Item 1. Financial Statements
Item 1. Financial Statements.
Kintara Therapeutics, Inc.
Condensed Consolidated Interim Financial Statements
(Unaudited)
For the three months ended September 30, 2021
(expressed in US dollars unless otherwise noted)
1
Kintara Therapeutics, Inc.
Condensed Consolidated Interim Balance Sheets
(In thousands, except par value amounts)
September 30,
2021
June 30,
2021
Note
$
$
(unaudited)
Assets
Current assets
Cash and cash equivalents
19,339
10,537
Prepaid expenses, deposits and other
769
756
Clinical trial deposit
4
—
500
20,108
11,793
Clinical trial deposit
4
2,100
1,600
Property, equipment and intangibles, net
5
135
150
Total assets
22,343
13,543
Liabilities
Current liabilities
Accounts payable and accrued liabilities
2,510
2,219
Related party payables
6
491
561
3,001
2,780
Milestone payment liability
3
179
182
Total liabilities
3,180
2,962
Stockholders’ equity
Preferred stock
Authorized
5,000 shares, $ 0.001 par value
Issued and outstanding
279 Series A shares at September 30, 2021
(June 30, 2021 – 279 )
6,7
279
279
18 Series C shares at September 30, 2021
(June 30, 2021 – 2 0 )
7
13,396
14,652
Common stock
Authorized
175,000 shares at September 30, 2021 and June 30, 2021,
$ 0.001 par value
47,974 issued at September 30, 2021 (June 30, 2021 –
32,740 )
7
48
33
Additional paid-in capital
7
125,074
106,821
Accumulated deficit
( 119,655
)
( 111,225
)
Accumulated other comprehensive income
21
21
Total stockholders’ equity
19,163
10,581
Total liabilities and stockholders’ equity
22,343
13,543
Nature of operations, corporate history, going concern
and management plans (note 1)
Subsequent events (note 10)
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
2
Kintara Therapeutics, Inc.
Condensed Consolidated Interim Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
Three months ended
September 30,
Note
2021
2020
$
$
Expenses
Research and development
3,793
1,357
General and administrative
2,178
1,534
Merger costs
3
—
500
In-process research and development
3
—
16,094
( 5,971
)
( 19,485
)
Other income (loss)
Foreign exchange
4
1
Amortization of deferred loan costs
—
( 27
)
Interest, net
1
( 7
)
5
( 33
)
Net loss for the period
( 5,966
)
( 19,518
)
Computation of basic loss per share
Net loss for the period
( 5,966
)
( 19,518
)
Deemed dividend recognized on beneficial conversion features of Series C Preferred stock issuance
7
—
( 3,181
)
Series A Preferred cash dividend
7
( 2
)
( 2
)
Series B Preferred stock dividend
7
—
( 5
)
Series C Preferred stock dividend
7
( 2,462
)
—
Net loss for the period attributable to common stockholders
( 8,430
)
( 22,706
)
Basic and fully diluted loss per share
( 0.25
)
( 1.33
)
Basic and fully diluted weighted average number of shares
34,281
17,106
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
3
Kintara Therapeutics, Inc.
Condensed Consolidated Interim Statements of Stockholders’ Equity
(Unaudited)
For the three months ended September 30, 2021
(In thousands)
Number
of
shares
Common
stock
$
Additional
paid-in
capital
$
Accumulated
other
comprehensive
income
$
Preferred
stock
$
Accumulated
deficit
$
Stockholders'
equity
$
Balance - June 30, 2021
32,740
33
106,821
21
14,931
( 111,225
)
10,581
Issuance of shares and warrants - net of issue costs
7,200
7
13,627
—
—
—
13,634
Conversion of Series C Preferred stock
to common stock
1,467
1
1,255
—
( 1,256
)
—
—
Exercise of 2020 Investor Warrants for cash
69
—
69
—
—
—
69
Exercise of pre-funded warrants for cash
4,800
5
—
—
—
—
5
Warrants issued for services
—
—
31
—
—
—
31
Stock option expense
—
—
811
—
—
—
811
Series A Preferred cash dividend
—
—
—
—
—
( 2
)
( 2
)
Series C Preferred stock dividend
1,698
2
2,460
—
—
( 2,462
)
—
Loss for the period
—
—
—
—
—
( 5,966
)
( 5,966
)
Balance - September 30, 2021
47,974
48
125,074
21
13,675
( 119,655
)
19,163
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
4
Kintara Therapeutics, Inc.
Condensed Consolidated Interim Statements of Stockholders’ Equity
(Unaudited)
For the three months ended September 30, 2020
(In thousands)
Number
of
shares
Common
stock
$
Additional
paid-in
capital
$
Accumulated
other
comprehensive
income
$
Preferred
stock
$
Accumulated
deficit
$
Stockholders'
equity
$
Balance - June 30, 2020
11,458
11
65,148
21
4,804
( 69,721
)
263
Adgero merger (note 3)
12,011
12
16,713
—
—
—
16,725
Issuance of Series C Preferred stock
—
—
—
—
25,028
—
25,028
Series C placement agent warrants
—
—
3,287
—
( 3,287
)
—
—
Series C Preferred stock share issuance costs
—
—
—
—
( 3,386
)
—
( 3,386
)
Deemed dividend recognized on beneficial
conversion features of Series C Preferred stock
issuance
—
—
3,181
—
—
( 3,181
)
—
Exercise of warrants
993
1
993
—
—
—
994
Warrants issued for services
—
—
45
—
—
—
45
Stock option expense
—
—
405
—
—
—
405
Series A Preferred cash dividend
—
—
—
—
—
( 2
)
( 2
)
Series B Preferred stock dividend
4
—
5
—
—
( 5
)
—
Loss for the period
—
—
—
—
—
( 19,518
)
( 19,518
)
Balance - September 30, 2020
24,466
24
89,777
21
23,159
( 92,427
)
20,554
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
5
Kintara Therapeutics, Inc.
Condensed Consolidated Interim Statements of Cash Flows
(Unaudited)
(In thousands)
Three months ended
September 30,
2021
2020
Note
$
$
Cash flows from operating activities
Loss for the period
( 5,966
)
( 19,518
)
Adjustments to reconcile net loss to net cash used in operating
activities
Amortization of intangible assets
—
1
Depreciation of property and equipment
5
15
—
In-process research and development
3
—
16,094
Change in fair value of milestone liability
3
( 3
)
—
Interest expense
—
8
Amortization of deferred loan costs
—
27
Warrants issued for services
7
31
45
Stock option expense
7
811
405
Changes in operating assets and liabilities
Prepaid expenses, deposits and other
( 13
)
24
Accounts payable and accrued liabilities
122
( 914
)
Related party payables
( 70
)
( 282
)
Net cash used in operating activities
( 5,073
)
( 4,110
)
Cash flows from investing activities
Cash acquired on merger with Adgero
3
—
969
Net cash provided by investing activities
—
969
Cash flows from financing activities
Net proceeds from the issuance of shares and warrants
7
13,803
21,859
Warrants exercised for cash
7
74
994
Proceeds from loan
—
500
Series A preferred cash dividend
6
( 2
)
( 2
)
Net cash provided by financing activities
13,875
23,351
Increase in cash and cash equivalents
8,802
20,210
Cash and cash equivalents – beginning of period
10,537
2,392
Cash and cash equivalents – end of period
19,339
22,602
Supplementary information (note 8)
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
6
Kintara Therapeutics, Inc.
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)
September 30, 2021
(expressed in US dollars and in thousands, except par value and per share amounts, unless otherwise noted)
1
Nature of operations, corporate history, and going concern and management plans
Nature of operations
Kintara Therapeutics, Inc. (the “Company”) is a clinical stage drug development company with a focus on the development of novel cancer therapies for patients with unmet medical needs. The Company is developing two late-stage, Phase 3-ready therapeutics - VAL-083 for glioblastoma multiforme and REM-001 for cutaneous metastatic breast cancer. In order to accelerate the Company’s development timelines, it leverages existing preclinical and clinical data from a wide range of sources. The Company may seek marketing partnerships in order to potentially offset clinical costs and to generate future royalty revenue from approved indications of its product candidates.
On June 9, 2020, the Company entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), by and among Adgero Acquisition Corp., the Company’s wholly-owned subsidiary incorporated in the State of Delaware (“Merger Sub”), and Adgero Biopharmaceuticals Holdings, Inc., a Delaware corporation (“Adgero”). On August 19, 2020, upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub merged with and into Adgero (the “Merger”), the separate corporate existence of Merger Sub ceased and Adgero continued its existence under Delaware law as the surviving corporation in the Merger and became a direct, wholly-owned subsidiary of the Company. As a result of the Merger, each issued and outstanding share of Adgero common stock, par value $ 0.0001 per share (the “Adgero Common Stock”) (other than treasury shares held by Adgero), was converted automatically into 1.5740 shares (the “Exchange Ratio”) of the Company’s common stock per share of Adgero Common Stock, and cash in lieu of any fractional shares. Also, each outstanding warrant to purchase Adgero Common Stock was converted into a warrant exercisable for that number of shares of the Company’s common stock equal to the product of (x) the aggregate number of shares of Adgero Common Stock for which such warrant was exercisable and (y) the Exchange Ratio.
Following the completion of the Merger, the Company changed its name from DelMar Pharmaceuticals, Inc. to Kintara Therapeutics, Inc. and began trading on Nasdaq under the symbol “KTRA”.
Corporate history
The Company is a Nevada corporation formed on June 24, 2009 under the name Berry Only, Inc. On January 25, 2013, the Company entered into and closed an exchange agreement (the “Exchange Agreement”), with Del Mar Pharmaceuticals (BC) Ltd. (“Del Mar (BC)”), 0959454 B.C. Ltd. (“Callco”), and 0959456 B.C. Ltd. (“Exchangeco”) and the security holders of Del Mar (BC). Upon completion of the Exchange Agreement, Del Mar (BC) became a wholly-owned subsidiary of the Company (the “Reverse Acquisition”).
Kintara Therapeutics, Inc. is the parent company of Del Mar (BC), a British Columbia, Canada corporation and Adgero, a Delaware corporation, which are clinical stage companies with a focus on the development of drugs for the treatment of cancer. The Company is also the parent company to Callco and Exchangeco which are British Columbia, Canada corporations. Callco and Exchangeco were formed to facilitate the Reverse Acquisition. In connection with the Merger, the Company also became the parent company of Adgero Biopharmaceuticals, Inc. (“Adgero Bio”), formerly a wholly-owned subsidiary of Adgero.
References to the Company refer to the Company and its wholly-owned subsidiaries.
Going concern and management plans
These condensed consolidated interim financial statements have been prepared on a going concern basis, which assumes that the Company will continue its operations for the foreseeable future and contemplates the realization of assets and the settlement of liabilities in the normal course of business .
For the three months ended September 30, 2021, the Company reported a loss of $ 5,966 and a negative cash flow from operations of $ 5,073 . The Company had an accumulated deficit of $ 119,655 and had cash and cash equivalents of $ 19,339 as of September 30, 2021. The Company is in the clinical stage and has not generated any revenues to-date. The Company does not have the prospect of achieving revenues until such time that its product candidates are commercialized, or partnered, which may not ever occur. In the near future, the Company will require additional funding to maintain its clinical trials, research and development projects, and for general operations. These circumstances indicate substantial doubt exists about the Company’s ability to continue as a going concern within one year from the date of filing of these condensed consolidated interim financial statements.
7
Consequently, management is pursuing various financing alternatives to fund the Company’s operations so it can continue as a going concern. However, the coronavirus (“COVID-19”) pandemic has created significant economic uncertainty and volatility in the credit and capital markets. Management plans to secure the necessary financing through the issue of new equity and/or the entering into of strategic partnership arrangements but the ultimate impact of the COVID-19 pandemic on the Company’s ability to raise additional capital is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak and any new information which may emerge concerning the severity of the COVID-19 pandemic. The Company may not be able to raise sufficient additional capital and may tailor its drug candidate development programs based on the amount of funding the Company is able to raise in the future. Nevertheless, there is no assurance that these initiatives will be successful.
These financial statements do not give effect to any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern. Such adjustments could be material.
2
Significant accounting policies
Basis of presentation
The condensed consolidated interim financial statements of the Company have been prepared in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”) and are presented in United States dollars. The functional currency of the Company and each of its subsidiaries is the United States dollar.
The accompanying condensed consolidated interim financial statements include the accounts of the Company and its wholly-owned subsidiaries, Adgero, Adgero Bio, Del Mar BC, Callco, and Exchangeco. All intercompany balances and transactions have been eliminated in consolidation.
The principal accounting policies applied in the preparation of these condensed consolidated interim financial statements are set out below and have been consistently applied to all periods presented.
Unaudited interim financial data
The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, they do not include all of the information and the notes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated interim financial statements should be read in conjunction with the June 30, 2021 audited financial statements of the Company included in the Company’s Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on September 28, 2021. In the opinion of management, the unaudited condensed consolidated interim financial statements reflect all adjustments, consisting of normal and recurring adjustments, necessary for a fair presentation. The results for three-months ended September 30, 2021 are not necessarily indicative of the results to be expected for the fiscal year ending June 30, 2022, or for any other future annual or interim period.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions about future events that affect the reported amounts of assets, liabilities, expenses, contingent assets, and contingent liabilities as at the end of, or during, the reporting period. Actual results could significantly differ from those estimates. Significant areas requiring management to make estimates include the valuation of equity instruments issued for services and clinical trial accruals. Further details of the nature of these assumptions and conditions may be found in the relevant notes to these condensed consolidated interim financial statements.
Loss per share
Income or loss per share is calculated based on the weighted average number of common shares outstanding. For the three-month periods ended September 30, 2021, and 2020 diluted loss per share does not differ from basic loss per share since the effect of the Company’s warrants, stock options, and convertible preferred shares is anti-dilutive. As of September 30, 2021, potential common shares of 19,152 (2020 – 11,858 ) related to outstanding common share warrants, 2,100 (2020 – 2,153 ) related to outstanding Series C preferred stock warrants, 6,809 (2020 – 6,544 ) related to stock options, nil (2020 – 162 ) relating to outstanding Series B convertible preferred shares, and 15,828 (2020 – 21,516 ) relating to outstanding Series C convertible preferred shares were excluded from the calculation of net loss per common share.
8
Acquired in-process research and development expense
The Company acquired in-process research and development assets in connection with its Merger with Adgero (note 3). As the acquired in-process research and development assets were deemed to have no current, or alternative future use, an expense of $ 16,094 was recognized in the condensed consolidated interim statements of operations for the three-month period ended September 30, 2020.
Property, equipment, and intangibles
Property, equipment and intangibles are stated at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis over its estimated useful life of three years . Depreciation expense is recognized from the date the equipment was put into use.
Recent accounting pronouncements
During the three-months ended September 30, 2021, there have been no new, or existing recently issued, accounting pronouncements that are of significance, or potential significance, that impact the Company’s condensed consolidated interim financial statements.
3
Merger
As described in note 1, on August 19, 2020, the Company completed its Merger with Adgero in accordance with the terms of the Merger Agreement. In connection with the Merger, substantially all of the fair value was concentrated in in-process research and development (“IPR&D”). As such, the Merger has been treated as an acquisition of Adgero assets and an assumption of Adgero liabilities.
Under the terms of the Merger Agreement, upon closing of the Merger, the Company issued 11,439 shares of Company common stock and 2,315 stock purchase warrants (“Adgero Warrants”) to the security holders of Adgero. The Adgero Warrants are exercisable at $ 3.18 per share (note 7). Also, in conjunction with the Merger, the Company issued 572 shares of common stock to the placement agent as a success fee. The aggregate fair value of consideration transferred to the Adgero shareholders was $ 16,725 . As part of the Merger, the Company acquired in-process research and development of $ 16,094 and other net assets of $ 631 . The fair value of the acquired in-process research and development assets has been expensed as a charge in the condensed consolidated interim statements of operations for the three months ended September 30, 2020, as there is no alternative use for these assets.
The Company incurred approximately $ 1,554 of legal, consulting and other professional fees related to the Merger of which approximately $ 500 was incurred during the three months ended September 30, 2020. The transaction costs have been classified as merger expenses in the condensed consolidated statement of operations.
In connection with the Merger, the Company recorded a milestone payment liability which relates to an asset purchase agreement with St. Cloud Investments, LLC (“St. Cloud”) that Adgero has regarding the acquisition of REM-001. The Agreement, as amended, is dated November 26, 2012 (the “St. Cloud Agreement”). Pursuant to the terms of the St. Cloud Agreement, the Company is obligated to make certain payments under the agreement. The future contingent amounts payable under that agreement are as follows:
•
Upon the earlier of (i) a subsequent equity financing to take place after the Company conducts a Phase 2B clinical study in which fifty patients complete the study and their clinical data can be evaluated or (ii) the commencement of a clinical study intended to be used as a definitive study for market approval in any country, the Company is obligated to pay an aggregate amount of $ 300 in cash or an equivalent amount of common stock, with $ 240 to St. Cloud and $ 60 to an employee of the Company; and
•
Upon receipt of regulatory approval of REM-001 Therapy, the Company is obligated to pay an aggregate amount of $ 700 in cash or an equivalent amount of common stock, with $ 560 to St. Cloud and $ 140 to an employee of the Company.
With respect to the $300 and $700 potential milestone payments referenced above (each a “Milestone Payment”), if either such Milestone Payment becomes payable, and in the event the Company elects to pay either such Milestone Payment in shares of its common stock, the value of the common stock will equal the average of the closing price per share of the Company’s common stock over the twenty (20) trading days following the first public announcement of the applicable event described above.
As of September 30, 2021, the Company reviewed its estimates with respect to the planned timing of completion of the respective milestones and adjusted the liability accordingly.
9
$
(in thousands)
Balance – June 30, 2020
—
Addition
188
Change in fair value estimate
( 6
)
Balance – June 30, 2021
182
Change in fair value estimate
( 3
)
Balance – September 30, 2021
179
4
Clinical trial deposit
In October 2020, the Company announced that it had entered into a final agreement with a contract research organization (“CRO”) for the management of the Company’s registration study for glioblastoma multiforme. Under the agreement, the Company will supply the drug for the study and the CRO will manage all operational aspects of the study including site activation and patient enrollment. The Company is required to make certain payments under the agreement related to patient enrollment milestones. For the three months ended September 30, 2021, the Company has recognized $ 1,952 (2020 – $nil) of expenses for this study in relation to clinical site initiation and patient enrollment.
In relation to this study, the Company has made a deposit payment of $ 2,100 to the CRO. It is anticipated that the deposit will be applied to future invoices, or refunded to the Company, beyond twelve months from September 30, 2021. The Company can terminate the study at any time. Upon termination, the Company will be liable for any payments due to the effective date of the termination as well as any non-refundable costs incurred by the CRO prior to the date of termination.
5
Property, equipment and intangibles
$
(thousands)
Balance, June 30, 2020
—
Acquired in Adgero merger (note 3)
175
Laboratory equipment purchased
8
Disposal of furniture
( 3
)
Property, equipment and intangibles
180
Less accumulated depreciation
( 30
)
Balance, June 30, 2021
150
Less accumulated depreciation
( 15
)
Balance, September 30, 2021
135
6
Related party transactions
Valent Technologies, LLC Agreements
One of the Company’s officers is a principal of Valent Technologies, LLC (“Valent”) and as result Valent is a related party to the Company.
On September 12, 2010, the Company entered into a Patent Assignment Agreement (the “Valent Assignment Agreement”) with Valent pursuant to which Valent transferred to the Company all its right, title and interest in, and to, the patents for VAL-083 owned by Valent. The Company now owns all rights and title to VAL-083 and is responsible for further development and commercialization. In accordance with the terms of the Valent Assignment Agreement, Valent is entitled to receive a future royalty on all revenues derived from the development and commercialization of VAL-083. In the event that the Company terminates the agreement, the Company may be entitled to receive royalties from Valent’s subsequent development of VAL-083 depending on the development milestones the Company has achieved prior to the termination of the Valent Assignment Agreement.
On September 30, 2014, the Company entered into an exchange agreement (the “Valent Exchange Agreement”) with Valent and Del Mar (BC). Pursuant to the Valent Exchange Agreement, Valent exchanged its loan payable in the outstanding amount of $ 279 (including aggregate accrued interest to September 30, 2014, of $ 29 ), issued to Valent by Del Mar (BC), for 279 shares of the Company’s Series A Preferred Stock. The Series A Preferred Stock has a stated value of $ 1.00 per share (the “Series A Stated Value”) and is not convertible into common stock. The holder of the Series A Preferred Stock is entitled to dividends at the rate of 3 % of the Series A Stated Value per year, payable quarterly in arrears. For the three-months ended September 30, 2021, and 2020 respectively,
10
the Company recorded $ 2 related to the dividend paid to Valent . The dividends have been recorded as a direct increase in accumulated deficit.
Related party payables
At September 30, 2021 there is an aggregate amount of $ 491 (June 30, 2021 - $ 561 ) payable to the Company’s officers and directors for fees, expenses, and accrued bonuses and other liabilities.
7
Stockholders’ equity
Preferred stock
Series C Preferred Stock
Series C Preferred Stock
Number
of shares
$
(in thousands)
Balance – June 30, 2020
—
—
Issuance
25,028
18,286
Issued on exercise of Series C Agent Warrants
33
79
Conversion of Series C Preferred stock to common stock
( 4,969
)
( 3,713
)
Balance – June 30, 2021
20,092
14,652
Conversion of Series C Preferred stock to common stock
( 1,710
)
( 1,256
)
Balance – September 30, 2021
18,382
13,396
In connection with the Merger (note 3), in August 2020, the Company issued 25,028 shares of Series C Convertible Preferred Stock (the “Series C Preferred Stock”) in three separate closings of a private placement (Series C-1, C-2, and C-3). Each share of Series C Preferred Stock was issued at a purchase price of $ 1,000 per share and is convertible into shares of common stock based on the respective conversion prices which were determined at the closing of each round of the private placement. The conversion prices for the Series C-1 Preferred Stock, Series C-2 Preferred Stock, and the Series C-3 Preferred Stock are $ 1.16 , $ 1.214 , and $ 1.15 , respectively. Subject to ownership limitations, the owners of the Series C Preferred Stock are entitled to receive dividends, payable in shares of common stock at a rate of 10 %, 15 %, 20 % and 25 % of the number of shares of common stock issuable upon conversion of the Series C Preferred Stock, on the 12 th , 24 th , 36 th and 48 th month, anniversary of the initial closing of the private placement which occurred on August 19, 2020.
The Series C Preferred Stock dividends do not require declaration by the Board of Directors and are accrued annually as of the date the dividend is earned in an amount equal to fair value of the Company’s common stock on the dates the respective dividends are paid. The fair value of the Series C Preferred Stock dividend paid on August 19, 2021, was determined by multiplying the dividends paid of 1,698 by the Company’s closing share price on August 19, 2021, of $ 1.45 per share for a total fair value of $ 2,462 . Any outstanding shares of Series C Preferred Stock will automatically convert to shares of common stock on August 19, 2024 .
Total gross proceeds from the private placement were $ 25,028 , or approximately $ 21,573 in net proceeds after deducting financing costs of $ 3,455 with respect to agent commissions and expenses, as well as legal and accounting fees. In addition, the Company issued 2,504 Series C Preferred Stock purchase warrants with a fair value of $ 3,287 to the placement agent (“Series C Agent Warrants”).
The Company’s Series C Preferred Stock outstanding, conversion shares, and dividends as of September 30, 2021, are as follows:
Series
Number
Conversion
price
$
Number of
conversion
shares
(in
thousands)
Dividend Shares (in thousands)
Series 1
15,439
1.16
13,310
9,414
Series 2
898
1.21
740
518
Series 3
2,045
1.15
1,778
1,263
18,382
15,828
11,195
11
Series C Dividends
Dividend Shares
(in thousands)
10% - August 19, 2021 (actual)
1,698
15% - August 19, 2022 (estimated)
2,374
20% - August 19, 2023 (estimated)
3,166
25% - August 19, 2024 (estimated)
3,957
11,195
The conversion feature of the Series C Convertible Preferred Stock at the time of issuance was determined to be beneficial on the commitment date. Because the Series C Convertible Preferred Stock was perpetual with no stated maturity date, and the conversions could occur any time from inception, the Company immediately recorded a non-cash deemed dividend of $ 3,181 related to the beneficial conversion feature arising from the issuance of Series C Convertible Preferred Stock. This non-cash deemed dividend increased the Company’s net loss attributable to common stockholders and net loss per share for the three months ended September 30, 2020 .
The Series C Preferred Stock shall with respect to distributions of assets and rights upon the occurrence of a liquidation, rank (i) senior to the Company’s common stock and (ii) senior to any other class or series of capital stock of the Company hereafter created which does not expressly rank pari passu with, or senior to, the Series C Preferred Stock. The Series C Preferred Stock shall be pari passu in liquidation to the Company’s Series A Preferred Stock. The liquidation value of the Series C Preferred Stock at September 30, 2021, is the stated value of $ 18,382 (June 30, 2021 - $ 20,092 ).
Series B Preferred Stock
During the year ended June 30, 2016, the Company issued 902 shares of Series B Preferred Stock. The remaining balance of 601 shares of Series B Preferred Stock were fully converted to 150 shares of common stock on April 29, 2021. The holders of the Series B Preferred Stock were entitled to an annual cumulative, in arrears, dividend at the rate of 9 % payable quarterly. The 9% dividend accrued quarterly commencing on the date of issue and was payable quarterly on September 30, December 31, March 31, and June 30 of each year commencing on June 30, 2016. Dividends were payable solely by delivery of shares of common stock, in an amount for each holder equal to the aggregate dividend payable to such holder with respect to the shares of Series B Preferred Stock held by such holder divided by the conversion price. Pursuant to the Series B Preferred Stock dividend, during the three-months ended September 30, 2021, the Company issued nil (2020 – 4 ) shares of common stock and recognized $nil (2020 - $ 5 ) as an increase in accumulated deficit.
In addition, the Company and the Series B Preferred Stock holders entered into a royalty agreement, pursuant to which the Company will pay the holders of the Series B Preferred Stock, in aggregate, a low, single-digit royalty based on their pro rata ownership of the Series B Preferred Stock on products sold directly by the Company or sold pursuant to a licensing or partnering arrangement.
Series A Preferred Stock
Effective September 30, 2014, the Company filed a Certificate of Designation of Series A Preferred Stock (the “Series A Certificate of Designation”) with the Secretary of State of Nevada. Pursuant to the Series A Certificate of Designation, the Company designated 279 shares of preferred stock as Series A Preferred Stock. The shares of Series A Preferred Stock have a stated value of $ 1.00 per share (the “Series A Stated Value”) and are not convertible into common stock. The holder of the Series A Preferred Stock is entitled to dividends at the rate of 3 % of the Series A Stated Value per year, payable quarterly in arrears. Upon any liquidation of the Company, the holder of the Series A Preferred Stock will be entitled to be paid, out of any assets of the Company available for distribution to stockholders, the Series A Stated Value of the shares of Series A Preferred Stock held by such holder, plus any accrued but unpaid dividends thereon, prior to any payments being made with respect to the common stock. The Series A Preferred Stock is held by Valent (note 4).
The Series A Preferred Stock shall with respect to distributions of assets and rights upon the occurrence of a liquidation, rank (i) senior to the Company’s common stock, and (ii) senior to any other class or series of capital stock of the Company hereafter created which does not expressly rank pari passu with, or senior to, the Series A Preferred Stock. The Series A Preferred Stock shall be pari passu in liquidation to the Company’s Series C Preferred Stock. The liquidation value of the Series A Preferred stock at September 30, 2021 is its stated value of $ 279 (June 30, 2021 - $ 279 ).
There was no change to the Series A Preferred stock for the three-months ended September 30, 2021 or 2020.
12
Common stock
Stock issuances during the three months ended September 30, 2021
Registered direct financing
On September 28, 2021, the Company closed on the sale of (i) 7,200 shares of its common stock, par value $ 0.001 per share (the “Common Stock”), (ii) pre-funded warrants (“PFW”) to purchase an aggregate of 4,800 shares of Common Stock and (iii) common warrants to purchase an aggregate of 12,000 shares of Common Stock (“2022 Investor Warrants”) in the Company’s registered direct offering (the “Offering”). Each share of Common Stock, or PFW as applicable, was sold together with a 2022 Investor Warrant to purchase one share of Common Stock at a combined effective price of $1.25 per share of Common Stock and accompanying 2022 Investor Warrant. The 2022 Investor Warrants have been valued at $ 7,023 and have been treated as equity. They have been valued using a Black-Scholes valuation with a risk-free rate of 0.55 %, a contractual term of 3.5 years, a volatility of 116.7 %, and a dividend rate of 0 %. The estimated volatility of the Company’s common stock is based on the historical volatility of the Company. The risk-free interest rate is based on rates published by the government for bonds with a maturity similar to the contractual life of the instrument at the valuation date. The term is based on the contractual term of the warrant.
The net proceeds from the Offering, were $ 13,634 after deducting commissions and other offering expenses.
The 2022 Investor Warrants are exercisable at $1.25 per share until their expiry on March 28, 2025 and the PFW are exercisable at $0.001 per share at any time after September 28, 2021. The Company also issued 600 agent warrants that are exercisable at $ 1.5265 per share commencing September 28, 2021 , until their expiry on March 28, 2025 (the “2022 Agent Warrants”). The 2022 Agent Warrants have been valued at $ 333 and have been treated as non-cash issue costs of the Common Stock, 2022 Investor Warrants, and PFW. The 2022 Agent Warrants have been valued using a Black-Scholes valuation with a risk-free rate of 0.55 %, a contractual term of 3.5 years, a volatility of 116.7 %, and a dividend rate of 0 %. The estimated volatility of the Company’s common stock is based on the historical volatility of the Company. The risk-free interest rate is based on rates published by the government for bonds with a maturity similar to the contractual life of the instrument at the valuation date. The term is based on the contractual term of the warrant .
During the three months ended September 30, 2021, all of the 4,800 PFW were exercised at $ 0.001 per PFW for proceeds of $ 4.8 .
Stock options
2017 Omnibus Incentive Plan
As subsequently approved by the Company’s stockholders at an annual meeting of stockholders on April 11, 2018, the Company’s board of directors approved adoption of the Company’s 2017 Omnibus Equity Incentive Plan (the “2017 Plan”). The board of directors also approved a form of Performance Stock Unit Award Agreement to be used in connection with grants of performance stock units (“PSUs”) under the 2017 Plan. As approved by the Company’s stockholders on June 25, 2021, the number of common shares available under the 2017 Plan was increased to 13,000 shares. Under the 2017 Plan 13,000 shares of Company common stock are currently reserved for issuance, less the number of shares of common stock issued under the Del Mar (BC) 2013 Amended and Restated Stock Option Plan (the “Legacy Plan”), or that are subject to grants of stock options made, or that may be made, under the Legacy Plan, or that have been previously exercised. A total of 129 shares of common stock have been issued under the Legacy Plan and/or are subject to outstanding stock options granted under the Legacy Plan, and a total of 6,680 shares of common stock have been issued under the 2017 Plan and/or are subject to outstanding stock options granted under the 2017 Plan leaving 5,997 shares of common stock available at September 30, 2021 for issuance under the 2017 Plan if all such options under the Legacy Plan were exercised, net of stock options previously exercised.
The maximum number of shares of Company common stock with respect to which any one participant may be granted awards during any calendar year is 8 % of the Company’s fully diluted shares of common stock on the date of grant (excluding the number of shares of common stock issued under the 2017 Plan and/or the Legacy Plan or subject to outstanding awards granted under the 2017 Plan and/or the Legacy Plan). No award will be granted under the 2017 Plan on, or after, July 7, 2027.
During the three-months ended September 30, 2021, a total of 435 options to purchase shares of common stock were granted to directors of the Company. The options to purchase shares of common stock of the Company have an exercise price of $ 1.24 per share. They vest in 12 equal monthly installments beginning on October 22, 2021. All of the options to purchase shares of common stock granted have a 10-year term and are subject to cancellation upon the grantees’ termination of service for the Company, with certain exceptions .
13
The following table sets forth changes in stock options outstanding under all plans:
Number of
stock options
outstanding
(in thousands)
Weighted
average
exercise
price
Balance – June 30, 2021
6,392
2.26
Granted
435
1.24
Expired
( 18
)
13.11
Balance – September 30, 2021
6,809
2.16
The following table summarizes stock options outstanding and exercisable under all plans at September 30, 2021:
Exercise price
$
Number
Outstanding at
September 30, 2021
(in thousands)
Weighted
average remaining
contractual life
(years)
Number
exercisable at
September 30, 2021
(in thousands)
0.61
816
7.93
747
0.74
250
8.12
83
1.24
435
9.98
—
1.36
300
8.98
100
1.37
75
9.58
—
1.70
4,699
8.96
1,886
6.10
17
7.11
17
8.70
11
6.09
11
9.83
84
6.64
84
10.60
3
6.54
3
11.70
30
1.41
30
15.77
3
0.67
3
20.00
9
0.34
9
21.10
7
5.77
7
29.60
2
3.35
2
37.60
5
4.36
5
41.00
4
5.11
4
42.00
30
1.88
30
44.80
3
4.36
3
49.50
13
5.38
13
53.20
8
4.60
8
61.60
2
1.50
2
92.00
3
1.67
3
6,809
3,050
Included in the number of stock options outstanding are 2.5 stock options granted at an exercise price of CA$20.00. The exercise price of these options shown in the above table have been converted to US$ 15.77 per share using the period ending closing exchange rate. Stock options granted during the three months ended September 30, 2021, have been valued using a Black-Scholes pricing model with the following assumptions:
September 30,
2021
Dividend rate
—
%
Estimated volatility
93.9
%
Risk-free rate
1.55
%
Expected term – years
5.3
The estimated volatility of the Company’s common stock at the date of issuance of the stock options is based on the historical volatility of the Company. The risk-free interest rate is based on rates published by the government for bonds with a maturity similar to the expected remaining term of the stock options at the valuation date. The expected term of the stock options has been estimated using the plain vanilla method.
14
The Company has recognized the following amounts as stock option expense for the periods noted (in thousands) :
Three months ended
September 30,
2021
$
2020
$
Research and development
244
91
General and administrative
567
314
811
405
All of the stock option expense for the periods ended September 30, 2021, and 2020 has been recognized as additional paid in capital. The aggregate intrinsic value of stock options outstanding at September 30, 2021 was $ 235 (2020 - $ 977 ) and the aggregate intrinsic value of stock options exercisable at September 30, 2021 was $ 197 (2020 - $ 447 ). As of September 30, 2021, there was $ 2,597 in unrecognized compensation expense that will be recognized over the next 2.58 years.
The following table sets forth changes in unvested stock options under all plans:
Number of
Options
(in thousands)
Weighted
average
exercise
price
$
Unvested at June 30, 2021
3,860
1.60
Granted
435
1.24
Vested
( 536
)
1.62
Unvested at September 30, 2021
3,759
1.56
The aggregate intrinsic value of unvested stock options at September 30, 2021 was $ 38 (2020 - $ 531 ). The unvested stock options have a remaining weighted average contractual term of 9.03 years (2020 – 9.83).
Common stock warrants
The following table sets forth changes in outstanding common stock warrants:
Number of
Warrants
(in thousands)
Weighted
average
exercise
price
$
Balance – June 30, 2021
6,974
3.34
Issuance of 2022 Investor Warrants
12,000
1.25
Issuance of PFW
4,800
0.001
Issuance of 2022 Agent Warrants
600
1.5625
Exercise of PFW
( 4,800
)
0.001
Exercise of 2020 Investor Warrants
( 69
)
1.00
Expiry of Adgero replacement warrants
( 353
)
3.18
Balance – September 30, 2021
19,152
1.99
15
The following table summarizes the Company’s outstanding common stock warrants as of September 30, 2021:
Description of warrants
Number
(in thousands)
Exercise
price $
Expiry date
2022 Investor warrants
12,000
1.25
March 28, 2025
2020 Investor warrants
3,264
1.00
August 16, 2024
2019 Investor warrants
760
3.10
June 5, 2024
2018 Investor warrants
280
12.50
September 22, 2022
2017 Investor warrants
208
35.00
April 19, 2022
NBTS Warrants
125
1.09
June 19, 2025
Warrants issued for services
6
17.80
January 25, 2023
Warrants issued for services
34
11.70
February 27, 2023
Warrants issued for services
14
9.00
September 15, 2023
Warrants issued for services
280
0.75
October 11, 2023
Warrants issued for services
125
0.64
November 18, 2023
Warrants issued for services
280
1.49
January 20, 2024
Warrants issued for services
50
1.49
September 22, 2023
Warrants issued for services
50
1.82
November 13, 2023
Warrants issued for services
100
1.47
January 20, 2024
Warrants issued for services
70
2.75
February 17, 2024
Warrants issued for services
50
2.38
February 25, 2024
2022 Agent warrants
600
1.56
March 28, 2025
2019 Agent warrants
47
3.88
June 3, 2024
2018 Agent warrants
40
12.50
September 20, 2022
2017 Agent warrants
14
40.60
April 12, 2022
Adgero Warrants
755
3.18
January 17, 2022
19,152
Series C Preferred Stock warrants
In connection with the Series C Preferred Stock private placement, the Company issued 2,504 Series C Agent Warrants. The Series C Agent Warrants have an exercise price of $ 1,000 per share, provide for a cashless exercise feature, and are exercisable for a period of four years from August 19, 2020. The Series C Preferred Stock issuable upon exercise of the Series C Agent Warrants is convertible into shares of common stock in the same manner as each respective underlying series of outstanding Series C Preferred Stock and will be entitled to the same dividend rights as each respective series.
The Series C Agent Warrants were valued at a total of $ 3,287 using a binomial pricing model with a risk-free interest rate of 0.27 %, a term of 4.0 years, and a volatility of 95.2 % to 95.8 %. The estimated volatility of the Company’s common stock at the date of measurement is based on the historical volatility of the Company’s common stock. The risk-free interest rate is based on rates published by the government for bonds with a maturity similar to the expected remaining life of the instrument at the valuation date. The expected term has been estimated using the contractual term of the warrant.
The following table sets forth changes in outstanding Series C Agent Warrants:
Balance
June 30, 2021
Number of
Warrants Issued
Number of
Warrants Exercised
Balance,
September 30, 2021
Conversion
price
$
Issuance of Preferred Series C-1 Agent Warrants
1,929
—
—
1,929
1.16
Issuance of Preferred Series C-2 Agent Warrants
219
—
—
219
1.21
Issuance of Preferred Series C-3 Agent Warrants
296
—
—
296
1.15
2,444
—
—
2,444
16
The following table summarizes the Company’s outstanding Series C Agent Warrants as of September 30, 2021:
Series C Agent Warrants
Number
Conversion
price
$
Number of
conversion
shares
(in
thousands)
Cumulative
common
stock
dividends
(in
thousands)
Series 1
1,929
1.16
1,663
1,164
Series 2
219
1.21
180
126
Series 3
296
1.15
257
180
2,444
2,100
1,470
8
Supplementary statement of cash flows information
The Company incurred the following non-cash investing and financing transactions (in thousands):
Three months ended
September 30,
2021
$
September 30,
2020
$
Series C Preferred Stock common stock dividend (note 7)
2,462
—
Series B Preferred Stock common stock dividend (note 7)
—
5
Deemed dividend recognized on beneficial conversion features of Series C Preferred stock issuance (note 7)
—
3,181
Non-cash issue costs (note 7)
333
3,287
Issue costs in accounts payable and accrued liabilities
169
193
Income taxes paid
—
—
Interest paid
—
—
9
Financial instruments
The Company has financial instruments that are measured at fair value. To determine the fair value, the Company uses the fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use to value an asset or liability and are developed based on market data obtained from independent sources. Unobservable inputs are inputs based on assumptions about the factors market participants would use to value an asset or liability. The three levels of inputs that may be used to measure fair value are as follows:
•
Level one - inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities;
•
Level two - inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals; and
•
Level three - unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.
Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. As at September 30, 2021, the Company’s milestone payment liability was measured using level 3 inputs (note 3).
September 30, 2021
Liability
Level 1
Level 2
Level 3
Milestone payment liability
—
—
179
The Company’s financial instruments consist of cash and cash equivalents, other receivables, accounts payable, and related party payables. The carrying values of cash and cash equivalents, other receivables, accounts payable and related party payables approximate their fair values due to the immediate or short-term maturity of these financial instruments.
17
1 0
Subsequent events
Series C Preferred Stock
Subsequent to September 30, 2021, 0.65 shares of Series C-1 Preferred Stock were converted into 560 shares of common stock.
Stock options
On November 8, 2021, the Company issued 3,519 stock options to one of its officers. The stock options are exercisable at $ 0.96 per share until November 8, 2031 , and vest 25 % on November 8, 2022 , with the remainder to vest in equal installments over the subsequent 36 months commencing on December 8, 2022. In addition, 2,715 stock options previously issued to an officer of the Company were modified such that 754 stock options that were to vest over the period December 15, 2022 , to September 15, 2023 , now vest on a contingent basis dependent on the achievement of certain strategic partnership initiatives.
The Company has evaluated its subsequent events from September 30, 2021, through the date these condensed consolidated interim financial statements were issued and has determined that there are no subsequent events requiring disclosure in these condensed consolidated interim financial statements other than the items noted above.
18
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.