EX-99.1 2 ex991-interimfsjune302.htm 2020 SECOND QUARTER INTERIM FINANCIAL STATEMENTS

Document

Interim Consolidated Financial Statements

(unaudited)

Oncolytics Biotech^® Inc.

June 30, 2020 and 2019

ONCOLYTICS BIOTECH INC.

INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(unaudited)

As at			Notes			June 30, 2020 $			December 31, 2019 $
Assets
Current assets
Cash and cash equivalents			3			29,911,351			14,148,021
Other receivables			9			56,185			2,068,772
Prepaid expenses						4,110,707			2,713,591
Total current assets						34,078,243			18,930,384
Non-current assets
Property and equipment						268,153			296,768
Right-of-use assets						257,965			430,713
Total non-current assets						526,118			727,481
Total assets						34,604,361			19,657,865
Liabilities And Shareholders’ Equity (Deficit)
Current Liabilities
Accounts payable and accrued liabilities						2,687,218			3,173,218
Other liabilities			9			470,507			847,215
Lease liabilities			9			307,773			339,846
Warrant derivative			4			402,013			8,508,764
Total current liabilities						3,867,511			12,869,043
Non-current liabilities
Contract liability			8			6,730,287			6,730,287
Lease liabilities			9			17,399			166,429
Total non-current liabilities						6,747,686			6,896,716
Total liabilities						10,615,197			19,765,759
Commitments and contingencies			9
Shareholders’ equity (deficit)
Share capital   Authorized: unlimited   Issued: June 30, 2020 – 40,820,831   December 31, 2019 – 32,198,453			5			341,150,166			311,077,859
Warrants			5			3,617,570			3,617,570
Contributed surplus			6			29,642,584			29,338,849
Accumulated other comprehensive income						612,870			464,101
Accumulated deficit						(351,034,026)			(344,606,273)
Total shareholders’ equity (deficit)						23,989,164			(107,894)
Total liabilities and shareholder's equity (deficit)						34,604,361			19,657,865

See accompanying notes

2

ONCOLYTICS BIOTECH INC.

INTERIM CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(unaudited)

			Notes			Three Month Period Ending June 30, 2020 $			Three Month Period Ending June 30, 2019 $			Six Month Period Ending June 30, 2020 $			Six Month Period Ending June 30, 2019 $
Expenses
Research and development			6, 13, 14, 16			2,499,128			3,409,908			5,028,774			6,461,810
Operating			6, 13, 14			3,048,572			1,800,260			6,041,960			3,592,072
Loss before the following						(5,547,700)			(5,210,168)			(11,070,734)			(10,053,882)
Change in fair value of warrant derivative			4			(507,150)			—			3,644,832			—
Foreign exchange (loss) gain			13, 16			(805,098)			(99,040)			899,707			(244,058)
Interest income, net						32,533			55,357			98,442			105,338
Loss before income taxes						(6,827,415)			(5,253,851)			(6,427,753)			(10,192,602)
Income tax expense						—			—			—			—
Net loss						(6,827,415)			(5,253,851)			(6,427,753)			(10,192,602)
Other comprehensive (loss) income items that may be reclassified to net loss
Translation adjustment						(146,443)			(65,522)			148,769			(124,955)
Net comprehensive loss						(6,973,858)			(5,319,373)			(6,278,984)			(10,317,557)
Basic and diluted loss per common share			7			(0.17)			(0.26)			(0.17)			(0.53)
Weighted average number of shares (basic and diluted)			7			39,603,671			20,181,112			37,734,689			19,308,364

        See accompanying notes

3

ONCOLYTICS BIOTECH INC.

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(unaudited)

			Notes			Share Capital $			Warrants $			Contributed Surplus $			Accumulated Other Comprehensive Income $			Accumulated Deficit $			Total $
As at December 31, 2018						285,193,061			3,617,570			28,260,613			607,504			(311,483,385)			6,195,363
Net loss and other comprehensive loss						—			—			—			(124,955)			(10,192,602)			(10,317,557)
Issued pursuant to incentive share award plan			5			69,343			—			(69,343)			—			—			—
Issued pursuant to Common Stock Purchase Agreement			5			3,562,608			—			—			—			—			3,562,608
Issued pursuant to "At the Market" Agreement			5			3,974,059			—			—			—			—			3,974,059
Share based compensation			6			—			—			561,107			—			—			561,107
Share issue costs			5			(187,632)			—			—			—			—			(187,632)
As at June 30, 2019						292,611,439			3,617,570			28,752,377			482,549			(321,675,987)			3,787,948
As at December 31, 2019						311,077,859			3,617,570			29,338,849			464,101			(344,606,273)			(107,894)
Net loss and other comprehensive income						—			—			—			148,769			(6,427,753)			(6,278,984)
Issued pursuant to stock option plan			5			162,812			—			(60,024)			—			—			102,788
Issued pursuant to incentive share award plan			5			289,686			—			(289,686)			—			—			—
Issued pursuant to "At the Market" Agreement			5			24,359,150			—			—			—			—			24,359,150
Issued pursuant to warrant derivative exercised			4, 5			6,332,778			—			—			—			—			6,332,778
Share based compensation			6			—			—			653,445			—			—			653,445
Share issue costs			5			(1,072,119)			—			—			—			—			(1,072,119)
As at June 30, 2020						341,150,166			3,617,570			29,642,584			612,870			(351,034,026)			23,989,164

See accompanying notes

4

ONCOLYTICS BIOTECH INC.

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

			Notes			Three Month Period Ending June 30, 2020 $			Three Month Period Ending June 30, 2019 $			Six Month Period Ending June 30, 2020 $			Six Month Period Ending June 30, 2019 $
Operating Activities
Net loss for the period						(6,827,415)			(5,253,851)			(6,427,753)			(10,192,602)
Depreciation - property and equipment			13			22,584			25,369			45,629			73,707
Depreciation - right-of-use-assets			13			92,133			90,906			183,156			181,679
Share based compensation			6, 13, 14			260,640			260,184			653,445			561,107
Interest expense on lease liabilities						14,885			28,163			33,094			48,577
Unrealized foreign exchange loss (gain)						699,079			30,262			(728,677)			114,290
Change in fair value of warrant derivative			4			507,150			—			(3,644,832)			—
Net change in non-cash working capital			12			(1,027,687)			70,389			(327,950)			1,078,973
Cash used in operating activities						(6,258,631)			(4,748,578)			(10,213,888)			(8,134,269)
Investing Activities
Acquisition of property and equipment						(3,034)			(6,894)			(13,749)			(9,660)
Cash used in investing activities						(3,034)			(6,894)			(13,749)			(9,660)
Financing Activities
Proceeds from exercise of stock options			6			17,638			—			102,788			—
Proceeds from exercise of warrant derivative			5			263,318			—			1,696,460			—
Proceeds from Common Stock Purchase Agreement			5			—			—			—			3,529,672
Proceeds from "At the Market" equity distribution agreement			5			6,449,218			3,147,103			23,287,031			3,819,362
Payment of lease liabilities						(119,634)			(98,897)			(233,108)			(222,802)
Cash provided by financing activities						6,610,540			3,048,206			24,853,171			7,126,232
Increase (decrease) in cash						348,875			(1,707,266)			14,625,534			(1,017,697)
Cash and cash equivalents, beginning of period						30,567,480			14,213,811			14,148,021			13,699,881
Impact of foreign exchange on cash and cash equivalents						(1,005,004)			(230,779)			1,137,796			(406,418)
Cash and cash equivalents, end of period						29,911,351			12,275,766			29,911,351			12,275,766

See accompanying notes

5

ONCOLYTICS BIOTECH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

June 30, 2020

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 June 30, 2020, were authorized for issue in accordance with a resolution of the Board of Directors (the "Board") on July 30, 2020. We are a limited company incorporated and domiciled in Canada. Our shares are publicly traded on the Nasdaq Capital Markets and the Toronto Stock Exchange. 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 lead product, pelareorep, is a potential immuno-oncology viral-agent that may be a novel treatment for certain types of cancer and may be an alternative to or used in combination with existing cytotoxic or cytostatic therapies. Our clinical development program for pelareorep emphasizes three programs: chemotherapy combinations to assist the escape of the virus from the vasculature and enhance its distribution in the tumor; immuno-therapy combinations to create an inflamed phenotype promoting synergies with immune checkpoint inhibitors; and immune modulator/targeted combinations to upregulate natural killer cells promoting synergies with targeted therapies.

During the first six months of 2020, the global outbreak of COVID-19 caused significant fluctuations in stock markets and global economic activity. The scale and duration of these developments remain uncertain and could affect our ability to finance our operations.

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 June 30, 2020 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, 2019. 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, 2019.

Note 3: Cash Equivalents

Cash Equivalents

Cash equivalents consist of interest bearing deposits with our bank totaling $27,797,865 (December 31, 2019 – $13,058,092).  The current annual interest rate earned on these deposits is 0.53% (December 31, 2019 – 1.17%).

Note 4: Warrant Derivative

On August 16, 2019, pursuant to an underwritten public offering, 4,619,773 units were sold at a purchase price of US$0.81 per unit for gross proceeds of US$3,742,016. Each unit included one common share and one common share purchase warrant (see Note 5). Each common share purchase warrant entitled the holder to purchase one common share at an exercise price of US$0.90 until August 16, 2024.

6

ONCOLYTICS BIOTECH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

June 30, 2020

Under IFRS 9 Financial Instruments and IAS 32 Financial Instruments: Presentation, warrants with an exercise price denominated in a currency that differs from an entity's functional currency are treated as a derivative measured at fair value with subsequent changes in fair value accounted for through profit and loss. Our warrants with an exercise price of US$0.90 meet this requirement and we have presented the fair value of these warrants as a current liability on the consolidated statement of financial position. As these warrants are exercised, the fair value at the date of exercise and the associated non-cash liability will be included in our share capital along with the proceeds from the exercise. If these warrants expire, the non-cash warrant liability is reversed through the consolidated statement of loss and comprehensive loss. There is no cash flow impact as a result of the accounting treatment for changes in the fair value of the warrant derivative or when warrants expire unexercised.

A reconciliation of the change in fair value of the warrant derivative is as follows:

			Number of Warrants Outstanding			Fair Value of Warrant Derivative $
Issued, August 16, 2019			4,619,773			1,657,214
Exercised			(2,935,647)			(5,687,003)
Change in fair value			—			12,608,808
Foreign exchange impact			—			(70,255)
As at December 31, 2019			1,684,126			8,508,764
Exercised			(1,418,369)			(4,636,317)
Change in fair value			—			(3,644,832)
Foreign exchange impact			—			174,398
As at June 30, 2020			265,757			402,013

During the six month period ending June 30, 2020, we received cash proceeds of US$1,276,532 with respect to warrants exercised.

We use the Black-Scholes valuation model to estimate fair value. The expected volatility is based on the Company's common share historical volatility less an estimated market participant risk adjustment. The risk-free interest rate is based on U.S. Department of Treasury benchmark treasury yield rates with an approximate equivalent remaining term in effect at the time of valuation and the expected life represents the estimated length of time the warrants are expected to remain outstanding.

The estimated fair value of the warrant derivative was determined using the following assumptions:

			June 30, 2020			December 31, 2019
Fair value per warrant			US$1.11			US$3.89
Underlying share price			US$1.88			US$4.76
Risk-free interest rate			0.16%			1.59%
Expected hold period to exercise			1.0 year			1.0 year
Expected share price volatility			90.00%			90.00%
Expected dividend yield			Nil			Nil

7

ONCOLYTICS BIOTECH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

June 30, 2020

Note 5: Share Capital

Authorized:

Unlimited number of no par value common shares

Issued:			Shares
			Number			Amount $
Balance, December 31, 2018			17,399,749			285,193,061
Issued pursuant to incentive share award plan			323,301			391,917
Issued pursuant to Common Stock Purchase Agreement(a)			2,494,943			5,403,385
Issued pursuant to "At the Market" equity distribution agreement(c)			4,425,040			8,476,454
Issued pursuant to public offering(b)			4,619,773			3,314,429
Issued pursuant to warrant derivative exercised(b)			2,935,647			9,152,869
Share issue costs			—			(854,256)
Balance, December 31, 2019			32,198,453			311,077,859
Issued pursuant to stock option plan			45,120			162,812
Issued pursuant to incentive share award plan			103,262			289,686
Issued pursuant to "At the Market" equity distribution agreement(c)(d)			7,055,627			24,359,150
Issued pursuant to warrant derivative exercised(b)			1,418,369			6,332,778
Share issue costs			—			(1,072,119)
Balance, June 30, 2020			40,820,831			341,150,166

(a)On September 27, 2018, we entered into a Common Stock Purchase Agreement (the "Agreement") with Lincoln Park Capital Fund, LLC ("LPC"). Subject to the terms and conditions of the Agreement and at our sole discretion, we may sell up to US$26,000,000 worth of common shares to LPC over the 30-month term. The purchase price of the common shares will be based on the prevailing market prices immediately preceding the notice of sale without any fixed discount. Subject to the terms of the 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 Agreement does not impose any upper price limit restrictions, negative covenants or restrictions on our future financing activities. However, in no event will shares be sold to LPC on a day the closing sale price for the common shares is less than the floor price of US$1.00 per common share; or at a price per share that is less than the volume weighted average trading pricing of the common shares on the TSX for the five immediately preceding trading days, less the maximum applicable discount allowed by the TSX. The Agreement limits our sale of common shares to 19.99% of our total outstanding common shares as at the date that the Common Stock Purchase Agreement was entered into, unless and until we have obtained shareholder approval under applicable Nasdaq rules. We reached that limit in the fourth quarter of 2019, and have not sought shareholder approval to increase the limit. We can terminate the Agreement at any time at our sole discretion without any monetary cost or penalty.

During the period ending June 30, 2020, we sold nil (June 30, 2019 - 1,379,024) common shares for gross proceeds of nil (June 30, 2019 - US$2,663,768) and issued nil commitment shares (June 30, 2019 - 11,348). The commitment shares have been valued at fair value of nil (June 30, 2019 - US$21,998) and have been recorded as share issue costs in addition to cash share issue costs of nil (June 30, 2019 - $3,757).

(b)On August 16, 2019, pursuant to an underwritten public offering, 4,619,773 units were sold at a purchase price of US$0.81 per unit for gross proceeds of US$3,742,016. Each unit included one common share with a fair value of US$0.54 and one common share purchase warrant with a fair value of US$0.27. These warrants were classified as a financial liability. Each common share purchase warrant entitled the holder to purchase one common share at an exercise price of US$0.90 until August 16, 2024. We incurred transaction costs of $699,427 of which $466,284 were allocated to share issue costs and $233,143 were allocated to operating expenses, based on their relative fair values. During the period ending June 30, 2020,

8

ONCOLYTICS BIOTECH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

June 30, 2020

our share capital included fair value of $4,636,317 in addition to gross proceeds of US$1,276,532 for the 1,418,369 warrants that were exercised (see Note 4).

(c)On October 24, 2018, we entered into an ATM equity offering sales agreement with Canaccord Genuity Inc. The ATM allows us, at our sole discretion, to issue common shares, at prevailing market price, with an aggregate offering value of up to US$30,000,000 over a 19-month period through the facilities of the Nasdaq Capital Market in the United States. During the period ending June 30, 2020, we sold 6,741,518 common shares (June 30, 2019 - 1,543,829) for gross proceeds of US$17,538,342 (June 30, 2019 - US$2,984,586). We incurred share issue costs of $856,754 (June 30, 2019 - $154,697). This sales agreement expired on June 4, 2020.

(d)On June 15, 2020, we entered into an ATM equity distribution agreement with Canaccord Genuity Inc. The ATM allows us, at our sole discretion, to issue common shares, at prevailing market price, with an aggregate offering value up of up to US$40,000,000 over a 25-month period through the facilities of the Nasdaq Capital Market in the United States. During the period ending June 30, 2020, we sold 314,109 common shares (June 30, 2019 - nil) for gross proceeds of US$650,004 (June 30, 2019 - nil). We incurred share issue costs of 215,365 (June 30, 2019 - nil).

Equity Warrants

On June 1, 2017, pursuant to an underwritten public offering, 16,445,000 units were sold for gross proceeds of $11,511,500. Each unit included one common share and one common share purchase warrant. Following the 2018 share consolidation, 9.5 common share purchase warrants entitled the holder to purchase one common share in the capital of the Company until June 1, 2022, at an exercise price of approximately $9.025. These warrants were classified as equity.

The following table summarizes our outstanding equity warrants:

			Number of Warrants Outstanding(1)			Warrant $
As at December 31, 2019			16,443,500			3,617,570
As at June 30, 2020			16,443,500			3,617,570

(1) Exercisable into 1,730,894 common shares.

Note 6: 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 June 30:

			2020									2019
			Stock Options			Weighted Average Exercise Price $			Stock Options			Weighted Average Exercise Price $
Outstanding, beginning of the period			2,246,947			5.31			1,249,361			8.73
Granted during the period			60,000			5.23			—			—
Forfeited during the period			(18,085)			13.83			(1,841)			6.56
Expired during the period			—			—			(1,578)			29.07
Exercised during the period			(45,120)			2.28			—			—
Outstanding, end of the period			2,243,742			5.30			1,245,942			8.70
Options exercisable, end of the period			1,359,448			7.23			841,965			10.69

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ONCOLYTICS BIOTECH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

June 30, 2020

The following table summarizes information about the stock options outstanding and exercisable at June 30, 2020:

Range of Exercise Prices			Number Outstanding			Weighted Average Remaining Contractual Life (years)			Weighted Average Exercise Price $			Number Exercisable			Weighted Average Exercise Price $
$0.54 - $1.42			100,000			4.31			0.96			66,667			0.75
$1.43 - $1.79			870,000			3.45			1.45			281,675			1.45
$1.80 - $3.39			352,887			4.60			2.73			260,888			2.72
$3.40 - $7.13			451,849			4.26			4.06			341,987			4.04
$7.14 - $63.84			469,006			2.03			16.47			408,231			17.82
			2,243,742			3.54			5.30			1,359,448			7.23

Non-exercisable options vest annually over periods ranging from one to three years.

We use the Black-Scholes valuation model to estimate fair value. 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 benchmark bond yield rates 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.

The estimated fair value of stock options granted during the period was determined using the Black-Scholes valuation model using the following weighted average assumptions:

			2020			2019
Risk-free interest rate			1.63%			N/A
Expected hold period to exercise			3.0 years			N/A
Expected share price volatility			110.84%			N/A
Expected forfeiture rate			3.67%			N/A
Expected dividend yield			Nil			N/A
Weighted average fair value of options			$3.51			N/A

Incentive Share Award Plan

Restricted Share Units

We have issued restricted share units ("RSUs") to non-employee directors through our incentive share award plan. Grants of RSUs to non-employee directors vest either immediately, on the third anniversary date from the grant date or when the director ceases to be a member of the board. We have also issued RSUs to certain officers and employees of the Company. Grants of RSUs to certain officers and employees of the Company vest over a three year period. The following RSUs are outstanding at June 30:

			2020			2019
Outstanding, beginning of the period			209,657			260,755
Granted during the period			32,003			19,261
Vested and released during the period			(99,052)			(23,240)
Outstanding, end of the period			142,608			256,776

(1) The weighted average fair value of the RSUs granted was $2.90 in 2020 (2019 - $2.33).

10

ONCOLYTICS BIOTECH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

June 30, 2020

Performance Share Units

We have also issued performance share units ("PSUs") to certain officers and employees of the Company. Grants of PSUs require completion of certain performance criteria and cliff vest after 3 years or vest over a three year period, depending on the grant. PSU grants to certain officers will vest immediately upon a change of control of the Company. If certain officers cease employment with the Company, vesting occurs on a pro rata basis prior to the third anniversary of the grant but after the first anniversary. The following PSUs are outstanding at June 30:

			2020			2019
Outstanding, beginning of the period			61,051			63,156
Vested and released during the period			(4,210)			(2,105)
Outstanding, end of the period			56,841			61,051

We have reserved 1,605,277 common shares for issuance relating to our outstanding equity compensation plans. Compensation expense related to stock options, RSUs and PSUs was $260,640 and $653,445 for the three and six month periods ending June 30, 2020, respectively (June 30, 2019 - $260,184 and $561,107, respectively).

Note 7: Loss Per Common Share

Loss per common share is calculated using net loss for the year and the weighted average number of common shares outstanding for the three and six month periods ended June 30, 2020 of 39,603,671 and 37,734,689, respectively (June 30, 2019 - 20,181,112 and 19,308,364, respectively). The effect of any potential exercise of our stock options and warrants outstanding during the year has been excluded from the calculation of diluted loss per common share, as it would be anti-dilutive.

Note 8: Contract Liability

Regional licensing agreement

We entered into a regional licensing agreement (the "Licensing Agreement") with Adlai Nortye Biopharma Co., Ltd. ("Adlai") in November 2017. Under the terms of the Licensing Agreement, Adlai will have exclusive development and commercialization rights to pelareorep in China, Hong Kong, Macau, Singapore, South Korea and Taiwan. We are entitled to receive upfront license fees, development and regulatory milestone payments, royalties and sales-based milestone payments.

Warrant purchase agreement

We also entered into a warrant purchase agreement with Adlai. As at June 30, 2020, we were entitled to the following:

•One common share purchase warrant of US$6 million whereby, upon exercise, Adlai may purchase our common shares priced at a 20% premium to the five-day weighted average closing price immediately preceding the exercise date. We have the right to call this warrant upon the enrollment of the 50th patient in the phase 3 metastatic breast cancer study. This common share purchase warrant expires on November 14, 2020.

11

ONCOLYTICS BIOTECH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

June 30, 2020

Contract liability

Our contract liability balance, which we expect to record in revenue over the next five years, is as follows:

			June 30, 2020 $			December 31, 2019 $
Balance, beginning of the period			6,730,287			6,730,287
Regional licensing agreement			—			—
Revenue recognized in the period			—			—
Balance, end of the period			6,730,287			6,730,287
Contract liability - non-current			6,730,287			6,730,287
			6,730,287			6,730,287

Note 9: Commitments

We are committed to payments totaling $5,548,612 for activities related to our clinical trial, manufacturing and collaboration programs which are expected to occur over the next two years.

Our commitments include one-half of the committed payments related to our collaboration with Merck KGaA, Darmstadt, Germany, and Pfizer Inc ("Pfizer"), known as BRACELET-1, as the cost of this phase 2 clinical trial will be shared equally between Oncolytics and Pfizer. As at June 30, 2020, we recorded nil (December 31, 2019 - US$1,500,000) in other receivables related to an upfront payment of BRACELET-1 cost from Pfizer per the terms of the collaboration agreement with US$345,250 (December 31, 2019 - US$652,306) in other liabilities representing future trial costs to be incurred.

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 once sales of a specified product commence.

Leases

Our portfolio of leases consists of office spaces with initial lease terms generally between 3 to 5 years. We currently do not have leases with variable lease payments, residual value guarantees, extension or termination options, or leases not yet commenced to which we are committed.

Our total undiscounted lease liability as at June 30, 2020 is as follows:

Maturity analysis - contractual undiscounted cash flows
June 30, 2020
Less than one year			335,250
One to five years			17,617
More than five years			—
Total undiscounted lease liability as at June 30, 2020			352,867

12

ONCOLYTICS BIOTECH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

June 30, 2020

Note 10: Capital Disclosures

Our objective when managing capital is to maintain a strong statement of financial position. We achieve our objective by obtaining 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 (deficit) and cash and cash equivalents in the definition of capital.

			June 30, 2020 $			December 31, 2019 $
Cash and cash equivalents			29,911,351			14,148,021
Shareholders’ equity (deficit)			23,989,164			(107,894)

We do not have any debt other than trade accounts payable and lease liabilities, and we have potential contingent obligations relating to the completion of our research and development of pelareorep.

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 June 12, 2020, we renewed our short form base shelf prospectus (the "Base Shelf") that qualifies for distribution of up to $150,000,000 of common shares, subscription receipts, warrants, or units (the "Securities") in either Canada, the US or both. Under a 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 subject to change, 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 as a result of using our Base Shelf would be used in line with our Board approved budget and multi-year plan. Our renewed Base Shelf will be effective until July 12, 2022.

Our Base Shelf allowed us to enter into our ATM equity distribution agreement in June 2020 (see Note 5). We will use this equity arrangement to assist us in achieving our capital objective. This arrangement provides us with the opportunity to raise capital at our sole discretion providing us with the ability to better manage our cash resources.

We are not subject to externally imposed capital requirements and there have been no changes in how we define or manage our capital in 2020.

Note 11: Financial Instruments

Our financial instruments consist of cash and cash equivalents, other receivables, other liabilities, accounts payable and warrant derivative. As at June 30, 2020, the carrying amount of our cash and cash equivalents, other receivables, other liabilities and accounts payable approximated their fair value. The warrant derivative is a recurring Level 2 fair value measurement as these

13

ONCOLYTICS BIOTECH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

June 30, 2020

warrants have not been listed on an exchange and therefore do not trade on an active market. As at June 30, 2020, the fair value of our warrant derivative was $402,013 (December 31, 2019 - $8,508,764).  

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 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 other receivables.

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.

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. 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.

Foreign exchange risk

Foreign exchange risk arises from changes in foreign exchange rates that may affect the fair value or future cash flows of our financial assets or liabilities. We are primarily exposed to the risk of changes in the Canadian dollar relative to the U.S. dollar, British pound and Euro as a portion of our financial assets and liabilities are denominated in such currencies. The impact of a $0.01 increase in the value of the U.S. dollar against the Canadian dollar would have decreased our net comprehensive loss in 2020 by approximately $180,000. The impact of a $0.10 increase in the value of the British pound against the Canadian dollar would have increased our net comprehensive loss in 2020 by approximately $27,000. The impact of a $0.10 increase in the value of the Euro against the Canadian dollar would have increased our net comprehensive loss in 2020 by approximately $29,000.

We mitigate our foreign exchange risk by maintaining sufficient foreign currencies, through the purchase of foreign currencies or receiving foreign currencies from financing activities, to settle our foreign accounts payable.

Balances in foreign currencies at June 30, 2020 are as follows:

			US dollars $			British pounds £			Euro €
Cash and cash equivalents			19,181,569			89,937			38,074
Accounts payable and other liabilities			(842,177)			(145,032)			(296,858)
Warrant derivative			(294,990)			—			—
			18,044,402			(55,095)			(258,784)

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 10. Accounts payable are all due within the current operating period.

14

ONCOLYTICS BIOTECH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

June 30, 2020

Note 12: Additional Cash Flow Disclosures

Net Change In Non-Cash Working Capital

			Three Month Period Ending June 30, 2020 $			Three Month Period Ending June 30, 2019 $			Six Month Period Ending June 30, 2020 $			Six Month Period Ending June 30, 2019 $
Change in:
Other receivables			71,310			7,418			2,012,587			7,372
Prepaid expenses			(900,394)			(903,286)			(1,397,116)			(1,323,219)
Accounts payable and accrued liabilities			(91,019)			861,895			(486,000)			2,268,331
Other liabilities			(242,475)			(19,645)			(376,708)			(39,338)
Non-cash impact of foreign exchange			134,891			124,007			(80,713)			165,827
Change in non-cash working capital related to operating activities			(1,027,687)			70,389			(327,950)			1,078,973

Other Cash Flow Disclosures

			Three Month Period Ending June 30, 2020 $			Three Month Period Ending June 30, 2019 $			Six Month Period Ending June 30, 2020 $			Six Month Period Ending June 30, 2019 $
Cash interest received			47,418			83,520			131,536			153,915
Cash taxes paid			8,211			4,376			8,211			4,376

15

ONCOLYTICS BIOTECH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

June 30, 2020

Note 13: Other Expenses and Adjustments

The following details highlight certain components of the research and development and operating expenses classified by nature. The foreign exchange (loss) gain as presented separately on the face of the consolidated statement of loss and comprehensive loss is also classified as a research and development expense. Remaining research and development and operating expenses include personnel costs and expenses paid to third parties.

			Three Month Period Ending June 30, 2020 $			Three Month Period Ending June 30, 2019 $			Six Month Period Ending June 30, 2020 $			Six Month Period Ending June 30, 2019 $
Research and development expenses
Non-cash share based compensation			91,462			99,108			196,909			223,599
Operating expenses
Depreciation - property and equipment			22,584			25,369			45,629			73,707
Depreciation - right-of-use-assets			92,133			90,906			183,156			181,679
Non-cash share based compensation			169,178			161,076			456,536			337,508

Note 14: 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.

			Three Month Period Ending June 30, 2020 $			Three Month Period Ending June 30, 2019 $			Six Month Period Ending June 30, 2020 $			Six Month Period Ending June 30, 2019 $
Short-term employee compensation and benefits			779,067			674,231			1,572,699			1,378,020
Termination benefits			217,015			—			217,015			—
Share-based payments			190,567			234,702			443,754			503,801
			1,186,649			908,933			2,233,468			1,881,821

Note 15: Subsequent Events

Between July 1, 2020 and July 30, 2020, we issued 831,957 common shares for gross proceeds of US$1,685,200 through our June 2020 ATM equity distribution agreement.

Note 16: Comparative Figures

Reclassification was made to prior period's figure to conform to the current period's presentation.

16