Exhibit 99.2
Quarterly Report
For the quarter ended
June 30, 2006
Adherex Technologies Inc.
(a development stage company)
Consolidated Balance Sheets
U.S. dollars and shares in thousands, except per share information
June 30, 2006 | December 31, 2005 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 12,265 | $ | 11,916 | ||||
Cash pledged as collateral | 53 | 53 | ||||||
Short-term investments | — | 1,175 | ||||||
Accounts receivable | 17 | 15 | ||||||
Investment tax credits recoverable | 74 | 129 | ||||||
Prepaid expense | 66 | 59 | ||||||
Other current assets | 50 | 52 | ||||||
Total current assets | 12,525 | 13,399 | ||||||
Capital assets | 342 | 374 | ||||||
Leasehold inducements | 479 | 518 | ||||||
Acquired intellectual property rights | 13,066 | 14,154 | ||||||
Total assets | $ | 26,412 | $ | 28,445 | ||||
Liabilities and shareholders’ equity | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 655 | $ | 1,385 | ||||
Accrued liabilities | 1,699 | 1,279 | ||||||
Total current liabilities | 2,354 | 2,664 | ||||||
Deferred lease inducement | 581 | 537 | ||||||
Future income taxes | 4,776 | 5,174 | ||||||
Other long-term liabilities | 40 | 13 | ||||||
Total liabilities | 7,751 | 8,388 | ||||||
Commitments and contingencies | ||||||||
Shareholders’ equity | ||||||||
Common stock, no par value; unlimited shares authorized; 50,382 and 42,629 shares issued and outstanding, respectively | 46,488 | 41,268 | ||||||
Contributed surplus | 26,443 | 25,338 | ||||||
Cumulative translation adjustment | 5,850 | 5,850 | ||||||
Deficit accumulated during development stage | (60,120 | ) | (52,399 | ) | ||||
Total shareholders’ equity | 18,661 | 20,057 | ||||||
Total liabilities and shareholders’ equity | $ | 26,412 | $ | 28,445 | ||||
(The accompanying notes are an integral part of these unaudited interim consolidated financial statements)
F-1
Adherex Technologies Inc.
(a development stage company)
Consolidated Statements of Operations
U.S. dollars and shares in thousands, except per share information
Unaudited
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Revenue | $ | — | $ | — | $ | — | $ | — | ||||||||
Operating expenses: | ||||||||||||||||
Research and development | 3,268 | 3,360 | 5,828 | 5,378 | ||||||||||||
General and administration | 711 | 900 | 1,458 | 1,618 | ||||||||||||
Amortization of acquired intellectual property rights | 544 | 680 | 1,088 | 1,361 | ||||||||||||
Loss from operations | (4,523 | ) | (4,940 | ) | (8,374 | ) | (8,357 | ) | ||||||||
Interest expense | (1 | ) | (3 | ) | (2 | ) | (7 | ) | ||||||||
Interest income | 126 | 72 | 257 | 125 | ||||||||||||
125 | 69 | 255 | 118 | |||||||||||||
Loss before income taxes | (4,398 | ) | (4,871 | ) | (8,119 | ) | (8,239 | ) | ||||||||
Recovery of future income taxes | 199 | 249 | 398 | 498 | ||||||||||||
Net loss | $ | (4,199 | ) | $ | (4,622 | ) | $ | (7,721 | ) | $ | (7,741 | ) | ||||
Accumulated deficit - Beginning of period | (55,921 | ) | (36,273 | ) | (52,399 | ) | (33,154 | ) | ||||||||
Accumulated deficit - End of period | $ | (60,120 | ) | $ | (40,895 | ) | $ | (60,120 | ) | $ | (40,895 | ) | ||||
Net loss per share of common stock, basic and diluted | $ | (0.09 | ) | $ | (0.13 | ) | $ | (0.17 | ) | $ | (0.21 | ) | ||||
Weighted-average number of shares of common stock outstanding, basic and diluted | 47,145 | 36,541 | 44,899 | 36,538 | ||||||||||||
(The accompanying notes are an integral part of these unaudited interim consolidated financial statements)
F-2
Adherex Technologies Inc.
(a development stage company)
Consolidated Statements of Cash Flows
U.S. dollars and shares in thousands, except per share information
Unaudited
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Cash flows from (used in): | ||||||||||||||||
Operating activities: | ||||||||||||||||
Net loss | $ | (4,199 | ) | $ | (4,622 | ) | $ | (7,721 | ) | $ | (7,741 | ) | ||||
Adjustments for non-cash items: | ||||||||||||||||
Amortization of capital assets | 18 | 76 | 37 | 164 | ||||||||||||
Amortization of acquired intellectual property rights | 544 | 680 | 1,088 | 1,361 | ||||||||||||
Recovery of future income taxes | (199 | ) | (249 | ) | (398 | ) | (498 | ) | ||||||||
Amortization of leasehold inducements | 42 | — | 83 | — | ||||||||||||
Stock-based compensation to consultants | — | 65 | — | 65 | ||||||||||||
Stock-based employee compensation | 140 | 686 | 283 | 874 | ||||||||||||
Changes in operating assets and liabilities | (10 | ) | 1,219 | (249 | ) | 1,042 | ||||||||||
Net cash used in operating activities | (3,664 | ) | (2,145 | ) | (6,877 | ) | (4,733 | ) | ||||||||
Investing activities: | ||||||||||||||||
Purchase of capital assets | — | (14 | ) | (5 | ) | (33 | ) | |||||||||
Redemption of short-term investments | 391 | — | 1,175 | — | ||||||||||||
Net cash provided (used) in investing activities | 391 | (14 | ) | 1,170 | (33 | ) | ||||||||||
Financing activities: | ||||||||||||||||
Issuance of common stock and warrants | 6,096 | — | 6,096 | — | ||||||||||||
Proceeds from exercise of stock options | — | 25 | — | 25 | ||||||||||||
Stock issuance costs | (55 | ) | 2 | (55 | ) | (143 | ) | |||||||||
Security deposits | (12 | ) | — | 28 | — | |||||||||||
Other liability repayments | — | (18 | ) | (13 | ) | (36 | ) | |||||||||
Net cash provided (used) in financing activities | 6,029 | 9 | 6,056 | (154 | ) | |||||||||||
Net change in cash and cash equivalents | 2,756 | (2,150 | ) | 349 | (4,920 | ) | ||||||||||
Cash and cash equivalents - Beginning of period | 9,509 | 14,703 | 11,916 | 17,473 | ||||||||||||
Cash and cash equivalents - End of period | $ | 12,265 | $ | 12,553 | $ | 12,265 | $ | 12,553 | ||||||||
(The accompanying notes are an integral part of these unaudited interim consolidated financial statements)
F-3
Adherex Technologies Inc.
(a development stage company)
Notes to Consolidated Financial Statements
U.S. dollars and shares in thousands, except per share information
1. | Going Concern |
These consolidated financial statements have been prepared using generally accepted accounting principles that are applicable to a going concern, which contemplates that Adherex Technologies Inc. will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business. The use of these principles may not be appropriate because at June 30, 2006 there was significant doubt that the Company will be able to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon the raising of additional financial resources.
The Company’s management is considering all financing alternatives and is seeking to raise additional funds for operations from current stockholders, other potential investors or other sources. This disclosure is not an offer to sell, nor a solicitation of an offer to buy the Company’s securities. While the Company is striving to achieve the above plans, there is no assurance that such funding will be available or obtained on favorable terms.
The financial statements do not reflect adjustments in the carrying values of the assets and liabilities, the reported revenues and expenses, and the balance sheet classification used, that would be necessary if the going concern assumption were not appropriate, and such adjustments could be material.
2. | Nature of Operations |
Adherex Technologies Inc. (“Adherex”), together with its wholly-owned subsidiaries Oxiquant, Inc. (“Oxiquant”) and Adherex, Inc., both Delaware corporations, and Cadherin Biomedical Inc. (“CBI”), a wholly-owned Canadian subsidiary, collectively referred to herein as the “Company,” is a development stage biopharmaceutical company with a portfolio of product candidates under development for use in the treatment of cancer.
3. | Significant Accounting Policies |
Basis of presentation
These unaudited interim consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles (“GAAP”) and include the accounts of Adherex Technologies Inc. and its wholly-owned subsidiaries. The accounting policies used in the preparation of these interim financial statements conform to those used in the Company’s annual financial statements. These interim financial statements do not include all of the disclosures included in the annual financial statements. Accordingly, these interim financial statements should be read in conjunction with the Company’s audited financial statements and notes for the year ended December 31, 2005.
Use of estimates
The preparation of financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions that impact the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates.
F-4
Adherex Technologies Inc.
(a development stage company)
Notes to Consolidated Financial Statements (Continued)
U.S. dollars and shares in thousands, except per share information
4. | Acquired Intellectual Property |
On November 20, 2002 Adherex acquired certain intellectual property rights directed to therapeutics with a focus in chemoprotection and chemoenhancement. The intellectual property rights reside in Oxiquant, a holding company with no active business.
The acquired intellectual property rights are being amortized over their estimated useful lives of 10 years. The amortization of the acquired intellectual property rights totaled $1,088 and $1,361 for the six-month periods ended June 30, 2006 and 2005, respectively.
5. | Shareholders’ Equity |
Stock-based Compensation
Stock-based compensation expense relating to employees totaled $283 for the six-months ended June 30, 2006 and $874 for the six-months ended June 30, 2005. The Company has not granted any stock options during the six-month period ended June 30, 2006. During the same period in 2005, the Company issued 756 stock options. To estimate the value of the stock options granted during six-months ended June 30, 2005, the Black-Scholes option pricing model was used with the following calculation assumptions: expected dividend 0%, risk free interest rate of 3.73%, volatility of 71% and expected life of seven years.
There was no stock-based compensation expense relating to external consultants for the six-month periods ended June 30, 2006 and $65 for the six month period ended June 30, 2005.
May Private Placement
On May 8, 2006, the Company completed a private placement of equity securities for gross proceeds of $6,512 for 7,753 units at a price of $0.84 per unit providing net proceeds of $6,096 after deducting broker fees and certain other expenses. Each unit consisted of one common share and 0.30 of a common share purchase warrant. The private placement comprised an aggregate of 7,753 shares of common stock, along with 2,326 investor warrants and 465 broker warrants to acquire additional shares of Adherex common stock. Each whole investor warrant entitles the holder to acquire one additional share of Adherex common stock at an exercise price of $0.97 per share for a period of four years. Each whole broker warrant entitles the holder to acquire one share of Adherex common stock at an exercise price of $0.97 per share for a period of two years. The investor warrants, with a value of $822 based on the Black-Scholes option pricing model, have been allocated to contributed surplus and the remaining balance of $5,220 has been credited to common stock.
F-5