| The accompanying consolidated interim financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The accompanying consolidated interim financial statements do not include any adjustments or classifications that may result from the possible inability of the Company to continue as a going concern. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due. | | | 3. | Adoption of New Accounting Standards | | | | The Company adopted Topic 842 Leases with a date of the initial application of January 1, 2019. As a result, the Company has changed its accounting policy for leases as detailed below. | | | | The Company adopted Topic 842 using a modified retrospective approach with a date of initial application of January 1, 2019, which requires the recognition of the right-of-use assets and related operating and finance lease liabilities on the balance sheet. As a result, the consolidated balance sheet prior to January 1, 2019 was not restated, continues to be reported under ASC Topic 840, Leases, or ASC 840, which did not require the recognition of operating lease liabilities on the balance sheet, and is not comparative. Under ASC 842, all leases are required to be recorded on the balance sheet and are classified as either operating or finance leases. The lease classification affects the expense recognition in the income statement. Operating lease charges are recorded entirely in selling, general and administrative expense. Finance lease charges are split, where amortization of the right-of-use asset is recorded in selling, general and administrative expense and an implied interest component is recorded in financing and interest expense. At the moment of initial application, the Company did not hold any Finance leases. The expense recognition for operating leases under ASC 842 is substantially consistent with ASC 840. As a result, there is no significant difference in our results of operations presented in our consolidated income statement and consolidated statement of comprehensive loss for each period presented. |
The Company adopted Topic 606 Revenue from Contracts with Customers with a date of the initial application of January 1, 2018. As a result, the Company has changed its accounting policy for revenue recognition as detailed below.
This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those good or services. To determine revenue recognition for arrangements subject to the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and identifies performance obligations that are distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to each performance obligation when (or as) the performance obligation is satisfied.
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| IntelGenx Technologies Corp. | | | | Notes to Consolidated Interim Financial Statements | September 30, 2018March 31, 2019 | | (Expressed in U.S. Funds) | | (Unaudited) |
| 3. | Adoption of New Accounting Standards (Cont’d) | | | | The adoption of ASC 842 had a substantial impact on the Company’s balance sheet. The most significant impact was the recognition of the operating lease right-of-use asset and operating lease liability. Upon adoption, leases that were classified as operating leases under ASC 840 were classified as operating leases under ASC 842, and the Company recorded an adjustment of $726 to operating lease right-of-use asset and the related operating lease liability. The operating lease liability is based on the present value of the remaining minimum lease payments, determined under ASC 840, discounted using our secured incremental borrowing rate at the effective date of January 1, 2019, using the original lease term and the tenor. As permitted under ASC 842, the Company elected to use the practical expedient that permits to use hindsight in determining the lease term. The application of the practical expedients did not have a significant impact on the measurement of the operating lease liability. | | | | The impact of the adoption of ASC 842 on the balance sheet as et December 31, 2018 was: |
ASC 606 uses the terms “contract asset” and “contract liability” to describe what might more commonly be known as “accrued revenue” and “deferred revenue”. The Company has adopted the terminology used in ASC 606 to describe such balances.
The Company’s accounting policies for its revenue streams are disclosed in Note 4 below. Apart from providing more extensive disclosures on the Company’s revenue transactions, the application of ASC 606 has not had a significant impact on the financial position and/or financial performance of the Company.
| | | As reported | Adoption of ASC 842 | Balance | | | | December 31, 2018 | Increase (Decrease) | January 1, 2019 | | | Operating lease right-of-use assets | $ - | $ 726 | $ 679 | | | Total assets | 20,018 | 726 | 20,744 | | | Total current liabilities | 2,722 | 127 | 2,849 | | | Deferred lease obligations | 49 | (49) | - | | | Operating lease liability | - | 599 | 599 | | | Total liabilities | 10,031 | 677 | 10,708 | | | Total shareholders’ equity | 9,987 | 49 | 10,036 | | | Total liabilities and shareholders’ equity | 20,018 | 726 | 20,744 |
The FASB issued ASU 2017-09, Stock compensation, which provides guidance on determining which changes2018-07 to expand the terms and conditionsscope of Topic 718 to include share-based payment awards require an entity to apply modification accounting under Topic 718. The statement is effectivetransactions for annual periods beginning after December 15, 2017. The Company has made an accounting policy choice to recognize the effect of awards for which the requisite service is not rendered when the award is forfeited (that is, recognize the effect of forfeitures in compensation cost when they occur). Previously recognized compensation cost for an award shall be reversed in the period that the award is forfeited. The adoption of this statement did not have a material effect on the Company’s financial position or results. The FASB issued ASU 2017-01, Business Combinations, which clarifies the definition of a businessacquiring goods and is intended to help companies evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.services from non-employees. These amendments are effective for a public business entity for fiscal years beginning after December 15, 2017,2018, including interim periods within those fiscal years. The adoption of this statement did not have a material effect on the Company’s financial position or results.
The FASB issued ASU 2016-18, Statement of Cash Flows, which requires that the statement of cash flows explain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted or restricted cash equivalents. The statement is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The adoption of this statement did not have a material effect on the Company’s financial position or results.
The FASB issued ASU 2016-16, Income taxes, and requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. These amendments are effective for a public business entity for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of this statement did not have a material effect on the Company’s financial position or results.
The FASB issued ASU 2016-15, Statement of Cash Flows, which clarifies how certain cash receipts and payments are to be presented in the Statement of cash flows. The statement is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The adoption of this statement did not have a material effect on the Company’s financial position or results.
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| IntelGenx Technologies Corp. | | | | Notes to Consolidated Interim Financial Statements | September 30, 2018March 31, 2019 | | (Expressed in U.S. Funds) | | (Unaudited) |
3.4. | Adoption of NewSignificant Accounting Standards (Cont’d)
|
The FASB issued ASU 2016-01, Financial Instruments. The targeted amendments to existing guidance include:
| 1. | Equity investments that do not result in consolidation and are not accounted for under the equity method would be measured at fair value through net income, unless they qualify for the proposed practicability exception for investments that do not have readily determinable fair values.
Policies | | | | | | 2.Revenue Recognition | | | | Changes in instrument-specific credit riskThe Company may enter into licensing and collaboration agreements for financial liabilities thatproduct development, licensing, supply and manufacturing for its product pipeline. The terms of the agreements may include non-refundable signing and licensing fees, milestone payments and royalties on any product sales derived from collaborations. These contracts are measured underanalyzed to identify all performance obligations forming part of these contracts. The transaction price of the fair value option would be recognized in other comprehensive income.contract is then determined. The transaction price is allocated between all performance obligations on a residual standalone selling price basis. The stand-alone selling price is estimated based on the comparable market prices, expected cost plus margin and the Company’s historical experience.
| | | | | Revenue is measured based on a consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. | | | | Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue- producing transaction, that are collected by the Company from a customer, are excluded from revenue. | | | | The following is a description of principal activities – separated by nature – from which the Company generates its revenue. | | | | | | 3. | Entities would make the assessment of the realizability of a deferred tax asset (“DTA”) related to an available- for-sale (AFS) debt security in combination with the entity’s other DTAs. The guidance would eliminate one method that is currently acceptable for assessing the realizability of DTAs related to AFS debt securities. That is, an entity would no longer be able to consider its intentResearch and ability to hold debt securities with unrealized losses until recovery.Development Revenue
| | | | | Revenues with corporate collaborators are recognized as the performance obligations are satisfied over time, and the related expenditures are incurred pursuant to the terms of the agreement. | | | | | | 4.Licensing and Collaboration Arrangements | | Disclosure
| | Licenses are considered to be right-to-use licenses. As such, the Company recognizes the licenses revenues at a point in time, upon granting the licenses. | | | | Milestone payments are considered variable consideration. As such, the Company estimates variable consideration at the most likely amount to which we expect to be entitled. The estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the fair valueoverall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, research and other revenues in the period during which the adjustment is recognized. The process of financial instruments measured at amortized cost would no longer be requiredsuccessfully achieving the criteria for entitiesthe milestone payments is highly uncertain. Consequently, there is significant risk that arethe Company may not public business entities.earn all of the milestone payments for each of its contracts. |
For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of this statement did not have a material effect on the Company’s financial position or results.
4. | Significant Accounting Policies
|
Revenue Recognition
Revenue is measured based on a consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.
The following is a description of principal activities – separated by nature – from which the Company generates its revenue.
Research and Development Revenue
Revenues with corporate collaborators are recognized as the performance obligations are satisfied over time, and the related expenditures are incurred pursuant to the terms of the agreement.
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| IntelGenx Technologies Corp. | | | | Notes to Consolidated Interim Financial Statements | September 30, 2018March 31, 2019 | | (Expressed in U.S. Funds) | | (Unaudited) |
| 4. | Significant Accounting Policies (Cont’d) |
Licensing and Collaboration Arrangements
The Company may enter into licensing and collaboration agreements for product development, licensing, supply and manufacturing for its product pipeline. The terms of the agreements may include non-refundable signing and licensing fees, milestone payments and royalties on any product sales derived from collaborations. These contracts are analyzed to identify all performance obligations forming part of these contracts. The transaction price of the contract is then determined. The transaction price is allocated between all performance obligations on a relative standalone selling price basis. The stand-alone selling price is estimated based on the comparable market prices, expected cost plus margin and the Company’s historical experience.
Licenses are considered to be right-to-use licenses. As such, the Company recognizes the licenses revenues at a point in time, upon granting the licenses.
Milestone payments are considered variable consideration. As such, the Company estimates variable consideration at the most likely amount to which we expect to be entitled. The estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, research and other revenues in the period during which the adjustment is recognized. The process of successfully achieving the criteria for the milestone payments is highly uncertain. Consequently, there is significant risk that the Company may not earn all of the milestone payments for each of its contracts.
|
| These amendments are effective for fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact of this Statement on its consolidated financial statements. ASU 2018-11 – Leases (Topic 842): Targeted Improvements
The FASB issued ASU 2018-11 which provides entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with current GAAP (Topic 840, Leases).
The amendments also provide lessors with a practical expedient, by class of underlying asset, to not separate nonlease components from the associated lease component and, instead, to account for those components as a single component if the nonlease components otherwise would be accounted for under the new revenue guidance (Topic 606) and certain criteria are met: If the nonlease component or components associated with the lease component are the predominant component of the combined component, an entity is required to account for the combined component in accordance with Topic 606. Otherwise, the entity must account for the combined component as an operating lease in accordance with Topic 842.
These amendments are effective for a public business entity upon adoption of Topic 842. The Company is currently evaluating the impact of this Statement on its consolidated financial statements.
ASU 2018-10 – Codification Improvements to Topic 842, Leases
The FASB issued ASU 2018-10 which amends the narrow aspects of the guidance issued in the amendments in ASU 2016-02 including those regarding residual value guarantees, rate implicit in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase option, variable lease payments that depend on an index or a rate, investment tax credits, lease term and purchase option, transition guidance for amounts previously recognized in business combinations, certain transition adjustments, transition guidance for leases previously classified as capital leases under Topic 840, transition guidance for modifications to leases previously classified as direct financing or sales-type leases under Topic 840, transition guidance for sale and leaseback transactions, impairment of net investment in the lease, unguaranteed residual asset, effect of initial direct costs on rate implicit in the lease, and failed sale and leaseback transactions. These amendments are effective for a public business entity upon adoption of Topic 842. The Company is currently evaluating the impact of this Statement on its consolidated financial statements.
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IntelGenx Technologies Corp. | | Notes to Consolidated Interim Financial Statements | September 30, 2018 | (Expressed in U.S. Funds) | (Unaudited) |
4. | Significant Accounting Policies (Cont’d)
|
ASU 2018-07 – Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting
The FASB issued ASU 2018-07 to expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. These amendments are effective for a public business entity for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact of this Statement on its consolidated financial statements.
ASU 2018-02 – Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
The FASB issued ASU 2018-02 which provides financial statement preparers with an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. These amendments are effective for fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact of the Statement on its consolidated financial statements.
ASU 2017-11 Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features
The FASB issued ASU 2017-11 which requires companies to disregard the down round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. Companies that provide earnings per share (EPS) data will adjust their basic EPS calculation for the effect of the feature when triggered (i.e., when the exercise price of the related equity-linked financial instrument is adjusted downward because of the down round feature) and will also recognize the effect of the trigger within equity. These amendments are effective for fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact of this Statement on its consolidated financial statements.
ASU 2017-04 – Intangibles – Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment
The FASB issued ASU 2017-04 which eliminates Step 2 from the goodwill impairment test and eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment. These amendments are effective for a public business entity for fiscal years beginning after December 15, 2019. Early adoption is permitted in any interim or annual period and should be applied on a retrospective basis. The Company is currently evaluating the impact of this Statement on its consolidated financial statements.
13
IntelGenx Technologies Corp. | | Notes to Consolidated Interim Financial Statements | September 30, 2018 | (Expressed in U.S. Funds) | (Unaudited) |
4. | Significant Accounting Policies (Cont’d)
|
ASU 2016-02: Leases (Topic 842) Section A
The FASB issued ASU 2016-02 to increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. These amendments are effective for a public business entity for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact of this Statement on its consolidated financial statements.
| | | 5. | Inventory | | | | Inventory as at March 31, 2019 consisted of raw materials in the amount of $383 (2018: $375). | | | | 6. | Leasehold Improvements and Equipment |
| | | | | | | | | | September 30, | | | December 31, | | | | | | | | | | | | 2018 | | | 2017 | | | | | | | | | Accumulated | | | Net Carrying | | | Net Carrying | | | | | | Cost | | | Depreciation | | | Amount | | | Amount | | | | | | | | | | | | | | | | | | | Manufacturing equipment | $ | 3,812 | | $ | 548 | | $ | 3,264 | | $ | 2,953 | | | | Laboratory and office equipment | | 1,342 | | | 713 | | | 629 | | | 759 | | | | Computer equipment | | 107 | | | 66 | | | 41 | | | 44 | | | | Leasehold improvements | | 3,180 | | | 874 | | | 2,306 | | | 2,590 | | | | | | | | | | | | | | | | | | | | $ | 8,441 | | $ | 2,201 | | $ | 6,240 | | $ | 6,346 | |
From the balance of manufacturing equipment, an amount of $1,302 thousand (2017: $822 thousand) represents assets which are not yet in service as at September 30, 2018
| | | | | | | | | | March 31, | | | December 31, | | | | | | | | | | | | 2019 | | | 2018 | | | | | | | | | Accumulated | | | Net Carrying | | | Net Carrying | | | | | | Cost | | | Depreciation | | | Amount | | | Amount | | | | | | | | | | | | | | | | | | | Manufacturing equipment | $ | 4,203 | | $ | 653 | | $ | 3,550 | | $ | 3,512 | | | | Laboratory and office equipment | | 1,313 | | | 755 | | | 558 | | | 562 | | | | Computer equipment | | 109 | | | 72 | | | 37 | | | 39 | | | | Leasehold improvements | | 3,134 | | | 1,000 | | | 2,134 | | | 2,135 | | | | | | | | | | | | | | | | | | | | $ | 8,759 | | $ | 2,480 | | $ | 6,279 | | $ | 6,248 | |
6. | From the balance of manufacturing equipment, an amount of $1,738 thousand (2018: $1,703 thousand) represents assets which are still under construction as at March 31, 2019 and are consequently not depreciated. | | | | 7. | Bank indebtednessIndebtedness | | | | The Company's credit facility is subject to review annually and consists of an operating demand line of credit of up to CAD$250 thousand ($187 thousand) and corporate credits cards of up to CAD$75 ($56 thousand) and $56 thousand, and foreign exchange contracts limited to CAD$425 thousand ($318 thousand). Borrowings under the operating demand line of credit bear interest at the Bank’s prime lending rate plus 2%. The credit facility and term loan (see note 8) are secured by a first ranking movable hypothec on all present and future movable property of the Company for an amount of CAD$4,250,000 ($3,180,000) plus 20%, and a 50% guarantee by Export Development Canada, a Canadian Crown corporation export credit agency. The terms of the banking agreement require the Company to comply with certain debt service coverage and debt to net worth financial covenants on an annual basis at the end of the Company’s fiscal year. As at March 31, 2019, the Company has not drawn on its credit facility. |
The Company's credit facility is subject to review annually and consists of an operating demand line of credit of up to CAD$250 thousand ($193 thousand) and corporate credits cards of up to CAD$75 and $58 thousand, and foreign exchange contracts limited to CAD$425 thousand ($328 thousand). Borrowings under the operating demand line of credit bear interest at the Bank’s prime lending rate plus 2%. The credit facility and term loan (see note 7) are secured by a first ranking movable hypothec on all present and future movable property of the Company for an amount of CAD$4,250,000 ($3,283,000) plus 20%, and a 50% guarantee by Export Development Canada, a Canadian Crown corporation export credit agency. The terms of the banking agreement require the Company to comply with certain debt service coverage and debt to net worth financial covenants on an annual basis at the end of the Company’s fiscal year. As at September 30, 2018, the Company has not drawn on its credit facility.
1413
| IntelGenx Technologies Corp. | | | | Notes to Consolidated Interim Financial Statements | September 30, 2018March 31, 2019 | | (Expressed in U.S. Funds) | | (Unaudited) |
7.8. | Long-term Debt | | | | The components of the Company’s debt are as follows: |
The components of the Company’s debt are as follows:
| | | | September 30, 2018 | | | December 31, 2017 | | | | | | $ | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Term loan facility | | 1,733 | | | 2,233 | | | | Secured loan | | 400 | | | 531 | | | | Total debt | | 2,133 | | | 2,764 | | | | | | | | | | | | | Less: current portion | | 749 | | | 772 | | | | | | | | | | | | | Total long-term debt | | 1,384 | | | 1,992 | |
| | | | March 31, 2019 | | | December 31, 2018 | | | | | | $ | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Term loan facility | | 1,400 | | | 1,502 | | | | Secured loan | | 312 | | | 330 | | | | Total debt | | 1,712 | | | 1,832 | | | | | | | | | | | | | Less: current portion | | 725 | | | 692 | | | | | | | | | | | | | Total long-term debt | | 987 | | | 1,140 | |
The Company’s term loan facility consists of a total of CAD$4 million ($3.09 million) bearing interest at the Bank’s prime lending rate plus 2.50%, with monthly principal repayments of CAD$62 thousand ($4846 thousand). The term loan is subject to the same security and financial covenants as the bank indebtedness (see note 6)7). The secured loan has a principal balance authorized of CAD$1 million ($772748 thousand) bearing interest at prime plus 7.3%, reimbursable in monthly principal payments of CAD$17 thousand ($13 thousand) from January 2017 to March 2021. The loan is secured by a second ranking on all present and future property of the Company. The terms of the banking agreement require the Company to comply with certain debt service coverage and debt to net worth financial covenants on an annual basis at the end of the Company’s fiscal year. Principal repayments due in each of the next fourthree years are as follows: 2018 | 2012019 | 548 (CAD 260)733) | 2019 | 7302020 | 707 (CAD 945) | 2020 | 730 (CAD 945) | | 2021 | 472457 (CAD 610) |
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| IntelGenx Technologies Corp. | | | | Notes to Consolidated Interim Financial Statements | September 30, 2018 | (Expressed in U.S. Funds) | (Unaudited) |
On July 12, 2017, the Company closed its previously announced prospectus offering (the “Offering”) of convertible unsecured subordinated debentures of the Corporation (the “Debentures”) for gross aggregate proceeds of CAD$6,838,000. Pursuant to the Offering, the Corporation issued an aggregate principal amount of CAD$6,838,000 of Debentures at a price of CAD$1,000 per Debenture. The Debentures will mature on June 30, 2020 and bear interest at annual rate of 8% payable semi-annually on the last day of June and December of each year, commencing on December 31, 2017. The interest may be paid in common shares at the option of the Corporation. The Debentures will be convertible at the option of the holders at any time prior to the close of business on the earlier of June 30, 2020 and the business day immediately preceding the date specified by the Corporation for redemption of Debentures. The conversion price will be CAD$1.35 (the “Conversion Price”) per common share of the Corporation (“Share”), being a conversion rate of approximately 740 Shares per CAD$1,000 principal amount of Debentures, subject to adjustment in certain events.
On August 8, 2017, the Company closed a second tranche of its prospectus Offering of convertible unsecured subordinated debentures of the Corporation for which a first closing took place on July 12, pursuant to which it had raised additional gross proceeds of CAD$762,000.
Together with the principal amount of CAD$6,838,000 of Debentures issued on July 12, 2017, the Corporation issued a total aggregate principal amount of CAD$7,600,000 of Debentures at a price of CAD$1,000 per Debenture.
The convertible debentures have been recorded as a liability. Total transactions costs in the amount of CAD$1,237,000 were recorded against the liability. The accretion expense for the nine-month period ended September 30, 2018 amounts to CAD$282,000 ($219,000).
The components of the convertible debentures are as follows:
| | | | September 30, | | | December 31, | | | | | | 2018 | | | 2017 | | | | | | | | | | | | | | | | | | | | | | Face value of the convertible debentures | $ | 5,871 | | $ | 6,058 | | | | Transaction costs | | (956 | ) | | (986 | ) | | | Accretion | | 342 | | | 127 | | | | Convertible debentures | $ | 5,257 | | $ | 5,199 | |
The interest on the convertible debentures for the nine-month period ended September 30, 2018 amounts to CAD$456 thousand ($354 thousand) and is recorded in financing and interest expense of which CAD$304 thousand ($231 thousand) was paid by issuance of 307,069 common shares on July 3, 2018. The interest on the convertible debentures amounted to CAD$133 thousand ($107 thousand) for the nine-month period ended September 30, 2017.
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IntelGenx Technologies Corp. | | Notes to Consolidated Interim Financial Statements | September 30, 2018March 31, 2019 | | (Expressed in U.S. Funds) | | (Unaudited) |
| 9. | Convertible Debentures | | | | Private PlacementOn July 12, 2017, the Company closed its previously announced prospectus offering (the “Offering”) of convertible unsecured subordinated debentures of the Corporation (the “Debentures”) for gross aggregate proceeds of CAD$6,838,000 ($5,117,000). Pursuant to the Offering, the Corporation issued an aggregate principal amount of CAD$6,838,000 ($5,117,000) of Debentures at a price of CAD$1,000 ($748) per Debenture. The Debentures will mature on June 30, 2020 and bear interest at annual rate of 8% payable semi-annually on the last day of June and December of each year, commencing on December 31, 2017. The interest may be paid in common shares at the option of the Corporation. The Debentures will be convertible at the option of the holders at any time prior to the close of business on the earlier of June 30, 2020 and the business day immediately preceding the date specified by the Corporation for redemption of Debentures. The conversion price will be CAD$1.35 ($1.01) (the “Conversion Price”) per common share of the Corporation (“Share”), being a conversion rate of approximately 740 Shares per CAD$1,000 ($748) principal amount of Debentures, subject to adjustment in certain events.
| | | | On August 8, 2017, the Company closed a second tranche of its prospectus Offering of convertible unsecured subordinated debentures of the Corporation for which a first closing took place on July 12, pursuant to which it had raised additional gross proceeds of CAD$762,000 ($570,000). | | | | Together with the principal amount of CAD$6,838,000 ($5,117,000) of Debentures issued on July 12, 2017, the Corporation issued a total aggregate principal amount of CAD$7,600,000 ($5,687,000) of Debentures at a price of CAD$1,000 ($748) per Debenture. | | | | The convertible debentures have been recorded as a liability. Total transactions costs in the amount of CAD$1,237,000 ($926,000) were recorded against the liability. The accretion expense for the three-month period ended March 31, 2019 amounts to CAD$105,000 ($79,000), compared to CAD$91,000 ($73,000) for the comparative period in 2018. | | | | The components of the convertible debentures are as follows: |
| | | | March 31, | | | December 31, | | | | | | 2019 | | | 2018 | | | | | | | | | | | | | | | | | | | | | | Face value of the convertible debentures | $ | 5,672 | | $ | 5,556 | | | | Transaction costs | | (926 | ) | | (907 | ) | | | Accretion | | 485 | | | 398 | | | | Convertible debentures | $ | 5,231 | | $ | 5,047 | |
The interest accrued on the convertible debentures for the three-month period ended March 31, 2019 amounts to CAD$152 thousand ($114 thousand) and is recorded in financing and interest expense. The interest on the convertible debentures amounted to CAD$152 thousand ($120 thousand) for the three-month period ended March 31, 2018. 15
| IntelGenx Technologies Corp. | | | Notes to Consolidated Interim Financial Statements | | March 31, 2019 | | (Expressed in U.S. Funds) | | (Unaudited) |
| 10. | Convertible Notes | | | | On May 8, 2018, the Company closed its previously announced offering by way of private placement (the “Offering”). In connection with the Offering, the Company issued 320 units (the “Units”) at a subscription price of $10,000 per Unit for gross proceeds of $3,200,000. A related party of the Company participated in the Offering and subscribed for an aggregate of two Units. | | | | Each Unit is comprised of (i) 7,940 common shares of the Corporation (“Common Shares”), (ii) a $5,000 convertible 6% note (a “Note”), and (iii) 7,690 warrants to purchase common shares of the Corporation (“Warrants”). Each Note bears interest at a rate of 6% (payable quarterly, in arrears, with the first payment being due on September 1, 2018), matures on June 1, 2021 and is convertible into Common Shares at a conversion price of $0.80 per Common Share. Each Warrant entitles its holder to purchase one Common Share at a price of $0.80 per Common Share until June 1, 2021. | | | | In connection with the Offering, the Company paid to the Agents a cash commission of approximately $157,800 in the aggregate and issued non-transferable agents’ warrants to the Agents, entitling the Agents to purchase 243,275 common shares at a price of $0.80 per share until June 1, 2021. Management has determined the value of the agents’ warrants to be $50,000. | | | | The proceeds of the Units are attributed to liability and equity components based on the fair value of each component as follows: |
| | | | Gross proceeds | | | Transaction costs | | | Net proceeds | | | | Common stock | $ | 1,627 | | $ | 167 | | $ | 1,460 | | | | Convertible notes | | 1,086 | | | 111 | | | 975 | | | | Warrants | | 487 | | | 50 | | | 437 | | | | | $ | 3,200 | | $ | 328 | | $ | 2,872 | |
The convertible notes have been recorded as a liability. Total transactions costs in the amount of $111 thousand were recorded against the liability. The accretion expense for the nine-monththree-month period ended September 30, 2018March 31, 2019 amounts to $59,000.$42,000 (2018: $Nil). The components of the convertible notes are as follows: | | | September 30, | | | | | 2018 | | | | | | | | | | | | | Attributed value of net proceeds to convertible notes | $ | 975 | | | Accretion | | 59 | | | Convertible notes | $ | 1,034 | |
| | | | March 31, | | | December 31, | | | | | | 2019 | | | 2018 | | | | | | | | | | | | | | | | | | | | | | Attributed value of net proceeds to convertible notes | $ | 975 | | $ | 975 | | | | Accretion | | 139 | | | 98 | | | | Convertible note | $ | 1,114 | | $ | 1,073 | |
The interest on the convertible notes for the nine-monththree-month period ended September 30, 2018March 31, 2019 amounts to $39$24 thousand and is recorded in financing and interest expense.expense (2018: $Nil). 1716
| IntelGenx Technologies Corp. | | | | Notes to Consolidated Interim Financial Statements | September 30, 2018 | (Expressed in U.S. Funds) | (Unaudited) |
| | | | September 30, | | | December 31, | | | | | | 2018 | | | 2017 | | | | Authorized - | | | | | | | | | | | | | | | | | | 200,000,000 common shares of $0.00001 par value | | | | | | | | | 20,000,000 preferred shares of $0.00001 par value | | | | | | | | | | | | | | | | | | Issued - | | | | | | | | | | | | | | | | | | 73,100,075 (December 31, 2017 - 67,031,467) common shares | $ | 1 | | $ | 1 | |
11. | Additional Paid-In Capital
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Stock options
On January 16, 2018, 100,000 options to purchase common stock were granted to an employee under the 2016 Stock Option Plan. The options have an exercise price of $0.79. The options granted vest over a period of 2 years at a rate of 25% every six months and expire 10 years after the grant date. The stock options were accounted for at their fair value, as determined by the Black-Scholes valuation model, of approximately $44 thousand.
On April 10, 2018, 275,000 options to purchase common stock were granted to employees under the 2016 Stock Option Plan. The options have an exercise price of $0.66. The options granted vest over a period of 2 years at a rate of 25% every six months and expire 10 years after the grant date. The stock options were accounted for at their fair value, as determined by the Black-Scholes valuation model, of approximately $99 thousand.
On June 11, 2018, 800,000 options to purchase common stock were granted to officers and employees under the 2016 Stock Option Plan. The options have an exercise price of $0.76. The options granted vest over a period of 2 years at a rate of 25% every six months and expire 10 years after the grant date. The stock options were accounted for at their fair value, as determined by the Black-Scholes valuation model, of approximately $334 thousand.
On July 3, 2018, the Company granted 100,000 options to purchase common stock to a consultant. The stock options are exercisable at $0.78 per share and vest over a period of 2 years at a rate of 25% every six months and expire 3 years after the grant date. The stock options were accounted for at their fair value of approximately $27 thousand.
During the nine-month period ended September 30, 2018 a total of 60,000 stock options were exercised for 60,000 common shares having a par value of $0 thousand in aggregate, for cash consideration of $33 thousand, resulting in an increase in additional paid-in capital of $33 thousand.
During the nine-month period ended September 30, 2017, on January 18, 2017, 300,000 options to purchase common stock were granted to non-employee directors under the 2016 Stock Option Plan. The options have an exercise price of $0.89. The options vest immediately and expire 10 years after the grant date. The stock options were accounted for at their fair value, as determined by the Black-Scholes valuation model, of approximately $143 thousand.
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IntelGenx Technologies Corp. | | Notes to Consolidated Interim Financial Statements | September 30, 2018March 31, 2019 | | (Expressed in U.S. Funds) | | (Unaudited) |
| | | | March 31, | | | March 31, | | | | | | 2019 | | | 2018 | | | | Authorized - | | | | | | | | | | | | | | | | | | 200,000,000 common shares of $0.00001 par value | | | | | | | | | 20,000,000 preferred shares of $0.00001 par value | | | | | | | | | | | | | | | | | | Issued - | | | | | | | | | | | | | | | | | | 93,527,473 (December 31, 2018 - 93,477,473) common shares | $ | 1 | | $ | 1 | |
| 12. | Additional Paid-In Capital (Cont’d) | | | | Stock options | | | | On March 27, 2019, 100,000 options to purchase common stock were granted to an employee under the 2016 Stock Option Plan. The options have an exercise price of $0.69. The options granted vest over a period of 2 years at a rate of 25% every six months and expire 10 years after the grant date. The stock options were accounted for at their fair value, as determined by the Black-Scholes valuation model, of approximately $40 thousand | | | | On January 16, 2018, 100,000 options to purchase common stock were granted to an employee under the 2016 Stock Option Plan. The options have an exercise price of $0.79. The options granted vest over a period of 2 years at a rate of 25% every six months and expire 10 years after the grant date. The stock options were accounted for at their fair value, as determined by the Black-Scholes valuation model, of approximately $44 thousand. | | | | During the three-month period ended March 31, 2019 a total of 50,000 stock options were exercised for 50,000 common shares having a par value of $0 thousand in aggregate, for cash consideration of $21 thousand, resulting in an increase in additional paid-in capital of $33 thousand. No stock options were exercised during the three- month period ended March 31, 2018. | | | | Compensation expenses for stock-based compensation of $86 thousand and $50 thousand were recorded during the three-month periods ended March 31, 2019 and 2018, respectively. An amount of $74 thousand expensed in the three-month period ended March 31, 2019 relates to stock options granted to employees and directors and an amount of $12 thousand relates to stock options granted to consultants. An amount of $48 thousand expensed in the three-month period ended March 31, 2018 relates to stock options granted to employees and directors and an amount of $2 thousand relates to stock options granted to a consultant. As at March 31, 2019, the Company has $416 thousand (2018 - $181 thousand) of unrecognized stock-based compensation. | | | | Warrants | | | | During the three-month period ended March 31, 2018 a total of 700,000 warrants were exercised for 700,000 common shares having a par value of $Nil in aggregate, for cash consideration of approximately $395 thousand, resulting in an increase in additional paid-in capital of approximately $395 thousand. No warrants were exercised during the three-month period ended March 31, 2019. |
On August 28, 2017, 359,818 options to purchase common stock were granted to employees under the 2016 Stock Option Plan. The options have an exercise price of $0.77. The options granted vest over a period of 2 years at the rate of 25% every six months and expire 10 years after the grant date. The stock options were accounted for at their fair value, as determined by the Black-Scholes valuation model, of approximately $150 thousand.
During the nine-month period ended September 30, 2017 a total of 135,000 stock options were exercised for 135,000 common shares having a par value of $0 thousand in aggregate, for cash consideration of $62 thousand, resulting in an increase in additional paid-in capital of $62 thousand.
Compensation expenses for stock-based compensation of $311 thousand and $267 thousand were recorded during the nine-month periods ended September 30, 2018 and 2017, respectively. An amount of $302 thousand expensed in the nine-month period ended September 30, 2018 relates to stock options granted to employees and directors and an amount of $9 thousand relates to stock options granted to consultants. An amount of $262 thousand expensed in the nine-month period ended September 30, 2017 relates to stock options granted to employees and directors and an amount of $5 thousand relates to stock options granted to a consultant. As at September 30, 2018, the Company has $555 thousand (2017 - $243 thousand) of unrecognized stock-based compensation.
Warrants
During the nine-month period ended September 30, 2018 a total of 3,160,739 warrants were exercised for 3,160,739 common shares having a par value of $Nil in aggregate, for cash consideration of approximately $1,796 thousand, resulting in an increase in additional paid-in capital of approximately $1,796 thousand. During the nine-month period ended September 30, 2017 a total of 1,984,447 warrants were exercised for 1,984,447 common shares having a par value of $Nil in aggregate, for cash consideration of approximately $1,120 thousand, resulting in an increase in additional paid-in capital of approximately $1,120 thousand.
Deferred Share Units (“DSUs”)
Effective February 7, 2018, the Board approved a Deferred Share Unit Plan (DSU Plan) to compensate non-employee directors as part of their annual remuneration. Under the DSU Plan, the Board may grant Deferred Share Units (“DSUs”) to the participating directors at its discretion and, in addition, each participating director may elect to receive all or a portion of his or her annual cash stipend in the form of DSUs. To the extent DSUs are granted, the amount of compensation that is deferred is converted into a number of DSUs, as determined by the market price of our Common Stock on the effective date of the election. These DSUs are converted back into a cash amount at the expiration of the deferral period based on the market price of our Common Stock on the expiration date and paid to the director in cash in accordance with the payout terms of the DSU Plan. As the DSUs are on a cash-only basis, no shares of Common Stock will be reserved or issued in connection with the DSUs. On May 16, 2018, 287,355 DSUs have been granted under the DSU Plan as of the date of this filing, accordingly, an amount of $379 thousand has been recognized in management salaries.
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| IntelGenx Technologies Corp. | | | | Notes to Consolidated Interim Financial Statements | September 30, 2018 | (Expressed in U.S. Funds) | (Unaudited) |
11. | Additional Paid-In Capital (Cont’d)
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Performance and Restricted Share Units (“PRSUs”)
At the Annual Meeting on May 8, 2018, the shareholders approved the IntelGenx Technologies Corp. Performance and Restricted Share Unit Plan (PRSU Plan) which the Board of Directors had approved on March 19, 2018. The primary purpose of this PRSU Plan is to provide the Company with a share-related mechanism to attract, retain and motivate qualified executive officers of the Company and its Subsidiaries and to reward such executive officers for their contributions toward the long-term goals and success of the Company and to enable and encourage such executive officers to acquire shares of Common Stock as long-term investments and proprietary interests in the Company. No rewards have been issued under the PRSU Plan as of September 30, 2018.
The following table presents our revenues disaggregated by revenue source. Sales and usage-based taxes are excluded from revenues:
| | | | September 30, 2018 | | | September 30, 2017 | | | | | | | | | | | | | | | | | | | | | | Research and development agreements | $ | 1,173 | | $ | 519 | | | | Licensing agreements | | - | | | 413 | | | | Deferred revenue (sale of future royalties) | | - | | | 2,801 | | | | | $ | 1,173 | | $ | 3,733 | |
The following table presents our revenues disaggregated by timing of recognition:
| | | | September 30, 2018 | | | September 30, 2017 | | | | | | | | | | | | | | | | | | | | | | Product and services transferred at point in time | $ | - | | $ | 413 | | | | Products and services transferred over time | | 1,173 | | | 3,320 | | | | | $ | 1,173 | | $ | 3,733 | |
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IntelGenx Technologies Corp. | | Notes to Consolidated Interim Financial Statements | September 30, 2018March 31, 2019 | | (Expressed in U.S. Funds) | | (Unaudited) |
| 12. | Additional Paid-In Capital (Cont’d) | | | | Deferred Share Units (“DSUs”) | | | | Effective February 7, 2018, the Board approved a Deferred Share Unit Plan (DSU Plan) to compensate non- employee directors as part of their annual remuneration. Under the DSU Plan, the Board may grant Deferred Share Units (“DSUs”) to the participating directors at its discretion and, in addition, each participating director may elect to receive all or a portion of his or her annual cash stipend in the form of DSUs. To the extent DSUs are granted, the amount of compensation that is deferred is converted into a number of DSUs, as determined by the market price of our Common Stock on the effective date of the election. These DSUs are converted back into a cash amount at the expiration of the deferral period based on the market price of our Common Stock on the expiration date and paid to the director in cash in accordance with the payout terms of the DSU Plan. As the DSUs are on a cash-only basis, no shares of Common Stock will be reserved or issued in connection with the DSUs. On March 27, 2019, 271,740 DSUs have been granted under the DSU Plan, accordingly, an amount of $179 thousand has been recognized in general and administrative expenses. | | | | Performance and Restricted Share Units (“PRSUs”) | | | | At the Annual Meeting on May 8, 2018, the shareholders approved the IntelGenx Technologies Corp. Performance and Restricted Share Unit Plan (PRSU Plan) which the Board of Directors had approved on March 19, 2018. The primary purpose of this PRSU Plan is to provide the Company with a share-related mechanism to attract, retain and motivate qualified executive officers of the Company and its Subsidiaries and to reward such executive officers for their contributions toward the long-term goals and success of the Company and to enable and encourage such executive officers to acquire shares of Common Stock as long-term investments and proprietary interests in the Company. No PRSUs were granted during the three-month periods ended March 31, 2019 and 2018. | | | | 13. | Revenues | | | | The following table presents our revenues disaggregated by revenue source. Sales and usage-based taxes are excluded from revenues: |
| | | | March 31, 2019 | | | March 31, 2018 | | | | | | | | | | | | | Research and development agreements | $ | 416 | | $ | 239 | | | | | | | | | | |
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| IntelGenx Technologies Corp. | | | Notes to Consolidated Interim Financial Statements | | March 31, 2019 | | (Expressed in U.S. Funds) | | (Unaudited) |
| 13. | Revenues (Cont’d) | | | | The following table presents our revenues disaggregated by timing of recognition: |
| | | | March 31, 2019 | | | March 31, 2018 | | | | | | | | | | | | | (in U.S. $ thousands) | | | | | | | | | | | | | | | | | | Product and services transferred at point in time | $ | 372 | | $ | - | | | | Products and services transferred over time | | 44 | | | 239 | | | | | $ | 416 | | $ | 239 | |
The following table presents our revenues disaggregated by geography, based on the billing addresses of our customers: | | | | September 30, 2018 | | | September 30, 2017 | | | | | | | | | | | | | Europe | $ | 1,088 | | | 519 | | | | | | | | | | | | | Canada | | 85 | | | 383 | | | | | | | | | | | | | U.S. | | - | | | 2,801 | | | | | | | | | | | | | Other foreign countries | | - | | | 30 | | | | | $ | 1,173 | | $ | 3,733 | |
| | | | March 31, 2019 | | | March 31, 2018 | | | | | | | | | | | | | Europe | $ | 385 | | | 204 | | | | Canada | | 31 | | | 35 | | | | | $ | 416 | | $ | 239 | |
Remaining performance obligations As at September 30, 2018,March 31, 2019, the aggregate amount of the transaction price allocated to the remaining performance obligation is $71$1,510 representing research and development agreements, the majority of which is expected to be recognized in the next threetwelve months. The Company is also eligible to receive up to $4,704$4,479 in research and development milestone payments;payments, approximately 60% of which is expected to be recognized in the next three years, with the remaining 40% expected in the two years following; up to $28,751 in commercial sales milestone payments.payments, the majority of which is expected to be recognized in the next five years, but is wholly dependent on the marketing efforts of our development partners. In addition, the Company is entitled to receive royalties on potential sales. The Company applies the practical expedient in paragraph 606-10-50-14 and does not disclose information about the remaining performance obligations that have original expected durations of one year or less.
The Company applies the transition practical expedient in paragraph 606-10-65-1(f)(3) and does not disclose the amount of the transaction price allocated to the remaining performance obligations and an explanation of when the Company expects to recognize that amount as revenue for the year ended December 31, 2018.
13. | Related Party Transactions
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Included in management salaries for the nine-month period September 30, 2018 are $39 thousand (2017 - $3) for options granted to the Chief Executive Officer, $36 thousand (2017 - $34 thousand) for options granted to the Chief Financial Officer, $Nil (2017 - $3 thousand) for options granted to the former Vice President, Operations, $17 thousand (2017 - $5 thousand) for options granted to the Vice-President, Research and Development, $48 thousand (2017 – $26 thousand) for options granted to Vice-President, Business and Corporate Development under the 2016 Stock Option Plan and $36 thousand (2017 - $128 thousand) for options granted to non-employee directors.
Also included in management salaries for the nine-month period ended September 30, 2018 are director fees of $182 thousand (2017 - $136 thousand) and DSU of $379 thousand.
The above related party transactions have been measured at the exchange amount which is the amount of the consideration established and agreed to by the related parties.
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| IntelGenx Technologies Corp. | | | | Notes to Consolidated Interim Financial Statements | September 30, 2018March 31, 2019 | | (Expressed in U.S. Funds) | | (Unaudited) |
| 14. | Leases | | | | Substantially all our operating lease right-of-use assets and operating lease liability represents leases for office space and property to conduct our business. | | | | The operating lease expense for the three-month period ended March 31, 2019 included in general and administrative expenses is $38 thousand. The cash outflows from operating leases for the three-month period ended March 31, 2019 was $35 thousand. | | | | The weighted average remaining lease term and the weighted average discount rate for operating leases at March 31, 2019 were 6.9 years and 10%, respectively. | | | | The following table reconciles the undiscounted cash flows for the operating leases as et March 31, 2019 to the operating lease liabilities recorded on the balance sheet: |
| | | Operating Leases | | | | | | | | 2019 Remainder | $ | 107 | | | 2020 | | 146 | | | 2021 | | 148 | | | 2022 | | 151 | | | 2023 | | 153 | | | 2024 | | 157 | | | Thereafter | | 183 | | | Total undiscounted lease payments | | 1,045 | | | Less: Interest | | 320 | | | Present value of lease liabilities | $ | 725 | | | | | | | | Current portion of operating lease liability | $ | 131 | | | Operating lease liability | $ | 594 | |
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| IntelGenx Technologies Corp. | | | Notes to Consolidated Interim Financial Statements | | March 31, 2019 | | (Expressed in U.S. Funds) | | (Unaudited) |
| 15. | Related Party Transactions | | | | Included in management salaries are $20 thousand (2018 - $8) for options granted to the Chief Executive Officer, $14 thousand (2018 - $3 thousand) for options granted to the Chief Financial Officer, $5 (2018 - $3 ) for options granted to the Vice President, Operations, $8 thousand (2018 - $4 thousand) for options granted to the Vice- President, Research and Development, $8 thousand (2018 – $11 thousand) for options granted to Vice-President, Business and Corporate Development under the 2016 Stock Option Plan and $Nil (2018 - $3 thousand) for options granted to non-employee directors. | | | | Also included general and administrative expense for the three-month period ended March 31, 2019 are director fees of $58 thousand (2018 - $69 thousand) and DSU of $210 thousand (2018: $Nil). | | | | The above related party transactions have been measured at the exchange amount which is the amount of the consideration established and agreed to by the related parties. | | | | 16. | Basic and Diluted Loss Per Common Share |
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| Basic and diluted loss per common share is calculated based on the weighted average number of shares outstanding during the period. The warrants, share-based compensation and convertible debenture and notes have been excluded from the calculation of diluted loss per share since they are anti-dilutive. On October 22, 2018, the Company closed its offering (the “Offering”) of 17,144,314 units (the “Units”) at a price of $0.70 (the “Offering Price”) for gross proceeds of approximately $12,000,000 in the United States and the Canadian provinces of Alberta, British Columbia, Manitoba, Ontario and Quebec. On October 26, 2018, the Company announced that Echelon Wealth Partners Inc., who acted as the Company’s exclusive placement agent in Canada in connection with the Offering, exercised its option to place a further 903,610 Units pursuant to its over-allotment option, resulting in additional gross proceeds to the Company of $632,527.
Each Unit consists of one share of common stock (the “Offered Shares”) and one half of one warrant (a “Warrant”), each whole Warrant entitling the holder to purchase one share of common stock of the Company at an exercise price of $1.00 per share. The Warrants are exercisable immediately and will expire on the third anniversary of the date of their issuance.
Subsequent to the end of the quarter, a total of 883,867 warrants were exercised for 883,867 common shares having a par value of $Nil in aggregate, for cash consideration of approximately $499 thousand.
Subsequent to the end of the quarter, CAD$23,000 of convertible debentures were converted into 17,036 common shares at the option of the holders.
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Item 2: | Management’s Discussion and Analysis of Financial Condition and Results ofOperations |
Introduction to Management’s Discussion and Analysis
This Management’sItem 2: Management's Discussion and Analysis of Financial Condition and Results of Operations (“
Introduction to Management's Discussion and Analysis This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A”&A") comments on our business operations, performance, financial position and other matters for the three-month period ended March 31, 2019 and nine-month periods ended September 30, 2018 and 2017.2018. Unless otherwise indicated, all financial and statistical information included herein relates to continuing operations of the Company. Unless otherwise indicated or the context otherwise requires, the words, “IntelGenx, “Company”"IntelGenx, "Company", “we”"we", “us”"us", and “our”"our" refer to IntelGenx Technologies Corp. and its subsidiaries, including IntelGenx Corp. This MD&A should be read in conjunction with the accompanying unaudited Consolidated Financial Statements and Notes thereto. We also encourage you to refer to the Company’sCompany's MD&A for the year ended December 31, 2017.2018. In preparing this MD&A, we have taken into account information available to us up to November 8, 2018,May 9, 2019, the date of this MD&A, unless otherwise indicated. Additional information relating to the Company, including our Annual Report on Form 10-K for the fiscal year ended December 31, 20172018 (the “2017"2018 Form 10-K”10-K"), is available on SEDAR at www.sedar.com and on the U.S. Securities and Exchange Commission (the “SEC”"SEC") website at www.sec.gov. All dollar amounts are expressed in U.S. dollars, unless otherwise noted. Cautionary Statement Concerning Forward-Looking Statements Certain statements included or incorporated by reference in this MD&A constitute forward-looking statements within the meaning of applicable securities laws. All statements contained in this MD&A that are not clearly historical in nature are forward-looking, and the words “anticipate”"anticipate", “believe”"believe", “continue”"continue", “expect”"expect", “estimate”"estimate", “intend”"intend", “may”"may", “plan”"plan", “will”"will", “shall”"shall" and other similar expressions are generally intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All forward-looking statements are based on our beliefs and assumptions based on information available at the time the assumption was made. These forward-looking statements are not based on historical facts but on management’smanagement's expectations regarding future growth, results of operations, performance, future capital and other expenditures (including the amount, nature and sources of funding thereof), competitive advantages, business prospects and opportunities. Forward-looking statements involve significant known and unknown risks, uncertainties, assumptions and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from those implied by forward-looking statements. These factors should be considered carefully and you should not place undue reliance on the forward-looking statements. Although the forward-looking statements contained in this MD&A or incorporated by reference herein are based upon what management believes to be reasonable assumptions, there is no assurance that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this MD&A or as of the date specified in the documents incorporated by reference herein, as the case may be.We undertake no obligation to update any forward looking statements to reflect events or circumstances after the date on which such statements were made or to reflect the occurrence of unanticipated events, except as may be required by applicable securities laws.The factors set forth in Item 1A., "Risk Factors" of the 20172018 Form 10-K, as well as any cautionary language in this MD&A, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Before you invest in the common stock, you should be aware that the occurrence of the events described as risk factors and elsewhere in this report could have a material adverse effect on our business, operating results and financial condition.
Company Background We are a drug delivery company established in 2003 and headquartered in Montreal, Quebec, Canada. Our focus is on the development of novel oral immediate-release and controlled-release products for the pharmaceutical market.
More recently, we have made the strategic decision to enter the oral film market and have implemented commercial oral film manufacturing capability. This enables us to offer our partners a comprehensive portfolio of pharmaceutical services, including pharmaceutical R&D, clinical monitoring, regulatory support, tech transfer and manufacturing scale-up, and commercial manufacturing.
Our business strategy is to develop pharmaceutical products based on our proprietary drug delivery technologies and, once the viability of a product has been demonstrated, license the commercial rights to partners in the pharmaceutical industry. In certain cases, we rely upon partners in the pharmaceutical industry to fund the development of the licensed products, complete the regulatory approval process with the FDA or other regulatory agencies relating to the licensed products, and assume responsibility for marketing and distributing such products.
In addition, we may choose to pursue the development of certain products until the project reaches the marketing and distribution stage. We will assess the potential for successful development of a product and associated costs, and then determine at which stage it is most prudent to seek a partner, balancing such costs against the potential for additional returns earned by partnering later in the development process.Ourprocess. Our primary growth strategies are based on three pillars: (1) out licensing commercial rights of our existing pipeline products, (2) partnering on contract development and manufacturing projects leveraging our VersaFilm™ technology, (3) expanding our current pipeline through: | • | identifying lifecycle management opportunities for existing market leading pharmaceutical products,
| | | | | • | develop oral film products that provide tangible patient benefits,
| | | | | • | development of new drug delivery technologies,
| | | | | • | repurposing existing drugs for new indications, and
| | | | | • | developing generic drugs where high technology barriers to entry exist in reproducing branded films.
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identifying lifecycle management opportunities for existing market leading pharmaceutical products, develop oral film products that provide tangible patient benefits, development of new drug delivery technologies, repurposing existing drugs for new indications, and developing generic drugs where high technology barriers to entry exist in reproducing branded films.
Contract Development and Manufacturing based on VersaFilm™ technology
We have established a state-of-the-art manufacturing facility for the future manufacture of our VersaFilm™ products. We believe that this (1) represents a profitable business opportunity, (2) will reduce our dependency upon third-party contract manufacturers, thereby protecting our manufacturing process know-how and intellectual property, and (3) allows us to offer our development partners a full service from product conception through to supply of the finished product. Lifecycle Management Opportunities
We are seeking to position our delivery technologies as an opportunity for lifecycle management of products for which patent protection of the active ingredient is nearing expiration. While the patent for the underlying substance cannot be extended, patent protection can be obtained for a new and improved formulation by filing an application with the FDA under Section 505(b)(2) of the U.S. Federal Food, Drug and Cosmetic Act. Such applications, known as a “505(b)"505(b)(2) NDA”NDA", are permitted for new drug products that incorporate previously approved active ingredients, even if the proposed new drug incorporates an approved active ingredient in a novel formulation or for a new indication. A 505(b)(2) NDA may include information regarding safety and efficacy of a proposed drug that comes from studies not conducted by or for the applicant. The first formulation for a respective active ingredient filed with the FDA under a 505(b)(2) application may qualify for up to three years of market exclusivity upon approval. Based upon a review of past partnerships between third party drug delivery companies and pharmaceutical companies, management believes that drug delivery companies which possess innovative technologies to develop these special dosage formulations present an attractive opportunity to pharmaceutical companies. Accordingly, we believe “505(b)"505(b)(2) products”products" represent a viable business opportunity for us.
Product Opportunities that provide Tangible Patient Benefits
Our focus will be on developing oral film products leveraging our VersaFilm™ technology that provide tangible patient benefits versus existing drug delivery forms. Patients with difficulties swallowing medication, pediatrics or geriatrics may benefit from oral films due to the ease of use. Similarly, we are working on oral films to improve bio-availability and/or response time versus existing drugs and thereby reducing side effects. Development of New Drug Delivery Technologies
The rapidly disintegrating film technology contained in our VersaFilm™, and our AdVersa® mucosal adhesive tablet, are two examples of our efforts to develop alternate technology platforms. As we work with various partners on different products, we seek opportunities to develop new proprietary technologies. Repurposing Existing Drugs
We are working on the repurposing of already approved drugs for new indications using our VersaFilm™ film technology. This program represents a viable growth strategy for us as it will allow for reduced development costs, improved success rates and shorter approval times. We believe that through our repurposing program we will be able minimize the risk of developmental failure and create value for us and potential partners. Generic Drugs with High Barriers to Entry
We plan to pursue the development of generic drugs that have certain barriers to entry, e.g., where product development and manufacturing is complex and can limit the number of potential entrants into the generic market. We plan to pursue such projects only if the number of potential competitors is deemed relatively insignificant. Corporate Manufacturing facility
We currently manufacture products only for clinical and testing purposes in our own facility and we do not yet manufacture products for commercial use. In order to establish ourselves as a full-service partner for our thin film products, we invested approximately $6.5 million to establish a state-of-the-art manufacturing facility for the commercial manufacture of products developed using our VersaFilm™ drug delivery technology. Since we recently received our cGMP-compliant rating from Health Canada for manufacturing and packaging activities, we anticipate the manufacturing of our products to commence on the firstsecond half of 2019. Expansion to the existing Manufacturing Facility
On March 6, 20172018 IntelGenx executed an agreement to lease approximately an additional 11,000 square feet in a property located at 6410 Abrams, St-Laurent, Quebec. The Lease has an 8 year and 5-month term commencing on October 1, 20172018 and IntelGenx has retained two options to extend the Lease, with each option being for an additional five years. Under the terms of the Lease IntelGenx will be required to pay base rent of approximately CA$74 thousand (approximately $59$55 thousand) per year, which will increase at a rate of CA$0.25 ($0.20)0.19) per square foot every two years. IntelGenx plans to use the newly leased space to expand its manufacture of oral film VersaFilm TM.
The Company has initiated a project to expand the existing manufacturing facility, the timing of which will be dictated in part by the completion of agreements with our commercial partners as well as obtaining the necessary funding. This expansion became necessary following requests by commercial partners to increase manufacturing capacity and provide solvent film manufacturing capabilities. The new facility should create a fivefold increase of our production capacity in addition to offering a one-stop shopping opportunity to our partners and provide better protection of our Intellectual Property. The Company has signed agreements in the amount of Euro1,911 thousand with three suppliers with respect to equipment for solvent film manufacturing. As at September 30, 2018March 31, 2019 an amount of Euro988Euro1,425 thousand has been paid. Most recent key developments On July 3,February 07, 2019, the Company appointed Dr. Rodolphe Obeid to the position of Vice President, Operations of IntelGenx Corp. Dr. Obeid is an expert in drug delivery systems and polymeric assemblies, who has developed strong technical expertise across a range of operations functions, with a particular emphasis on oral film manufacturing processes, lean manufacturing practices and continuous improvement initiatives. He has held a number of progressive management positions at IntelGenx. Most recently, he served as IntelGenx' Senior Director of Operations, with responsibility for the direction, strategy, planning and execution of IntelGenx' manufacturing operations. In his new role as Vice President, Operations, Dr. Obeid will oversee all operational activities, including manufacturing, packaging, facilities and maintenance, production planning and supply chain management. In addition, he will manage process development and manufacturing scale-up of all internal and external pharmaceutical film projects. On February 11, 2019, the Company announced the Decision to Grant notice from the Japanese Patent Office to issue a patent entitled "Instantly wettable oral film dosage form without surfactant or polyalcohol." Once the JPO's administrative process is complete, the patent that issues from this application will provide intellectual property protection in Japan for the formulation of IntelGenx' VersaFilm™ technology used in its RIZAPORT® product, through 2034. RIZAPORT® is an oral thin film formulation of rizatriptan benzoate for the treatment of acute migraines. The Decision to Grant notice is the final approval stage and precedes actual granting, which is expected shortly after the Decision. The identification number is Japanese Patent Application 2016-530631. IntelGenx received a similar formulation patent covering its RIZAPORT® VersaFilm™ technology from the European Patent Office in 2018 and from the United States Patent and Trademark Office in 2016, and has additional applications pending in other countries. On February 14, 2019, the Company announced that Montreal's Douglas Mental Health University Institute had agreed to participate in IntelGenx's Montelukast VersaFilm™ Phase 2a clinical trial in patients with mild to moderate Alzheimer's Disease. In addition, IntelGenx issued 307,069 common shareswas also honoured to announce that world-renowned neurologist and clinical researcher, Serge Gauthier MD, FRCPC, had agreed to serve as the site's lead investigator.
Dr. Gauthier is a Professor in the Departments of Neurology & Neurosurgery, Psychiatry and Medicine at McGill University; and Director of the CorporationAlzheimer Disease and Related Disorders Research Unit of the McGill Center for Studies in Aging at Douglas Hospital. Dr. Gauthier is also the founder of the Canadian Consortium of Centers for Clinical Cognitive Research (C5R), a deemed pricenot-for-profit research network that facilitates collaboration and partnerships between pharmaceutical companies and Canadian dementia researchers. C5R research sites conduct clinical trials to research and develop treatments for patients with cognitive impairment, AD, as well as other forms of CAD$0.99 per Common Sharedementia. In addition to authoring numerous research papers, journal articles, and book chapters, he edited an internationally cited textbook titled Clinical Diagnosis and Management of Alzheimer's Disease and co-authored a book for the general public titled La maladie d'Alzheimer: Le guide. Dr. Gauthier was named a member of the Order of Canada in payment2015 and Knight of an aggregatethe Ordre National du Québec (2017) for his contributions in the area of CAD$304,000Alzheimer's disease research. Immediately following the end of the quarter, on April 02, 2019, the Company received a Complete Response Letter from the U.S. Food and Drug Administration regarding its resubmitted 505(b)(2) New Drug Application for RIZAPORT® VersaFilm™ for the treatment of acute migraines. The issues cited in interest owingthe CRL relate to the Chemistry, Manufacturing and Controls section of the application. The Agency requested additional information, but no new bioequivalence study. Subsequent to the quarter, on May 8, 2019,the Corporation’s 8.00% convertible unsecured subordinated debentures due September 30, 2020. Company announced that it has entered into a definitive worldwide agreement with Aquestive Therapeutics, Inc. ("Aquestive"), a specialty pharmaceutical company focused on developing and commercializing differentiated products to solve therapeutic problems, for the co-development and commercialization of Tadalafil oral films (the "Agreement") for the treatment of erectile dysfunction ("ED"). Under the terms of the trust indenture governingAgreement, IntelGenx and Aquestive will each grant to the Debentures,other exclusive worldwide licenses to their respective intellectual property relating to tadalafil oral film formulation and manufacturing. The companies will jointly undertake further co-development and commercialization of Tadalafil oral film products, and will equally share (50/50) net profits from worldwide product sales. In connection with the CorporationAgreement, Aquestive has also granted a non-exclusive, royalty bearing U.S. license to any of its intellectual property that may relate to the optionformulation and manufacturing of IntelGenx's rizatriptan oral film product, RIZAPORT®. IntelGenx will pay Aquestive a royalty equal to pay the semi-annual interest on the Debentures in either cash or Common Shares, subject to customary conditions set forth in the Indenture.10% of all payments received by IntelGenx from third parties for U.S. product related milestones and sales. On July 05, 2018, IntelGenx announced that the Canadian Intellectual Property Office issuedAquestive previously submitted a Notice of Allowance (“NOA”new drug application ("NDA") for the Company’s Canadian Patent Application Number 2,998,223 entitled “Loxapine Film Oral Dosage Form”, covering the use of loxapine in anits tadalafil oral transmucosal film for the treatment of schizophrenia or bipolar 1 disorder. This is the Company’s first patent allowed in Canada and the Company’s first Canadian patent for its VersaFilm™ technology. Upon issuance, the patent will grant exclusivity protection in Canada for IntelGenx’s Loxapine VersaFilm™ product for the treatment of schizophrenia or bipolar 1 disorder through 2037. This is also the Company’s first patent application to receive NOA in relation to its Loxapine VersaFilm™ project.
On September 20, 2018, IntelGenx announced that it had executed a non-binding letter of intent withTilray, Inc. (NASDAQ:TLRY), a global leader in cannabis research, cultivation, production and distribution, to co-develop and commercialize oral film products infused with recreational and medical cannabis, in anticipation of amended cannabis regulations which would allow adult-use consumers to purchase edible products.
PursuantED to the LOI, subject to entering intoU.S. Food and Drug Administration ("FDA"). In November 2018, Aquestive received a definitive agreement andcomplete response letter ("CRL") from the satisfaction of customary closing conditions, IntelGenx and Tilray will fund 20% and 80%FDA requesting limited additional data from healthy volunteers. Under the terms of the costs associated with the development of the cannabis-infused VersaFilm™ products, respectively. IntelGenxAgreement, both companies will have rights to manufacture and supply the co-developed products to Tilray, and will also receive a fixed single-digit royalty on net product sales. Tilray will have the exclusive, worldwide marketing and distribution rights for the co-developed products.
The LOI also contemplates that, at the time of entering into the definitive agreement, Tilray® will make a strategic investmentcooperate in IntelGenx by way of a non-brokered private placement. Tilray® will purchase 1,250,000 common shares of IntelGenx at a price of $0.80 per share, which is equalresponding to the five-day volume weighted average closing price of IntelGenx’ common stock on the OTCQX for the period ended September 18, 2018. IntelGenx intends to use the proceeds from the Private Placement for cannabis-infused VersaFilm™ product development in connection with the LOI. The Private Placement will be subject to the approval of the TSX Venture Exchange.FDA's CRL.
SubsequentFurther subsequent to the end of the quarter, on November 7, 2018, IntelGenx announced the execution of a definitive license, development and supply agreement (the “Agreement”) with Tilray®. In connection with the Agreement, the parties have also executed a subscription agreement pursuant to which Tilary® will make a strategic investment in IntelGenx by way of a non-brokered private placement (“Private Placement”). Pursuant to the Private Placement, Tilray® will purchase 1,428,571 common shares of IntelGenx at a price of $0.70 per share for gross proceeds to IntelGenx of $1 million. The price of $0.70 per share, rather than the $0.80 per share price which had been proposed in the non-binding LOI between the parties announced on September 20, 2018, represents the price per unit paid by investors under IntelGenx’s recent public offering. The Private Placement is expected to close on or about November 9, 2018, subject to approval by the TSX Venture Exchange and satisfaction of customary closing conditions.
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On September 24, 2018, IntelGenx announced successful results from a bioequivalence study for RIZAPORT®May 8, 2019, its proprietary anti-migraine VersaFilm™ product. The study results demonstrated RIZAPORT® is bioequivalent to the U.S. reference, Maxalt®-MTL, and the European reference, Maxalt®-Lingua.
The bioequivalence study was a single-dose, randomized, open-label, three-way crossover, pivotal, comparative bioavailability study of RIZAPORT® 10 mg, Maxalt®-MLT 10 mg orally disintegrating tablets and Maxalt®-Lingua 10 mg oro-dispersible tablets in 30 healthy volunteers. The study was conducted under the direction of Biopharma Services in Toronto, ON.
The bioequivalence study is expected to support the submission of the additional information related to the transfer of manufacturing to IntelGenx’ GMP compliant site required by the U.S. Food and Drug Administration ("FDA") to allow for a full review of the Company’s 505(b)(2) New Drug Application ("NDA") resubmission for RIZAPORT®. The study will also be used to support applications to transfer the manufacturing of RIZAPORT®from the European contract manufacturer listed in the initial application to IntelGenx’ site. Additionally, it will be used to support applications in additional European countries.
On September 25, 2018, IntelGenx announced that patient recruitment had commenced for the Phase 2a study with Montelukast VersaFilm™ in patients with mild to moderate Alzheimer’s Disease (“AD”). Two research sites (the Centre for Memory and Aging in Toronto, ON and True North Clinical Research in Halifax, NS) were activated and had open for patient enrolment as of September 26, 2018.
This randomized, double-blind, placebo controlled Phase 2a proof of concept study will enroll approximately 70 subjects with mild to moderate AD across eight Canadian research sites. The primary study objectives will be to evaluate the safety, feasibility, tolerability, and efficacy of Montelukast buccal film following daily dosing for 26 weeks.
Subsequent to the end of the quarter, on October 22, 2018, the Company announced the closing of its offering (the “Offering”) of 17,144,314 units (the “Units”) at a price of US$0.70 (the “Offering Price”) for gross proceeds of approximately $12,000,000 in the United States and the Canadian provinces of Alberta, British Columbia, Manitoba, Ontario and Quebec. On October 26, 2018, the Company announced, that Echelon Wealth Partners Inc., who actedits Board of Directors appointed André Godin to the position of President, in addition to his current position as the Company’s exclusive placement agent in Canada in connectionCompany's Chief Financial Officer. In his newly expanded role, Mr. Godin will have overall responsibility for day-to-day operations, financial reporting and budgeting, as well as managing the Company's relationships and interactions with the Offering, exercised its optioninvestment community. He will continue to place a further 903,610 Units pursuant to its over-allotment option, resulting in additional gross proceedsreport to the Company of $632,527.Each Unit consists of one share of common stock of the Company and one half of one warrant, each whole Warrant entitling the holder to purchase one share of common stock of the Company at an exercise price of $1.00 per share. The Warrants are exercisable immediately and will expire on the third anniversary of the date of their issuance.Company's CEO, Dr. Horst G. Zerbe.
Subsequent to the end of the quarter, a total of 883,867 warrants were exercised for 883,867 common shares having a par value of $Nil in aggregate, for cash consideration of approximately $499 thousand. Subsequent to the end of the quarter, CAD$23,000 of convertible debentures were converted into 17,036 common shares at the option of the holders.
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All amounts are expressed in thousands of U.S. dollars unless otherwise stated.
Currency rate fluctuations Our operating currency is Canadian dollars, while our reporting currency is U.S. dollars. Accordingly, our results of operations and balance sheet position have been affected by currency rate fluctuations. In summary, our financial statements for the nine-monththree-month period ended September 30, 2018March 31, 2019 report an accumulated other comprehensive loss due to foreign currency translation adjustments of $727$919 primarily due to the fluctuations in the rates used to prepare our financial statements, $101$223 of which negativelypositively impacted our comprehensive loss for the nine-monththree-month period ended September 30, 2018.March 31, 2019. The following Management Discussion and Analysis takes this into consideration whenever material. Reconciliation of Comprehensive Loss to Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) Adjusted EBITDA is a non-US GAAP financial measure. A reconciliation of the Adjusted EBITDA is presented in the table below. The Company uses adjusted financial measures to assess its operating performance. Securities regulations require that companies caution readers that earnings and other measures adjusted to a basis other than US-GAAP do not have standardized meanings and are unlikely to be comparable to similar measures used by other companies. Accordingly, they should not be considered in isolation. The Company uses Adjusted EBITDA to measure its performance from one period to the next without the variation caused by certain adjustments that could potentially distort the analysis of trends in our operating performance, and because the Company believes it provides meaningful information on the Company’sCompany's financial condition and operating results. IntelGenx obtains its Adjusted EBITDA measurement by adding to comprehensive loss, finance income and costs, depreciation and amortization, income taxes and foreign currency translation adjustment incurred during the period. IntelGenx also excludes the effects of certain non-monetary transactions recorded, such as share-based compensation, for its Adjusted EBITDA calculation. The Company believes it is useful to exclude these items as they are either non-cash expenses, items that cannot be influenced by management in the short term, or items that do not impact core operating performance. Excluding these items does not imply they are necessarily nonrecurring. Share-based compensation costs are a component of employee and consultant’sconsultant's remuneration and can vary significantly with changes in the market price of the Company’sCompany's shares. Foreign currency translation adjustments are a component of other comprehensive income and can vary significantly with currency fluctuations from one period to another. In addition, other items that do not impact core operating performance of the Company may vary significantly from one period to another. As such, Adjusted EBITDA provides improved continuity with respect to the comparison of the Company’sCompany's operating results over a period of time. Our method for calculating Adjusted EBITDA may differ from that used by other corporations.
Reconciliation of Non-US-GAAP Financial Information | | | | Three-month period
| | | | | Three-month period | | | Nine-month period | | | ended March 31, | | | | | ended September 30, | | | ended September 30, | | | | | | 2018 | | | 2017 | | | 2018 | | | 2017 | | | 2019 | | 2018 | | | | | $ | | | $ | | | $ | | | $ | | | $ | | $ | | | Comprehensive loss | | (2,926 | ) | | (586 | ) | | (7,699 | ) | | 1,604 | ) | | (2,341 | ) | | (2,341 | ) | | Add (deduct): | | | | | | | | | | | | | | | | | | | | Depreciation | | 178 | | | 185 | | | 540 | | | 525 | | | 171 | | | 183 | | | Finance costs | | 301 | | | 218 | | | 821 | | | 329 | | | 298 | | | 243 | | | Finance income | | - | | | (5 | ) | | - | | | (8 | ) | | (29 | ) | | - | | | Share-based compensation | | 188 | | | 44 | | | 311 | | | 267 | | | 86 | | | 50 | | | Other comprehensive loss (income) | | (18 | ) | | (196 | ) | | 90 | | | (356 | ) | | (247 | ) | | 77 | | | | | | | | | | | | Adjusted EBITDA | | (2,277 | ) | | (340 | ) | | (5,937 | ) | | (847 | ) | | (2,062 | ) | | (1,788 | ) |
Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) Adjusted EBITDA decreased by $1,937$274 for the three-month period ended September 30, 2018March 31, 2019 to ($2,277)2,062) compared to ($340)1,788) for the three-month period ended September 30, 2017.March 31, 2018. The decrease in Adjusted EBITDA of $1,937$274 for the three-month period ended September 30, 2018March 31, 2019 is mainly attributable to a decrease in revenues of $554, an increase in SG&A expenses of $624$396 before consideration of stock-based compensation and an increase in R&D expenses of $856 before consideration of stock-based compensation. Adjusted EBITDA decreased by $5,090 for the nine-month period ended September 30, 2018 to ($5,937) compared to ($847) for the nine-month period ended September 30, 2018. The decrease in Adjusted EBITDA of $5,090 for the nine-month period ended September 30, 2018 is mainly attributable to a decrease in revenues of $2,560, an increase in SG&A expenses of $1,599$55 before consideration of stock-based compensation, andoffset by an increase in R&D expensesrevenues of $1,209 before consideration of stock-based compensation.$177. 9
Results of operations for the three-month and nine-month periodsperiod ended September 30, 2018March 31, 2019 compared with the three-month and nine-month periodsperiod ended September 30, 2017.March 31, 2018. | | | Three-month period ended March 31, | | | | | 2019 | | | 2018 | | | Revenues | $ | 416 | | $ | 239 | | | Research and Development Expenses | | 860 | | | 797 | | | Selling, General and Administrative Expenses | | 1,704 | | | 1,280 | | | Depreciation of tangible assets | | 171 | | | 183 | | | Operating loss | | (2,319 | ) | | (2,021 | ) | | Net loss | | (2,588 | ) | | (2,264 | ) | | Comprehensive loss | | (2,341 | ) | | (2,341 | ) |
| | | Three-month period | | | Nine-month period ended | | | | | ended September 30, | | | September 30, | | | | | 2018 | | | 2017 | | | 2018 | | | 2017 | | | Revenue | $ | 700 | | $ | 1,254 | | $ | 1,173 | | | 3,733 | | | | | | | | | | | | | | | | | Cost of Royalty and License Revenue | | - | | | 97 | | | - | | | 278 | | | | | | | | | | | | | | | | | Research and Development Expenses | | 1,452 | | | 578 | | | 3,106 | | | 1,876 | | | | | | | | | | | | | | | | | Selling, General and Administrative Expenses | | 1,713 | | | 963 | | | 4,315 | | | 2,693 | | | | | | | | | | | | | | | | | Depreciation of tangible assets | | 178 | | | 185 | | | 540 | | | 525 | | | | | | | | | | | | | | | | | Operating loss | | (2,643 | ) | | (569 | ) | | (6,788 | ) | | (1,639 | ) | | | | | | | | | | | | | | | | Net loss | | (2,944 | ) | | (782 | ) | | (7,609 | ) | | (1,960 | ) | | | | | | | | | | | | | | | | Comprehensive loss | | (2,926 | ) | | (586 | ) | | (7,699 | ) | | (1,604 | ) |
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Revenue Total revenues for the three-month period ended September 30, 2018March 31, 2019 amounted to $700,$416, representing a decreasean increase of $554$177 or 44%74% compared to $1,254$239 for the three-month period ended September 30, 2017. Total revenues for the nine-month period ended September 30, 2018 amounted to $1,173, representing a decrease of $2,560 or 69% compared to $3,733 for the nine-month period ended September 30, 2017.March 31, 2018. The decreaseincrease for the three-month period ended September 30, 2018March 31, 2019 compared to the last year’syear's corresponding period is mainly attributable to a decrease in deferred revenues on monetization of $972 offset by an increase in R&D milestone revenues of $418. The decrease for the nine-month period ended September 30, 2018 compared to the last year’s corresponding period is mainly attributable to$372 offset by a decrease in upfronts of $413, deferred revenues on monetization of $2,801 offset by an increase in R&D revenues of $654.$195. Cost of royalty and license revenue
We recorded $Nil for the cost of royalty and license revenue in the three-month period ended September 30, 2018 compared with $97 in the same period of 2017. We recorded $Nil for the cost of royalty and license revenue in the nine-month period ended September 30, 2018 compared with $278 in the same period of 2017. This expense relates to a Project Transfer Agreement that was executed in May 2010 with one of our former development partners whereby we acquired full rights to, and ownership of, Forfivo XL®, our novel, high strength formulation of Bupropion hydrochloride, the active ingredient in Wellbutrin XL®. Pursuant to the Project Transfer Agreement and following commercial launch of Forfivo XL® in October 2012, we are required, after recovering an aggregate $200 for management fees previously paid, to pay our former development partner 10% of net product sales received from the sale of Forfivo XL®. We recovered the final portion of the management fees in December 2014, thereby invoking payments to our former development partner. Following the monetization of Forfivo XL®’s royalties, we are required to record 10% of the deferred revenues from the monetization as cost of royalty and license revenue until December 31, 2017 which represented $Nil for the nine-month period ended September 30, 2018.
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Research and development (“("R&D”&D") expenses R&D expenses for the three-month period ended September 30, 2018March 31, 2019 amounted to $1,452,$860, representing an increase of $874$63 or 151%8%, compared to $578$797 for the three-month period ended September 30, 2017. R&D expenses for the nine-month period ended September 30, 2018 amounted to $3,106, representing an increase of $1,230 or 66%, compared to $1,876 for the nine-month period ended September 30, 2017.March 31, 2018. The increase in R&D expenses for the three-month period ended September 30, 2018March 31, 2019 is mainly attributable to an increase in study costs of $565, an increase in analytical costs of $220,$214, an increase in lab supplies of $125,$27, as well as an increase in patentconsulting expenses of $40,$24, offset by a decrease in study costs of $172 and an increase in tax credits of $47. The increase in R&D expenses for the nine-month period ended September 30, 2018 is mainly attributable to an increase in study costs of $919, an increase in R&D salaries due to hiring of additional employees of $231 as well as an increase in analytical costs of $351, offset by an increase in tax credits of $141 and a decrease in lab supplies of $138.$15. In the three-month period ended September 30, 2018March 31, 2019 we recorded estimated Research and Development Tax Credits of $78,$94, compared with $31 that was recorded in the same period of the previous year. In the nine-month period ended September 30, 2018 we recorded estimated Research and Development Tax Credits of $233, compared with $92$79 that was recorded in the same period of the previous year. Selling, general and administrative (“("SG&A”&A") expenses SG&A expenses for the three-month period ended September 30, 2018March 31, 2019 amounted to $1,713,$1,704, representing an increase of $750$424 or 78%33%, compared to $963$1,280 for the three-month period ended September 30, 2017. SG&A expenses for the nine-month period ended September 30, 2018 amounted to $4,315 representing an increase of $1,622 or 60%, compared to $2,693 for the nine-month period ended September 30, 2017.March 31, 2018. The increase in SG&A expenses for the three-month period ended September 30, 2018March 31, 2019 is mainly attributable to increases in manufacturing expense of $309, salaries and compensation expenses of $275, office and general expenses of $112, professional fees of $57 and rent and utilities expenses of $37. The increase in SG&A expenses for the nine-month period ended September 30, 2018 is mainly attributable to increases in salaries and compensation expenses of $570, manufacturing$287 mainly attributable to DSUs granted to non-employee Directors in Q1 2019 (2018 DSUs were granted and expensed in Q2-2018), investor relations expenses of $167, and by the variation of the foreign exchange expense due to the depreciation of $418,the CA dollar vs the US currency of $141, offset by a decrease in professional fees of $361, office and general expenses of $195 and rent and utilities expenses of $125. The increase in professional fees were mainly related to costs attributable to the aborted capital raise as well as the Laboval acquisition which is currently on hold. These expenses are deemed to be non-recurring in nature.$151. Depreciation of tangible assets In the three-month period ended September 30, 2018March 31, 2019 we recorded an expense of $178$171 for the depreciation of tangible assets, compared with an expense of $185$183 for the same period of the previous year. In the nine-month period ended September 30, 2018 we recorded an expense of $540 for the depreciation of tangible assets, compared with an expense of $525 for the same period of the previous year. Share-based compensation expense, warrants and stock-based payments Share-based compensation warrants and share-based payments expense for the three-month period ended September 30, 2018March 31, 2019 amounted to $188$86 compared to $44$50 for the three-month period ended September 30, 2017. Share-based compensation warrants and share-based payments expense for the nine-month period ended September 30, 2018 amounted to $311 compared to $267 for the nine-month period ended September 30, 2017.March 31, 2018. 11
We expensed approximately $153$74 in the three-month period ended September 30, 2018March 31, 2019 for options granted to our employees in 2016, 2017 and 2018 under the 2016 Stock Option Plan, approximately $30$Nil for options granted to non-employee directors in 2016, and 2017, and approximately $5$12 for options granted to consultants in 20162017 and 2018, compared with $38, $4,$45, $3, and $2, respectively that was expensed in the same period of the previous year. We expensed approximately $266 in the nine-month period ended September 30, 2018 for options granted to our employees in 2016, 2017 and 2018 under the 2016 Stock Option Plan, approximately $36 for options granted to non-employee directors in 2016 and 2017, and approximately $9 for options granted to consultants in 2016 and 2018, compared with $134, $128, and $5, respectively that was expensed in the same period of the previous year.
There remains approximately $555$416 in stock-based compensation to be expensed in fiscal 20182019 and 2019,2020, of which $532$344 relates to the issuance of options to our employees from 2017 to 2019 and directors during 2016 to 2018 and $23$72 relates to the issuance of options to a consultantconsultants in 2018. We anticipate the issuance of additional options and warrants in the future, which will continue to result in stock-based compensation expense.
Key items from the balance sheet | | | | | | | | | | | | Percentage | | | | | | September | | | December | | | Increase/ | | | Increase/ | | | | | | 30, 2018 | | | 31, 2017 | | | (Decrease) | | | (Decrease) | | | | | | | | | | | | | | | | | | March 31, 2019 | | | December 31, 2018 | | | Increase/
(Decrease) | | Percentage Increase/ (Decrease) | | | Current Assets | $ | 4,062 | | $ | 6,044 | | $ | (1,982 | ) | | (33% | ) | Current Assets | $ | 10,602 | | $ | 13,063 | | $ | (2,461 | ) | | (19% | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Leasehold improvements and Equipment, net | | 6,240 | | | 6,346 | | | (106 | ) | | (2% | ) |
Leasehold improvements and Equipment, net | | 6,279 | | | 6,248 | | | 31 | | | 1% | | | | | | | | | | | | | | | | | | Security Deposits | | 745 | | | 757 | | | (12 | ) | | (2% | ) | Security Deposits | | 722 | | | 707 | | | 15 | | | 2% | | | | | | | | | | | | | | | | |
Operating lease right- of-use asset | |
Operating lease right- of-use asset | | 722 | | | 0 | | | 722 | | | 100% | | | Current Liabilities | | 2,873 | | | 2,077 | | | 796 | | | 38% | | Current Liabilities | | 2,597 | | | 2,722 | | | (125 | ) | | (5% | ) | | Deferred lease obligation | | 51 | | | 50 | | | 1 | | | 2% | | | | | | | | | | | | | | | | | | | Long-term debt | | 1,384 | | | 1,992 | | | (608 | ) | | (31% | ) | Long-term debt | | 987 | | | 1,140 | | | (153 | ) | | (13% | ) | | | | | | | | | | | | | | | | | Convertible debentures | | 5,257 | | | 5,199 | | | 58 | | | 1% | | Convertible debentures | | 5,231 | | | 5,047 | | | 184 | | | 4% | | | | | | | | | | | | | | | | | | Convertible notes | | 1,034 | | | - | | | 1,034 | | | 100% | | Convertible notes | | 1,114 | | | 1,073 | | | 41 | | | 4% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating Lease liability | | Operating Lease liability | | 594 | | | 0 | | | 594 | | | 100% | | | Capital Stock | | 1 | | | 1 | | | 0 | | | 0% | | Capital Stock | | 1 | | | 1 | | | 0 | | | 0% | | | | | | | | | | | | | | | | | | Additional Paid-in- Capital | | 29,571 | | | 25,253 | | | 4,318 | | | 17% | | |
Additional Paid-in-Capital | |
Additional Paid-in-Capital | | 42,155 | | | 42,048 | | | 107 | | | 1% | |
Going Concern The Company has financed its operations to date primarily through public offerings of its common stock, convertible debentures, convertible notes, bank loans, royalty, up-front and milestone payments, license fees, proceeds from exercise of warrants and options, research and development revenues and the sale of U.S. royalty on future sales of Forfivo XL®. The Company has devoted substantially all of its resources to its drug development efforts, conducting clinical trials to further advance the product pipeline, the expansion of its facilities, protecting its intellectual property and general and administrative functions relating to these operations. The future success of the Company is dependent on its ability to develop its product pipeline and ultimately upon its ability to attain profitable operations. As of September 30, 2018,March 31, 2019, the Company had cash and short-term investments totaling approximately $2,220.$8,632. The Company does not have sufficient existing cash and short-term investments to support operations for the next year following the issuance of these financial statements. These conditions raise substantial doubt about the Company’sCompany's ability to continue as a going concern. Management’sManagement's plans to alleviate these conditions include pursuing one or more of the following steps to raise additional funding, none of which can be guaranteed or are entirely within the Company’sCompany's control:
| • | - Raise funding through the possible sale
of the Company’s common stock, including public or private equity financings.
| | • | Raise funding through debt financing.
| | • | Continue to seek partners to advance product pipeline.
| | • | Initiate oral film manufacturing activities.
| | • | Initiate contract oral film manufacturing activities.
|
Subsequent to the end of the quarter, in October 2018, the Company raised gross proceeds of approximately $12.6 millionCompany's common stock, including public or private equity financings.
Raise funding through the Offering and its over-allotment option.
debt financing.Continue to seek partners to advance product pipeline.Initiate oral film manufacturing activities.Initiate contract oral film manufacturing activities.If the Company is unable to raise capital when needed or on attractive terms, or if it is unable to procure partnership arrangements to advance its programs, the Company would be forced to delay, reduce or eliminate its research and development programs.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The accompanying financial statements do not include any adjustments or classifications that may result from the possible inability of the Company to continue as a going concern. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due. Current assets Current assets totaled $4,062$10,602 as at September 30, 2018March 31, 2019 compared with $6,044$13,063 at December 31, 2017.2018. The decrease of $1,982$2,461 is mainly attributable to decreases in short-term investments of $2,761$2,175, cash of $188, and accounts receivable of $31,$141, offset by increases in prepaids of $511, investment tax credits receivable of $222 and cash of $77.$102. Cash Cash totaled $1,668$6,627 as at September 30, 2018March 31, 2019 representing an increasea decrease of $77$188 compared with the balance of $1,591$6,815 as at December 31, 2017.2018. The increasedecrease in cash on hand relates to net cash used by operating activities of $6,140, offset by net cash provided by$2,393 and financing activities of $4,199 and$138, offset by net cash provided by investing activities of $2,111.$2,192. Accounts receivable Accounts receivable totaled $592$674 as at September 30, 2018March 31, 2019 representing a decrease of $31$141 compared with the balance of $623$815 as at December 31, 2017.2018. The main reason for the decrease is related to the collection in 20182019 of revenues accounted for as at December 31, 2017.2018. Prepaid expenses As at September 30, 2018March 31, 2019 prepaid expenses totaled $714$395 compared with $203$462 as of December 31, 2017. 13
2018. The increasedecrease in prepaid expenses is attributable to a paymentthe advance payments in December 2018 of CAD$275 with respectcertain expenses that relate to the Laboval acquisition (from which CAD$200 is refundable if the acquisition does not take place), and an advance payment for R&D materialsservices to be provided in the amountremainder of $321.the year. Investment tax credits receivable R&D investment tax credits receivable totaled approximately $536$518 as at September 30, 2018March 31, 2019 compared with $314$416 as at December 31, 2017.2018. The increase is attributable to the accrual estimated and recorded for the first ninethree months of 2018.2019.
Leasehold improvements and equipment As at September 30, 2018,March 31, 2019, the net book value of leasehold improvements and equipment amounted to $6,240,$6,279, compared to $6,346$6,248 at December 31, 2017. In the nine-month period ended September 30, 2018 additions to assets totaled $628 and mainly comprised of $588 for manufacturing equipment, $27 for leasehold improvements, $8 for computer equipment and $5 for office equipment.2018. Security deposit A security deposit in the amount of CAD$300 in respect of an agreement to lease approximately 17,000 square feet in a property located at 6420 Abrams, St-Laurent, Quebec, Canada was recorded as at September 30, 2018.March 31, 2019. Security deposits in the amount of CAD$650 for the term loans and CAD$15 for utilities were also recorded as at September 30, 2018.March 31, 2019. Accounts payable and accrued liabilities Accounts payable and accrued liabilities totaled $2,124$1,741 as at September 30, 2018March 31, 2019 compared with $1,305$2,030 as at December 31, 2017.2018. The increase isdecrease in mainly attributable to the accrualpayment of R&D related expenses, professional fees and accruals accounted for DSUs to independent board of Director members in the amount of $377, the convertible debenture interest accrual in the amount of $117 and payables related to R&D expenses incurred in the nine-month period ended September 30,as at Dec 31, 2018. Long-term debt Long-term debt totaled $2,133$1,712 as at September 30, 2018March 31, 2019 (December 31, 20172018 - $2,764)$1,832). An amount of $1,733$1,400 is attributable to term loan from the lender secured by a first ranking movable hypothec on all present and future movable property of the Company and a 50% guarantee by Export Development Canada, a Canadian Crown corporation export credit agency. The reimbursement of the term loan started in SeptemberMarch 2015 and should be fully reimbursed by October 2021.
An amount of $400$312 is attributable to a second loan secured by a second ranking on all present and future property of the Company reimbursable in monthly principal payments starting January 20172018 to December 2021. Convertible debentures Convertible debentures totaled $5,257$5,231 as at September 30, 2018March 31, 2019 as compared to $5,199$5,047 as at December 31, 2017.2018. The Corporation issued a total aggregate principal amount of CAD$7,600,000 ($5,687,000) of debentures at a price of CAD$1,000 ($748) per debenture in July 20172018 and August 2017.2018. The convertible debentures have been recorded as a liability. Total transactions costs in the amount of CAD$1,237,000 ($926,000) were recorded against the liability. The accretion expense for the nine-monththree-month period ended September 30, 2018March 31, 2019 amounts to CAD$282,000 (CAD$74,000105,000 ($79,000), compared to CAD$91,000 ($73,000) for the comparative period in 2017).2018. The interest accrued on the convertible debentures for the three-month period ended March 31, 2019 amounts to CAD$152 thousand ($114 thousand) and is recorded in financing and interest expense. The interest on the convertible debentures as at September 30, 2018 amountsamounted to CAD$456,000 (CAD$107,000 in 2017) and is recorded in Financing and interest expense of which CAD$304,000 was paid by issuance of 307,069 common shares on July 3,152 thousand ($120 thousand) for the three-month period ended March 31, 2018. 14
Convertible notes Convertible notes totaled $1,034$1,114 as at September 30, 2018March 31, 2019 as compared to $Nil$1,073 as at December 31, 2017.2018. The convertible notes have been recorded as a liability. Total transactions costs in the amount of $111 thousand were recorded against the liability. The accretion expense for the period ended September 30, 2018March 31, 2019 amounts to $59.$42 ($Nil in 2018). The interest inon the convertible notes as at September 30, 2018March 31, 2019 amounts to $39$24 ($Nil in 2017)2018) and is recorded in Financing and interest expense.
Shareholders' equity As at September 30, 2018March 31, 2019 we had accumulated a deficit of $28,397$33,435 compared with an accumulated deficit of $20,788$30,896 as at December 31, 2017.2018. Total assets amounted to $11,047$18,325 and shareholders’shareholders' equity totaled $448$7,802 as at September 30, 2018,March 31, 2019, compared with total assets and shareholders’shareholders' equity of $13,147$20,018 and $3,829$9,987 respectively, as at December 31, 2017.2018. Capital stock As at September 30, 2018March 31, 2019 capital stock amounted to $0.731$0.935 (December 31, 2017: $0.670) 2018: $0.935). Capital stock is disclosed at its par value with the excess of proceeds shown in Additional Paid-in-Capital. Additional paid-in-capital Additional paid-in capital totaled $29,571$42,155 as at September 30, 2018,March 31, 2019, as compared to $25,253$42,048 as at December 31, 2017.2018. Additional paid in capital increased by $4,318$107 from which $1,460 was the value of the common stock issued in the May 2018 private placement offering, $1,829$21 came from proceeds from exercise of warrants and stock options $437 was the value of the warrants issued in the May 2018 private placement, $311and $86 from stock basedstock-based compensation attributable to the amortization of stock options granted to employees and directors, $231 was the value of the interest paid by issuance of common shares and $50 was the value attributed to the Agents’ warrants in the May 2018 private placement transaction.consultants. Taxation As at December 31, 2017,2018, the date of our latest annual tax return, we had Canadian and provincial net operating losses of approximately $9,560$14,934 (December 31, 2016: $7,585)2017: $9,560) and $10,052$16,498 (December 31, 2016: $7,763)2017: $10,052) respectively, which may be applied against earnings of future years. Utilization of the net operating losses is subject to significant limitations imposed by the change in control provisions. Canadian and provincial losses will be expiring between 20272028 and 2037.2038. A portion of the net operating losses may expire before they can be utilized.
As at December 31, 2017,2018, we had non-refundable tax credits of $1,553$1,981 thousand (2016: $1,190(2017: $1,553 thousand) of which $8 thousand is expiring in 2026, $10$9 thousand is expiring in 2027, $180$165 thousand is expiring in 2028, $158$145 thousand is expiring in 2029, $134$124 thousand is expiring in 2030, $143$131 thousand is expiring in 2031, $179$164 thousand is expiring in 2032 and $119$109 thousand is expiring in 2033, $90$83 thousand expiring in 2034, $106$97 thousand is expiring in 2035, $146$135 thousand expiring in 2036 and $280$257 thousand expiring in 2037.2037 and $554 thousand expiring in 2038. We also had undeducted research and development expenses of $7,532$10,663 thousand (2016: $5,438(2017: $7,532 thousand) with no expiration date.
The deferred tax benefit of these items was not recognized in the accounts as it has been fully provided for. 15
Key items from the statement of cash flows | | | | | | | | | | | | Percentage | | | | | | September | | | September | | | Increase/ | | | Increase/ | | | | | | 30, 2018 | | | 30, 2017 | | | (Decrease) | | | (Decrease) | | | March 31, 2019 | | | March 31, 2018 | | | Increase/
(Decrease | ) | | | Percentage
Increase/ (Decrease | ) | | Operating Activities | $ | (6,140 | ) | $ | (2,541 | ) | $ | (3,599 | ) | | (142% | ) | $ | (2,393 | ) | $ | (2,191 | ) | $ | (202 | ) | | (9% | ) | | Financing Activities | | 4,199 | | | 5,637 | | | (1,438 | ) | | (26% | ) | | (138 | ) | | 208 | | | (346 | ) | | (166% | ) | | Investing Activities | | 2,111 | | | (2,124 | ) | | 4,235 | | | 200% | | | 2,192 | | | 1,077 | | | 1,115 | | | 104% | | | Cash - end of period | | 1,668 | | | 1,631 | | | 37 | | | 2% | | | 6,627 | | | 618 | | | 6,009 | | | 972% | |
Statement of cash flows Net cash used in operating activities was $6,140$2,393 for the nine-monththree-month period ended September 30, 2018,March 31, 2019, compared to $2,541$2,191 for the nine-monththree-month period ended September 30, 2017.March 31, 2018. For the nine-monththree-month period ended September 30, 2018,March 31, 2019, net cash used by operating activities consisted of a net loss of $7,609 (2017: $1,960)$2,588 (2018: $2,264) before depreciation, accretion expense, stock-based compensation, DSU expense and interest payable by issuance of common shareslease expense in the amount of $1,739 (2017: $849)$590 (2018: $306) and aan decrease in non-cash operating elements of working capital of $270 (2017: $1,430)$395 (2018: $233).
The net cash used in financing activities was $138 for the three-month period ended March 31, 2019, compared to net cash provided by financing activities was $4,199 for the nine-month period ended September 30, 2018, compared to $5,637 providedof $208 in the same period of the previous year. An amount of $3,004 derives from the proceeds of a private placement (2017: $nil) and an amount of $1,829$21 derives from proceeds from exercise of warrants and stock options (2017: $1,182)(2018: $395) offset by repayment of term loans for an amount of $552 (2017: $523) and the transaction costs related to the private placement of $82 (2017: $nil)$159 (2018: $187).
Net cash provided by investing activities amounted to $2,111$2,192 for the nine-monththree-month period ended September 30, 2018March 31, 2019 compared to ($2,124)$1,077 in the same period of 2017.2018. The net cash provided by investing activities for the nine-monththree-month period ended September 30, 2018March 31, 2019 relates to the redemption of short-term investments of $3,192 (2017: $2,735)$3,731 (2018: $1,515), offset by the acquisition of short-term investments of $453 (2017: $3,952)$1,469 (2018: $Nil) and by the purchase of fixed assets of $628 (2017: $907)$70 (2018: $438).
The balance of cash as at September 30, 2018March 31, 2019 amounted to $1,668,$6,627, compared to $1,631$618 as at September 30, 2017. Subsequent Events
On October 22, 2018, the Company closed its offering (the “Offering”) of 17,144,314 units (the “Units”) at a price of $0.70 (the “Offering Price”) for gross proceeds of approximately $12,000,000 in the United States and the Canadian provinces of Alberta, British Columbia, Manitoba, Ontario and Quebec. On October 26, 2018, the Company announced that Echelon Wealth Partners Inc., who acted as the Company’s exclusive placement agent in Canada in connection with the Offering, exercised its option to place a further 903,610 Units pursuant to its over-allotment option, resulting in additional gross proceeds to the Company of $632,527.
Each Unit consists of one share of common stock (the “Offered Shares”) and one half of one warrant (a “Warrant”), each whole Warrant entitling the holder to purchase one share of common stock of the Company at an exercise price of $1.00 per share. The Warrants are exercisable immediately and will expire on the third anniversary of the date of their issuance.
Subsequent to the end of the quarter, a total of 883,867 warrants were exercised for 883,867 common shares having a par value of $Nil in aggregate, for cash consideration of approximately $499 thousand.
16
Subsequent to the end of the quarter, CAD$23,000 of convertible debentures were converted into 17,036 common shares at the option of the holders.March 31, 2018.
Off-balance sheet arrangements We have no off-balance sheet arrangements. Item 3. | Controls and Procedures. |
Item 3. Controls and Procedures. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based upon that evaluation, our chief executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to cause the material information required to be disclosed by us in the reports that we file or submit under the Exchange Act to be recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. There have been no significant changes in our internal controls or in other factors which could significantly affect internal controls subsequent to the date we carried out our evaluation. PART II Item 1.Legal Proceedings This Item is not applicable Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This Item is not applicable. Item 3. | Defaults Upon Senior Securities |
Item 3. Defaults Upon Senior Securities This Item is not applicable. Item 4. (Reserved)
Item 5. Other Information This Item is not applicable. Item 6. Exhibits Exhibit 31.1
Certification of C.E.O. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 31.2
Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 17
Exhibit 32.1
Certification of C.E.O. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Exhibit 32.2
Certification of Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Exhibit 10.29+
Amendment to Employment Agreement, Horst G. Zerbe, May, 2019
Exhibit 10.30+
Amendment to Employment Agreement, Andre Godin, May 2019
Exhibit 10.31+
Amendment to Employment Agreement, Nadine Paiement, May 2019
Exhibit 10.32+
Amendment to Employment Agreement, Dana Matzen, May 2019
SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | | INTELGENX TECHNOLOGIES CORP. | | | | | | Date: November 8, 2018May 9, 2019 | By: | /s/ | Horst G. Zerbe | | | | | | | | | | Horst G. Zerbe | | | | | President, C.E.O. and | | | | | Director | | | | | | | | | | | | | | | | Date: November 8, 2018May 9, 2019 | By: | /s/ | Andre Godin | | | | | | | | | | Andre Godin | | | | | Principal Accounting Officer |
|