EX-99.1 2 ex991-interimfsjune302021.htm 2021 SECOND QUARTER INTERIM FINANCIAL STATEMENTS

Document

Interim Consolidated Financial Statements

(unaudited)

Oncolytics Biotech® Inc.

June 30, 2021 and 2020

ONCOLYTICS BIOTECH INC.

INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(unaudited)

(in Canadian dollars, except share amounts)

As at			Notes			June 30, 2021 $			December 31, 2020 $
Assets
Current assets
Cash and cash equivalents			3			50,799,432			31,219,574
Other receivables						135,857			89,661
Prepaid expenses						4,503,776			2,427,200
Total current assets						55,439,065			33,736,435
Non-current assets
Property and equipment						146,216			236,664
Right-of-use assets			9			724,164			372,468
Total non-current assets						870,380			609,132
Total assets						56,309,445			34,345,567
Liabilities And Shareholders’ Equity
Current Liabilities
Accounts payable and accrued liabilities						2,193,979			1,805,015
Other liabilities						—			123,985
Lease liabilities			9			234,139			248,885
Warrant derivative			4			153,968			531,228
Total current liabilities						2,582,086			2,709,113
Non-current liabilities
Contract liability			8			6,730,287			6,730,287
Lease liabilities			9			510,369			153,174
Total non-current liabilities						7,240,656			6,883,461
Total liabilities						9,822,742			9,592,574
Commitments and contingencies			9
Shareholders’ equity
Share capital   Authorized: unlimited   Issued: June 30, 2021 – 54,959,672   December 31, 2020 – 46,166,980			5			391,124,995			356,824,172
Warrants			5			3,617,570			3,617,570
Contributed surplus			6			32,224,806			31,022,356
Accumulated other comprehensive income						311,543			400,225
Accumulated deficit						(380,792,211)			(367,111,330)
Total shareholders’ equity						46,486,703			24,752,993
Total liabilities and shareholder's equity						56,309,445			34,345,567

See accompanying notes

2

ONCOLYTICS BIOTECH INC.

INTERIM CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(unaudited)

(in Canadian dollars, except share amounts)

			Notes			Three Months Ended June 30, 2021 $			Three Months Ended June 30, 2020 $			Six Months Ended June 30, 2021 $			Six Months Ended June 30, 2020 $
Expenses
Research and development			6, 13, 14			3,203,181			2,499,128			5,962,195			5,028,774
Operating			6, 13, 14			3,520,986			3,048,572			6,662,876			6,041,960
Loss before the following						(6,724,167)			(5,547,700)			(12,625,071)			(11,070,734)
Change in fair value of warrant derivative			4			80,159			(507,150)			(84,621)			3,644,832
Foreign exchange (loss) gain			13			(631,352)			(805,098)			(1,021,906)			899,707
Interest income, net						29,224			32,533			50,717			98,442
Loss before income taxes						(7,246,136)			(6,827,415)			(13,680,881)			(6,427,753)
Income tax expense						—			—			—			—
Net loss						(7,246,136)			(6,827,415)			(13,680,881)			(6,427,753)
Other comprehensive (loss) income items that may be reclassified to net loss
Translation adjustment						(48,370)			(146,443)			(88,682)			148,769
Net comprehensive loss						(7,294,506)			(6,973,858)			(13,769,563)			(6,278,984)
Basic and diluted loss per common share			7			(0.13)			(0.17)			(0.26)			(0.17)
Weighted average number of shares (basic and diluted)			7			54,325,212			39,603,671			52,008,768			37,734,689

    See accompanying notes

3

ONCOLYTICS BIOTECH INC.

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(unaudited)

(in Canadian dollars)

			Notes			Share Capital $			Warrants $			Contributed Surplus $			Accumulated Other Comprehensive Income $			Accumulated Deficit $			Total $
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 loss						—			—			—			148,769			(6,427,753)			(6,278,984)
Issued pursuant to stock option plan			5, 6			162,812			—			(60,024)			—			—			102,788
Issued pursuant to incentive share award plan			5, 6			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
As at December 31, 2020						356,824,172			3,617,570			31,022,356			400,225			(367,111,330)			24,752,993
Net loss and other comprehensive income						—			—			—			(88,682)			(13,680,881)			(13,769,563)
Issued pursuant to stock option plan			5, 6			313,867			—			(117,751)			—			—			196,116
Issued pursuant to incentive share award plan			5, 6			370,117			—			(370,117)			—			—			—
Issued pursuant to "At the Market" Agreement			5			34,168,071			—			—			—			—			34,168,071
Issued pursuant to warrant derivative exercised			4, 5			686,616			—			—			—			—			686,616
Share-based compensation			6			—			—			1,690,318			—			—			1,690,318
Share issue costs			5			(1,237,848)			—			—			—			—			(1,237,848)
As at June 30, 2021						391,124,995			3,617,570			32,224,806			311,543			(380,792,211)			46,486,703

See accompanying notes

4

ONCOLYTICS BIOTECH INC.

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in Canadian dollars)

			Notes			Three Months Ended June 30, 2021 $			Three Months Ended June 30, 2020 $			Six Months Ended June 30, 2021 $			Six Months Ended June 30, 2020 $
Operating Activities
Net loss for the period						(7,246,136)			(6,827,415)			(13,680,881)			(6,427,753)
Depreciation - property and equipment			13			75,340			22,584			95,890			45,629
Depreciation - right-of-use-assets			13			88,493			92,133			174,677			183,156
Share-based compensation			6, 13, 14			1,032,242			260,640			1,690,318			653,445
Interest expense on lease liabilities						24,450			14,885			38,259			33,094
Unrealized foreign exchange loss (gain)						713,763			699,079			1,233,131			(728,677)
Change in fair value of warrant derivative			4			(80,159)			507,150			84,621			(3,644,832)
Net change in non-cash working capital			12			(1,404,875)			(1,027,687)			(2,001,354)			(327,950)
Cash used in operating activities						(6,796,882)			(6,258,631)			(12,365,339)			(10,213,888)
Investing Activities
Acquisition of property and equipment						(6,598)			(3,034)			(6,598)			(13,749)
Cash used in investing activities						(6,598)			(3,034)			(6,598)			(13,749)
Financing Activities
Proceeds from exercise of stock options			6			6,766			17,638			196,116			102,788
Proceeds from exercise of warrant derivative			4, 5			—			263,318			230,946			1,696,460
Proceeds from "At the Market" equity distribution agreement			5			8,072,561			6,449,218			32,930,223			23,287,031
Payment of lease liabilities						(98,555)			(119,634)			(210,228)			(233,108)
Cash provided by financing activities						7,980,772			6,610,540			33,147,057			24,853,171
Increase in cash						1,177,292			348,875			20,775,120			14,625,534
Cash and cash equivalents, beginning of period						50,362,162			30,567,480			31,219,574			14,148,021
Impact of foreign exchange on cash and cash equivalents						(740,022)			(1,005,004)			(1,195,262)			1,137,796
Cash and cash equivalents, end of period						50,799,432			29,911,351			50,799,432			29,911,351

See accompanying notes

5

ONCOLYTICS BIOTECH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

June 30, 2021

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, 2021, were authorized for issue in accordance with a resolution of the Board of Directors (the "Board") on August 5, 2021. 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 principal place of business is located at 804, 322 11th Avenue SW, 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 centers on key immunotherapy combinations. Specifically, immunotherapy combinations in which pelareorep has the potential to provoke specific innate and adaptive immune responses when combined with checkpoint blockade therapy, chemotherapy and/or targeted therapies.

The full extent to which the coronavirus infectious disease 2019 ("COVID-19") pandemic may directly or indirectly impact our business, results of operations and financial condition, including our ability to finance our operations, expenses, clinical trials, and research and development costs, will depend on future developments that are evolving and highly uncertain, such as the duration and severity of outbreaks, including potential future waves or cycles, and the effectiveness of actions taken to contain and treat COVID-19. We considered the potential impact of COVID-19 when making certain estimates and judgments relating to the preparation of these interim consolidated financial statements. While there was no material impact to our interim consolidated financial statements as of and for the period ended June 30, 2021, our future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in a material impact to our consolidated financial statements in future reporting periods.

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, 2021 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, 2020. 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, 2020.

Note 3: Cash Equivalents

Cash Equivalents

Cash equivalents consist of interest bearing deposits with our bank totaling $47,944,484 (December 31, 2020 – $30,361,591).  The current annual interest rate earned on these deposits is 0.45% (December 31, 2020 – 0.36%).

6

ONCOLYTICS BIOTECH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

June 30, 2021

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.

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 $
As at December 31, 2019			1,684,126			8,508,764
Exercised			(1,418,369)			(4,636,317)
Change in fair value			—			(3,491,928)
Foreign exchange impact			—			150,709
As at December 31, 2020			265,757			531,228
Exercised			(201,722)			(455,670)
Change in fair value			—			84,621
Foreign exchange impact			—			(6,211)
As at June 30, 2021			64,035			153,968

During the six months ended June 30, 2021, we received cash proceeds of US$181,550 (June 30, 2020 - 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, 2021			December 31, 2020
Fair value per warrant			US$1.94			US$1.57
Underlying share price			US$2.77			US$2.38
Risk-free interest rate			0.07%			0.10%
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, 2021

Note 5: Share Capital

Authorized:

Unlimited number of no par value common shares

			Shares
			Number			Amount $
Balance, December 31, 2019			32,198,453			311,077,859
Issued pursuant to stock option plan			133,454			385,022
Issued pursuant to incentive share award plan			234,172			732,367
Issued pursuant to "At the Market" (ATM) equity distribution agreement(a)(c)			12,182,532			40,037,786
Issued pursuant to warrant derivative exercised(b)			1,418,369			6,332,778
Share issue costs			—			(1,741,640)
Balance, December 31, 2020			46,166,980			356,824,172
Issued pursuant to stock option plan			93,159			313,867
Issued pursuant to incentive share award plan			96,782			370,117
Issued pursuant to "At the Market" (ATM) equity distribution agreement(c)(d)			8,401,029			34,168,071
Issued pursuant to warrant derivative exercised(b)			201,722			686,616
Share issue costs			—			(1,237,848)
Balance, June 30, 2021			54,959,672			391,124,995

(a)On October 24, 2018, we entered into an ATM equity offering sales agreement with Canaccord Genuity Inc. The ATM allowed us, at our sole discretion, to issue common shares, at prevailing market prices, 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. This sales agreement expired on June 4, 2020 and no shares were issued during the six months ended June 30, 2021. During the six months ended June 30, 2020, we sold 6,741,518 common shares for gross proceeds of US$17,538,342 at an average price of US$2.60. We received, net of commissions of US$526,150, proceeds of US$17,012,192. In total, we incurred share issue costs (including commissions) of $856,754.

(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. 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. During the six months ended June 30, 2021, our share capital included fair value of $455,670 (June 30, 2020 - $4,636,317) in addition to gross proceeds of US$181,550 (June 30, 2020 - US$1,276,532) for the 201,722 (June 30, 2020 - 1,418,369) warrants that were exercised (see Note 4).

(c)On June 15, 2020, we entered into an ATM equity distribution agreement with Canaccord Genuity Inc. The ATM allowed us, at our sole discretion, to issue common shares, at prevailing market prices, with an aggregate offering value 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 six months ended June 30, 2021, we sold 5,685,097 (June 30, 2020 - 314,109) common shares for gross proceeds of US$18,503,188 (June 30, 2020 - US$650,004) at an average price of US$3.25 (June 30, 2020 - US$2.07). We received, net of commissions of US$555,096 (June 30, 2020 - US$19,500), proceeds of US$17,948,092 (June 30, 2020 - US$630,504). In total, we incurred share issue costs (including commissions) of $707,421 (June 30, 2020 - $215,365). On March 4, 2021, we terminated the June 15, 2020 ATM equity distribution agreement.

(d)On March 5, 2021, 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 prices, with an aggregate offering value of up to US$80,000,000 over a 16-month period through the facilities of the Nasdaq Capital Market in the United States. During the six months ended June 30, 2021, we sold 2,715,932 common shares for gross proceeds of US$8,654,892 at an average

8

ONCOLYTICS BIOTECH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

June 30, 2021

price of US$3.19. We received, net of commissions of US$259,647, proceeds of US$8,395,245. In total, we incurred share issue costs (including commissions) of $530,427.

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, 2020			16,443,500			3,617,570
As at June 30, 2021			16,443,500			3,617,570

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

Note 6: Share-Based Compensation

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:

			2021						2020
			Stock Options			Weighted Average Exercise Price $			Stock Options			Weighted Average Exercise Price $
Outstanding, beginning of the period			3,764,055			4.08			2,246,947			5.31
Granted during the period			1,172,500			3.42			60,000			5.23
Forfeited during the period			(56,226)			4.08			(18,085)			13.83
Expired during the period			(526)			52.63			—			—
Exercised during the period			(93,159)			2.11			(45,120)			2.28
Outstanding, end of the period			4,786,644			3.95			2,243,742			5.30
Options exercisable, end of the period			2,174,143			4.99			1,359,448			7.23

9

ONCOLYTICS BIOTECH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

June 30, 2021

The following table summarizes information about the stock options outstanding and exercisable at June 30, 2021:

Range of Exercise Prices			Number Outstanding			Weighted Average Remaining Contractual Life (years)			Weighted Average Exercise Price $			Number Exercisable			Weighted Average Exercise Price $
$0.54 - $1.79			756,665			2.53			1.39			495,007			1.36
$1.80 - $3.01			421,573			4.10			2.67			261,573			2.68
$3.02 - $3.90			2,962,382			3.88			3.29			791,539			3.28
$3.91 - $7.41			478,516			2.23			6.09			458,516			6.13
$7.42 - $40.96			167,508			1.83			24.23			167,508			24.23
			4,786,644			3.45			3.95			2,174,143			4.99

Non-exercisable options vest either immediately or 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:

			2021			2020
Risk-free interest rate			0.49%			1.63%
Expected hold period to exercise			3.0 years			3.0 years
Expected share price volatility			110.87%			110.84%
Expected dividend yield			Nil			Nil
Weighted average fair value of options			$2.27			$3.51

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:

			2021			2020
Outstanding, beginning of the period			134,618			209,657
Granted during the period			—			32,003
Released during the period			(39,941)			(99,052)
Outstanding, end of the period			94,677			142,608

(1) The weighted average fair value of the RSUs granted was nil in 2021 (2020 - $2.90).

10

ONCOLYTICS BIOTECH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

June 30, 2021

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. The following PSUs are outstanding at June 30:

			2021			2020
Outstanding, beginning of the period			56,841			61,051
Released during the period			(56,841)			(4,210)
Outstanding, end of the period			—			56,841

We have reserved 5,495,967 common shares for issuance relating to our outstanding equity compensation plans. Compensation expense related to stock options, RSUs and PSUs were $1,032,242 and $1,690,318 for the three and six months ended June 30, 2021, respectively (June 30, 2020 - $260,640 and $653,445, respectively).

Note 7: 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 three and six months ended June 30, 2021 of 54,325,212 and 52,008,768, respectively (June 30, 2020 - 39,603,671 and 37,734,689, 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.

Contract liability

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

			June 30, 2021 $			December 31, 2020 $
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 $9,897,073 for activities related to our clinical trial, manufacturing and collaboration programs which are expected to occur over the next two years.

11

ONCOLYTICS BIOTECH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

June 30, 2021

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 6 years. We currently do not have leases with variable lease payments or residual value guarantees.

During the first six months of 2021, we extended the office lease for one of our subsidiaries and entered into a new office space lease for our Canadian head office for which we recorded an addition of $532,758 to the lease liability and right-of-use asset. The incremental borrowing rate applied was 15%.

Our total undiscounted lease liability as at June 30, 2021 is as follows:

Maturity analysis - contractual undiscounted cash flows
			June 30, 2021 $
Less than one year			331,286
One to six years			617,618
More than six years			—
Total undiscounted lease liability			948,904

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 and cash and cash equivalents in the definition of capital.

			June 30, 2021 $			December 31, 2020 $
Cash and cash equivalents			50,799,432			31,219,574
Shareholders’ equity			46,486,703			24,752,993

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.

12

ONCOLYTICS BIOTECH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

June 30, 2021

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 agreements in June 2020 and March 2021 (see Note 5). We use these equity arrangements to assist us in achieving our capital objective. These arrangements provide 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 2021.

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, 2021, 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 warrants have not been listed on an exchange and therefore do not trade on an active market. As at June 30, 2021, the fair value of our warrant derivative was $153,968 (December 31, 2020 - $531,228).  

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 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 2021 by approximately $360,000. The impact of a $0.10 increase in the value of the Euro against the Canadian dollar would have decreased our net comprehensive loss in 2021 by approximately $14,000.

13

ONCOLYTICS BIOTECH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

June 30, 2021

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, 2021 are as follows:

			US dollars $						Euro €
Cash and cash equivalents			39,763,120						148,430
Other receivables			46,878						—
Accounts payable and other liabilities			(333,475)						—
Warrant derivative			(124,228)						—
			39,352,295						148,430

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.

Note 12: Additional Cash Flow Disclosures

Net Change In Non-Cash Working Capital

			Three Months Ended June 30, 2021 $			Three Months Ended June 30, 2020 $			Six Months Ended June 30, 2021 $			Six Months Ended June 30, 2020 $
Change in:
Other receivables			(24,192)			71,310			(46,196)			2,012,587
Prepaid expenses			(1,622,046)			(900,394)			(2,076,576)			(1,397,116)
Accounts payable and accrued liabilities			275,341			(91,019)			388,964			(486,000)
Other liabilities			—			(242,475)			(123,985)			(376,708)
Non-cash impact of foreign exchange			(33,978)			134,891			(143,561)			(80,713)
Change in non-cash working capital related to operating activities			(1,404,875)			(1,027,687)			(2,001,354)			(327,950)

Other Cash Flow Disclosures

			Three Months Ended June 30, 2021 $			Three Months Ended June 30, 2020 $			Six Months Ended June 30, 2021 $			Six Months Ended June 30, 2020 $
Cash interest received			53,674			47,418			88,976			131,536
Cash taxes paid			17,088			8,211			17,088			8,211

14

ONCOLYTICS BIOTECH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

June 30, 2021

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 Months Ended June 30, 2021 $			Three Months Ended June 30, 2020 $			Six Months Ended June 30, 2021 $			Six Months Ended June 30, 2020 $
Research and development expenses
Non-cash share-based compensation			597,345			91,462			958,948			196,909
Operating expenses
Depreciation - property and equipment			75,340			22,584			95,890			45,629
Depreciation - right-of-use-assets			88,493			92,133			174,677			183,156
Non-cash share-based compensation			434,897			169,178			731,370			456,536

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 employees of the Company.

			Three Months Ended June 30, 2021 $			Three Months Ended June 30, 2020 $			Six Months Ended June 30, 2021 $			Six Months Ended June 30, 2020 $
Short-term employee compensation and benefits			771,934			779,067			1,556,565			1,572,699
Termination benefits			—			217,015			—			217,015
Share-based compensation			707,778			190,567			1,167,071			443,754
			1,479,712			1,186,649			2,723,636			2,233,468

15