SECOND QUARTER INTERIM FINANCIAL STATEMENTS Document Interim Consolidated Financial Statements (unaudited) Oncolytics Biotech Inc.

Interim Consolidated Financial Statements

Oncolytics Biotech Inc.

June 30, 2021 and 2020

ONCOLYTICS BIOTECH INC.

INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in Canadian dollars, except share amounts)

See accompanying notes

ONCOLYTICS BIOTECH INC.

INTERIM CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(in Canadian dollars, except share amounts)

See accompanying notes

ONCOLYTICS BIOTECH INC.

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(in Canadian dollars)

See accompanying notes

ONCOLYTICS BIOTECH INC.

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(in Canadian dollars)

See accompanying notes

ONCOLYTICS BIOTECH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 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%).

ONCOLYTICS BIOTECH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

ONCOLYTICS BIOTECH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5 Share Capital

Unlimited number of no par value common shares

(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

ONCOLYTICS BIOTECH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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

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

Note 6 Share-Based Compensation

We have issued stock options to acquire common stock through our stock option plan of which the following are outstanding at June 30

ONCOLYTICS BIOTECH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

ONCOLYTICS BIOTECH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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.

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

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.

ONCOLYTICS BIOTECH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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