IntelGenx Technologies Corp. - Quarter Report: 2019 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

or

[  ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13  OR  15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to________

Commission File Number 000-31187

INTELGENX TECHNOLOGIES CORP.

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(Exact name of small business issuer as specified in its charter)

Delaware	87-0638336
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

6420 Abrams, Ville Saint Laurent, Quebec H4S 1Y2, Canada

(Address of principal executive offices)

(514) 331-7440

(Issuer's telephone number)

(Former Name, former Address, if changed since last report)

        Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  [X]    No  [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer", "accelerated filer", "non-accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer[  ]	Accelerated filer [  ]
Non-accelerated filer  [  ]	Smaller reporting company [X]
(Do not check if a smaller reporting company)

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDS DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes [  ]    No [  ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

APPLICABLE TO CORPORATE ISSUERS:

93,527,474 shares of the issuer's common stock, par value $.00001 per share, were issued and outstanding as of  November 7, 2019.

IntelGenx Technologies Corp.

Form 10-Q

TABLE OF CONTENTS

PART  I.  FINANCIAL INFORMATION
Item 1. Financial Statements	1
Consolidated Balance Sheet	2
Statement of Shareholders' Equity	3
Statement of Operations and Comprehensive Loss	4
Statement of Cash Flows	5
Notes to Financial Statements	6
Item 2. Management's Discussion and Analysis and Results of Operations	22
Item 3. Controls and Procedures	34
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3. Defaults upon Senior Securities	34
Item 4. Reserved	35
Item 5. Other Information	35
Item 6. Exhibits	35
Signatures	35

IntelGenx Technologies Corp.

		For the Three-Month Period						For the Nine-Month Period
		Ended September 30,						Ended September 30,
		2019			2018			2019			2018
Revenues (note 13)	$	61		$	700		$	674		$	1,173
Total revenues		61			700			674			1,173
Expenses
Research and development expense		842			1,452			2,884			3,106
Selling, general and administrative expense		1,560			1,713			4,445			4,315
Depreciation of tangible assets		180			178			523			540
Total expenses		2,582			3,343			7,852			7,961
Operating loss		(2,521	)		(2,643	)		(7,178	)		(6,788	)
Interest income		19			-			80			-
Net financing and interest expense		(305	)		(301	)		(901	)		(821	)
Net loss		(2,807	)		(2,944	)		(7,999	)		(7,609	)
Other comprehensive income (loss)
Foreign currency translation adjustment		(58	)		6			282			(101	)
Change in fair value		6			12			38			11
		(52	)		18			320			(90	)
Comprehensive loss	$	(2,859	)	$	(2,926	)	$	(7,679	)	$	(7,699	)
Basic and diluted weighted average number of  shares outstanding		93,527,473			71,185,239			93,524,726			69,298,321
Basic and diluted loss per common share (note 16)	$	(0.03	)	$	(0.04	)	$	(0.08	)	$	(0.11	)

		For the Three-Month Period						For the Nine-Month Period
		Ended September 30,						Ended September 30,
		2019			2018			2019			2018
Funds (used) provided -
Operating activities
Net loss	$	(2,807	)	$	(2,944	)	$	(7,999	)	$	(7,609	)
Depreciation of tangible assets		180			178			523			540
Stock-based compensation		80			188			261			311
Accretion expense		133			111			377			278
DSU expense		102			147			214			379
Interest payable by issuance of common shares		-			-			-			231
Lease expense		1			-			7			-
		(2,311	)		(2,320	)		(6,617	)		(5,870	)
Changes in non-cash items related to operations:
Accounts receivable		269			(107	)		618			31
Prepaid expenses		174			(124	)		278			(511	)
Investment tax credits receivable		342			(85	)		133			(222	)
Security deposits		-			-			-			(11	)
Accounts payable and accrued liabilities		115			203			(520	)		442
Deferred lease obligations		-			1			-			1
Net change in non-cash items related to operations		900			(112	)		509			(270	)
Net cash used in operating activities		(1,411	)		(2,432	)		(6,108	)		(6,140	)
Financing activities
Repayment of term loans		(196	)		(180	)		(533	)		(552	)
Proceeds from exercise of warrants and stock options		-			1,280			21			1,829
Net proceeds from private placement		-			-			-			3,004
Transaction costs of private placement		-			-			-			(82	)
Net cash (used in) provided by financing activities		(196	)		1,100			(512	)		4,199
Investing activities
Additions to leasehold improvements and equipment		(187	)		(174	)		(398	)		(628	)
Redemption of short-term investments		6			1,284			5,190			3,192
Acquisition of short-term investments		-			(453	)		(1,469	)		(453	)
Net cash (used in) provided by investing activities		(181	)		657			3,323			2,111
(Decrease) Increase in cash		(1,788	)		(675	)		(3,297	)		170
Effect of foreign exchange on cash		(65	)		22			210			(93	)
Cash
Beginning of period		5,581			2,321			6,815			1,591
End of period	$	3,728		$	1,668		$	3,728		$	1,668

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

September 30, 2019

(Expressed in U.S. Funds)

(Unaudited)

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

September 30, 2019

(Expressed in U.S. Funds)

(Unaudited)

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

September 30, 2019

(Expressed in U.S. Funds)

(Unaudited)

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

September 30, 2019

(Expressed in U.S. Funds)

(Unaudited)

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

September 30, 2019

(Expressed in U.S. Funds)

(Unaudited)

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

September 30, 2019

(Expressed in U.S. Funds)

(Unaudited)

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

September 30, 2019

(Expressed in U.S. Funds)

(Unaudited)

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

September 30, 2019

(Expressed in U.S. Funds)

(Unaudited)

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

September 30, 2019

(Expressed in U.S. Funds)

(Unaudited)

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

September 30, 2019

(Expressed in U.S. Funds)

(Unaudited)

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

September 30, 2019

(Expressed in U.S. Funds)

(Unaudited)

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

September 30, 2019

(Expressed in U.S. Funds)

(Unaudited)

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

September 30, 2019

(Expressed in U.S. Funds)

(Unaudited)

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

September 30, 2019

(Expressed in U.S. Funds)

(Unaudited)

		September 30, 2019			September 30, 2018
Research and development agreements	$	674		$	1,173

		September 30, 2019			September 30, 2018
(in U.S. $ thousands)
Product and services transferred at point in time	$	371		$	-
Products and services transferred over time		303			1,173
	$	674		$	1,173

		September 30, 2019			September 30, 2018
Europe	$	534			1,088
Canada		140			85
	$	674		$	1,173

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

September 30, 2019

(Expressed in U.S. Funds)

(Unaudited)

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

September 30, 2019

(Expressed in U.S. Funds)

(Unaudited)

Item 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") comments on our business operations, performance, financial position and other matters for the nine-month period ended September 30, 2019 and 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", "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 Interim Financial Statements and Notes thereto. We also encourage you to refer to the Company's MD&A for the year ended December 31, 2018. In preparing this MD&A, we have taken into account information available to us up to November 7, 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, 2018 (the "2019 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 management'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 2019 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.

22

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.

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.

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)(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 five 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.

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 first half of 2020.

Expansion to the existing Manufacturing Facility

On March 6, 2018 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, 2018 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 $56 thousand) per year, which will increase at a rate of CA$0.25 ($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 €1,911 thousand with six suppliers with respect to equipment for solvent film manufacturing.  As at September 30, 2019 an amount of €1,425 thousand has been paid.

Most recent key developments

On September 26, 2019, the Company announced the resubmission of its 505(b)(2) New Drug Application for RIZAPORT^® VersaFilm^® for the treatment of acute migraines to the U.S. Food and Drug Administration ("FDA").  On April 2, 2019, the Company had received a Complete Response Letter from the FDA regarding the NDA for RIZAPORT^® VersaFilm^® accepted by the Agency on November 20, 2018. The issues cited in the CRL related to the Chemistry, Manufacturing and Controls section of the application. The FDA requested additional information, but no new bioequivalence study.  The resubmitted NDA is subject to the FDA's acceptance review, the results of which are expected within 30 days. On October 22, 2019, FDA confirmed that they had accepted our NDA for review. The FDA assigned a Prescription Drug User Fee Act ("PDUFA") goal date for completion of the review of the RIZAPORT^® NDA of March 26, 2020.

Following the end of the quarter, on October 09, 2019, the Company announced that an independent Data Safety Monitoring Board ("DSMB") completed its first interim analysis of the ongoing Montelukast VersaFilm^® Phase 2a ("BUENA") clinical trial in patients with mild to moderate Alzheimer's Disease.  The DSMB reviewed compiled safety data from 25 subjects enrolled in the BUENA trial, 13 of which have completed 26 weeks of daily treatment. The DSMB did not raise any concerns regarding safety and recommended that the trial continue.  Recently, Prof. Dr. Ludwig Aigner's group at the Paracelsus Medical University in Salzburg conducted additional efficacy testing of Montelukast in an AD mouse model in collaboration with IntelGenx. Overall results demonstrated that the treatment effect was dose-dependent, with higher doses of Montelukast significantly increasing the mice's cognition in two behavioural tests. Detailed results from this testing will be presented at an upcoming medical conference.  Based on this new preclinical data demonstrating that the efficacy of Montelukast VersaFilm is dose dependent, IntelGenx plans to continue the BUENA clinical trial at an increased daily dose, subject to Health Canada approval.

Following the end of the quarter, on October 31, 2019, the Company announced the initiation of the manufacturing scale up activities for its cannabis-infused VersaFilm^® product co-development program with Tilray.  Specific details of the cannabis-infused VersaFilm^® product will be unveiled closer to its commercial launch.

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, 2019 report an accumulated other comprehensive loss due to foreign currency translation adjustments of $846 primarily due to the fluctuations in the rates used to prepare our financial statements, $282 of which positively impacted our comprehensive loss for the nine-month period ended September 30, 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'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, from 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's remuneration and can vary significantly with changes in the market price of the Company'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'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						Nine-month period
		ended September 30,						ended September 30,
		2019			2018			2019			2018
		$			$			$			$
Comprehensive loss		(2,859	)		(2,926	)		(7,679	)		(7,699	)
Add (deduct):
Depreciation		180			178			523			540
Finance costs		305			301			901			821
Finance income		(19	)		-			(80	)		-
Share-based compensation		80			188			261			311
Other comprehensive loss (income)		52			(18	)		(320	)		90
Adjusted EBITDA		(2,261	)		(2,277	)		(6,394	)		(5,937	)

Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA)

Adjusted EBITDA improved by $16 for the three-month period ended September 30, 2019 to ($2,261) compared to ($2,277) for the three-month period ended September 30, 2018. The improvement in Adjusted EBITDA of $16 for the three-month period ended September 30, 2019 is mainly attributable to a decrease in revenues of $639, offset by a decrease in R&D expenses of $597 before consideration of stock-based compensation and a decrease in SG&A expenses of $58 before consideration of stock-based compensation.  Adjusted EBITDA decreased by $457 for the nine-month period ended September 30, 2019 to ($6,394) compared to ($5,937) for the nine-month period ended September 30, 2019. The decrease in Adjusted EBITDA of $457 for the nine-month period ended September 30, 2019 is mainly attributable to a decrease in revenues of $499 and an increase in SG&A expenses of $179 before consideration of stock-based compensation, offset by a decrease in R&D expenses of $221.

Results of operations for the three-month and nine-month periods ended September 30, 2019 compared with the three-month and nine-month periods ended September 30, 2018.

Revenue

Total revenues for the three-month period ended September 30, 2019 amounted to $61, representing a decrease of $639 or 91% compared to $700 for the three-month period ended September 30, 2018.  Total revenues for the nine-month period ended September 30, 2019 amounted to $674, representing a decrease of $499 or 43% compared to $1,173 for the nine-month period ended September 30, 2018.  The decrease for the three-month period ended September 30, 2019 compared to the last year's corresponding period is mainly attributable to a decrease in R&D revenues of $639. The decrease for the nine-month period ended September 30, 2019 compared to the last year's corresponding period is mainly attributable to a decrease in R&D revenues of $870 offset by an increase in R&D milestones revenues of $371.

Research and development ("R&D") expenses

R&D expenses for the three-month period ended September 30, 2019 amounted to $842, representing a decrease of $610 or 42%, compared to $1,452 for the three-month period ended September 30, 2018. R&D expenses for the nine-month period ended September 30, 2019 amounted to $2,884, representing a decrease of $222 or 7%, compared to $3,106 for the nine-month period ended September 30, 2018.

The decrease in R&D expenses for the three-month period ended September 30, 2019 is mainly attributable to decreases in study costs of $394, analytical costs of $114, lab supplies of $97 and patent expenses of $29, offset by an increase in salary expense of $24. The decrease in R&D expenses for the nine-month period ended September 30, 2019 is mainly attributable to a decrease in study costs of $467, offset by increases in analytical costs of $150 and lab supplies of $108.

In the three-month period ended September 30, 2019 we recorded estimated Research and Development Tax Credits of $94, compared with $78 that was recorded in the same period of the previous year. In the nine-month period ended September 30, 2019 we recorded estimated Research and Development Tax Credits of $282, compared with $233 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, 2019 amounted to $1,560, representing a decrease of $153 or 9%, compared to $1,713 for the three-month period ended September 30, 2018. SG&A expenses for the nine-month period ended September 30, 2019 amounted to $4,445 representing an increase of $130 or 3%, compared to $4,315 for the nine-month period ended September 30, 2018.

The decrease in SG&A expenses for the three-month period ended September 30, 2019 is mainly attributable to decreases in manufacturing expenses of $263, salaries and compensation expenses of $97 mainly attributable to revaluation of the DSUs granted to non-employee Directors, general office expenses of $47 and the variation of foreign exchange expense due to the depreciation of the CA dollar vs the US currency of $41, offset by the expense related to the write-off of the Laboval deposit of $207 and increases in investor relations expenses of $65 and professional fees of $13.  The increase in SG&A expenses for the nine-month period ended September 30, 2019 is mainly attributable to an increase in investor relations expenses of $287, the expense related to the write-off of the Laboval deposit of $207, and the variation of the foreign exchange expense due to the depreciation of the CA dollar vs the US currency of $201, offset by decreases in manufacturing expense of $281, professional fees of $171 attributable to the 2018 aborted capital raise as well as the Laboval acquisition which has been  terminated, business development expense of $48, salaries and compensation of $43 and general office expense of $30.

Depreciation of tangible assets

In the three-month period ended September 30, 2019 we recorded an expense of $180 for the depreciation of tangible assets, compared with an expense of $178 for the same period of the previous year.  In the nine-month period ended September 30, 2019 we recorded an expense of $523 for the depreciation of tangible assets, compared with an expense of $540 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, 2019 amounted to $80 compared to $188 for the three-month period ended September 30, 2018. Share-based compensation warrants and share-based payments expense for the nine-month period ended September 30, 2019 amounted to $261 compared to $311 for the nine-month period ended September 30, 2018.

We expensed approximately $68 in the three-month period ended September 30, 2019 for options granted to our employees in 2018 and 2019 under the 2016 Stock Option Plan, approximately $Nil for options granted to non-employee directors, and approximately $12 for options granted to consultants in 2018, compared with $153, $30, and $5, respectively that was expensed in the same period of the previous year.

We expensed approximately $225 in the nine-month period ended September 30, 2019 for options granted to our employees in 2018 and 2019 under the 2016 Stock Option Plan, approximately $Nil for options granted to non-employee directors, and approximately $36 for options granted to consultants in 2018, compared with $266, $36, and $9, respectively that was expensed in the same period of the previous year.

There remains approximately $240 in stock-based compensation to be expensed in fiscal 2019 and 2020, of which $192 relates to the issuance of options to our employees and directors during 2018 to 2019 and $48 relates to the issuance of options to consultants in 2019. 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

		September 30, 2019			December 31, 2018			Increase/ (Decrease)			Percentage Increase/ (Decrease)
Current Assets	$	5,339		$	13,063		$	(7,724	)		(59%)
Leasehold improvements and Equipment, net		6,310			6,248			62			1%
Security Deposits		728			707			21			3%
Operating lease right-of-use asset		690			-			690			100%
Current Liabilities		2,577			2,722			(145	)		(5%)
Long-term debt		639			1,140			(501	)		(44%)
Convertible debentures		5,445			5,047			398			8%
Convertible notes		1,205			1,073			132			12%
Operating lease liability		562			-			562			100%
Capital Stock		1			1			0			0%
Additional Paid-in-Capital		42,330			42,048			282			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, 2019, the Company had cash and short-term investments totaling approximately $4,289.  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's ability to continue as a going concern.  Management'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'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.

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 $5,339 as at September 30, 2019 compared with $13,063 at December 31, 2018. The decrease of $7,724 is mainly attributable to decreases in short-term investments of $3,619, decrease in cash of $3,087, decrease in accounts receivable of $618, decrease in prepaid expenses of $278, and a decrease in investment tax credits receivable of $133.

Cash

Cash totaled $3,728 as at September 30, 2019 representing a decrease of $3,087 compared with the balance of $6,815 as at December 31, 2018. The decrease in cash on hand relates to net cash used by operating activities of $6,108 and cash used in financing activities of $512, offset by net cash provided investing activities of $3,323.

Accounts receivable

Accounts receivable totaled $197 as at September 30, 2019 representing a decrease of $618 compared with the balance of $815 as at December 31, 2018. The main reason for the decrease is related to the collection in 2019 of revenues accounted for as at December 31, 2018.

Prepaid expenses

As at September 30, 2019 prepaid expenses totaled $184 compared with $462 as of December 31, 2018. The decrease in prepaid expenses is mainly attributable to the expensing of the Laboval deposit as a result of the termination of the potential acquisition in the amount $275 CAD ($207) and advance payments in December 2018 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 $283 as at September 30, 2019 compared with $416 as at December 31, 2018. The decrease is attributable to the collection of the year-end balance of $416 offset by the accrual estimated and recorded for the nine-month period ended September 30, 2019.

Leasehold improvements and equipment

As at September 30, 2019, the net book value of leasehold improvements and equipment amounted to $6,310, compared to $6,248 at December 31, 2018. In the nine-month period ended September 30, 2019 additions to assets totaled $398 and mainly comprised of $255 for manufacturing equipment, $113 for leasehold improvements, $14 for computer equipment and $16 for lab and office equipment.

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, 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, 2019.

Accounts payable and accrued liabilities

Accounts payable and accrued liabilities totaled $1,729 as at September 30, 2019 compared with $2,030 as at December 31, 2018.  The decrease is mainly attributable to the payment of R&D related expenses, professional fees and accruals accounted for as at Dec 31, 2018.

Long-term debt

Long-term debt totaled $1,352 as at September 30, 2019 (December 31, 2018 - $1,832).  An amount of $1,126 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.

An amount of $226 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 2018 to December 2021. 

Convertible debentures

Convertible debentures totaled $5,445 as at September 30, 2019 as compared to $5,047 as at December 31, 2018.  The Corporation issued a total aggregate principal amount of CAD$7,600,000 ($5,738,000) of debentures at a price of CAD$1,000 ($755) per debenture in July 2018 and August 2018. The convertible debentures have been recorded as a liability.  Total transactions costs in the amount of CAD$1,237,000 ($934,000) were recorded against the liability.  The accretion expense for the nine-month period ended September 30, 2019 amounts to CAD$326,000 ($245,000) ((CAD$282,000, (219,000) in 2018)).  The interest on the convertible debentures as at September 30, 2019 amounts to CAD$455,000 ($342,000) compared to CAD$456,000 ($354,000) for the comparative period in 2018 and is recorded in Financing and interest expense. 

Convertible notes

Convertible notes totaled $1,205 as at September 30, 2019 as compared to $1,073 as at December 31, 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 nine-month period ended September 30, 2019 amounts to $132 compared to $59 for the comparative period in 2018.  The interest on the convertible notes for the nine-month period ended September 30, 2019 amounts to $72 ($39 in 2018) and is recorded in Financing and interest expense. 

Shareholders' equity

As at September 30, 2019 we had accumulated a deficit of $38,846 compared with an accumulated deficit of $30,896 as at December 31, 2018. Total assets amounted to $13,067 and shareholders' equity totaled $2,639 as at September 30, 2019, compared with total assets and shareholders' equity of $20,018 and $9,987 respectively, as at December 31, 2018.

Capital stock

As at September 30, 2019 capital stock amounted to $0.935 (December 31, 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 $42,330 as at September 30, 2019, as compared to $42,048 as at December 31, 2018. Additional paid in capital increased by $282 from which $21 came from proceeds from exercise of stock options and $261 from stock-based compensation attributable to the amortization of stock options granted to employees and consultants.

Taxation

As at December 31, 2018, the date of our latest annual tax return, we had Canadian and provincial net operating losses of approximately $14,934 (December 31, 2017: $9,560) and $16,498 (December 31, 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 2028 and 2038. A portion of the net operating losses may expire before they can be utilized.

As at December 31, 2018, we had non-refundable tax credits of $1,981 thousand (2017: $1,553 thousand) of which $8 thousand is expiring in 2026, $9 thousand is expiring in 2027, $165 thousand is expiring in 2028, $145 thousand is expiring in 2029, $124 thousand is expiring in 2030, $131 thousand is expiring in 2031, $164 thousand is expiring in 2032 and $109 thousand is expiring in 2033, $83 thousand expiring in 2034, $97 thousand is expiring in 2035, $135 thousand expiring in 2036 and $257 thousand expiring in 2037 and $554 thousand expiring in 2038.  We also had undeducted research and development expenses of $10,663 thousand (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.

Key items from the statement of cash flows

		September 30, 2019			September 30, 2018			Increase/ (Decrease)			Percentage Increase/ (Decrease)
Operating Activities	$	(6,108	)	$	(6,140	)	$	32			1%
Financing Activities		(512	)		4,199			(4,711	)		(112%)
Investing Activities		3,323			2,111			1,212			57%
Cash - end of period		3,728			1,668			2,060			124%

Statement of cash flows

Net cash used in operating activities was $6,108 for the nine-month period ended September 30, 2019, compared to $6,140 for the nine-month period ended September 30, 2018. For the nine-month period ended September 30, 2019, net cash used by operating activities consisted of a net loss of $7,999 (2018: $7,609) before depreciation, accretion expense, stock-based compensation, DSU expense, interest payable by issuance of common shares and lease expense in the amount of $1,382 (2018: $1,739) and an increase in non-cash operating elements of working capital of $509 (2018: ($270)).

 

The net cash used in financing activities was $512 for the nine-month period ended September 30, 2019, compared to net cash provided from financing activities of $4,199 in the same period of the previous year. The financing activities for the nine-month period ended September 30, 2019 are for the repayment of term loans in the amount of $533 offset by proceeds from exercise of stock options in the amount of $21.  For the nine-month period ended September 30, 2018, an amount of $3,004 derives from the proceeds of a private placement and an amount of $1,829 derives from proceeds from exercise of warrants and stock options offset by repayment of term loans for an amount of $552 and the transaction costs related to the private placement of $82.

Net cash provided by investing activities amounted to $3,323 for the nine-month period ended September 30, 2019 compared to $2,111 in the same period of 2018. The net cash provided by investing activities for the nine-month period ended September 30, 2019 relates to the redemption of short-term investments of $5,190 (2018: $3,192), offset by the acquisition of short-term investments of $1,469 (2018: $453) and the purchase of leasehold improvements and equipment of $398 (2018: $628).

The balance of cash as at September 30, 2019 amounted to $3,728, compared to $1,668 as at September 30, 2018. 

Off-balance sheet arrangements

We have no off-balance sheet arrangements.

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

              This Item is not applicable.

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.

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.

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 7, 2019	By: /s/ Horst G. Zerbe
	Horst G. Zerbe
	Chief Executive Officer and Director
Date:  November 7, 2019	By: /s/ Andre Godin
	Andre Godin
	Principal Accounting Officer