as at March 31, 2014 and are presented in Canadian dollars, our functional currency.

Our accounts are prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”). The accounts are prepared on the historical cost basis, except for certain assets and liabilities which are measured at fair value as explained in the notes to these financial statements.

These interim consolidated financial statements have been prepared in compliance with International Accounting Standard 34 Interim Financial Reporting. The notes presented in these interim consolidated financial statements include only significant events and transactions occurring since our last fiscal year end and are not fully inclusive of all matters required to be disclosed in our annual audited consolidated financial statements. Accordingly, these interim consolidated financial statements should be read in conjunction with our most recent annual audited consolidated financial statements, for the year ended December 31, 2013. We have consistently applied the same accounting policies for all periods presented in these interim consolidated financial statements as those used in our audited consolidated financial statements for the year ended December 31, 2013 except the following:

Offsetting Financial Assets and Liabilities

On January 1, 2014, we adopted the amendments to IAS 32 Financial Instruments: Presentation. There was no impact on our consolidated financial statements as a result of adopting these amendments.

Note 3: Cash Equivalents and Short Term Investments

Cash Equivalents

Cash equivalents consist of interest bearing deposits with our bank totaling $16,543,353 (December 31, 2013 - $22,032,832).  The current annual interest rate earned on these deposits is 1.24% (December 31, 2013 – 1.08%).

Short-Term Investments

Short-term investments which consist of guaranteed investment certificates are liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.  The objectives for holding short-term investments are to invest our excess cash resources in investment vehicles that provide a better rate of return compared to our interest bearing bank account with limited risk to the principal invested.  We intend to match the maturities of these short-term investments with the cash requirements of the Company’s activities and treat these as held-to-maturity short-term investments.

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ONCOLYTICS BIOTECH INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

March 31, 2014

	Face Value $		Original Cost $		Accrued Interest $		Carrying Value $		Fair Value $		Effective Interest Rate %
March 31, 2014
Short-term investments	2,031,685		2,031,685		—		2,031,685		2,031,685		1.44%
December 31, 2013
Short-term investments	2,001,644		2,001,644		—		2,001,644		2,001,644		1.50%

Fair value is determined by using published market prices provided by our investment advisor.

Note 4: Share Capital

Authorized:

Unlimited number of no par value common shares

Issued:	Shares				Warrants
	Number		Amount $		Number		Amount $
Balance, December 31, 2012	76,710,285		198,155,091		303,945		376,892
Issued for cash pursuant to February 25, 2013 public offering(a)	8,000,000		32,848,000		—		—
Exercise of stock options	93,533		238,676		—		—
Share issue costs	—		(2,629,203	)	—		—
Balance, December 31, 2013	84,803,818		228,612,564		303,945		376,892
Issued pursuant to Share Purchase    Agreement(b)	1,006,900		1,830,725		—		—
Expiry of warrants	—		—		(303,945	)	(376,892	)
Share issue costs	—		(642,283	)	—		—
Balance, March 31, 2014	85,810,718		229,801,006		—		—

(a) Pursuant to a public offering, we issued 8,000,000 commons shares at an issue price of US$4.00 per common share for gross proceeds of US$32,000,000.

(b) On February 27, 2014, we entered into a share purchase agreement (the "Share Purchase Agreement") with Lincoln Park Capital Fund, LLC ("LPC") to sell up to US$26,000,000 of common stock. Subject to the terms and conditions of the Share Purchase Agreement and at our sole discretion, we may sell up to US$26.0 million worth of common shares to LPC over the 30-month term. The purchase price of the common shares will be based on prevailing market prices of our common shares immediately preceding the notice of a sale without any fixed discount. Subject to the Share Purchase Agreement, we control the timing and amount of any future investment and LPC is obligated to make such purchases, if and when we elect. The Share Purchase Agreement does not impose any upper price limit restrictions, negative covenants or restrictions on our future financing activities. We can terminate the Purchase Agreement at any time at our sole discretion without any monetary cost or penalty. Under the Share Purchase Agreement, we issued an initial commitment fee of 292,793 common shares to LPC valued at fair value of US$455,000. An additional 292,793 common shares will be issued on a pro rata basis under the terms of the Share Purchase Agreement as an additional commitment fee.

During the three month period ending March 31, 2014, we issued 700,962 common shares for proceeds of US$1,167,332 and 13,145 additional commitment fee common shares valued at fair value of US$21,891. The initial commitment fee and additional commitment fee common shares are recorded as additional share issue costs.

7

ONCOLYTICS BIOTECH INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

March 31, 2014

Warrants

The following table summarizes our outstanding warrants as at March 31, 2014:

Exercise Price			Outstanding, Beginning of the Period		Granted During the Period		Exercised During the Period		Expired During the Period		Outstanding, End of Period		Weighted Average Remaining Contractual Life (years)
	$4.20		303,945		—		—		(303,945	)	—		—

Note 5: Share Based Payments

Stock Option Plan

We have issued stock options to acquire common stock through our stock option plan of which the following are outstanding at March 31:

	2014			2013
	Stock Options		Weighted Average Exercise Price $	Stock Options		Weighted Average Exercise Price $
Outstanding, beginning of the period	5,918,678		3.75	5,925,377		4.31
Granted during the period	200,000		1.69	200,000		4.60
Expired during the period	(53,334	)	6.61	—		—
Forfeited during the period	—		—	—		—
Exercised during the period	—		—	(48,533	)	2.16
Outstanding, end of the period	6,065,344		3.65	6,076,844		4.33
Options exercisable, end of the period	4,594,344		4.26	5,745,511		4.40

The following table summarizes information about the stock options outstanding and exercisable at March 31, 2014:

Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life (years)	Weighted Average Exercise Price $	Number Exercisable		Weighted Average Exercise Price $
$1.45 - $2.37	2,368,594		8.50	1.87	897,594		2.06
$2.70 - $3.89	1,274,000		6.70	3.59	1,274,000		3.59
$4.00 - $5.92	1,593,750		4.90	4.57	1,593,750		4.57
$6.72 - $9.76	829,000		5.40	7.07	829,000		7.07
	6,065,344		6.80	3.65	4,594,344		4.26

Non-exercisable options vest annually over periods ranging from one to three years or upon satisfaction of certain performance conditions. We have reserved 7,427,208 common shares for issuance relating to outstanding stock options.

Compensation expense related to options granted to employees and directors was $304,597 (2013 - $120,856) for the period ended March 31, 2014.

The estimated fair value of stock options issued during the period was determined using the Black Scholes Option Pricing Model using the following weighted average assumptions and fair value of options:

8

ONCOLYTICS BIOTECH INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

March 31, 2014

	2014	2013
Risk-free interest rate	1.05%	1.14%
Expected hold period to exercise	3.25	2.38
Volatility in the price of the Company's shares	58.62%	57.68%
Rate of forfeiture	2.5%	—%
Dividend yield	Nil	Nil
Weighted average fair value of options	$0.7	$1.61

We use historical data to estimate the expected dividend yield and expected volatility of our stock in determining the fair value of the stock options. The risk-free interest rate is based on the Government of Canada marketable bond rate in effect at the time of grant and the expected life of the options represents the estimated length of time the options are expected to remain outstanding.

Note 6: Loss Per Common Share

Loss per common share is calculated using net loss for the period and the weighted average number of common shares outstanding for the period ended March 31, 2014 of 85,148,242 (March 31, 2013 of 79,766,258). The effect of any potential exercise of our stock options and warrants outstanding during the period has been excluded from the calculation of diluted loss per common share, as it would be anti-dilutive. 

Note 7: Commitments

We are committed to payments totaling $5,361,686 for activities related to our clinical trial, manufacturing and collaboration programs.

We are committed to rental payments (excluding our portion of operating costs and rental taxes) under the terms of a lease for office premises which expires on May 31, 2016.  Annual payments under the terms of this lease are as follows:

	Amount $
Remainder of 2014	71,166
2015	97,428
2016	40,595
	209,189

Under a clinical trial agreement entered into with the Alberta Cancer Board (“ACB”), we have agreed to repay the amount funded under the agreement together with a royalty, to a combined maximum amount of $400,000 plus an overhead repayment of $100,000, upon sales of a specified product.  We agreed to repay the ACB in annual installments in an amount equal to the lesser of: (a) 5% of gross sales of a specified product; or (b) $100,000 per annum.

Note 8: Capital Disclosures

Our objective when managing capital is to maintain adequate cash resources to support planned activities which include the clinical trial program, product manufacturing, administrative costs and intellectual property expansion and protection.  We include shareholders’ equity, cash and cash equivalents and short-term investments in the definition of capital.

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ONCOLYTICS BIOTECH INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

March 31, 2014

	March 31, 2014 $		December 31, 2013 $
Cash and cash equivalents	20,155,907		25,220,328
Short-term investments	2,031,685		2,001,644
Shareholders’ equity	18,202,260		22,213,366

We do not have any debt other than trade accounts payable and we have potential contingent obligations relating to the completion of our research and development of REOLYSIN^®.

In managing our capital, we estimate our future cash requirements by preparing a budget and a multi-year plan annually for review and approval by our Board .  The budget establishes the approved activities for the upcoming year and estimates the costs associated with these activities.  The multi-year plan estimates future activity along with the potential cash requirements and is based on our assessment of our current clinical trial progress along with the expected results from the coming year’s activity.  Budget to actual variances are prepared and reviewed by management and are presented quarterly to the Board.

Historically, funding for our plan is primarily managed through the issuance of additional common shares and common share purchase warrants that upon exercise are converted to common shares.  Management regularly monitors the capital markets attempting to balance the timing of issuing additional equity with our progress through our clinical trial program, general market conditions, and the availability of capital.  There are no assurances that funds will be made available to us when required.

On July 3, 2012, we renewed our short form base shelf prospectus (the “Base Shelf”) that qualifies for distribution up to $150,000,000 of common shares, subscription receipts, warrants, or units (the “Securities”). Under our Base Shelf, we may sell Securities to or through underwriters, dealers, placement agents or other intermediaries and also may sell Securities directly to purchasers or through agents, subject to obtaining any applicable exemption from registration requirements. The distribution of Securities may be effected from time to time in one or more transactions at a fixed price or prices, which may be changed, at market prices prevailing at the time of sale, or at prices related to such prevailing market prices to be negotiated with purchasers and as set forth in an accompanying Prospectus Supplement.

Renewing our Base Shelf provides us with additional flexibility when managing our cash resources as, under certain circumstances, it shortens the time period required to close a financing and is expected to increase the number of potential investors that may be prepared to invest in our company. Funds received from a Prospectus Supplement will be used in line with our Board approved budget and multi-year plan. Our renewed Base Shelf expires on August 3, 2014.

We are not subject to externally imposed capital requirements and there have been no changes in how we define or manage our capital in 2014.

Note 9: Financial Instruments

Our financial instruments consist of cash and cash equivalents, short-term investments,  accounts receivable, and accounts payable.  As at March 31, 2014, there are no significant differences between the carrying values of these amounts and their estimated market values.

Credit risk

Credit risk is the risk of financial loss if a counterparty to a financial instrument fails to meet its contractual obligations.  We are exposed to credit risk on our cash and cash equivalents and short-term investments in the event of non-performance by counterparties, but we do not anticipate such non-performance.  Our maximum exposure to credit risk at the end of the period is the carrying value of our cash and cash equivalents and short-term investments.

We mitigate our exposure to credit risk by maintaining our primary operating and investment bank accounts with Schedule I banks in Canada.  For our foreign domiciled bank accounts, we use referrals or recommendations from our Canadian banks to open foreign bank accounts and these accounts are used solely for the purpose of settling accounts payable or payroll.

We also mitigate our exposure to credit risk by restricting our portfolio to investment grade securities with short-term maturities and by monitoring the credit risk and credit standing of counterparties.  Currently, 100% of our short-term investments are in guaranteed investment certificates.

Interest rate risk

Interest rate risk is the risk that future cash flows of a financial instrument will fluctuate because of changes in market interest rates.  We are exposed to interest rate risk through our cash and cash equivalents and our portfolio of short-term investments.  We mitigate this risk through our investment policy that only allows investment of excess cash resources in investment grade vehicles while matching maturities with our operational requirements.

Fluctuations in market rates of interest do not have a significant impact on our results of operations due to the short term to maturity of the investments held.

Currency risk

Currency risk is the risk that future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.  We are exposed to currency risk from the purchase of goods and services primarily in the U.S. and the U.K. and to the extent cash is held in foreign currencies.  The impact of a $0.01 increase in the value of the U.S. dollar against the Canadian dollar would have increased our net loss in 2014 by approximately $24,434.  The impact of a $0.10 increase in the value of the British pound against the Canadian dollar would have increased our net loss in 2014 by approximately $6,762. The impact of a $0.10 increase in the value of the Euro against the Canadian dollar would have increased our net loss in 2014 by approximately $13,121 .

We mitigate our foreign exchange risk through the purchase of foreign currencies in sufficient amounts to settle our foreign accounts payable.

Balances in foreign currencies at March 31, 2014 are as follows:

	U.S. dollars $		British pounds £		Euro €
Cash and cash equivalents	2,853,817		88,663		43,430
Accounts payable	(3,339,343	)	(42,094	)	(36,517	)
	(485,526	)	46,569		6,913

Liquidity risk

Liquidity risk is the risk that we will encounter difficulty in meeting obligations associated with financial liabilities.  We manage liquidity risk through the management of our capital structure as outlined in Note 8.  Accounts payable are all due within the current operating period. 

Note 10: Additional Cash Flow Disclosures

Net Change In Non-Cash Working Capital

	2014 $		2013 $
Change in:
Accounts receivable	62,346		(32,997	)
Prepaid expenses	65,941		57,910
Accounts payable and accrued liabilities	(1,175,238	)	(1,666,083	)
Change in non-cash working capital related to operating activities	(1,046,951	)	(1,641,170	)

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ONCOLYTICS BIOTECH INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

March 31, 2014

Other Cash Flow Disclosures

	2014 $		2013 $
Cash interest received	87,987		74,959
Cash taxes paid	3,850		—

Note 11: Other Expenses and Adjustments

We present our expenses based on the function of each expense and therefore include realized foreign exchange gains and losses, unrealized non-cash foreign exchange gains and losses, and non-cash stock based compensation associated with research and development activity as a component of research and development expenses and amortization of property and equipment and stock based compensation associated with operating activities as a component of operating expenses.

	2014 $		2013 $
Included in research and development expenses:
Realized foreign exchange loss (gain)	256,028		28,886
Unrealized non-cash foreign exchange loss (gain)	(24,070	)	331,848
Non-cash share based compensation	207,770		2,912
Included in operating expenses
Amortization of property and equipment	39,657		24,581
Non-cash share based compensation	96,827		117,944
Office minimum lease payments	23,722		22,833

Note 12: Related Party Transactions

Compensation of Key Management Personnel

Key management personnel are those persons having authority and responsibility for planning, directing and controlling our activities as a whole. We have determined that key management personnel consists of the members of the Board of Directors along with certain officers of the Company.

	2014 $		2013 $
Short-term employee benefits	627,407		496,084
Share-based payments	210,962		115,783
	838,369		611,867

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