MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS This Management's Discussion and Analysis ("MD&A") contains "forward-looking statements", within the meaning of the Private Securities Litigation Reform Act of 1995, which represent our projections, estimates, expectations, or beliefs concerning, among other things, financial items that relate to management's future plans or objectives or to our future economic and financial performance. In some cases, you can identify these statements by terminology such as "may", "should", "plans", "believe", "will", "anticipate", "estimate", "expect" "project", or "intend", including their opposites or similar phrases or expressions. You should be aware that these statements are projections or estimates as to future events and are subject to a number of factors that may tend to influence the accuracy of the statements. These forward-looking statements should not be regarded as a representation by us or any other person that our events or plans will be achieved. You should not unduly rely on these forward-looking statements, which speak only as of the date of this report. Except as may be required under applicable securities laws, we undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this report or to reflect the occurrence of unanticipated events. You should review the factors and risks we describe under "Risk Factors" in this report on Form 10-K for the year endedJune 30, 2020 and in our other filings with theSecurities and Exchange Commission , available at www.sec.gov. Actual results may differ materially from any forward-looking statement.Kintara Therapeutics, Inc. is the parent company ofDel Mar (BC), aBritish Columbia, Canada corporation, andAdgero Biopharmaceuticals Holdings, Inc. , aDelaware corporation ("Adgero"), 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 areBritish Columbia, Canada corporations. Callco and Exchangeco were formed to facilitate the Reverse Acquisition. In connection with the merger described below, the Company is also the parent company ofAdgero Biopharmaceuticals, Inc. , formerly a wholly-owned subsidiary of Adgero.
References to "we", "us", and "our", refer to
Corporate History
We are aNevada corporation formed onJune 24, 2009 under the nameBerry Only, Inc. OnJanuary 25, 2013 , we entered into and closed an exchange agreement (the "Exchange Agreement"), withDel Mar Pharmaceuticals (BC) Ltd. ("Del Mar (BC)"), 0959454B.C. Ltd. ("Callco"), and 0959456B.C. Ltd. ("Exchangeco") and the security holders of Del Mar (BC). Upon completion of the Exchange Agreement, Del Mar (BC) became our wholly-owned subsidiary (the "Reverse Acquisition"). OnJune 10, 2020 , we entered into an Agreement and Plan of Merger and Reorganization (the "Merger Agreement"), dated as ofJune 9, 2020 , by and amongAdgero Acquisition Corp. , our wholly-owned subsidiary incorporated in theState of Delaware ("Merger Sub"), and Adgero. OnAugust 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 underDelaware law as the surviving corporation in the Merger and became our direct, wholly-owned subsidiary. 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 the right to receive 1.5740 shares (the "Exchange Ratio") of our 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 our 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, we changed our name fromDelMar Pharmaceuticals, Inc. toKintara Therapeutics, Inc. In conjunction with the closing of the Merger, and through a series of three private placement closings, we issued a total of 25,028 shares of Series C Convertible Preferred Stock (the "Series C Stock") at a purchase price of$1,000 per share for total aggregate gross proceeds of$25 million , or net proceeds of approximately$21.7 million . The Series C Stock was issued in three series at conversion prices equal to$1.16 ,$1.214 and$1.15 , respectively. As a result, we issued a total of 25,028 shares of Series C Stock, which are convertible into an aggregate 21,516,484 shares of common stock. As part of the private placement, we issued warrants to purchase 2,504 shares of Series C Stock to the placement agent (the "Placement Agent Warrants"). The Placement 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 the date of the initial closing of the private placement. The Series C Stock and the shares 62 -------------------------------------------------------------------------------- of Series C Stock issuable upon exercise of the Placement Agent Warrants will be entitled to receive dividends, payable in shares of our 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 Stock, on the 12th, 24th, 36th and 48th month anniversary of the initial closing of the private placement, which occurred onAugust 19, 2020 , provided that the holder of such shares has not converted the shares of Series C Stock prior to the applicable dividend rate.
As ofSeptember 15, 2020 , we had 23,543,892 shares of common stock issued and outstanding, outstanding, warrants to purchase 12,446,779 shares of common stock, warrants to purchase 2,504 Series C Preferred Stock that upon conversion are convertible into 2,152,667 shares of common stock, outstanding stock options to purchase 6,243,872 shares of common stock, 648,613 outstanding shares of Series B Preferred Stock that are convertible into 162,177 shares of common stock, 25,028 outstanding shares of Series C Preferred Stock that are convertible into 21,516,484 shares of common stock. All warrants and stock options are convertible, or exercisable into, one share of common stock. Each Series B convertible preferred share is convertible into 0.25 shares of common stock and the Series C convertible Preferred Stock (issued in three series) are convertible into a total of 21,516,484 shares of common stock OnMay 8, 2019 , we effected a one-for-ten reverse stock split (the "Reverse Stock Split") of our issued and outstanding and authorized common stock. All per share amounts and number of shares of common stock in the MD&A and the consolidated financial statements reflect the Reverse Stock Split. The Reverse Stock Split does not affect the our authorized preferred stock of 5,000,000 shares; except that, pursuant to the terms of the Certificate of Designations of Series B Convertible Preferred Stock for the issued and outstanding shares of our Series B Convertible Preferred Stock, par value$0.001 per share (the "Series B Preferred Stock"), the conversion price at which shares of Series B Preferred Stock may be converted into shares of common stock will be proportionately adjusted to reflect the Reverse Stock Split.
On
Related Parties
We acquired our initial patents and technology rights from Valent, an entity owned by Dr.Dennis Brown , our Chief Scientific Officer. As a result, Valent is a related party to us. Selected Annual Information The financial information reported herein has been prepared in accordance with accounting principles generally accepted inthe United States . Our functional currency atJune 30, 2020 andJune 30, 2019 is the US$. The following tables represent selected financial information for us for the periods presented. Selected Balance Sheet data June 30, June 30, 2020 2019 $ $ Cash and cash equivalents 2,392,402 3,718,758 Working capital 176,161 1,955,468 Total assets 2,938,137 4,037,255 Total stockholders' equity 263,214 1,967,530 63
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Selected Statement of Operations data
For the years ended June 30, June 30, 2020 2019 $ $ Expenses Research and development 3,630,024 3,662,056 General and administrative 4,514,520 4,736,440 Merger costs 1,053,697 - 9,198,241 8,398,496 Other (income) loss Change in fair value of derivative liabilities -
(433,503 )
Derivative liability issue costs - 126,186 Foreign exchange loss 2,923 17,746 Interest income (75,248 ) (60,704 ) (72,325 ) (350,275 ) Net loss for the year 9,125,916 8,048,221 Series B Preferred stock dividend 8,616
80,431
Net loss for the year attributable to common
stockholders 9,134,532
8,128,652
Basic and fully diluted number of shares 10,444,045
2,574,692
Basic and fully diluted loss per share 0.87
3.16
Expenses net of non-cash, share-based compensation expense - non-GAAP
The following table discloses research and development, and general and administrative expenses net of non-cash, share-based compensation payment expense. The disclosure has been provided to reconcile the total operational expenses on a GAAP basis and the non-GAAP operational expenses net of non-cash stock-based compensation in order to provide an estimate of cash used in research and development, and general and administrative expense. Management uses the cash basis of expenses for forecasting and budget purposes to determine the allocation of resources and to plan for future financing opportunities. For the years endedJune 30 ,June 30, 2020 2019 $ $ Research and development - GAAP 3,630,024
3,662,056
Less: non-cash share-based compensation expense (100,231 ) (88,445 ) Research and development net of non-cash share-based, compensation expense- Non-GAAP 3,529,793
3,573,611
General and administrative - GAAP 4,514,520
4,736,440
Less: non-cash share-based compensation expense (601,508 ) (901,218 ) General and administrative net of non-cash share-based, compensation expense - Non-GAAP 3,913,012 3,835,222 64
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Comparison of the years ended
Years ended June 30, June 30, 2020 2019 $ $ Change $ Change % Expenses Research and development 3,630,024 3,662,056 (32,032 ) (1 ) General and administrative 4,514,520 4,736,440 (221,920 ) (5 ) Merger costs 1,053,697 - 1,053,697 100 9,198,241 8,398,496 799,745 Other (income) loss Change in fair value of derivative liabilities - (433,503 ) 433,503 100 Derivative liability issue costs - 126,186 (126,186 ) (100 ) Foreign exchange loss 2,923 17,746 (14,823 ) (84 ) Interest income (75,248 ) (60,704 ) (14,544 ) 24 (72,325 ) (350,275 ) 277,950 Net loss 9,125,916 8,048,221 1,077,695 Research and Development Research and development expenses decreased slightly to$3,630,024 for the year endedJune 30, 2020 from$3,662,056 for the year endedJune 30, 2019 . The decrease was largely attributable to lower preclinical research, personnel, and intellectual property expenses partially offset by higher clinical development costs in the current year compared to the prior year. Preclinical research costs decreased during the year endedJune 30, 2020 compared to the year endedJune 30, 2019 due to the completion, or deferral, of studies that were ongoing in the prior year as well as us focusing our resources on our clinical studies in the current year. Personnel costs have decreased in the year endedJune 30, 2020 compared to the year endedJune 30, 2019 due a reduction in full-time employee head count in the current year compared to the prior year. Intellectual property costs decreased in the year endedJune 30, 2020 compared to the year endedJune 30, 2019 as we have refined our patent portfolio by focusing on our most important patent claims in the most strategic jurisdictions. Patent costs can vary considerably depending on the filing of new patents, conversion of the provisional applications to PCT applications, foreign office actions, and actual filing costs. Clinical development costs increased in the year endedJune 30, 2020 largely due to the initial costs we have incurred related to the GCAR GBM AGILE study. InJune 2020 we announced our acceptance of an invitation from GCAR to include VAL-083 in GCAR's GBM AGILE study, an adaptive clinical study platform in GBM. Upon acceptance, we incurred certain costs to initiate the preliminary agreement. We expect our research and development costs to increase in fiscal 2021 as our GCAR GBM AGILE study commences. In addition, our planned clinical study for REM-001 is expected to commence in the coming year.
General and Administrative
General and administrative expenses were$4,514,520 for the year endedJune 30, 2020 compared to$4,736,440 for the year endedJune 30, 2019 . A significant portion of the decrease was due to lower professional fees and non-cash, share-based compensation expense partially offset by higher office and sundry expenses in the current year compared to the prior year. Professional fees decreased during the year endedJune 30, 2020 compared to the year endedJune 30, 2019 primarily due to our proposed rights offering in the prior year which was terminated inJune 2019 . As a result, the professional fees related to the Rights Offering of$555,664 were expensed in the quarter endedJune 30, 2019 . Office and sundry has increased in the year endedJune 30, 2020 compared to the year endedJune 30, 2019 due primarily to costs of higher directors' and officers' liability insurance. In relation to general and administrative expenses during the year endedJune 30, 2020 , we incurred non-cash, share-based compensation expense relating to warrants issued for services and stock option expense while during the year endedJune 30, 2019 , we incurred non-cash, share-based compensation expense relating to performance share units, warrants issued for services, and stock option expense. All performance share units were canceled onApril 30, 2019 so there was no related expense incurred during the year endedJune 30, 2020 . 65 --------------------------------------------------------------------------------
Merger costs
Merger costs of
Preferred Share Dividends
For each of the years endedJune 30, 2020 and 2019 we recorded$8,356 related to the dividend payable to Valent on the Series A preferred stock. The dividend has been recorded as a direct increase in accumulated deficit for both years. During the year endedJune 30, 2020 , we issued 14,800 (2019 - 18,271) shares of common stock as a dividend on the Series B Preferred stock and recognized$8,616 (2019 -$80,431 ) as a direct increase in accumulated deficit.
Liquidity and Capital Resources
Comparison of the years ended
June 30, June 30, 2020 2019 Change Change $ $ $ %
Cash flows from operating activities (7,927,516 ) (6,327,425 )
(1,600,091 ) 25
Cash flows from financing activities 6,601,160 4,074,188
2,526,972 62 Operating Activities Net cash used in operating activities increased to$7,927,516 for the year endedJune 30, 2020 from$6,327,425 for the year endedJune 30, 2019 . During the year endedJune 30, 2020 and 2019 we reported net losses of$9,125,916 and$8,048,221 , respectively. Changes in adjustments to reconcile net loss to net cash used in operating activities for the year endedJune 30, 2020 compared toJune 30, 2019 included higher warrants issued for services in the current year due to more warrants being issued in the current year compared to the prior year. Items incurred during the year endedJune 30, 2019 but not in the year endedJune 30, 2020 include a change in the fair value of derivative liabilities of$433,503 and performance stock unit expense of$526,141 . The most significant changes in working capital for the year endedJune 30, 2020 were from uses of cash due to an increase in non-financing related accounts payable and accrued liabilities of$206,597 , an increase in related party payables of$338,657 , and an increase in prepaid expenses of$75,332 . The most significant change in working capital for the year endedJune 30, 2019 was cash from a reduction in prepaid expenses and deposits of$754,682 largely due to a partial refund of a clinical study deposit, and cash from an increase in accounts payable and accrued liabilities of$202,000 .
Financing Activities
During the year endedJune 30, 2020 , we received$6,582,966 in net proceeds from the completion of an underwritten public offering by us of common stock, pre-funded warrants, and common stock purchase warrants. Additionally, we received$51,550 pursuant to the exercise of warrants in the current year. AtJune 30, 2020 , we have incurred$25,000 in deferred financing costs, net of deferred financing costs included in accounts payable, related to the private placement completed inAugust 2020 . During the year endedJune 30, 2019 , we received$3,362,379 in net proceeds from the completion of a registered direct offering by us of common stock and common stock purchase warrants. We also received$720,165 in net proceeds from the exercise and exchange of warrants.
Liquidity Risk and Capital Expenditure Requirements
Liquidity Risk
(See note 1 to the consolidated financial statements)
The consolidated financial statements have been prepared on a going concern basis which assumes that we will continue our operations for the foreseeable future and contemplates the realization of assets and the settlement of liabilities in the normal course of business.
66 -------------------------------------------------------------------------------- For the year endedJune 30, 2020 , we reported a loss of$9,125,916 , and a negative cash flow from operations of$7,927,516 . We had an accumulated deficit of$69,721,233 as ofJune 30, 2020 . As ofJune 30, 2020 , we had cash and cash equivalents on hand of$2,392,402 . We are in the clinical stage and have not generated any revenues to-date. We do not have the prospect of achieving revenues until such time that our product candidates are commercialized, or partnered, which may not ever occur. In the future, we will require additional funding to maintain our clinical studies, research and development projects, and for general operations. We may tailor the development programs of our drug candidates based on the amount of funding we are able to raise in the future. These circumstances had indicated substantial doubt existed about our ability to continue as a going concern. Subsequent toJune 30, 2020 , we completed a private placement in three closings for gross proceeds of approximately$25 million , or net proceeds of approximately$21.7 million . We believe that based on our current estimates, cash on hand atJune 30, 2020 and the proceeds from the private placement, will be sufficient to fund our planned operations beyond the next year from the date the consolidated financial statements are issued. As a result, substantial doubt about our ability to continue as a going concern has been alleviated. However, the COVID-19 pandemic has created significant economic uncertainty and volatility in the credit and capital markets. The ultimate impact of the COVID-19 pandemic on our ability to raise additional capital in the future 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 financial statements do not give effect to any adjustments to the amounts and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern. Such adjustments could be material.
Our future funding requirements will depend on many factors, including but not limited to:
• the rate of progress and cost of our clinical studies, preclinical studies
and other discovery and research and development activities;
• the costs associated with establishing manufacturing and commercialization
capabilities;
• the costs of acquiring or investing in businesses, product candidates and
technologies;
• the costs of filing, prosecuting, defending and enforcing any patent
claims and other intellectual property rights;
• the costs and timing of seeking and obtaining FDA and other regulatory
approvals; • the effect of competing technological and market developments;
• the economic and other terms and timing of any collaboration, licensing or
other arrangements into which we may enter; and • the impact of us being a public entity. Until we can generate a sufficient amount of product revenue to finance our cash requirements, which we may never do, we expect to finance future cash needs primarily through public or private equity offerings, or strategic collaborations. The sale of equity and convertible debt securities may result in dilution to our stockholders and certain of those securities may have rights senior to those of our shares of capital stock. If we raise additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict our operations. Any other third-party funding arrangement could require us to relinquish valuable rights. Economic conditions may affect the availability of funds and activity in equity markets. We do not know whether additional funding will be available on acceptable terms, or at all. If we are not able to secure additional funding when needed, we may have to delay, reduce the scope of or eliminate one or more of our clinical trials or research and development programs or make changes to our operating plan. In addition, we may have to seek a partner for one or more of our product candidates at an earlier stage of development, which would lower the economic value of those programs to us. Critical Accounting Policies The preparation of financial statements, in conformity with generally accepted accounting principles inthe United States , requires companies to establish accounting policies and to make estimates that affect both the amount and timing of the recording of assets, liabilities, revenues and expenses. Some of these estimates require judgments about matters that are inherently uncertain and therefore actual results may differ from those estimates. 67 -------------------------------------------------------------------------------- A detailed presentation of all of our significant accounting policies and the estimates derived therefrom is included in Note 2 to our consolidated financial statements for the year endedJune 30, 2020 contained elsewhere in this report on Form 10-K. While all of the significant accounting policies are important to our consolidated financial statements, the following accounting policies and the estimates derived therefrom are critical: • Warrants and shares issued for services • Stock options • Accruals for research and development expenses and clinical trials
Warrants and shares issued for services
We have issued equity instruments for services provided by employees and nonemployees. The equity instruments are valued at the fair value of the instrument granted.
Stock options
We recognize compensation costs resulting from the issuance of stock-based awards to employees, non-employees and directors as an expense in the statement of operations over the service period based on a measurement of fair value for each stock-based award. Prior to our adoption of ASU 2018-07, Compensation-Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting ("ASU 2018-07"), stock options granted to non-employee consultants were revalued at the end of each reporting period until vested using the Black-Scholes option-pricing model and the changes in their fair value were recorded as adjustments to expense over the related vesting period. For the year endedJune 30, 2019 , the determination of grant-date fair value for stock option awards was estimated using the Black-Scholes model, which includes variables such as the expected volatility of our share price, the anticipated exercise behavior of its grantee, interest rates, and dividend yields. For the year endedJune 30, 2020 , we utilized the plain vanilla method to determine the expected life of stock options. These variables are projected based on our historical data, experience, and other factors. Changes in any of these variables could result in material adjustments to the expense recognized for share-based payments. Such value is recognized as expense over the requisite service period, net of actual forfeitures, using the accelerated attribution method. We recognize forfeitures as they occur. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results, or updated estimates, differ from current estimates, such amounts are recorded as a cumulative adjustment in the period estimates are revised.
Accruals for research and development expenses and clinical trials
As part of the process of preparing our financial statements, we are required to estimate our expenses resulting from our obligations under contracts with vendors, clinical research organizations and consultants, and under clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment terms that do not match the periods over which materials or services are provided under such contracts. Our objective is to reflect the appropriate expenses in our financial statements by matching those expenses with the period in which services are performed and efforts are expended. We account for these expenses according to the timing of various aspects of the expenses. We determine accrual estimates by taking into account discussion with applicable personnel and outside service providers as to the progress of clinical trials, or the services completed. During the course of a clinical trial, we adjust our clinical expense recognition if actual results differ from our estimates. We make estimates of our accrued expenses as of each balance sheet date based on the facts and circumstances known to us at that time. Our clinical trial accruals are dependent upon the timely and accurate reporting of contract research organizations and other third-party vendors. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low for any particular period. For years endedJune 30, 2020 and 2019, there were no material adjustments to our prior period estimates of accrued expenses for clinical trials.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
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