Notes to Consolidated Interim Financial Statements
September 30, 2017
(Expressed in U.S. Funds)
(Unaudited)
2.
|
Adoption of New Accounting Standards
(Cont'd)
|
The FASB issued Update 2015-11,
Inventory: Simplifying the Measurement of Inventory, aligning the measurement of
inventory in GAAP with the measurement of inventory in International Financial
Reporting Standards (IFRS). The amendments in this Update state that an entity
should measure inventory within the scope of this update at the lower of cost
and net realizable value. Net realizable value is the estimated selling prices
in the ordinary course of business, less reasonably predictable costs of
completion, disposal, and transportation. For public business entities, the
amendments in this Update are effective for fiscal years beginning after
December 15, 2016, including interim periods within those fiscal years. The
adoption of this statement did not have a material effect on the Companys
financial position or results.
The FASB issued 2015-017, Income Taxes:
Balance Sheet Classification of Deferred Taxes, which requires that deferred tax
liabilities be classified as noncurrent in a classified statement of financial
position. For public business entities, the amendments in this Update are
effective for fiscal years beginning after December 15, 2016, including interim
periods within those fiscal years. The adoption of this statement did not have a
material effect on the Companys financial position or results.
3.
|
Significant Accounting
Policies
|
Leasehold Improvements and
Equipment
Leasehold improvements and equipment
are recorded at cost. Provisions for depreciation are based on their estimated
useful lives using the methods as follows:
|
On the declining balance method -
|
|
|
|
|
Laboratory and
office equipment
|
|
20%
|
|
|
Computer equipment
|
|
30%
|
|
|
On the straight-line method -
|
|
|
|
|
Leasehold improvements
|
|
over the lease term
|
|
|
Manufacturing
equipment
|
|
5 10 years
|
|
Recent Accounting Pronouncements
ASU 2017-09 Stock Compensation
(Topic 718) Scope of Modification Accounting
In May 2016, the FASB issued ASU
2017-09 which provides guidance on determining which changes to the terms and
conditions of share-based payment awards require an entity to apply modification
accounting under Topic 718. The statement is effective for annual periods
beginning after December 15, 2017. Early adoption is permitted in any interim or
annual period for which financial statements have not yet been issued. The
Company is currently evaluating the impact of this Statement on its consolidated
financial statements.
9
IntelGenx Technologies Corp.
Notes to Consolidated Interim Financial Statements
September 30, 2017
(Expressed in U.S. Funds)
(Unaudited)
3.
|
Significant Accounting Policies
(Contd)
|
ASU 2016-18 Statement of Cash
Flows (Topic 230) Restricted Cash
In November 2016, the FASB issued ASU
2016-18 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. 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.
ASU 2016-15 Statement of Cash
Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments
In August 2016, the FASB issued ASU
2016-15 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. Early adoption is permitted in any interim or annual period,
with any adjustments reflected as of the beginning of the fiscal year of
adoption. The Company is currently evaluating the impact of this Statement on
its consolidated financial statements.
ASU 2016-01 Financial Instruments
Overall (Subtopic 825-10) Recognition and Measurement of Financial Assets and
Financial Liabilities
In January 2016, the FASB issued ASU
2016-01, which will significantly change practice for all entities. The targeted
amendments to existing guidance are expected to 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.
|
|
|
|
|
2.
|
Changes in instrument-specific credit risk for financial
liabilities that are measured under the fair value option would be
recognized in other comprehensive income.
|
|
|
|
|
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 entitys 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 intent and ability to hold debt
securities with unrealized losses until recovery.
|
|
|
|
|
4.
|
Disclosure of the fair value of financial instruments
measured at amortized cost would no longer be required for entities that
are not public business entities.
|
10
IntelGenx Technologies Corp.
Notes to Consolidated Interim Financial Statements
September 30, 2017
(Expressed in U.S. Funds)
(Unaudited)
3.
|
Significant Accounting Policies
(Contd)
|
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
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.
ASU 2017-01 - Business Combinations
(Topic 805) - Clarifying the Definition of a Business
The FASB issued ASU 2017-01 which
clarifies the definition of a business and is intended to help companies
evaluate whether transactions should be accounted for as acquisitions (or
disposals) of assets or businesses. These amendments are effective for a public
business entity for fiscal years beginning after December 15, 2017, including
interim periods within those fiscal years. Early adoption is permitted under
certain circumstances and should be applied on a prospective basis. The Company
is currently evaluating the impact of this Statement on its consolidated
financial statements.
ASU 2016-16 Income Taxes (Topic
740) Intra-Entity Transfers of Assets Other Than Inventory
The FASB issued ASU 2016-16 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 amendments should be applied on a modified retrospective basis through a
cumulative-effect adjustment directly to retained earnings as of the beginning
of the period of adoption. The Company is currently evaluating the impact of
this Statement on its consolidated financial statements.
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.
11
IntelGenx Technologies Corp.
Notes to Consolidated Interim Financial Statements
September 30, 2017
(Expressed in U.S. Funds)
(Unaudited)
3.
|
Significant Accounting Policies
(Contd)
|
Revenue from Contracts with
Customers (Topic 606)
The FASB and IASB (the Boards) have
issued converged standards on revenue recognition. ASU No. 2014-09 which affects
any entity using U.S. GAAP that either enters into contracts with customers to
transfer goods or services or enters into contracts for the transfer of
nonfinancial assets unless those contracts are within the scope of other
standards. This ASU will supersede the revenue recognition requirements in Topic
605, Revenue Recognition and most industry-specific guidance. The core principle
of the guidance is that an entity should recognize revenue to depict the
transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for
those goods or services. To achieve that core principle, an entity should apply
the following steps:
|
|
Step 1:
|
Identify the contract(s) with a customer.
|
|
|
Step 2:
|
Identify the performance obligations in the
contract.
|
|
|
Step 3:
|
Determine the transaction price.
|
|
|
Step 4:
|
Allocate the transaction price to the
performance obligations in the contract.
|
|
|
Step 5:
|
Recognize revenue when (or as) the entity
satisfies a performance obligation.
|
In the year ended December 31, 2016,
the FASB issued three new amendments related to Topic 606:
|
1.
|
ASU 2016-08: Revenue from Contracts with Customers (Topic
606): Principal versus Agent Considerations (Reporting Revenue Gross
versus Net) which was issued to add clarification to the implementation
guidance on principle versus agent considerations. This amendment does not
provide any changes to the previously issued ASU No. 2014-09 and is
effective for the same reporting period which was deferred by one year in
ASU 2015-14: Revenue From Contracts With Customers (Topic 606), Deferral
of the Effective Date.
|
|
|
|
|
2.
|
ASU 2016-10: Revenue from Contracts with Customers (Topic
606): Identifying Performance Obligations and Licensing which was issued
to clarifying the following two aspects of topic 606; identifying
performance obligations and the licensing implementation guidance. This
amendment does not provide any changes to the previously issued ASU No.
2014-09 and is effective for the same reporting period which was deferred
by one year in ASU 2015-14: Revenue From Contracts With Customers (Topic
606), Deferral of the Effective Date.
|
|
|
|
|
3.
|
ASU 2016-11 Revenue Recognition (Topic 605) and
Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of
Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff
Announcements at the March 3, 2016 EITF Meeting. With this amendment, the
SEC Staff is rescinding the following SEC Staff Observer comments that are
codified in Topic 605, Revenue Recognition, and Topic 932, Extractive
ActivitiesOil and Gas, effective upon adoption of Topic 606. This
amendment is effective immediately.
|
12
IntelGenx Technologies Corp.
Notes to Consolidated Interim Financial Statements
September 30, 2017
(Expressed in U.S. Funds)
(Unaudited)
3.
|
Significant Accounting Policies
(Contd)
|
Public business entities, certain
not-for-profit entities, and certain employee benefit plans should apply the
guidance in Update 2014-09 to annual reporting periods beginning after December
15, 2017, including interim reporting periods within that reporting period.
Earlier application is permitted only as of annual reporting periods beginning
after December 15, 2016, including interim reporting periods within that
reporting period.
This ASU is to be applied
retrospectively, with certain practical expedients allowed. The Company is
currently evaluating the impact of this Statement on its consolidated financial
statements.
4.
|
Leasehold Improvements and
Equipment
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
Net Carrying
|
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Amount
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing equipment
|
$
|
3,367
|
|
$
|
327
|
|
$
|
3,040
|
|
$
|
2,429
|
|
|
Laboratory and office equipment
|
|
1,364
|
|
|
577
|
|
|
787
|
|
|
807
|
|
|
Computer equipment
|
|
84
|
|
|
53
|
|
|
31
|
|
|
23
|
|
|
Leasehold improvements
|
|
3,219
|
|
|
554
|
|
|
2,665
|
|
|
2,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,034
|
|
$
|
1,511
|
|
$
|
6,523
|
|
$
|
5,730
|
|
As at September 30, 2017 no
depreciation has been recorded on manufacturing equipment in the amount of $718
as the equipment is not ready for use.
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 and corporate credits cards of up to CAD$75 thousand.
Borrowings under the operating demand line of credit bear interest at the Banks
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 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
Companys fiscal year. As at September 30, 2017, the Company has not drawn on
its credit facility.
13
IntelGenx Technologies Corp.
Notes to Consolidated Interim Financial Statements
September 30, 2017
(Expressed in U.S. Funds)
(Unaudited)
On August 5, 2016, the Company sold its
U.S. royalty on future sales of Forfivo XL
®
to SWK Holdings
Corporation for $6 million. Under the terms of the agreement, SWK paid IntelGenx
$6 million at closing. In return for, (i) 100% of any and all royalties or
similar royalty amounts received on or after April 1, 2016, (ii) 100% of the $2
million milestone payment upon Edgemont reaching annual net sales of $15
million, and (iii) 35% of all potential future milestone payments.
The deferred revenue represents the
remaining, unrecognized portion of the payment received for the royalty on
future sales in the amount of $6 million less the Q2 royalties recognized in the
second quarter of 2016 in the amount of $352 thousand. The deferred revenue will
be recognized as other revenue on a straight-line basis until December 31,
2017.
10% of the proceeds were paid to our
former development partner, Cary Pharmaceuticals Inc. This amount is included in
prepaid expenses and will be recognized as cost of royalty, license and other
revenue on a straight-line basis until December 31, 2017
The components of the Companys debt
are as follows:
|
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
|
|
|
$
|
|
|
$
|
|
|
(in U.S. $ thousands)
|
|
|
|
|
|
|
|
Term loan facility
|
|
2,394
|
|
|
2,636
|
|
|
Secured loan
|
|
574
|
|
|
633
|
|
|
Total debt
|
|
2,968
|
|
|
3,269
|
|
|
Less: current portion
|
|
776
|
|
|
704
|
|
|
Total long-term debt
|
|
2,192
|
|
|
2,565
|
|
The Companys term loan facility
consists of a total of CAD$4 million bearing interest at the Banks prime
lending rate plus 2.50% . The term loan is subject to the same security and
financial covenants as the bank indebtedness (see note 5).
The secured loan has a principal
balance authorized of CAD$1 million bearing interest at prime plus 7.3%,
reimbursable in monthly principal payments of CAD$17 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 Companys fiscal year.
14
IntelGenx Technologies Corp.
Notes to Consolidated Interim Financial Statements
September 30, 2017
(Expressed in U.S. Funds)
(Unaudited)
7.
|
Long-term Debt (Contd)
|
Principal repayments due in each of the
next five years are as follows:
|
2017
|
$
|
208 (CAD
260)
|
|
|
2018
|
|
757 (CAD 945)
|
|
|
2019
|
|
757 (CAD
945)
|
|
|
2020
|
|
757 (CAD 945)
|
|
|
2021
|
|
489 (CAD
610)
|
|
8.
|
Convertible Debentures
|
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
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 period ended
September 30, 2017 amounts to CAD$74,000.
15
IntelGenx Technologies Corp.
Notes to Consolidated Interim Financial Statements
September 30, 2017
(Expressed in U.S. Funds)
(Unaudited)
8.
|
Convertible Debentures
(Contd)
|
The components of the convertible
debentures as at September 30, 2017 are as follows:
|
|
|
September 30, 2017
|
|
|
|
|
$
|
|
|
|
|
|
|
|
(in U.S. $ thousands)
|
|
|
|
|
Face value of convertible
debentures
|
$
|
6,090
|
|
|
Transaction costs
|
|
(991
|
)
|
|
Accretion
|
|
59
|
|
|
|
|
|
|
|
Convertible debentures
|
$
|
5,158
|
|
The accrued interest on the convertible
debentures as September 30, 2017 amounts to $107 and is recorded in accounts
payable and accrued liabilities.
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Authorized -
|
|
|
|
|
|
|
|
100,000,000 common shares of $0.00001 par
value
|
|
|
|
|
|
|
|
20,000,000 preferred
shares of $0.00001 par value
|
|
|
|
|
|
|
|
Issued -
|
|
|
|
|
|
|
|
66,931,467 (December 31, 2016 - 64,812,020) common
shares
|
$
|
1
|
|
$
|
1
|
|
10.
|
Additional Paid-In Capital
|
Stock options
On August 31, 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 $120
thousand.
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 $114 thousand.
16
IntelGenx Technologies Corp.
Notes to Consolidated Interim Financial Statements
September 30, 2017
(Expressed in U.S. Funds)
(Unaudited)
10.
|
Additional Paid-In Capital
(Contd)
|
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. No stock options were exercised during the nine-month
period ended September 30, 2016.
Compensation expenses for stock-based
compensation of $267 thousand and $141 thousand were recorded during the
nine-month periods ended September 30, 2017 and 2016, respectively. An amount of
$262 thousand expensed in the nine-month period of 2017 relates to stock options
granted to employees and directors and an amount of $5 thousand relates to stock
options granted to a consultant. The entire amount expensed in the nine-month
period of 2016 relates to stock options granted to employees and directors. As
at September 30, 2017, the Company has $243 thousand (2016 - $295 thousand) of
unrecognized stock-based compensation, of which $6 thousand (2016 - $12) relates
to the issuance of options to a consultant in 2016.
Warrants
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. During the nine-month period ended
September 30, 2016, a total of 1,056,765 warrants were exercised for 1,056,765
common shares having a par value of $0 thousand in aggregate, for cash
consideration of $596 thousand, resulting in an increase in additional paid-in
capital of $596 thousand.
11.
|
Related Party Transactions
|
Included in management salaries are $3
(2016 - $2 thousand) for options granted to the Chief Executive Officer, $34
thousand (2016 - $45 thousand) for options granted to the Chief Financial
Officer, $3 thousand (2016 - $9 thousand) for options granted to the former Vice
President, Operations, $5 thousand (2016 - $4 thousand) for options granted to
the Vice-President, Research and Development, $26 thousand (2016 - $1) for
options granted to Vice-President, Business and Corporate Development and $Nil
thousand (2016 - $21 thousand) for options granted to the former Vice President,
Corporate Development under the 2016 Stock Option Plan and $128 thousand (2016 -
$45 thousand) for options granted to non-employee directors.
Also included in management salaries
are director fees of $206 thousand (2016 - $137 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.
12.
|
Basic and Diluted (Loss) Earnings per Common
Share
|
Basic and diluted (loss) earnings per
common share is calculated based on the weighted average number of shares
outstanding during the period. Common equivalent shares from stock options and
warrants are also included in the diluted per share calculations unless the
effect of the inclusion would be antidilutive.
17
Item 2: Managements Discussion and Analysis of Financial
Condition and Results of Operations
Introduction to Managements Discussion and Analysis
This Managements Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) comments on our business
operations, performance, financial position and other matters for the
three-month and nine-month periods ended September 30, 2017 and 2016.
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, we, us, and 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 Companys MD&A for the year ended
December 31, 2016. In preparing this MD&A, we have taken into account
information available to us up to November 9, 2017, 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, 2016 (the
2016 Form 10-K), is available on SEDAR at www.sedar.com and on the U.S.
Securities and Exchange Commission (the 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, believe, continue, expect, estimate, intend, may,
plan, will, 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 managements 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 2016 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.
18
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. 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, to license the commercial rights
to partners in the pharmaceutical industry. In certain cases, we rely upon
partners in the pharmaceutical industry to fund development of the licensed
products, complete the regulatory approval process with the U.S. Food and Drug
Administration (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.
Our primary growth strategies include: (1) identifying
lifecycle management opportunities for existing market leading pharmaceutical
products, (2) repurposing existing drugs for new indications, (3) developing
generic drugs where high technology barriers to entry exist in reproducing
branded films, (4) manufacturing our VersaFilm products for commercial sale and
(5) development of new drug delivery technologies.
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)(2) 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)(2)
products represent a viable business opportunity for us.
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.
VersaFilm Manufacturing
We have establishing a state-of-the-art manufacturing facility
with the intent to manufacture all our VersaFilm products in house as 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.
19
Most recent key developments
On June 29, 2017, the Company announced that it had filed a
final short form prospectus in connection with an offering of a minimum of
CAD$5,000,000 and a maximum of CAD$10,000,000 aggregate principal amount of 8%
convertible unsecured subordinated debentures due June 30, 2020. The Corporation
had also filed an amended registration statement on Form S-1 with the United
States Securities and Exchange Commission to register the Debentures and the
shares of common stock underlying the Debentures. On April 4, 2017, the Company
had filed a preliminary short form prospectus with respect to the offering as
well as a registration statement on Form S-1 with the United States Securities
and Exchange Commission.
On July 12, 2017, the Company announced that it had closed its
previously announced prospectus offering of convertible unsecured subordinated
debentures of the Corporation 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 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 per common share of the Corporation, 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 announced that it had 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,
2017, 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 Offering was conducted on a commercially reasonable best
efforts basis by a syndicate of agents led by Desjardins Capital Markets and
including Laurentian Bank Securities Inc. and Echelon Wealth Partners Inc.
The net proceeds from the Offering will be used for investments
in leasehold improvements and equipment, clinical studies, product development
and general working capital requirements.
On July 12, 2017, the Company announced that Dr. Rodolphe
Obeid, its Director of Research and Development, Process Development and
Manufacturing Scale-Up, discussed the Company's oral films based on its
proprietary VersaFilm technology platform during a presentation today at BIT's
7th Annual Symposium of Drug Delivery Systems being held in Prague, Czech
Republic. Entitled "Oral Film Technology Evolution, Challenges and Therapeutic
Benefits," Dr. Obeid's presentation reviewed the Company's development of
VersaFilm and the technology platform's potential to enhance active
pharmaceutical ingredient bioavailability, accelerate onset of action, reduce
side effects and ease administration, thereby improving patient's compliance and
satisfaction. Dr. Obeid is an expert in drug delivery systems and polymeric
assemblies. In his current role, Dr. Obeid is responsible for overseeing all of
IntelGenx' product development activities. Based on IntelGenx' current pipeline,
there are eight different film projects in various development stages, five of
which are under co-development with a commercial partner. Here, Dr. Obeid is in
charge of overseeing the technology transfer, as well as the process development
and manufacturing scale-up of all internal and external pharmaceutical film
projects. Prior to joining IntelGenx, Dr. Obeid was a postdoctoral industrial
R&D Fellow at the Faculty of Veterinary Medicine of University of Montreal,
working on vaccine encapsulation using biodegradable microspheres. Before that,
he was a National Institutes of Health Postdoctoral Scholar at the University of
Alabama in collaboration with the Massachusetts Institute of Technology,
focusing on the development of novel poly-based polymers for surface
modification of biomedical implants as a part of the Boston Retinal Implant
Project. Dr. Obeid holds a Ph.D in polymer chemistry from the University of
Montreal, Canada and two Masters in polymer science and chemical
engineering from the University of Strasbourg, France. Dr. Obeid is the
co-inventor of multiple pending patent applications, and has published numerous
scientific articles on recognized international journals and conferences.
20
On September 11, 2017, Dr. Horst Zerbe, IntelGenx Chief
Executive Officer presented at the Rodman & Renshaw 19th Annual Global
Investment Conference at the Lotte New York Palace Hotel. Dr. Zerbe provided an
overview of IntelGenx' business during the presentation along with Andre Godin,
Executive Vice-President and Chief Financial Officer. Both of them also
participated in one-on-one meetings with investors registered at the
conference.
On August 31, 2017, the Company announced that the Company's
board of directors had granted options to acquire a total of 359,818 common
shares under the 2016 Stock Option Plan. Of the total stock options granted,
179,908 were granted to the Horst G. Zerbe, Chief Executive Officer and
President and 59,970 were granted to Andre Godin, Executive Vice President and
Chief Financial Officer. Furthermore, 59,970 stock options were granted to each
of two officers of IntelGenx Corp., Nadine Paiement, Vice President Research and
Development and Dana Matzen, Vice President of Business and Corporate
Development. The options have an exercise price of US$0.77 (CAD$0.96), vest over
a period of two years at the rate of 25% every six months and expire on August
27, 2027.
On August 31, 2017, the U.S. District Court for the District of
Delaware rendered a decision which determined that the process used to
manufacture IntelGenx' and Par Pharmaceutical Inc.'s buprenorphine/naloxone
sublingual film product for the treatment of opiate addiction does not infringe
MonoSol Rx U.S. Patent No. 8,900,497. Also on August 31, 2017, the Delaware
Court rendered a decision in a separate case, which previously resulted in a
finding infringement of the MonoSol Rx U.S. Patent No 8,603,514, denying
IntelGenx' and Par's motion to reopen the case. IntelGenx and Par are presently
working on the appeal process.
Corporate related developments
Expansion to the existing Manufacturing Facility
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. 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 entered into a lease agreement for an
additional 11,000 square feet of expansion space and the preparation for a
facility expansion is ongoing.
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-month period ended September 30, 2017 report
an accumulated other comprehensive loss due to foreign currency translation
adjustments of $663 due to the fluctuations in the rates used to prepare our
financial statements, $356 of which positively impacted our comprehensive loss
for the nine-month period ended September 30, 2017. The following Management
Discussion and Analysis takes this into consideration whenever material.
21
Reconciliation of Comprehensive Income (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 Companys financial
condition and operating results.
IntelGenx obtains its Adjusted EBITDA measurement by adding to
comprehensive income (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 consultants
remuneration and can vary significantly with changes in the market price of the
Companys 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 Companys 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
|
|
|
Nine-month period
|
|
|
|
ended September 30,
|
|
|
ended September 30,
|
|
In U.S.$ thousands
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Comprehensive (loss) income
|
|
(586
|
)
|
|
62
|
|
|
(1,604
|
)
|
|
(1,451
|
)
|
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of tangible
assets
|
|
185
|
|
|
174
|
|
|
525
|
|
|
361
|
|
Financing and interest expense
|
|
218
|
|
|
60
|
|
|
329
|
|
|
146
|
|
Interest income
|
|
(5
|
)
|
|
(2
|
)
|
|
(8
|
)
|
|
(2
|
)
|
Stock-based compensation
|
|
44
|
|
|
49
|
|
|
267
|
|
|
141
|
|
Foreign currency translation adjustment
|
|
(196
|
)
|
|
(32
|
)
|
|
(356
|
)
|
|
(105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
(340
|
)
|
|
311
|
|
|
(847
|
)
|
|
(910
|
)
|
Adjusted Earnings before Interest, Taxes, Depreciation and
Amortization (Adjusted EBITDA)
Adjusted EBITDA decreased to ($340) for the three-month period
ended September 30, 2017 compared to $311 for the three-month period ended
September 30, 2016. Adjusted EBITDA improved to ($847) for the nine-month period
ended September 30, 2017 compared to ($910) for the nine-month period ended
September 30, 2017. The decrease in Adjusted EBITDA of $651 for the three-month
period ended September 30, 2017 is mainly attributable to a decrease in revenues
of $565 and an increase in R&D expenses of $185 before consideration of
stock-based compensation, partially offset by a decrease in SG&A
expenses of $99 before consideration of stock-based compensation. The
improvement in Adjusted EBITDA of $63 for the nine-month period ended September
30, 2017 is mainly attributable to an increase in revenues of $424 and a
decrease in SG&A expenses of $251 before consideration of stock-based
compensation partially offset by an increase in R&D expenses of $562 before
consideration of stock-based compensation.
22
Results of operations for the three-month and nine-month
periods ended September 30, 2017 compared with the three-month and nine-month
periods ended September 30, 2016.
|
|
Three-month period
|
|
|
Nine-month period ended
|
|
|
|
ended September 30,
|
|
|
September 30,
|
|
In U.S.$ thousands
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
1,254
|
|
$
|
1,819
|
|
$
|
3,733
|
|
|
3,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of royalty and license revenue
|
|
97
|
|
|
97
|
|
|
278
|
|
|
228
|
|
Research and development expenses
|
|
578
|
|
|
388
|
|
|
1,876
|
|
|
1,295
|
|
Selling, general and administrative
expenses
|
|
963
|
|
|
1,072
|
|
|
2,693
|
|
|
2,837
|
|
Depreciation of tangible assets
|
|
185
|
|
|
174
|
|
|
525
|
|
|
361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
(569
|
)
|
|
88
|
|
|
(1,639
|
)
|
|
(1,412
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
(782
|
)
|
|
30
|
|
|
(1,960
|
)
|
|
(1,556
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income
|
|
(586
|
)
|
|
62
|
|
|
(1,604
|
)
|
|
(1,451
|
)
|
Revenue
Total revenues for the three-month period ended September 30,
2017 amounted to $1,254, representing a decrease of $565 or 31% compared to
$1,819 for the three-month period ended September 30, 2016. Total revenues for
the Nine-month period ended September 30, 2017 amounted to $3,733, representing
an increase of $424 or 13% compared to $3,309 for the nine-month period ended
September 30, 2016. The decrease for the three-month period ended September 30,
2017 compared to the last years corresponding period is mainly attributable to
a decrease in license and other revenues $565. The increase for the nine-month
period ended September 30, 2017 compared to the last years corresponding period
is mainly attributable to an increase in license and other revenues of $1,475
offset by a decrease in royalties of $1,051.
Cost of royalty and license revenue
We recorded $97 for the cost of royalty and license revenue in
the three-month period ended September 30, 2017 compared with $97 in the same
period of 2016. We recorded $278 for the cost of royalty and license revenue in
the nine-month period ended September 30, 2017 compared with $228 in the same
period of 2016. 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 $278 for the nine-month period ended September 30, 2017.
23
Research and development (R&D) expenses
R&D expenses for the three-month period ended September 30,
2017 amounted to $578, representing an increase of $190 or 49%, compared to $388
for the three-month period ended September 30, 2016. R&D expenses for the
nine-month period ended September 30, 2017 amounted to $1,876, representing an
increase of $581 or 45%, compared to $1,295 for the nine-month period ended
September 30, 2016.
The increase in R&D expenses for the three-month period
ended September 30, 2017 is mainly attributable to increases in R&D salaries
of $119 related to new hires, study costs of $91 and analytical costs of $62.
The increase was partially offset by a reduction in patent costs of $77. The
increase in R&D expenses for the nine-month period ended September 30, 2017
is mainly attributable to increases in lab supplies of $204, R&D salaries of
$318 related to new hires, study costs of $241, analytical costs of $114 and
license fees of $40. The increase was partially offset by a reduction in patent
costs of $350.
In the three-month period ended September 30, 2017 we recorded
estimated Research and Development Tax Credits and refunds of $31, compared with
$22 that was recorded in the same period of the previous year. In the nine-month
period ended September 30, 2017 we recorded estimated Research and Development
Tax Credits and refunds of $92, compared with $68 that was recorded in the same
period of the previous year.
Selling, general and administrative (SG&A) expenses
SG&A expenses for the three-month period ended September
30, 2017 amounted to $963, representing a decrease of $109 or 10%, compared to
$1,072 for the three-month period ended September 30, 2016. SG&A expenses
for the nine-month period ended September 30, 2017 amounted to $2,693,
representing a decrease of $144 or 5%, compared to $2,837 for the nine-month
period ended September 30, 2016.
The decrease in SG&A expenses for the three-month period
ended September 30, 2017 is mainly attributable to a decrease in business
development expenses of $108 and professional fees of $207 partially offset by
an increase in salaries of $48 and a variation of the foreign exchange expense
of $136 due to the appreciation of the CAD dollar vs the US currency. The
decrease in SG&A expenses for the nine-month period ended September 30, 2017 is
mainly attributable to a decrease in professional fees of $196 and business
development expenses of $203 partially offset by an increase in manufacturing
expenses of $111 and management and administrative salaries of $133, part of
which is non-recurrent.
Depreciation of tangible assets
In the three-month period ended September 30, 2017 we recorded
an expense of $185 for the depreciation of tangible assets, compared with an
expense of $174 for the same period of the previous year. In the nine-month
period ended September 30, 2017 we recorded an expense of $525 for the
depreciation of tangible assets, compared with an expense of $361 for the same
period of the previous year. The increases in the depreciation of tangible
assets are mainly attributable to the commencement of the depreciation of the
plant equipment.
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, 2017 amounted to $44
compared to $49 for the three-month period ended September 30, 2016. Share-based
compensation warrants and share-based payments expense for the nine-month period
ended September 30, 2017 amounted to $267 compared to $141 for the nine-month
period ended September 30, 2016.
We expensed approximately $38 in the three-month period ended
September 30, 2017 for options granted to our employees in 2015, 2016 and 2017
under the 2006/2016 Stock Option Plan, approximately $4 for options granted to
non-employee directors in 2015 and 2016, and approximately $2 for options
granted to a consultant in 2016, compared with $45, $4, and $nil respectively
that was expensed in the same period of the previous year.
We expensed approximately $134 in the nine-month period ended
September 30, 2017 for options granted to our employees in 2015, 2016 and 2017 under the 2006/2016 Stock
Option Plan, approximately $128 for options granted to non-employee directors in
2015, 2016 and 2017, and approximately $5 for options granted to a consultant in
2016, compared with $96, $45, and $nil respectively that was expensed in the
same period of the previous year.
24
There remains approximately $243 in stock based compensation to
be expensed in fiscal 2017 and 2018, of which $237 relates to the issuance of
options to our employees and directors during 2015 to 2017 and $6 relates to the
issuance of options to a consultant in 2016. We anticipate the issuance of
additional options and warrants in the future, which will continue to result in
stock-based compensation expense.
Key items from the balance sheet
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
September
|
|
|
December
|
|
|
Increase/
|
|
|
Increase/
|
|
In U.S.$ thousands
|
|
30, 2017
|
|
|
31, 2016
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
Current assets
|
$
|
7,882
|
|
$
|
6,352
|
|
$
|
1,530
|
|
|
24%
|
|
Leasehold improvements and equipment, net
|
|
6,523
|
|
|
5,730
|
|
|
793
|
|
|
14%
|
|
Security deposits
|
|
761
|
|
|
708
|
|
|
53
|
|
|
7%
|
|
Current liabilities
|
|
2,976
|
|
|
5,235
|
|
|
(2,259
|
)
|
|
(43%
|
)
|
Convertible debenture
|
|
5,158
|
|
|
-
|
|
|
5,158
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (long term portion)
|
|
2,192
|
|
|
2,565
|
|
|
(373
|
)
|
|
(15%
|
)
|
Capital stock
|
|
1
|
|
|
1
|
|
|
0
|
|
|
0%
|
|
Additional paid-in-capital
|
|
25,149
|
|
|
23,700
|
|
|
1,449
|
|
|
6%
|
|
Current assets
Current assets totaled $7,882 as at September 30, 2017 compared
with $6,352 at December 31, 2016. The increase of $1,530 is mainly attributable
to increases in cash and short-term investments of $2,426 partially offset by a
decrease in accounts receivable of $574 and prepaid expenses of $330.
Cash
Cash totaled $1,631 as at September 30, 2017 representing an
increase of $1,019 compared with the balance of $612 as at December 31, 2016.
The increase in cash on hand relates to net cash provided by financing
activities of $5,637 partially offset by net used in investing activities of
$2,124 and cash used by operating activities of $2,541.
Accounts receivable
Accounts receivable totaled $470 as at September 30, 2017
representing a decrease of $574 compared with the balance of $1,044 as at
December 31, 2016. The main reason for the decrease is related to the collection
in 2017 of upfront payments accounted for as at December 31, 2016.
25
Prepaid expenses
As at September 30, 2017 prepaid expenses totaled $236 compared
with $566 as of December 31, 2016. The decrease in prepaid expenses is
attributable to the advance payment in December 2016 of certain expenses that
relate to services to be provided in the remainder of the year.
Investment tax credits receivable
R&D investment tax credits receivable totaled approximately
$254 as at September 30, 2017 compared with $246 as at December 31, 2016. The
increase is attributable to the accrual estimated and recorded for the
nine-months of 2017 offset by the collection of the 2015 tax credits.
Leasehold improvements and equipment
As at September 30, 2017, the net book value of leasehold
improvements and equipment amounted to $6,523, compared to $5,730 at December
31, 2016. As at September 30, 2017, the net book values of manufacturing
equipment, laboratory and office equipment, computer equipment, and leasehold
improvements amounted to $3,040, $787, $31, and $2,665 respectively. As at
December 31, 2016, the net book values of manufacturing equipment, laboratory
and office equipment, computer equipment and, leasehold improvements were
$2,429, $807, $23, and $2,471 respectively. In the nine-month period ended
September 30, 2017 additions to assets totaled $907 and mainly comprised of $623
for manufacturing equipment, $222 for leasehold improvements, $49 for office
equipment and $13 for computer equipment.
Security deposits
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, 2017.
Security deposits in the amount of CAD$650 for the term loans were also recorded
as at September 30, 2017. The difference between the amount at December 31, 2016
and the amount at September 30, 2017 is related to the US currency fluctuation.
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities totaled $1,222 as at
September 30, 2017 compared with $897 as at December 31, 2016. The increase is
mainly attributable to legal fees in the amount of $255 in connection with the
convertible debentures and the accrual of interest on the convertible debentures
as at September 30, 2017 in the amount of $107.
Convertible debentures
Convertible debentures totaled $5,158 as at September 30, 2017
resulting in the issuance by the Corporation of a total aggregate principal
amount of CAD$7,600,000 of debentures at a price of CAD$1,000 per debenture in
July 2017 and August 2017. 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 period ended September 30,
2017 amounts to CAD$74,000. The accrued interest on the convertible debentures
as September 30, 2017 amounts to $107 and is recorded in accounts payable and
accrued liabilities.
Long-term debt
Long-term debt totaled $2,968 as at September 30, 2017
(December 31, 2016 - $3,269). An amount of $2,394 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 September 2015 and should be fully reimbursed by October 2021.
26
An amount of $574 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 2017 to December 2021.
Shareholders equity
As at September 30, 2017 we had accumulated a deficit of
$19,697 compared with an accumulated deficit of $17,737 as at December 31, 2016.
Total assets amounted to $15,166 and shareholders equity totaled $4,790 as at
September 30, 2017, compared with total assets and shareholders equity of
$12,790 and $4,945 respectively, as at December 31, 2016.
Capital stock
As at September 30, 2017 capital stock amounted to $0.666
(December 31, 2016: $0.648) . 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 $25,149 as at September 30,
2017, as compared to $23,700 as at December 31, 2016. Additional paid in capital
increased by $1,449 from which $1,182 came from proceeds from exercise of
warrants and stock options and $267 from stock based compensation attributable
to the amortization of stock options granted to employees and directors.
Taxation
As at December 31, 2016, the date of our latest annual tax
return, we had Canadian and provincial net operating losses of approximately
$7,585 (December 31, 2015: $6,462) and $7,763 (December 31, 2015: $6,725)
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 2027 and 2036. A portion of the net operating losses may expire before
they can be utilized.
As at December 31, 2016, we had non-refundable tax credits of
$1,190 (2015: $1,022) of which $8 is expiring in 2026, $10 is expiring in 2027,
$168 is expiring in 2028, $147 is expiring in 2029, $126 is expiring in 2030,
$133 is expiring in 2031, $167 is expiring in 2032 and $111 is expiring in 2033,
$84 expiring in 2034 and $99 is expiring in 2035 and $137 expiring in 2036. We
also had undeducted research and development expenses of $5,438 (2015: $4,563)
with no expiration date.
The deferred tax benefit of these items was not recognized in
the accounts as it has been fully provided for.
Key items from the statement of cash flows
In U.S.$ thousands
|
|
September
30,
2017
|
|
|
September
30,
2016
|
|
|
Increase/
(Decrease)
|
|
|
Percentage
Increase/
(Decrease)
|
|
Operating activities
|
$
|
(2,541
|
)
|
$
|
3,014
|
|
$
|
(5,555
|
)
|
|
(184%
|
)
|
Financing activities
|
|
5,637
|
|
|
1,856
|
|
|
3,781
|
|
|
204%
|
|
Investing activities
|
|
(2,124
|
)
|
|
(5,229
|
)
|
|
3,105
|
|
|
59%
|
|
Cash - end of period
|
|
1,631
|
|
|
2,720
|
|
|
(1,089
|
)
|
|
40%
|
|
27
Statement of cash flows
Net cash used in operating activities was $2,541 for the
nine-month period ended September 30, 2017, compared to net cash provided from
operating activities of $3,014 for the nine-month period ended September 30,
2016. For the nine-month period ended September 30, 2017, net cash used by
operating activities consisted of a net loss of $1,960 (2016: $1,556) before
amortization, depreciation, stock-based compensation and accretion expenses in
the amount of $849 (2016: $502) and a decrease in non-cash operating elements of
working capital of $1,430 (2016: increase of $4,068).
The net cash provided by financing activities was $5,637 for
the nine-month period ended September 30, 2017, compared to $1,856 provided in
the same period of the previous year. An amount of $4,978 derives from the net
proceeds from issuance of convertible debenture (2016: $nil) and $1,182 derives
from proceeds from exercise of warrants and stock options (2016: $596) offset by
repayment of term loans for an amount of $523 (2016: $309). An amount of $1,569
derived from disbursements of a term loan negotiated with the Bank for the
nine-month period ended September 30, 2016.
Net cash used in investing activities amounted to $2,124 for
the nine-month period ended September 30, 2017 compared to $5,229 in the same
period of 2016. The net cash used in investing activities for the nine-month
period ended September 30, 2017 relates to the acquisition of short term
investments of $3,952 (2016: $3,000) and the purchase of fixed assets of $907
(2016: $2,229) offset by the redemption of short-term investments of $2,735
(2016:$nil).
The balance of cash as at September 30, 2017 amounted to
$1,631, compared to $2,720 as at September 30, 2016.
Off-balance sheet arrangements
We have no off-balance sheet arrangements.