Cardiol Therapeutics : Condensed Interim Consolidated Financial Statements for the Three and Six Months Ended June 30, 2022 - Form 6-K

CARDIOL THERAPEUTICS INC.

CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED

JUNE 30, 2022

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

Cardiol Therapeutics Inc.

Condensed Interim Consolidated Statements of Financial Position

(Expressed in Canadian Dollars)

Unaudited

		As at June 30, 2022			As at December 31, 2021
ASSETS
Current assets
Cash and cash equivalents (note 3)		$	70,453,893			$	83,899,070
Accounts receivable			125,380				65,739
Other receivables			278,243				341,388
Prepaid expenses (note 14)			2,422,470				2,495,141
Prepaid inventory (note 12(iv))			339,051				339,051
Total current assets			73,619,037				87,140,389
Non-current assets
Property and equipment (note 4)			308,907				356,493
Intangible assets (note 5)			337,024				379,246
Total assets		$	74,264,968			$	87,876,128
EQUITY AND LIABILITIES
Current liabilities
Accounts payable and accrued liabilities (note 14)		$	7,649,866			$	4,859,352
Current portion of lease liability (note 6)			48,210				44,708
Derivative liability (note 7)			3,667,005				6,661,122
Total current liabilities			11,365,081				11,565,182
Non-current liabilities
Lease liability (note 6)			48,194				72,871
Total liabilities			11,413,275				11,638,053
Equity
Share capital (note 8)			143,136,097				142,918,829
Warrants (note 10)			5,532,555				4,176,780
Contributed surplus (note 9)			13,144,486				12,660,329
Deficit			(98,961,445	)			(83,517,863	)
Total equity			62,851,693				76,238,075
Total equity and liabilities		$	74,264,968			$	87,876,128

The accompanying notes to the unaudited condensed interim consolidated financial statements are an integral part of these consolidated financial statements.

Commitments (notes 5 and 12)
Subsequent event (note 16)

Approved on behalf of the Board:

"David Elsley", Director

"Guillermo Torre-Amione", Director

- 1 -

Cardiol Therapeutics Inc.

Condensed Interim Consolidated Statements of Loss and Comprehensive Loss

(Expressed in Canadian Dollars)

Unaudited

		Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
		June 30,			June 30,			June 30,			June 30,
		2022			2021			2022			2021
Revenue
Sales		$	-			$	78,760			$	-			$	78,760
Operating expenses (notes 9, 13, 14)
General and administration		$	4,825,039			$	4,430,388			$	10,765,990			$	10,731,786
Research and development			4,407,182				2,071,681				8,254,709				4,750,493
Loss before other income (expenses)			(9,232,221	)			(6,423,309	)			(19,020,699	)			(15,403,519	)
Interest income			191,336				25,480				263,647				42,304
Gain (loss) on foreign exchange			1,689,797				(163,114	)			319,353				(109,576	)
Change in derivative liability (note 7)			861,600				-				2,994,117				-
Net loss and comprehensive loss for the period		$	(6,489,488	)		$	(6,560,943	)		$	(15,443,582	)		$	(15,470,791	)
Basic and diluted net loss per share (note 11)		$	(0.10	)		$	(0.16	)		$	(0.25	)		$	(0.41	)
Weighted average number of common shares outstanding			61,932,362				40,057,578				61,928,811				37,346,482

The accompanying notes to the unaudited condensed interim consolidated financial statements are an integral part of these consolidated financial statements.

- 2 -

Cardiol Therapeutics Inc.

Condensed Interim Consolidated Statements of Cash Flows

(Expressed in Canadian Dollars)

Unaudited

		Six Months			Six Months
		Ended			Ended
		June 30,			June 30,
		2022			2021
Operating activities
Net loss and comprehensive loss for the period		$	(15,443,582	)		$	(15,470,791	)
Adjustments for:
Depreciation of property and equipment			65,177				67,019
Amortization of intangible assets			42,222				42,222
Share-based compensation			484,157				2,967,945
Change in derivative liability			(2,994,117	)			-
Accretion on lease liability			5,071				6,850
Shares for services			217,268				1,092,257
Research and development expenses to be settled through warrant exercise			1,355,775				-
Changes in non-cash working capital items:
Accounts receivable			(59,641	)			(107,731	)
Other receivables			63,145				(356,530	)
Prepaid expenses			72,671				(1,825,400	)
Inventory			-				17,968
Accounts payable and accrued liabilities			2,790,514				408,541
Net cash used in operating activities			(13,401,340	)			(13,157,650	)
Investing activities
Purchase of property and equipment			(17,591	)			-
Net cash used in investing activities			(17,591	)			-
Financing activities
Issuance of units			-				22,003,200
Share issuance costs			-				(1,378,225	)
Issuance of warrants, net of issuance costs			-				8,147
Proceeds from stock options exercised			-				2,708,249
Proceeds from warrants exercised			-				8,536,288
Payment of lease liability			(26,246	)			(25,958	)
Net cash provided by (used in) financing activities			(26,246	)			31,851,701
Net change in cash and cash equivalents			(13,445,177	)			18,694,051
Cash and cash equivalents, beginning of period			83,899,070				14,025,187
Cash and cash equivalents, end of period		$	70,453,893			$	32,719,238

The accompanying notes to the unaudited condensed interim consolidated financial statements are an integral part of these consolidated financial statements.

- 3 -

Cardiol Therapeutics Inc.

Condensed Interim Consolidated Statements of Changes in Equity

(Expressed in Canadian Dollars)

Unaudited

		Share capital			Contributed
		Number			Amount			Warrants			surplus			Deficit			Total
Balance, December 31, 2020			32,860,291			$	51,923,471			$	4,460,728			$	8,765,773			$	(51,879,619	)		$	13,270,353
Issuance of units			6,112,000				18,211,000				3,792,200				-				-				22,003,200
Issuance of warrants, net of issuance costs			-				-				8,147				-				-				8,147
Share issuance costs			-				(1,140,691	)			(237,534	)			-				-				(1,378,225	)
Options exercised			956,666				2,708,249				-				-				-				2,708,249
Fair value of options exercised			-				1,262,680				-				(1,262,680	)			-				-
Warrants exercised			2,672,987				8,391,527				144,761				-				-				8,536,288
Fair value of warrants exercised			-				3,078,096				(3,078,096	)			-				-				-
Shares for services			344,650				1,092,257				-				-				-				1,092,257
Share-based compensation			-				-				-				2,967,945				-				2,967,945
Net loss and comprehensive loss for the period			-				-				-				-				(15,470,791	)			(15,470,791	)
Balance, June 30, 2021			42,946,594			$	85,526,589			$	5,090,206			$	10,471,038			$	(67,350,410	)		$	33,737,423
Balance, December 31, 2021			61,922,999			$	142,918,829			$	4,176,780			$	12,660,329			$	(83,517,863	)		$	76,238,075
Shares for services			17,000				217,268				-				-				-				217,268
Share-based compensation			-				-				-				484,157				-				484,157
Fair value of warrants earned			-				-				1,355,775				-				-				1,355,775
Net loss and comprehensive loss for the period			-				-				-				-				(15,443,582	)			(15,443,582	)
Balance, June 30, 2022			61,939,999			$	143,136,097			$	5,532,555			$	13,144,486			$	(98,961,445	)		$	62,851,693

The accompanying notes to the unaudited condensed interim consolidated financial statements are an integral part of these consolidated financial statements.

- 4 -

Cardiol Therapeutics Inc.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2022

(Expressed in Canadian Dollars)

Unaudited

1.	Nature of operations

Cardiol Therapeutics Inc. (the "Corporation") was incorporated under the laws of the Province of Ontario on January 19, 2017. The Corporation's registered and legal office is located at 2265 Upper Middle Rd. E., Suite 602, Oakville, Ontario, L6H 0G5, Canada.

The Corporation is a clinical-stage life sciences company focused on the research and clinical development of anti- inflammatory and anti-fibrotic therapy for the treatment of cardiovascular disease ("CVD"). The Corporation's lead product, CardiolRx, is a pharmaceutically produced oral cannabidiol formulation that is being clinically developed for use in cardiovascular medicine. CardiolRx is currently being evaluated in a Phase II/III multi-national, randomized, double-blind, placebo-controlled study (the "LANCER" trial). LANCER is designed to evaluate the efficacy and safety of CardiolRx as a cardioprotective therapy to reduce major cardiovascular and respiratory events in patients hospitalized with COVID-19 who have a prior history of, or risk factors for, CVD, and to investigate the influence CardiolRx has on symptomatic status and key biomarkers associated with heart disease.

The Corporation has also received an Investigational New Drug Application ("IND") authorization from the FDA to conduct a Phase II multi-national, randomized, double-blind, placebo-controlled trial designed to evaluate the efficacy and safety of CardiolRx in acute myocarditis (the "ARCHER" trial). This disease remains an important cause of acute and fulminant heart failure and is a leading cause of sudden cardiac death in people less than 35 years of age.

The Corporation has also received an IND authorization by the FDA to conduct a Phase II open-label pilot study designed to evaluate the tolerance and safety of CardiolRx in patients with recurrent pericarditis.

In addition, the Corporation is developing a subcutaneous formulation of CardiolRx for the treatment of inflammation and fibrosis in the heart that is associated with the development and progression of heart failure. Heart failure affects 26 million people in the developed world and remains a leading cause of death and hospitalization, with associated annual healthcare costs in the U.S. alone exceeding $30 billion.

On December 20, 2018, the Corporation completed its initial public offering (the "IPO") on the Toronto Stock Exchange (the "TSX"). As a result, the Corporation's common shares commenced trading on that date on the TSX under the symbol "CRDL", and on May 12, 2021, warrants commenced trading under the symbol "CRDL.WT.A". On August 10, 2021, the Corporation's common shares commenced trading on the Nasdaq Capital Market ("Nasdaq") under the symbol "CRDL".

2.	Significant accounting policies

Statement of compliance

The Corporation applies International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC"). These unaudited condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. Accordingly, they do not include all of the information required for full annual consolidated financial statements required by IFRS as issued by IASB and interpretations by IFRIC.

The policies applied in these unaudited condensed interim consolidated financial statements are based on IFRSs issued and outstanding as of August 10, 2022, the date the Board of Directors approved the statements. The same accounting policies and methods of computation are followed in these unaudited condensed interim consolidated financial statements as compared with the most recent annual consolidated financial statements as at and for the year ended December 31, 2021, other than as noted below.

- 5 -

Cardiol Therapeutics Inc.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2022

(Expressed in Canadian Dollars)

Unaudited

2.Significant accounting policies(continued)

Statement of compliance (continued)

Any subsequent changes to IFRS that are given effect in the Corporation's annual consolidated financial statements for the year ending December 31, 2022, could result in restatement of these unaudited condensed interim consolidated financial statements.

Basis of consolidation

These unaudited condensed interim consolidated financial statements consolidate the accounts of the Corporation and its wholly owned subsidiary, Cardiol Therapeutics USA Inc. ("Cardiol USA"), incorporated under the laws of Delaware. Control exists when the Corporation has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The subsidiary is fully consolidated from the date on which control is obtained by the Corporation and is de-consolidated from the date control ceases. Intercompany transactions and balances are eliminated.

3.	Cash and cash equivalents

Cash and cash equivalents include a cashable Guaranteed Investment Certificate totaling $61,568 earning interest of 0.5% per annum and maturing on December 4, 2022 (December 31, 2021 - cashable Guaranteed Investment Certificate totaling $61,568 earning interest of 0.5% per annum and maturing on December 4, 2022). The Guaranteed Investment Certificate may be redeemed prior to maturity without penalty.

4.	Property and equipment

Cost		Right-of- use asset			Equipment			Leasehold improvements			Office equipment			Computer equipment			Total
Balance, December 31, 2020		$	200,319			$	123,058			$	237,248			$	65,716			$	74,619			$	700,960
Additions			-				7,712				-				-				5,204				12,916
Balance, December 31, 2021			200,319				130,770				237,248			$	65,716			$	79,823			$	713,876
Additions			-				-				-				-				17,591				17,591
Balance, June 30, 2022		$	200,319			$	130,770			$	237,248			$	65,716			$	97,414			$	731,467

Accumulated Depreciation		Right-of- use asset			Equipment			Leasehold improvements			Office equipment			Computer equipment			Total
Balance, December 31, 2020		$	63,441			$	53,052			$	55,032			$	15,644			$	34,237			$	221,406
Depreciation for the year			40,068				22,159				50,840				10,015				12,895				135,977
Balance, December 31, 2021		$	103,509			$	75,211			$	105,872			$	25,659			$	47,132			$	357,383
Depreciation for the period			20,034				8,334				25,420				4,006				7,383				65,177
Balance, June 30, 2022		$	123,543			$	83,545			$	131,292			$	29,665			$	54,515			$	422,560

Carrying value		Right-of- use asset			Equipment			Leasehold improvements			Office equipment			Computer equipment			Total
Balance, December 31, 2021		$	96,810			$	55,559			$	131,376			$	40,057			$	32,691			$	356,493
Balance, June 30, 2022		$	76,776			$	47,225			$	105,956			$	36,051			$	42,899			$	308,907

- 6 -

Cardiol Therapeutics Inc.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2022

(Expressed in Canadian Dollars)

Unaudited

5.	Intangible assets

Cost		Exclusive global license agreement
Balance, December 31, 2020, December 31, 2021, and June 30, 2022		$	767,228

Accumulated Amortization		Exclusive global license agreement
Balance, December 31, 2020		$	303,538
Amortization for the year			84,444
Balance, December 31, 2021		$	387,982
Amortization for the period			42,222
Balance, June 30, 2022		$	430,204

Carrying Value		Exclusive global license agreement
Balance, December 31, 2021		$	379,246
Balance, June 30, 2022		$	337,024

Exclusive global agreement ("Meros License Agreement")

In 2017, the Corporation was granted by Meros Polymers Inc. ("Meros") the sole, exclusive, irrevocable license to patented nanotechnologies for use with any drugs to diagnose, or treat, cardiovascular disease, cardiopulmonary disease, and cardiac arrhythmias. Meros is focused on the advancement of nanotechnologies developed at the University of Alberta.

Under the Meros License Agreement, Cardiol agreed to certain milestones and milestone payments, including the following: (i) payment of $100,000 upon enrolling the first patient in a Phase IIB clinical trial designed to investigate the safety and indications of efficacy of one of the licensed technologies; (ii) payment of $500,000 upon enrolling the first patient in a Pivotal Phase III clinical trial designed to investigate the safety and efficacy of one of the licensed technologies; (iii) $1,000,000 upon receiving regulatory approval from the FDA for any therapeutic and/or prophylactic treatment incorporating the licensed technologies. Cardiol also agreed to pay Meros the following royalties:

(a)5% of worldwide proceeds of net sales of the licensed technologies containing cannabinoids, excluding non-royalty sub-license income in (b) below, that Cardiol receives from human and animal disease indications and derivatives as outlined in the Meros License Agreement;

(b)7% of any non-royalty sub-license income that Cardiol receives from human and animal disease indications and derivatives for licensed technologies containing cannabinoids as outlined in the Meros License Agreement;

(c)3.7% of worldwide proceeds of net sales that Cardiol receives from the licensed technology in relation to human and animal cardiovascular and/or cardiopulmonary disease, heart failure, and/or cardiac arrhythmia diagnosis and/or treatments using the drugs, excluding cannabinoids included in (a) above, outlined in the Meros License Agreement; and

- 7 -

Cardiol Therapeutics Inc.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2022

(Expressed in Canadian Dollars)

Unaudited

5 Intangible assets (continued)

(d)5% of any non-royalty sub-license income that Cardiol receives in relation to any human and animal heart disease, heart failure and/or arrhythmias indications, excluding cannabinoids included in (b) above, as outlined in the Meros License Agreement.

In addition, as part of the consideration under the Meros License Agreement, Cardiol (i) issued to Meros 1,020,000 common shares; and (ii) issued to Meros 1,020,000 special warrants convertible automatically into common shares for no additional consideration upon the first patient being enrolled in a Phase 1 clinical trial using the licensed technologies as described in the Meros License Agreement.

6.	Lease liability

		Carrying Value
Balance, December 31, 2020		$	156,566
Repayments			(51,916	)
Accretion			12,929
Balance, December 31, 2021		$	117,579
Repayments			(26,246	)
Accretion			5,071
Balance, June 30, 2022		$	96,404
Current portion			48,210
Long-term portion		$	48,194

(i) When measuring the lease liability for the property lease that was classified as an operating lease, the Corporation discounted the lease payments using its incremental borrowing rate. The property lease expires on May 31, 2024, and the lease payments were discounted with a 9% interest rate.

7.	Derivative liability

On November 5, 2021, the Corporation issued 8,175,000 warrants as part of a unit financing. Each warrant is exercisable into one common share at the price of USD$3.75 per share for a period of three years from closing. The warrants have been classified as a derivative liability on the statement of financial position and are re-valued at each reporting date, as the warrants were issued in a currency other than the Corporation's functional currency. The only significant unobservable input is the volatility, which could cause an increase or decrease in fair value. As at June 30, 2022, the fair value of the derivative liability was $3,667,005 (December 31, 2021 - $6,661,122), resulting in a decrease in the value derivative liability for the three and six months ended June 30, 2022 of $861,600 and $2,994,117 (June 30, 2021 - $nil and $nil).

- 8 -

Cardiol Therapeutics Inc.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2022

(Expressed in Canadian Dollars)

Unaudited

7.	Derivative liability (continued)

Significant assumptions used in determining the fair value of the derivative warrant liabilities at June 30, 2022 are as follows:

		Six Months Ended June 30, 2022
Share price			USD$	1.32
Exercise price			USD$	3.75
Risk-free interest rate			3.14	%
Expected volatility			88	%
Expected life in years			2.35
Expected dividend yield			Nil

8.	Share capital

a) Authorized share capital

The authorized share capital consisted of unlimited number of common shares. The common shares do not have a par value. All issued shares are fully paid.

b) Common shares issued

		Number of
		common shares			Amount
Balance, December 31, 2020			32,860,291			$	51,923,471
Shares for services (i)			344,650				1,092,257
Stock options exercised (note 9)			956,666				2,708,249
Fair value of stock options exercised (note 9)			-				1,262,680
Issuance of units (ii)			6,112,000				22,003,200
Fair value of warrants (ii)			-				(3,792,200	)
Share issuance costs (ii)			-				(1,140,691	)
Warrants exercised (note 10)			2,672,987				8,391,527
Fair value of warrants exercised (note 10)			-				3,078,096
Balance, June 30, 2021			42,946,594			$	85,526,589
Balance, December 31, 2021			61,922,999			$	142,918,829
Shares for services (iii)			17,000				217,268
Balance, June 30, 2022			61,939,999			$	143,136,097

- 9 -

Cardiol Therapeutics Inc.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2022

(Expressed in Canadian Dollars)

Unaudited

8.	Share capital (continued)

(i)During the six months ended June 30, 2021, the Corporation issued 344,650 shares for services with a combined value of $1,092,257. The fair value of the shares were determined to be equal to the value of the services rendered.

(ii)On May 12, 2021, the Corporation completed its short form base shelf prospectus offering by issuing 6,112,000 common share units at $3.60 per unit for gross proceeds of $22,003,200, as well as an additional 433,400 warrants at $0.02 per warrant for $8,668. Each unit consisted of one common share and one-half of one common share purchase warrant. Each whole warrant is exercisable into one common share at the price of $4.60 per share for a period of three years from closing. The underwriters were paid cash fees of $1,025,590.

The fair value of $3,792,200 was assigned to the 3,056,000 warrants issued as part of the units as estimated by using a fair value market technique incorporating the Black-Scholes option pricing model, using the following assumptions: a risk-free interest rate of 0.53%; an expected volatility factor of 81%; an expected dividend yield of 0%; and an expected life of 3 years.

(iii) During the six months ended June 30, 2022, the Corporation issued 17,000 common shares with a fair value of $28,348. The fair value of the shares were determined to be equal to the value of the services rendered. Included in shares for services is $188,920 related to vesting of previously issued shares. The vesting conditions are as follows: 50,000 restricted common shares that contain service-based conditions and vest 1/2 on each of September 29, 2022, and March 29, 2023; and 25,000 common shares that fully vest on August 17, 2022.

c) 2022 At-The-Market ("ATM") Program

In June 2022, the Corporation announced it has entered into an equity distribution agreement with Canaccord Genuity LLC and Cantor Fitzgerald & Co. (the "Sales Agents") acting as co-agents in connection with the 2022 at-the-market offering program (the "2022 ATM Program"). Under the terms of the 2022 ATM Program, the Corporation may, from time to time, sell common shares having an aggregate value of USD$50,000,000 through the Sales Agents on the Nasdaq Capital Market. As at June 30, 2022, the Corporation has not issued any shares under the 2022 ATM Program.

The timing and extent of the use of the 2022 ATM Program will be at the discretion of the Corporation and the Corporation has no obligation to sell any shares pursuant to the 2022 ATM Program. Accordingly, total gross proceeds from offerings under the 2022 ATM Program could be less than US$50 million. The 2022 ATM Program will be effective until the earlier of the issuance and sale of all of the Offered Shares issuable pursuant to the 2022 ATM Program and March 8, 2024, unless terminated prior to such date by Cardiol or the Sales Agents.

9.	Share-based payments

The Corporation has adopted an Omnibus Equity Incentive Plan in accordance with the policies of the TSX, which permits the grant or issuance of options, Restricted Share Units ("RSUs"), Performance Share Units ("PSUs") and Deferred Share Units ("DSUs"), as well as other share-based payment arrangements. The maximum number of shares that may be issued upon the exercise or settlement of awards granted under the plan may not exceed 15% of the Corporation's issued and outstanding shares from time to time. The Board of Directors determines the price per common share and the number of common shares which may be allotted to directors, officers, employees, and consultants, and all other terms and conditions of the option, subject to the rules of the TSX.

- 10 -

Cardiol Therapeutics Inc.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2022

(Expressed in Canadian Dollars)

Unaudited

9.	Share-based payments (continued)

(a) Stock Options

	Number of			Weighted average
	stock options			exercise price ($)
Balance, December 31, 2020			2,861,300			$	3.78
Issued			1,646,666				4.78
Expired			(90,000	)			2.84
Exercised			(956,666	)			2.83
Balance, June 30, 2021			3,461,300			$	4.41
Balance, December 31, 2021			4,301,800			$	4.16
Issued			395,000				1.95
Expired			(403,334	)			4.34
Balance, June 30, 2022			4,293,466			$	3.94

At the grant date, the fair value stock options issued was estimated using the Black-Scholes option pricing model based on the following weighted average assumptions:

		Six Months			Six Months
		Ended			Ended
		June 30,			June 30,
	2022			2021
Fair value of stock options at grant date		$	1.39			$	2.25
Share price		$	1.86			$	4.31
Exercise price		$	1.95			$	4.31
Risk-free interest rate			1.95	%			0.44	%
Expected volatility			100	%			88	%
Expected life in years			5.00				2.91
Expected dividend yield			Nil				Nil

- 11 -

Cardiol Therapeutics Inc.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2022

(Expressed in Canadian Dollars)

Unaudited

9.	Share-based payments (continued)

(a) Stock Options (continued)

The following table reflects the actual stock options issued and outstanding as of June 30, 2022:

Expiry date			Exercise price ($)			Weighted average remaining contractual life (years)			Number of options outstanding			Number of options vested (exercisable)
February 8, 2023				4.56				0.61				416,666				416,666
February 18, 2023				4.80				0.64				410,000				410,000
February 22, 2023				4.46				0.65				130,000				130,000
October 15, 2024				3.23				2.30				60,000				40,000
December 2, 2024				4.08				2.43				60,000				40,000
December 5, 2024				3.69				2.44				60,000				60,000
February 23, 2025				3.54				2.65				81,800				81,800
August 16, 2025				5.00				3.13				200,000				200,000
August 19, 2025				2.12				3.14				100,000				33,333
August 30, 2025				5.00				3.17				420,000				420,000
October 7, 2025				2.90				3.27				35,000				11,667
December 2, 2025				2.59				3.43				130,000				43,333
January 2, 2026				4.30				3.51				150,000				150,000
January 24, 2026				5.34				3.57				60,000				60,000
March 29, 2026				4.51				3.75				400,000				133,333
April 1, 2026				5.77				3.76				140,000				140,000
May 12, 2026				3.00				3.87				75,000				75,000
June 5, 2026				3.26				3.93				60,000				30,000
August 16, 2026				3.26				4.13				60,000				-
August 24, 2026				3.81				4.15				90,000				-
September 13, 2026				4.88				4.21				55,000				-
December 8, 2026				2.65				4.44				380,000				-
December 8, 2026				3.59				4.44				325,000				-
January 11, 2027				2.18				4.54				220,000				-
March 14, 2027				2.07				4.71				60,000				-
May 12, 2027				1.46				4.87				115,000				-
			3.94				3.07				4,293,466				2,475,132

- 12 -

Cardiol Therapeutics Inc.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2022

(Expressed in Canadian Dollars)

Unaudited

9.	Share-based payments (continued)

(b) Performance Share Units and Other Share-Awards

The Corporation has no outstanding performance share units ("PSUs") as at June 30, 2022 (June 30, 2021 - nil). During the six months ended June 30, 2022, 1,200,000 PSUs granted to certain consultants of the Corporation expired. The performance criteria were not achieved and therefore no shares were granted in connection with these PSUs. Upon expiry, $1,121,400 of previously recognized share-based compensation was reversed through general and administration.

Subsequent to June 30, 2022, the Corporation granted 1,600,000 PSUs to certain consultants of the Corporation, requiring the completion of certain performance criteria specific to each grant.

10.

Warrants

		Number of warrants			Amount
Balance, December 31, 2020			4,521,604			$	4,460,728
Issued (i), (note 8 (ii))			3,590,013				3,707,574
Exercised			(2,672,987	)			(3,078,096	)
Balance, June 30, 2021			5,438,630			$	5,090,206
Balance, December 31, 2021			12,452,178			$	4,176,780
Earned (ii)			-				1,355,775
Balance, June 30, 2022			12,452,178			$	5,532,555

(i)100,613 warrants with a fair value of $144,761 carrying an exercise price of $3.25 and an original expiry date of June 4, 2022, are included in this amount as a result of the exercise of 201,227 warrants carrying a price of $2.50. At the grant date, the fair value of the warrants issued was estimated using the Black-Scholes option pricing model based on the following weighted average assumptions:

		Six Months Ended June 30, 2021
Fair value of warrants at grant date		$	1.44
Share price		$	3.53
Exercise price		$	3.25
Risk-free interest rate			0.15	%
Expected volatility			85	%
Expected life in years			1.38
Expected dividend yield			Nil

(ii)During the six months ended June 30, 2022, 338,943 warrants with a fair value of $1,355,775 (six months ended June 30, 2021 - nil warrants with a fair value of $nil) were earned pursuant to the Caro Development Agreement (see note 12 (iii)).

- 13 -

Cardiol Therapeutics Inc.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2022

(Expressed in Canadian Dollars)

Unaudited

10.	Warrants (continued)

The following table reflects the actual warrants issued and outstanding as of June 30, 2022, excluding 1,020,000 special warrants convertible automatically into common shares for no additional consideration in accordance with the original escrow release terms as described in the Meros License Agreement (see note 5):

Expiry date		Exercise price ($)			Remaining contractual life (years)			Warrants exercisable
August 31, 2022			4.00				0.14				824,000
May 12, 2024			4.60				1.87				3,453,178
November 5, 2024(1)			4.83				2.35				8,175,000
			4.71				2.07				12,452,178

(1) Warrants carry an exercise price of USD$3.75. This amount was translated to CAD for presentation purposes at the June 30, 2022 rate of 1.29. These warrants are classified as a derivative liability on the statement of financial position (see note 7).

11.	Loss per share

For the three and six months ended June 30, 2022, basic and diluted loss per share has been calculated based on the loss attributable to common shareholders of $6,489,488 and $15,443,582, respectively (three and six months ended June 30, 2021 - $6,560,943 and $15,470,791, respectively) and the weighted average number of common shares outstanding of 61,932,362 and 61,928,811, respectively (three and six months ended June 30, 2021 - 40,057,578 and 37,346,482, respectively). Diluted loss per share did not include the effect of stock options, PSUs, other share-awards, and warrants as they are anti-dilutive.

12.	Commitments

(i)The Corporation has leased premises with third parties. The minimum committed lease payments, which include the lease liability payments shown as base rent, are approximately as follows:

			Base rent			Variable rent			Total
2022			$	27,688			$	25,923			$	53,611
2023				55,376				51,846				107,222
2024				23,073				21,603				44,676
			$	106,137			$	99,372			$	205,509

(ii)The Corporation has signed various agreements with consultants to provide services. Under the agreements, the Corporation has the following remaining commitments.

2022

$

211,796

(iii)Cardiol entered into a development agreement (the "Caro Development Agreement") with the Clinical Academic Research Organization, S.A. DE C.V. ("Caro") dated August 28, 2018, for the further research and development of proprietary drug formulations for the treatment of heart failure. Caro is a Mexican corporation dedicated to providing clinical and scientific experimentation and consulting, as well as performing development activities by itself or through third-party providers.

- 14 -

Cardiol Therapeutics Inc.

Notes to Condensed Interim Consolidated Financial Statements
Three and Six Months Ended June 30, 2022

(Expressed in Canadian Dollars)
Unaudited

12.	Commitments (continued)

(iii)(continued) Pursuant to the terms of the Caro Development Agreement, Caro will provide scientific experimentation, research activities, medical drug development activities, and medical drug formulation and discovery to Cardiol (the "Development Activities"), as set out in a development plan (the "Development Plan"). Under the Caro Development Agreement, Caro may also engage third-party providers of development activities in support of the Development Plan, which is anticipated to be limited to third-party vendors of materials.

Pursuant to the terms of the Caro Development Agreement, Cardiol will immediately upon execution of the Caro Development Agreement allot and set aside 824,000 Common Shares of Cardiol, and issue to Caro 824,000 warrants (the "Caro Compensation Warrants"), each warrant having the following qualifications: (i) an expiry date of August 31, 2022, or such earlier date as may be specified by a relevant stock exchange; (ii) an exercise price of $4 per share (to be settled through the issuance of invoices by Caro); and (iii) each of the Caro Compensation Warrants entitles Caro to purchase one Common Share of Cardiol for the exercise price. The Compensation Warrants are earned and become exercisable as the Development Activities are completed. Cardiol also further agreed to pay Caro US$400,000 in cash (paid).

Pursuant to the terms of the Caro Development Agreement, both Cardiol and Caro may terminate the Caro Development Agreement if either party believes in good faith that the continued performance of the Development Activities may be commercially unwise, jeopardize safety, or otherwise be unethical or illegal. However, if Caro terminates the Caro Development Agreement for any reason except breach of contract by Cardiol, or terminates the development activities under the contract prior to achievement of all milestones in the Development Plan, then any unexercised Caro Compensation Warrants that are not related to Development Activities and milestones in the Development Plan that have been attained up to the time of termination of the Caro Development Agreement shall be deemed terminated as of the time of termination of the Caro Development Agreement.

Further, if Cardiol terminates the Caro Development Agreement for any reason (including breach of contract by Caro), or requires Caro to terminate the Development Activities prior to achievement of all milestones in the Development Plan, then the Caro Compensation Warrants issued to Caro that can be invoiced for the CARO Development Activities completed up to the time of termination shall be considered to have been earned notwithstanding such termination.

The CARO Compensation Warrants that cannot be exercised (because invoices for CARO Development Activities not completed cannot be issued) will be deemed terminated, null and void as of termination.

(iv)Cardiol entered into an exclusive supply agreement (the "Exclusive Supply Agreement") with Noramco, Inc. ("Noramco") dated September 28, 2018, as amended on December 7, 2018, December 11, 2018, July 2, 2019, September 11, 2019, and November 12, 2019, pursuant to which Noramco will be the exclusive supplier of pharmaceutical cannabidiol for Cardiol, provided Noramco is able to meet Cardiol's supply requirements.

During 2020, the Exclusive Supply Agreement was assigned to Purisys, LLC ("Purisys"), an affiliate of Noramco headquartered in Athens, Georgia. This assignment had no impact on Cardiol's rights under the Exclusive Supply Agreement.

Pursuant to the terms of the Exclusive Supply Agreement, Cardiol paid a non-refundable payment of US$3,000,000 (the "Exclusivity Payment"). The Exclusivity Payment represents a prepayment for inventory and is being credited towards purchases. Prepaid inventory at June 30, 2022 was $339,051 (December 31, 2021 - $339,051),

Purisys shall not sell pharmaceutical cannabidiol to any third party for use in the production of products sold to retail pharmacies in Canada and Mexico, such as Shoppers Drug Mart Inc. Notwithstanding this restriction, Purisys shall have the right to sell pharmaceutical cannabidiol to third parties outside Canada for use in products that are approved as prescription medicines by the Therapeutic Products Directorate of Health Canada for delivery into Canada.

- 15 -

Cardiol Therapeutics Inc.

Notes to Condensed Interim Consolidated Financial Statements
Three and Six Months Ended June 30, 2022

(Expressed in Canadian Dollars)
Unaudited

12.	Commitments (continued)

(iv)	(continued) The Exclusive Supply Agreement expires on December 31, 2038, subject to certain renewal provisions.

(v)Pursuant to the terms of agreements with various other contract research organizations, the Corporation is committed for contract research services for 2022 at a cost of approximately $1,584,059.

13.	Other expenses and adjustments

The following details highlight certain components of the research and development and general and administration expenses classified by nature. Remaining research and development and operating expenses include personnel costs and expenses paid to third parties:

		Three Months Ended June 30, 2022			Three Months Ended June 30, 2021			Six Months Ended June 30, 2022			Six Months Ended June 30, 2021
Research and development expenses
Non-cash share-based compensation			91,347				171,821				263,184				241,428
General and administration expenses
Depreciation of property and equipment			32,668				33,510				65,177				67,019
Amortization of intangible assets			21,111				21,111				42,222				42,222
Non-cash share-based compensation			(673,584	)			654,832				220,973				2,726,517

14.	Related party transactions

(a) The Corporation entered into the following transactions with related parties:

(i) Included in research and development expense is $362,053 and $702,532 for the three and six months ended June 30, 2022 (three and six months ended June 30, 2021 - $186,937 and $780,736) paid to a company related to a director. As at June 30, 2022, $928,514 (December 31, 2021 - $671,462) was owed to this company and this amount was included in accounts payable and accrued liabilities, and nil (December 31, 2021 - $12,402) was paid to this company and was included in prepaid expenses.

(b)Key management personnel are those persons having authority and responsibility for planning, directing, and controlling the activities of the Corporation directly or indirectly, including any directors (executive and non-executive) of the Corporation. Remuneration of directors and key management personnel of the Corporation, except as noted in (a) above, was as follows:

		Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
		June 30,			June 30,			June 30,			June 30,
		2022			2021			2022			2021
Salaries and benefits			507,290				602,769			$	1,369,618			$	1,435,888
Share-based payments			366,498				300,293				847,779				453,648
			873,788				903,062			$	2,217,397			$	1,889,536

As at June 30, 2022, nil (December 31, 2021 - $46,488) was owed to key management personnel and this amount was included in accounts payable and accrued liabilities.

- 16 -

Cardiol Therapeutics Inc.

Notes to Condensed Interim Consolidated Financial Statements
Three and Six Months Ended June 30, 2022

(Expressed in Canadian Dollars)
Unaudited

15.	Uncertainty due to COVID-19

The novel coronavirus (COVID-19) pandemic has impacted and could further impact our expected timelines, operations, and the operations of our third-party suppliers, manufacturers, and CROs as a result of quarantines, facility closures, travel and logistics restrictions, and other limitations in connection with the outbreak. While we expect this to be temporary, there is uncertainty around its duration and its broader impact. The Corporation had not experienced any adverse material affects as at June 30, 2022.

16.	Subsequent event

(i) Subsequent to June 30, 2022, the Corporation granted 1,600,000 PSUs to certain consultants of the Corporation, requiring the completion of certain performance criteria specific to each grant.

17.	Comparative figures

Certain of the prior period figures have been reclassified to conform with the presentation adopted in the current period. These reclassifications were solely related to grouping of operating expenses and had no effect on the reported results of operations.

- 17 -