IntelGenx Technologies Corp. - Quarter Report: 2022 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, 2022
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.
(Exact name of small business issuer as specified in its charter)
| Delaware (State or other jurisdiction of incorporation or organization) |
87-0638336 (I.R.S. Employer Identification No.) |
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 | [ ] | (Do not check if a smaller reporting company) | Smaller reporting company | [X] |
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:
174,646,197 shares of the issuer's common stock, par value $.00001 per share, were issued and outstanding as of November 10, 2022.
1
IntelGenx Technologies Corp.
Form 10-Q
TABLE OF CONTENTS
2
Consolidated Interim Financial Statements
September 30, 2022
(Expressed in U.S. Funds)
(Unaudited)
Contents
3
Consolidated Balance Sheet
(Expressed in Thousands of U.S. Dollars ($000's) Except Share and Per Share Data)
(Unaudited)
| September 30, 2022 | December 31, 2021 | |||||
| Assets | ||||||
| Current | ||||||
| Cash | $ | 1,498 | $ | 3,945 | ||
| Short-term investments | 3,250 | 6,004 | ||||
| Accounts receivable | 589 | 680 | ||||
| Prepaid expenses | 112 | 105 | ||||
| Investment tax credits receivable | 93 | 436 | ||||
| Security deposits | 189 | 205 | ||||
| Inventory (note 3) | 80 | 62 | ||||
| Total current assets | 5,811 | 11,437 | ||||
| Leasehold improvements and equipment, net (note 4) | 4,527 | 5,213 | ||||
| Security deposits | 242 | 252 | ||||
| Operating lease right-of-use-asset | 774 | 1,003 | ||||
| Total assets | $ | 11,354 | $ | 17,905 | ||
| Liabilities | ||||||
| Current | ||||||
| Accounts payable and accrued liabilities | 1,974 | 2,299 | ||||
| Current portion of operating lease liability (note 12) | 231 | 249 | ||||
| Current portion of finance lease liability (note 12) | 35 | 36 | ||||
| Deferred revenue | - | 189 | ||||
| Convertible debentures (note 7) | - | 4,247 | ||||
| Total current liabilities | 2,240 | 7,020 | ||||
| Long-term debt (note 6) | 5,500 | 2,500 | ||||
| Convertible notes (note 8) | 4,226 | 3,709 | ||||
| Operating lease liability (note 12) | 465 | 642 | ||||
| Finance lease liability (note 12) | 51 | 84 | ||||
| Deferred income tax liability | - | 79 | ||||
| Total liabilities | 12,482 | 14,034 | ||||
| Contingencies (note 15) | ||||||
| Shareholders' (deficit) equity | ||||||
| Capital stock, common shares, $0.00001 par value; 450,000,000 shares authorized; 174,646,196 shares issued and outstanding (2021: 154,571,289 common shares) (note 9) | 1 | 1 | ||||
| Additional paid-in capital (note 10) | 67,321 | 63,104 | ||||
| Accumulated deficit | (65,786 | ) | (57,863 | ) | ||
| Accumulated other comprehensive loss | (2,664 | ) | (1,371 | ) | ||
| Total shareholders' (deficit) equity | (1,128 | ) | 3,871 | |||
| $ | 11,354 | $ | 17,905 |
See accompanying notes
Approved on Behalf of the Board:
| /s/ Bernd J. Melchers | Director | /s/ Horst G. Zerbe | Director |
4
Consolidated Statement of Shareholders' Deficit
For the Period Ended September 30, 2022
(Expressed in Thousands of U.S. Dollars ($000's) Except Share and Per Share Data)
(Unaudited)
| Accumulated | ||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||
| Capital Stock | Paid-In | Accumulated | Comprehensive | Shareholders' | ||||||||||||||
| Number | Amount | Capital | Deficit | Loss | Deficit | |||||||||||||
| Balance - December 31, 2021 | 154,571,289 | $ | 1 | $ | 63,104 | $ | (57,863 | ) | $ | (1,371 | ) | $ | 3,871 | |||||
| Modified retrospective adjustment upon adoption of ASU 2020-06 (note 2) | - | - | (325 | ) | 23 | - | (302 | ) | ||||||||||
| Other comprehensive loss | - | - | - | - | (1,293 | ) | (1,293 | ) | ||||||||||
| Conversion of convertible debentures (note 7) | 120,000 | - | 48 | - | - | 48 | ||||||||||||
| Repayment of convertible debentures in shares (note 7) | 19,381,223 | - | 4,229 | - | - | 4,229 | ||||||||||||
| Interest paid by issuance of common shares (note 7) | 573,684 | - | 171 | - | - | 171 | ||||||||||||
| Stock-based compensation (note 10) | - | - | 94 | - | - | 94 | ||||||||||||
| Net loss for the period | - | - | - | (7,946 | ) | - | (7,946 | ) | ||||||||||
| Balance - September 30, 2022 | 174,646,196 | $ | 1 | $ | 67,321 | $ | (65,786 | ) | $ | (2,664 | ) | $ | (1,128 | ) | ||||
See accompanying notes
5
Consolidated Statement of Comprehensive Loss
(Expressed in Thousands of U.S. Dollars ($000's) Except Share and Per Share Data)
(Unaudited)
| For the Three-Month Period | For the Nine-Month Period | |||||||||||
| Ended September 30, | Ended September 30, | |||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Revenues (note 12) | $ | 142 | $ | 593 | $ | 777 | $ | 1,041 | ||||
| Total revenues | 142 | 593 | 777 | 1,041 | ||||||||
| Expenses | ||||||||||||
| Research and development expense | 704 | 874 | 2,289 | 1,910 | ||||||||
| Manufacturing expenses | 429 | 499 | 1,381 | 1,598 | ||||||||
| Selling, general and administrative expense | 1,204 | 662 | 3,405 | 2,419 | ||||||||
| Depreciation of tangible assets | 196 | 199 | 587 | 589 | ||||||||
| Total expenses | 2,533 | 2,234 | 7,662 | 6,516 | ||||||||
| Operating loss | (2,391 | ) | (1,641 | ) | (6,885 | ) | (5,475 | ) | ||||
| Finance and interest income (notes 7 and 8) | 1 | 1 | 2 | 152 | ||||||||
| Financing and interest expense | (286 | ) | (365 | ) | (1,063 | ) | (1,134 | ) | ||||
| Net financing and interest expense | (285 | ) | (364 | ) | (1,061 | ) | (982 | ) | ||||
| Loss before income taxes | (2,676 | ) | (2,005 | ) | (7,946 | ) | (6,457 | ) | ||||
| Deferred income tax | - | 3 | - | 3 | ||||||||
| Net loss | (2,676 | ) | (2,002 | ) | (7,946 | ) | (6,454 | ) | ||||
| Other comprehensive (loss) income | ||||||||||||
| Foreign currency translation adjustment | 27 | (175 | ) | 55 | (518 | ) | ||||||
| Change in fair value | (326 | ) | 4 | (1,348 | ) | 2 | ||||||
| (299 | ) | (171 | ) | (1,293 | ) | (516 | ) | |||||
| Comprehensive loss | $ | (2,975 | ) | $ | (2,173 | ) | $ | (9,239 | ) | $ | (6,970 | ) |
| Basic and diluted weighted average number of shares outstanding | 174,621,253 | 150,590,729 | 161,446,007 | 131,576,774 | ||||||||
| Basic and diluted loss per common share (note 15) | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.06 | ) | $ | (0.05 | ) |
See accompanying notes
6
Consolidated Statement of Cash Flows
(Expressed in thousands of U.S. Dollars ($000's) Except Share and Per Share Data)
(Unaudited)
| For the Three-Month Period | For the Nine-Month Period | |||||||||||
| Ended September 30, | Ended September 30, | |||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Funds (used) provided - | ||||||||||||
| Operating activities | ||||||||||||
| Net loss | $ | (2,676 | ) | $ | (2,002 | ) | $ | (7,946 | ) | $ | (6,454 | ) |
| Depreciation of tangible assets | 196 | 199 | 587 | 589 | ||||||||
| Stock-based compensation | 31 | 25 | 94 | 81 | ||||||||
| Accretion expense | 43 | 106 | 226 | 370 | ||||||||
| DSU expense | (58 | ) | (32 | ) | (143 | ) | 345 | |||||
| Interest paid by issuance of common shares (note 7) | 171 | - | 171 | - | ||||||||
| Gain on debt extinguishment (notes 7 and 8) | - | - | - | (151 | ) | |||||||
| Lease non-cash expense | 1 | 13 | 2 | 15 | ||||||||
| Deferred income tax | - | (3 | ) | - | (3 | ) | ||||||
| (2,292 | ) | (1,694 | ) | (7,009 | ) | (5,208 | ) | |||||
| Changes in non-cash items related to operations: | ||||||||||||
| Accounts receivable | (1 | ) | (644 | ) | 91 | (902 | ) | |||||
| Prepaid expenses | 8 | (37 | ) | (7 | ) | 50 | ||||||
| Investment tax credits receivable | 132 | 374 | 343 | 228 | ||||||||
| Contract asset | - | - | - | 354 | ||||||||
| Inventory | 8 | 50 | (18 | ) | 176 | |||||||
| Security deposits | - | - | (9 | ) | 206 | |||||||
| Accounts payable and accrued liabilities | 66 | 165 | (165 | ) | (24 | ) | ||||||
| Deferred revenues | - | 63 | (189 | ) | 27 | |||||||
| Net change in non-cash items related to operations | 213 | (29 | ) | 46 | 115 | |||||||
| Net cash used in operating activities | (2,079 | ) | (1,723 | ) | (6,963 | ) | (5,093 | ) | ||||
| Financing activities | ||||||||||||
| Repayment of term loans | - | - | - | (737 | ) | |||||||
| Issuance of loan | - | - | 3,000 | 2,500 | ||||||||
| Finance lease payments | (7 | ) | (11 | ) | (25 | ) | (21 | ) | ||||
| Proceeds from issuance of shares | - | - | - | 12,346 | ||||||||
| Transaction costs of share issuance | - | - | - | (422 | ) | |||||||
| Transaction costs of debt extinguishment | - | - | - | (29 | ) | |||||||
| Net proceeds from convertible notes | - | 1,897 | - | 1,897 | ||||||||
| Transaction costs of convertible notes | - | (34 | ) | - | (34 | ) | ||||||
| Net cash (used in) provided by financing activities | (7 | ) | 1,852 | 2,975 | 15,500 | |||||||
| Investing activities | ||||||||||||
| Additions to leasehold improvements and equipment | (141 | ) | (58 | ) | (247 | ) | (80 | ) | ||||
| Redemption of short-term investments | 1,500 | - | 7,219 | 1,034 | ||||||||
| Acquisition of short-term investments | - | - | (5,739 | ) | (6,000 | ) | ||||||
| Net cash provided by (used in) investing activities | 1,359 | (58 | ) | 1,233 | (5,046 | ) | ||||||
| (Decrease) increase in cash | (727 | ) | 71 | (2,755 | ) | 5,361 | ||||||
| Effect of foreign exchange on cash | 250 | (173 | ) | 308 | (547 | ) | ||||||
| Cash | ||||||||||||
| Beginning of period | 1,975 | 6,121 | 3,945 | 1,205 | ||||||||
| End of period | $ | 1,498 | $ | 6,019 | $ | 1,498 | $ | 6,019 | ||||
See accompanying notes
7
|
Notes to Consolidated Interim Financial Statements |
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal and recurring nature.
These financial statements should be read in conjunction with the audited consolidated financial statements at December 31, 2021. Operating results for the nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. IntelGenx Technologies Corp. (and collectively with IntelGenx Corp., our wholly-owned Canadian subsidiary, "IntelGenx" or the "Company") prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("USA"). This basis of accounting involves the application of accrual accounting and consequently, revenues and gains are recognized when earned, and expenses and losses are recognized when incurred.
The consolidated financial statements include the accounts of IntelGenx Technologies Corp. and IntelGenx Corp. On consolidation, all inter-entity transactions and balances have been eliminated.
The financial statements are expressed in U.S. funds.
Management has performed an evaluation of the Company's activities through the date and time these financial statements were issued and concluded that there are no additional significant events requiring recognition or disclosure.
2. Significant Accounting Policies
Revenue Recognition
The Company may enter into licensing and collaboration agreements for product development, licensing, supply and manufacturing for its product pipeline. The terms of the agreements may include non-refundable signing and licensing fees, milestone payments and royalties on any product sales derived from collaborations. These contracts are analyzed to identify all performance obligations forming part of these contracts. The transaction price of the contract is then determined. The transaction price is allocated between all performance obligations on a residual standalone selling price basis. The stand-alone selling price is estimated based on the comparable market prices, expected cost plus margin and the Company's historical experience.
IntelGenx Technologies Corp.
Notes to Consolidated Interim Financial Statements |
September 30, 2022 (Expressed in U.S. Funds) |
2. Significant Accounting Policies (Cont'd)
Revenue is measured based on a consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.
The following is a description of principal activities - separated by nature - from which the Company generates its revenue.
Product revenue
The Company recognizes revenue from the sale of its products when the following conditions are met: delivery has occurred; the price is fixed or determinable; the collectability is reasonably assured and persuasive evidence of an arrangement exists.
Research and Development Revenue
Revenues with corporate collaborators are recognized as the performance obligations are satisfied over time, and the related expenditures are incurred pursuant to the terms of the agreement.
Licensing and Collaboration Arrangements
Licenses are considered to be right-to-use licenses. As such, the Company recognizes the licenses revenues at a point in time, upon granting the licenses.
Milestone payments are considered variable consideration. As such, the Company estimates variable consideration at the most likely amount to which we expect to be entitled. The estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, research and other revenues in the period during which the adjustment is recognized. The process of successfully achieving the criteria for the milestone payments is highly uncertain. Consequently, there is significant risk that the Company may not earn all of the milestone payments for each of its contracts.
Royalties are typically calculated as a percentage of net sales realized by the Company's licensees of its products (including their sub-licensees), as specifically defined in each agreement. The licensees' sales generally consist of revenues from product sales of the Company's product pipeline and net sales are determined by deducting the following: estimates for chargebacks, rebates, sales incentives and allowances, returns and losses and other customary deductions in each region where the Company has licensees. Revenues arising from royalties are considered variable consideration. As such, the Company estimates variable consideration at the most likely amount to which we expect to be entitled. The estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.
IntelGenx Technologies Corp.
Notes to Consolidated Interim Financial Statements |
September 30, 2022 (Expressed in U.S. Funds) |
2. Significant Accounting Policies (Cont'd)
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 |
Upon retirement or disposal, the cost of the asset disposed of and the related accumulated depreciation are removed from the accounts and any gain or loss is reflected in income. Expenditures for repair and maintenance are expensed as incurred.
Leases
Leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria are met: the lease transfers ownership of the asset by the end of the lease term, the lease contains an option to purchase the asset that is reasonably certain to be exercised, the lease term is for a major part of the remaining useful life of the asset or the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any one of these criteria.
Substantially all of the Company's operating leases are comprised of office space and property leases. The finance leases are comprised of laboratory equipment leases.
For all leases at the lease commencement date, a right-of-use asset and a lease liability are recognized. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease.
The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any initial costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All right-of-use assets are reviewed for impairment. The lease liability is initially measured as the present value of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company's secured incremental borrowing rate for the same term as the underlying lease.
IntelGenx Technologies Corp.
Notes to Consolidated Interim Financial Statements |
September 30, 2022 (Expressed in U.S. Funds) |
2. Significant Accounting Policies (Cont'd)
Lease payments included in the measurement of the lease liability comprise the following: the fixed noncancelable lease payments, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early.
Lease modifications result in remeasurement of the lease liability.
Lease expense for operating leases consists of the lease payments plus any initial direct costs, primarily brokerage commissions, and is recognized on a straight-line basis over the lease term. Included in lease expense are any variable lease payments incurred in the period that were not included in the initial lease liability.
The Company has elected not to recognize right-of-use assets and lease liabilities for short-tern leases that have a term of 12 months or less. The effect of short-term leases on our right-of-use asset and lease liability was not material.
Adoption of accounting policies
ASU 2020-06-Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity
The FASB issued ASU 2020-06,1 which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity's own equity.
In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40) ("ASU 2020-06") to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity's own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity's own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective January 1, 2022 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company adopted ASU 2020-06 effective January 1, 2022. The adoption of AASU 2020-06 had a substantial impact on the Company's balance sheet. The August 2021 convertible notes (note 8) contained a beneficial conversion feature. Under the new requirements, the beneficial conversion feature no longer requires to be recognized separately and the convertible notes are treated as a single financial liability. As such, the most significant impact were the reversals of the beneficial conversion feature and the deferred income tax liability.
IntelGenx Technologies Corp.
Notes to Consolidated Interim Financial Statements |
September 30, 2022 (Expressed in U.S. Funds) |
2. Significant Accounting Policies (Cont'd)
The impact of the adoption of ASU 2020-06 on the balance sheet as at December 31, 2021 was:
| As reported December 31, 2021 |
Adoption of ASC 2020-06 Increase (Decrease) |
Balance January 1, 2022 |
|||||||
| Convertible notes | $ | 3,709 | $ | 388 | $ | 4,097 | |||
| Deferred income tax liability | 79 | (79 | ) | - | |||||
| Total liabilities | 14,034 | 309 | 14,343 | ||||||
| Additional paid-in capital | 63,104 | (325 | ) | 62,779 | |||||
| Accumulated deficit | (57,863 | ) | 23 | (57,840 | ) | ||||
| Total shareholders' equity | 3,871 | (309 | ) | 3,562 | |||||
| Total liabilities and shareholders' equity | 17,905 | - | 17,905 |
3. Inventory
Inventory as at September 30, 2022 consisted of raw materials in the amount of $80 thousand (2021: $62 thousand).
4. Leasehold Improvements and Equipment
| September 30, 2022 |
December 31, 2021 |
|||||||||||
| Accumulated | Net Carrying | Net Carrying | ||||||||||
| Cost | Depreciation | Amount | Amount | |||||||||
| Manufacturing equipment | $ | 4,534 | $ | 1,603 | $ | 2,931 | $ | 3,349 | ||||
| Laboratory and office equipment | 1,516 | 1,077 | 439 | 382 | ||||||||
| Computer equipment | 144 | 113 | 31 | 39 | ||||||||
| Leasehold improvements | 3,210 | 2,084 | 1,126 | 1,443 | ||||||||
| $ | 9,404 | $ | 4,877 | $ | 4,527 | $ | 5,213 |
From the balance of manufacturing equipment, an amount of $1,744 thousand (2021: $1,832 thousand) represents assets which are still under construction as at September 30, 2022 and are consequently not depreciated.
IntelGenx Technologies Corp.
Notes to Consolidated Interim Financial Statements |
September 30, 2022 (Expressed in U.S. Funds) |
5. Bank Indebtedness
The Company's credit facility is subject to review annually and consists of corporate credits cards of up to CAD$75 thousand ($55 thousand) and $60 thousand, and foreign exchange contracts limited to CAD$425 thousand ($310 thousand).
6. Loan Payable
atai Life Sciences ("atai") has granted to the Company a secured loan in the amount of $2,000,000, bearing interest at 8%. An additional advance for $500,000 was also granted in May 2021. In September 2021, the Company entered into an amended and restated secured loan agreement with atai pursuant to which atai has made two additional term loans available to the Company for $3,000,000 each, which will mature on January 5, 2024. The first loan was received on January 7, 2022 and the second loan will be made available on January 6, 2023, subject to the satisfaction of customary conditions. The Loan Agreement also extends the maturity date for the current loans, in an aggregate amount of $2,500,000, to January 2024. The loan is guaranteed by the Company and secured by all present and future movable property, rights and assets of the Company, excluding any intellectual property or technology controlled or owned by the Company. The loan bears interest at 8%. The interest for the nine-month period ended September 30, 2022 amounts to $311,000 (2021: $105,000) and is recorded in financing and interest expense.
The components of the Company's debt are as follows:
| |
September 30, 2022 $ |
December 31, 2021 $ |
||||
| Loan payable to atai | 5,500 | 2,500 | ||||
| Total debt | 5,500 | 2,500 | ||||
| Less: current portion | - | - | ||||
| Total long-term debt | 5,500 | 2,500 |
IntelGenx Technologies Corp.
Notes to Consolidated Interim Financial Statements |
September 30, 2022 (Expressed in U.S. Funds) |
7. 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 ($4,989,000). Pursuant to the Offering, the Corporation issued an aggregate principal amount of CAD$6,838,000 ($4,989,000) of Debentures at a price of CAD$1,000 ($730) per Debenture. The Debentures had a maturity date of June 30, 2020 and interest at annual rate of 8% payable semi-annually on the last day of June and December of each year, commencing on December 31, 2017. The interest may be paid in common shares at the option of the Corporation. The Debentures were 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 was CAD$1.35 ($0.98) (the "Conversion Price") per common share of the Corporation ("Share"), being a conversion rate of approximately 740 Shares per CAD$1,000 ($730) 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 ($556,000).
Together with the principal amount of CAD$6,838,000 ($4,989,000) of Debentures issued on July 12, 2017, the Corporation issued a total aggregate principal amount of CAD$7,600,000 ($5,545,000) of Debentures at a price of CAD$1,000 ($730) per Debenture.
On June 25, 2020, the debentureholders approved the extension of the maturity date of the convertible debentures from June 30, 2020 to June 30, 2022 and the conversion price was reduced from CAD$1.35 ($0.98) to CAD$0.50 ($0.36). This extension was accounted for as an extinguishment and the debenture were re-measured at fair value on June 30, 2020.
On June 30, 2022, the Company issued 19,381,223 shares of common stock in payment of the outstanding CAD$5,450,000 ($4,229,000) aggregate principal amount of the convertible debentures. The convertible debentures, listed on the Toronto Stock Exchange under the symbol IGX.DB, were delisted from trading as of the close of business on June 30, 2022.
The components of the convertible debentures are as follows:
| September 30, 2022 |
December 31, 2021 |
|||||
| Face value of the convertible debentures | $ | 3,866 | $ | 3,977 | ||
| Transaction costs | (73 | ) | (74 | ) | ||
| Accretion | 436 | 344 | ||||
| Repayment in shares | (4,229 | ) | - | |||
| Convertible debentures | $ | - | $ | 4,247 |
The convertible debentures were recorded as a liability. The accretion expense for the nine-month period ended September 30, 2022 amounts to CAD$125,000 ($96,000), compared to CAD$222,000 ($178,000) for the comparative period in 2021.
During the nine-month period ended September 30, 2022, CAD$60,000 ($48,000) of convertible debentures were converted into 120,000 common shares at the option of the holders, resulting in an increase in additional paid-in capital of $48 thousand.
IntelGenx Technologies Corp.
Notes to Consolidated Interim Financial Statements |
September 30, 2022 (Expressed in U.S. Funds) |
7. Convertible Debentures (Cont'd)
During the nine-month period ended September 30, 2021, CAD$425,000 ($340,000) of convertible debentures were converted into 850,000 common shares at the option of the holders, resulting in an increase in additional paid-in capital of $321 thousand.
The interest accrued on the convertible debentures for the nine-month period ended September 30, 2022 amounts to CAD$218 thousand ($171 thousand) and was paid by issuance of 573,684 common shares on July 5, 2022. The interest on the convertible debentures amounted to CAD$430 thousand ($344 thousand) for the nine-month period ended September 30, 2021. The interest expense on the convertible debentures is recorded in financing and interest expense.
8. Convertible Notes
On August 5, 2021, the Company announced the closing of an offering by way of private placement to certain investors in the United States of $2.1 million principal amount of 8% convertible notes due July 31, 2025. The Notes will bear interest at a rate of 8% per annum, payable quarterly, and will be convertible into shares of common stock of the Company beginning 6 months after their issuance at a price of $0.40 per Share. The Company intends to use the proceeds of the Offering for the Montelukast clinical program. In connection with the Offering, the Company paid to an agent a cash commission of approximately $199,525 in the aggregate and issued non-transferable warrants to the agent, entitling the holder to purchase 613,000 common shares at a price of $0.40 per Share until August 4, 2023.
Management has determined the value of the agents' warrants to be $164,000.
The convertible notes have been recorded as a liability. Total transactions costs in the amount of $403 thousand were recorded against the liability. The accretion expense for the nine-month period ended September 30, 2022 amounts to $63,000 (2021: $24,000). The warrants have been recorded as equity. Upon adoption of ASU 606-20, the beneficial conversion feature was reversed on January 1, 2022.
The components of the convertible notes are as follows:
| September 30, 2022 |
December 31, 2021 |
|||||
| Face value of the convertible notes | $ | 2,101 | $ | 2,101 | ||
| Transaction costs | (403 | ) | (403 | ) | ||
| Accretion | 97 | 58 | ||||
| Beneficial conversion feature | - | (411 | ) | |||
| Convertible notes | $ | 1,795 | $ | 1,345 |
The interest on the convertible notes for the nine-month period ended September 30, 2022 amounts to $126,000 (2021: $26,000) and is recorded in financing and interest expense.
IntelGenx Technologies Corp.
Notes to Consolidated Interim Financial Statements |
September 30, 2022 (Expressed in U.S. Funds) |
8. Convertible Notes (Cont'd)
On May 8, 2018, the Company closed its previously announced offering by way of private placement (the "Offering"). In connection with the Offering, the Company issued 320 units (the "Units") at a subscription price of $10,000 per Unit for gross proceeds of $3,200,000. A related party of the Company participated in the Offering and subscribed for an aggregate of two Units.
Each Unit is comprised of (i) 7,940 common shares of the Corporation ("Common Shares"), (ii) a $5,000 convertible 6% note (a "Note"), and (iii) 7,690 warrants to purchase common shares of the Corporation ("Warrants"). Each Note bears interest at a rate of 6% (payable quarterly, in arrears, with the first payment being due on September 1, 2018), matured on June 1, 2021 and is convertible into Common Shares at a conversion price of $0.80 per Common Share. Each Warrant entitled its holder to purchase one Common Share at a price of $0.80 per Common Share until June 1, 2021.
In connection with the Offering, the Company paid to the Agents a cash commission of approximately $157,800 in the aggregate and issued non-transferable agents' warrants to the Agents, entitling the Agents to purchase 243,275 common shares at a price of $0.80 per share until June 1, 2021. Management has determined the value of the agents' warrants to be $50,000.
The proceeds of the Units are attributed to liability and equity components based on the fair value of each component as follows:
| Gross proceeds | Transaction costs | Net proceeds | |||||||
| Common stock | $ | 1,627 | $ | 167 | $ | 1,460 | |||
| Convertible notes | 1,086 | 111 | 975 | ||||||
| Warrants | 487 | 50 | 437 | ||||||
| $ | 3,200 | $ | 328 | $ | 2,872 |
On May 19, 2021, the noteholders approved the amendment of the terms of the convertible notes. The maturity date of the convertible notes was extended from June 1, 2021 to October 31, 2024, the interest rate of the notes increased from 6% to 8%, and the conversion price was reduced from $0.80 to $0.44. These amendments were accounted for as an extinguishment and the notes were re-measured at fair value on June 1, 2021. This re-measurement resulted in a gain on extinguishment in the amount of $151,000 recognized in finance and interest income.
The components of the convertible notes subsequent to the amendments are as follows:
| September 30, 2022 |
December 31, 2021 |
|||||
| Face value of the convertible notes | $ | 909 | $ | 909 | ||
| Transaction costs | (29 | ) | (29 | ) | ||
| Accretion | 44 | 21 | ||||
| Convertible notes | $ | 924 | $ | 901 |
IntelGenx Technologies Corp.
Notes to Consolidated Interim Financial Statements |
September 30, 2022 (Expressed in U.S. Funds) |
8. Convertible Notes (Cont'd)
The convertible notes have been recorded as a liability. Total transactions costs in the amount of $29 thousand were recorded against the liability. The accretion expense for the nine-month period ended September 30, 2022 amounts to $23,000 (2021: $127,000).
During the nine-month period ended September 30, 2021, $295,000 of convertible notes were converted into 670,452 common shares at the option of the holders, resulting in an increase in additional paid-in capital of $262 thousand.
The interest on the convertible notes for the nine-month period ended September 30, 2022 amounts to $60,000 and is recorded in financing and interest expense (2021: $77,000).
On October 15, 2020, the Company announced the closing of an offering by way of private placement to certain investors in the United States of $1.2 million principal amount of 8% convertible notes due October 15, 2024. The Notes will bear interest at a rate of 8% per annum, payable quarterly, and will be convertible into shares of common stock of the Company beginning 6 months after their issuance at a price of $0.18 per Share. The Company intends to use the proceeds of the Offering for working capital purposes. In connection with the Offering, the Company paid to an agent a cash commission of approximately $85,000 in the aggregate and issued non-transferable warrants to the agent, entitling the holder to purchase 482,000 common shares at a price of $0.18 per Share until October 15, 2022.
On October 23, 2020, the Company announced the closing of a second tranche of the Notes to certain investors in the United States of $557 thousand principal amount of 8% convertible notes due October 15, 2024. The Notes will bear interest at a rate of 8% per annum, payable quarterly, and will be convertible into shares of common stock of the Company beginning 6 months after their issuance at a price of $0.18 per Share. In connection with the Offering, the Company paid to an agent a cash commission of approximately $39,000 in the aggregate and issued non-transferable warrants to the agent, entitling the holder to purchase 222,800 common shares at a price of $0.18 per Share until October 15, 2022.
Management has determined the value of the agents' warrants to be $44,000.
The convertible notes have been recorded as a liability. Total transactions costs in the amount of $268 thousand were recorded against the liability. The accretion expense for the nine-month period ended September 30, 2022 amounts to $44,000 (2021: $41,000). The warrants have been recorded as equity.
During the nine-month period ended September 30, 2021, $68,000 of convertible notes were converted into 377,777 common shares at the option of the holders, resulting in an increase in additional paid-in capital of $59 thousand.
The components of the convertible notes are as follows:
| September 30, 2022 |
December 31, 2021 |
|||||
| Attributed value of net proceeds to convertible notes | $ | 1,397 | $ | 1,397 | ||
| Accretion | 110 | 66 | ||||
| Convertible note | 1,507 | $ | 1,463 |
The interest on the convertible notes for the nine-month period ended September 30, 2022 amounts to $99,000 (2021: $104,000) and is recorded in financing and interest expense.
IntelGenx Technologies Corp.
Notes to Consolidated Interim Financial Statements |
September 30, 2022 (Expressed in U.S. Funds) |
9. Capital Stock
| September 30, 2022 |
December 31, 2021 |
|||||
| Authorized - | ||||||
| 450,000,000 common shares of $0.00001 par value | ||||||
| 20,000,000 preferred shares of $0.00001 par value | ||||||
| Issued - | ||||||
| 174,646,196 (December 31, 2021 -154,571,289) common shares | $ | 1 | $ | 1 |
On May 11, 2021, the shareholders approved a resolution to amend IntelGenx's Certificate of Incorporation to increase the total number of shares of common stock that IntelGenx is authorized to issue from 200,000,000 shares to 450,000,000 shares.
Atai Life Sciences
On May 11, 2021, the Company announced that a significant majority of its shareholders had approved the resolution approving the previously announced investment in IntelGenx by atai Life Sciences, pursuant to which atai acquired an approximate 25% interest in IntelGenx.
On May 14, 2021, the Company reported that the previously announced $12,346,300 investment in IntelGenx by atai Life Sciences had been completed. As a result of the investment, atai held approximately 25% of the issued and outstanding common stock of IntelGenx. As at September 30, 2022, atai holds approximately 21% of the issued and outstanding common stock of IntelGenx.
Under the securities purchase agreement, atai purchased Initial Units composed of 37,300,000 shares of common stock of the Company and 22,380,000 warrants for aggregate gross proceeds of $12,346,300. Each warrant will entitle atai to purchase one share at a price of $0.35 for a period of three years from closing of the initial investment.
The proceeds of the transaction are attributed to equity components based on the fair value of each component as follows:
| Gross proceeds | Transaction costs | Net proceeds | |||||||
| Common stock | $ | 8,695 | $ | 297 | $ | 8,398 | |||
| Warrants | 3,651 | 125 | 3,526 | ||||||
| $ | 12,346 | $ | 422 | $ | 11,924 |
IntelGenx Technologies Corp.
Notes to Consolidated Interim Financial Statements |
September 30, 2022 (Expressed in U.S. Funds) |
9. Capital Stock (Cont'd)
The securities purchase agreement also provides atai with the right to subscribe (in cash, or in certain circumstances, atai equity) for up to 130,000,000 additional units for a period of three years from the closing of the initial investment. Each additional unit will be comprised of (i) one share of common stock and (ii) one half of one warrant. The price for the additional units will be (i) until the date which is 12 months following the closing, $0.331 (subject to certain exceptions), and (ii) following the date which is 12 months following the closing, the lower of (A) a 20% premium to the market price on the date of purchase, and (B) $0.50 if purchased in the second year following closing and $0.75 if purchased in third year following closing. Each additional warrant will entitle atai, for a period of three years from the date of issuance, to purchase one share at the lesser of either (i) a 20% premium to the price of the corresponding additional share, or (ii) the price per share under which shares of the Company are issued under convertible instruments that were outstanding on February 16, 2021, the date on which the parties entered into a non-binding letter of intent to enter into a definitive securities purchase agreement, provided that atai may not exercise additional warrants to purchase more than the lesser of 44,000,000 common shares of the Company, and the number of common shares issued by the Company under outstanding convertibles.
10. Additional Paid-In Capital
Stock options
On January 20, 2022, 25,000 options to purchase common stock were granted to an employee under the 2016 Stock Option Plan. The options have an exercise price of $0.34. The options granted vest over a period of 2 years at a rate of 25% every six months and expire 10 years after the grant date. The stock options were accounted for at their fair value, as determined by the Black-Scholes valuation model, of approximately $6 thousand.
On January 11, 2021, 150,000 options to purchase common stock were granted to an employee under the 2016 Stock Option Plan. The options have an exercise price of $0.27. The options granted vest over a period of 2 years at a rate of 25% every six months and expire 10 years after the grant date. The stock options were accounted for at their fair value, as determined by the Black-Scholes valuation model, of approximately $25 thousand.
No stock options were exercised during the nine-month periods ended September 30, 2022 and 2021.
Compensation expenses for stock-based compensation of $94 thousand and $81 thousand were recorded during the nine-month periods ended September 30, 2022 and 2021, respectively. An amount of $85 thousand (2021 - $81 thousand) expensed in the nine-month period ended September 30, 2022 relates to stock options granted to employees and an amount of $9 (2021 - $Nil thousand) relates to stock options granted to consultants. As at September 30, 2022, the Company has $52 thousand (2021 - $146 thousand) of unrecognized stock-based compensation.
Warrants
No warrants were exercised during the nine-month periods ended September 30, 2022 and 2021.
Deferred Share Units ("DSUs")
On January 1, 2022, 543,480 DSUs have been granted under the DSU Plan, accordingly, an amount of $197 thousand has been recognized in general and administrative expenses.
IntelGenx Technologies Corp.
Notes to Consolidated Interim Financial Statements |
September 30, 2022 (Expressed in U.S. Funds) |
10. Additional Paid-In Capital (Cont'd)
On May 19, 2021, 390,625 DSUs have been granted under the DSU Plan, accordingly, an amount of $207 thousand has been recognized in general and administrative expenses.
Performance and Restricted Share Units ("PRSUs")
No PRSUs were granted during the nine-month periods ended September 30, 2022 and 2021.
11. Revenues
The following table presents our revenues disaggregated by revenue source. Sales and usage-based taxes are excluded from revenues:
| September 30, 2022 | September 30, 2021 | |||||
| Research and development agreements | $ | 657 | $ | 489 | ||
| Product revenue | 79 | 232 | ||||
| Royalties on product sales | 41 | - | ||||
| Sales milestone revenue | - | 320 | ||||
| $ | 777 | $ | 1,041 |
The following table presents our revenues disaggregated by timing of recognition:
| September 30, 2022 | September 30, 2021 | |||||
| (in U.S. $thousands) | ||||||
| Product and services transferred at point in time | $ | 267 | $ | 552 | ||
| Products and services transferred over time | 510 | 489 | ||||
| $ | 777 | $ | 1,041 |
The following table presents our revenues disaggregated by geography, based on the billing addresses of our customers:
| September 30, 2022 | September 30, 2021 | |||||
| Europe | $ | 525 | 816 | |||
| United States | 147 | - | ||||
| Canada | 105 | 225 | ||||
| $ | 777 | $ | 1,041 |
IntelGenx Technologies Corp.
Notes to Consolidated Interim Financial Statements |
September 30, 2022 (Expressed in U.S. Funds) |
11. Revenues (Cont'd)
Remaining performance obligations
As at September 30, 2022, the aggregate amount of the transaction price allocated to the remaining performance obligation is $1,467 representing research and development agreements, the majority of which is expected to be recognized in the next twelve months. The Company is also eligible to receive up to $2,552 in research and development milestone payments, approximately 100% of which is expected to be recognized in the next three years; up to $433 in commercial sales milestone payments which are wholly dependent on the marketing efforts of our development partners. In addition, the Company is entitled to receive royalties on potential sales.
12. Leases
Operating leases
Substantially all our operating lease right-of-use assets and operating lease liability represents leases for office space and property to conduct our business.
The operating lease expense for the nine-month period ended September 30, 2022 included in general and administrative expenses is $205 thousand. The cash outflows from operating leases for the nine-month period ended September 30, 2022 was $203 thousand.
The weighted average remaining lease term and the weighted average discount rate for operating leases at September 30, 2022 were 3.4 years and 10%, respectively.
The following table reconciles the undiscounted cash flows for the operating leases as at September 30, 2022 to the operating lease liabilities recorded on the balance sheet:
| Operating Leases | |||
| 2022 | 63 | ||
| 2023 | 256 | ||
| 2024 | 264 | ||
| 2025 | 264 | ||
| 2026 | 44 | ||
| Total undiscounted lease payments | 891 | ||
| Less: Interest | 195 | ||
| Present value of lease liabilities | $ | 696 |
| Current portion of operating lease liability | $ | 231 | |
| Operating lease liability | $ | 465 |
IntelGenx Technologies Corp.
Notes to Consolidated Interim Financial Statements |
September 30, 2022 (Expressed in U.S. Funds) |
12. Leases (Cont'd)
Finance leases
Substantially all our finance lease right-of-use assets and finance lease liability represents leases for laboratory equipment to conduct our business.
The cash outflows from finance leases for the nine-month period ended September 30, 2022 was $25 thousand.
The weighted average remaining lease term and the weighted average discount rate for finance leases at September 30, 2022 were 2.35 years and 6.35%, respectively.
The following table reconciles the undiscounted cash flows for the finance leases as at September 30, 2022 to the finance lease liabilities recorded on the balance sheet:
| Finance Leases | |||
| 2022 | $ | 10 | |
| 2023 | 39 | ||
| 2024 | 37 | ||
| 2025 | 6 | ||
| Total undiscounted lease payments | 92 | ||
| Less: Interest | 6 | ||
| Present value of lease liabilities | $ | 86 |
| Current portion of finance lease liability | $ | 35 | |
| Finance lease liability | $ | 51 |
13. Related Party Transactions
Included in management salaries for the nine-month period ended September 30, 2022 are $10 thousand (2021 - $10) for options granted to the Chief Executive Officer, $10 thousand (2021 - $10 thousand) for options granted to the President and Chief Financial Officer, $5 (2021 - $10) for options granted to the Vice President, Operations, $5 thousand (2021 - $5 thousand) for options granted to the Vice-President, Research and Development, $5 thousand (2021 - $5 thousand) for options granted to Vice-President, Business and Corporate Development and $13 thousand (2021 - $13 thousand) for options granted to the Vice-President, Intellectual Property and Legal Affairs under the 2016 Stock Option Plan.
Also included in general and administrative expense for the nine-month period ended September 30, 2022 are director fees of $167 thousand (2021 - $179 thousand) and DSU recovery of $143 thousand (2021: DSU expense of $345 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.
IntelGenx Technologies Corp.
Notes to Consolidated Interim Financial Statements |
September 30, 2022 (Expressed in U.S. Funds) |
14. Basic and Diluted Loss Per Common Share
Basic and diluted loss per common share is calculated based on the weighted average number of shares outstanding during the period. The warrants, share-based compensation and convertible debenture and notes have been excluded from the calculation of diluted loss per share since they are anti-dilutive.
15. Contingencies
The government authorities have assessed the Company with respect to sales taxes claimed on certain expenses between 2017 and 2020, which the government is denying. The sales tax assessments amount to $310,000 (including interest and penalties of $33,000), which was paid to avoid further interest and penalties. The Company disagrees with the government's position and the sales tax assessments are under appeal. In the event the Company is unsuccessful in its appeal, sales taxes expenses would increase by $277,000 and net earnings would decrease by $277,000.
23
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, 2022 and 2021.
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, 2021. In preparing this MD&A, we have taken into account information available to us up to November 10, 2022, 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, 2021 (the "2021 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 2021 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.
24
Company Background
We are a drug delivery company established in 2003 and headquartered in Montreal, Quebec, Canada. Our focus is on the contract development and manufacturing of novel oral thin film products for the pharmaceutical market. More recently, we have made the strategic decision to enter the Canadian cannabis market with non-prescription cannabis infused oral film that launched in early 2021 and in 2020 we made the decision to enter the psychedelic market. As a full service CDMO, we are offering partners a comprehensive portfolio of pharmaceutical services, including pharmaceutical R&D, clinical monitoring, regulatory support, tech transfer, manufacturing scale-up and commercial manufacturing.
Our business strategy is to leverage our proprietary drug delivery technologies and develop pharmaceutical products with tangible benefits for patients, for our partners and, once a developed product launches, retain the exclusive manufacturing rights.
Our primary growth strategy is based on providing CDMO services to the pharmaceutical industry by focusing on three key strategic areas: (1) psychedelics, (2) cannabis, and (3) animal health.
We have established a state-of-the-art manufacturing facility for the future manufacture of our VersaFilm™ and VetaFilm™ 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.
With our current manufacturing equipment, we are only able to manufacture products that do not contain flammable organic solvents. We 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.
Product Opportunities that provide Tangible Patient Benefits
In addition to our three key strategic areas we will offer our services to develop 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.
25
COVID-19
Our operations and financial condition have been affected by the COVID-19 pandemic. Though we were granted an exemption by local authorities which permitted us to continue operations during the COVID-19 pandemic, we nevertheless faced multiple operational and financial challenges. Despite these challenges, we have continually been able to minimize the impact on our overall performance.
In response to the COVID-19 pandemic, we partially reorganized our operations and adopted a remote work policy for employees and management. In the year ended December 31, 2020, we also benefited from the Canada Emergency Wage Subsidy as well as the Canada Emergency Commercial Rent Assistance program from our landlord.
Throughout the COVID-19 pandemic, we have been, and remain, in compliance with all federal, provincial, and municipal regulations that have been put in place since the beginning of the pandemic. We will continue to monitor any further developments in this regard, with the health and safety of our employees and management as the primary concern.
Most recent key developments
On July 05, 2022, the Company announced that, as previously disclosed on June 1, 2022 and in accordance with the terms of the trust indenture governing the Debentures (as defined below), as supplemented, it has issued (i) 19,381,223 shares of common stock of the Company ("Shares") at a deemed price of C$0.2812 in payment of the outstanding C$5,450,000 aggregate principal amount of the Company's convertible unsecured subordinated debentures due June 30, 2022 and (ii) 573,684 Shares at a deemed price of C$0.38 per Share in payment of an aggregate of C$218,000 interest due on the Debentures as of June 30, 2022. The Convertible Debentures, listed on the Toronto Stock Exchange under the symbol IGX.DB, was delisted from trading as of the close of business on June 30, 2022.
On September 08, 2022, the Company announced that patient enrollment in the ongoing Montelukast VersaFilm® Phase 2a BUENA clinical trial in patients with mild to moderate Alzheimer's Disease had reached the halfway mark. This proof-of-concept study currently includes six clinical research sites with the potential of adding three more sites in the coming month, all of which are expected to enroll a total of approximately 70 patients.
Following the end of the quarter, on October 13, 2022, the Company provided an update on its collaboration with its strategic partner, atai Life Sciences, for the development of novel formulations of pharmaceutical-grade psychedelics based on IntelGenx's polymeric film technologies. Pursuant to the first of two current feasibility agreements between the companies, IntelGenx conducted pre-development, formulation development work and clinical supply manufacturing to provide a product prototype to atai for further clinical investigation. That previously undisclosed candidate, buccal VLS-01, is a buccal film containing a synthetic form of N,N-dimethyltryptamine. atai is developing the product as a novel therapy for treatment-resistant depression in combination with atai's digital therapeutic designed to provide contextual "(mind)set-and-setting" support to patients prior to dosing.
Following the end of the quarter, on October 18, 2022, the Company announced that it had responded to the Complete Response Letter for its 505(b)(2) New Drug Application for RIZAFILM® (owned by Gensco) VersaFilm® received from the U.S. Food and Drug Administration in March 2020.
On October 20, 2022, the Company announced that the United States Patent and Trademark Office issued U.S. Patent No. 11,471,406 to IntelGenx, with claims for modulating drug absorption in oral film dosage form designed for sublingual administration of various pharmaceuticals, including some cannabinoids. This, the latest in a series of patents recently granted to IntelGenx, is expected to remain in force at least until 2038, not including any potential patent term extensions. The '406 patent issuance adds to the formidable intellectual property estate the Company has been building for its VersaFilm® oral film technology. This patent will enable development of a wide variety of protected product designed for improved drug delivery. While this novel proprietary technology covered by both U.S. Patent No. 10,828,254, previously granted to IntelGenx in November 2020, and the new '406 patent is suitable for cannabis-containing oral films, especially for THC oral film dosage forms, the '406 patent specifically covers an oral film dosage form designed for modulating absorption profile of sublingually administered actives.
26
On October 25, 2022, the Company announced that its previously undisclosed development candidate, Buprenorphine Buccal Film, for which an abbreviated new drug application has been filed by Chemo Research SL through its agent and affiliate Xiromed LLC, had received a U.S. Food and Drug Administration Generic Drug User Fee Act ("GDUFA") date of April 28, 2023. Buprenorphine Buccal Film is a generic version of Belbuca®, an opioid that is used to manage pain severe enough to require daily, around-the-clock, long-term treatment with an opioid, when other pain treatments are inadequate. Approved by the FDA in 2015, Belbuca® is applied to the oral or buccal mucosa every 12 hours and comes in seven strengths ranging from 0.075 mg to 0.9 mg. IntelGenx partnered with Chemo, part of the Insud Pharma Group, on the development of Buprenorphine Buccal Film in September 2016. Buprenorphine Buccal Film incorporates IntelGenx's VersaFilm® technology in a novel formulation. The companies co-developed the candidate's ANDA that is currently under review by the FDA. According to IMS Health, a leading healthcare data and analytics provider, global annual sales of Belbuca® amounted to $315 million as of July 2022.
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, 2022 report an accumulated other comprehensive loss due to foreign currency translation adjustments and changes in fair value of $2,664 primarily due to the fluctuations in the rates and fair values used to prepare our financial statements, $1,293 of which negatively impacted our comprehensive loss for the nine-month period ended September 30, 2022. The following Management Discussion and Analysis takes this into consideration whenever material.
Reconciliation of Comprehensive Loss to Adjusted Earnings (Loss) before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA (Loss))
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 / (deducting) to comprehensive loss, finance income and costs, depreciation and amortization, income taxes and foreign currency translation adjustment incurred during the period. IntelGenx also excludes the effects of certain non-monetary transactions recorded, such as share-based compensation, for its Adjusted EBITDA calculation. The Company believes it is useful to exclude these items as they are either non-cash expenses, items that cannot be influenced by management in the short term, or items that do not impact core operating performance. Excluding these items does not imply they are necessarily nonrecurring. Share-based compensation costs are a component of employee and consultant'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.
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Reconciliation of Non-US GAAP Financial Information
| Three-month period ended November 30 | Nine-month period ended November 30 | |||||||||||
| ended September 30, | ended September 30, | |||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| $ | $ | $ | $ | |||||||||
| Comprehensive loss | (2,975 | ) | (2,173 | ) | (9,239 | ) | (6,970 | ) | ||||
| Add (deduct): | ||||||||||||
| Depreciation | 196 | 199 | 587 | 589 | ||||||||
| Finance costs | 286 | 365 | 1,063 | 1,134 | ||||||||
| Finance income | (1 | ) | (1 | ) | (2 | ) | (152 | ) | ||||
| Share-based compensation | 31 | 25 | 94 | 81 | ||||||||
| Deferred income tax | - | (3 | ) | - | (3 | ) | ||||||
| Other comprehensive loss (income) | 299 | 171 | 1,293 | 516 | ||||||||
| Adjusted EBITDA Loss | (2,164 | ) | (1,417 | ) | (6,204 | ) | (4,805 | ) | ||||
Adjusted Earnings (Loss) before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA (Loss))
Adjusted EBITDA (Loss) increased by $747 for the three-month period ended September 30, 2022 to ($2,164) compared to ($1,417) for the three-month period ended September 30, 2021. The increase in Adjusted EBITDA (Loss) of $747 for the three-month period ended September 30, 2022 is mainly attributable to an increase in SG&A expenses of $537 before consideration of stock-based compensation, and a decrease in revenues of $451, offset by a decrease in R&D expenses of $172 before consideration of stock-based compensation and a decrease in manufacturing expenses of $69 before consideration of stock-based compensation.
Adjusted EBITDA (Loss) increased by $1,399 for the nine-month period ended September 30, 2022 to ($6,204) compared to ($4,805) for the nine-month period ended September 30, 2021. The increase in Adjusted EBITDA (Loss) of $1,399 for the nine-month period ended September 30, 2022 is mainly attributable to an increase in SG&A expenses pf $972, an increase in R&D expenses of $372 before consideration of stock-based compensation and a decrease in revenues of $264, offset by a decrease in Manufacturing expenses of $209 before consideration of stock-based compensation.
Results of operations for the three-month and nine-month periods ended September 30, 2022 compared with the three-month and nine-month periods ended September 30, 2021.
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| Three-month period ended September 30, | Nine-month period ended September 30, | |||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Revenue | $ | 142 | $ | 593 | $ | 777 | 1,041 | |||||
| Research and Development Expenses | 704 | 874 | 2,289 | 1,910 | ||||||||
| Manufacturing expenses | 429 | 499 | 1,381 | 1,598 | ||||||||
| Selling, General and Administrative Expenses | 1,204 | 662 | 3,405 | 2,419 | ||||||||
| Depreciation of tangible assets | 196 | 199 | 587 | 589 | ||||||||
| Operating loss | (2,391 | ) | (1,641 | ) | (6,885 | ) | (5,475 | ) | ||||
| Net loss | (2,676 | ) | (2,002 | ) | (7,946 | ) | (6,454 | ) | ||||
| Comprehensive loss | (2,975 | ) | (2,173 | ) | (9,239 | ) | (6,970 | ) | ||||
Revenue
Total revenues for the three-month period ended September 30, 2022 amounted to $142, representing a decrease of $451 or 76% compared to $593 for the three-month period ended September 30, 2021. Total revenues for the nine-month period ended September 30, 2022 amounted to $777, representing a decrease of $264 or 25% compared to $1,041 for the nine-month period ended September 30, 2021. The decrease for the three-month period ended September 30, 2022 compared to the last year's corresponding period is mainly attributable to decreases in Sales Milestone Revenues of $320 and R&D revenues of $141, offset by increases in Product Revenues of $9 and Royalties on Product Sales of $1. The decrease for the nine-month period ended September 30, 2022 compared to the last year's corresponding period is mainly attributable to decreases in Sale Milestone Revenues of $320 and Product revenues of $153, offset by increases in R&D Revenues of $168 and Royalties on Product Sales of $41.
Research and development ("R&D") expenses
R&D expenses for the three-month period ended September 30, 2022 amounted to $704, representing a decrease of $170 or 19%, compared to $874 for the three-month period ended September 30, 2021. R&D expenses for the nine-month period ended September 30, 2022 amounted to $2,289, representing an increase of $379 or 20%, compared to $1,910 for the nine-month period ended September 30, 2021.
The decrease in R&D expenses for the three-month period ended September 30, 2022 is mainly attributable to decreases in R&D batch development expenses of $318, salary expense of $50, patent expenses of $34, analytical costs of $33 and lab supplies of $25, offset by increases in study costs of $200, the allocation of the 20% credit of $50 as per the strategic development agreement with atai, consulting fees of $25, and a decrease in R&D estimated tax credits of $15. The increase in R&D expenses for the nine-month period ended September 30, 2022 is mainly attributable to increases in study costs of $558, the allocation of the 20% credit of $232 as per the strategic development agreement with atai, consulting fees of $71, salary expenses of $56 due to new hires, repairs and maintenance of $36, and a decrease in R&D estimated tax credits of $104, offset by decreases in R&D batch development expenses of $350, analytical costs of $195, patent expenses of $71, and lab supplies of $64.
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In the three-month period ended September 30, 2022 we recorded estimated Research and Development Tax Credits of $13, compared with $28 that was recorded in the same period of the previous year. In the nine-month period ended September 30, 2022 we recorded estimated Research and Development Tax Credits of $52, compared with $155 that was recorded in the same period of the previous year.
Manufacturing expenses
Manufacturing expenses for the three-month period ended September 30, 2022 amounted to $429, representing a decrease of $70 or 14%, compared to $499 for the three-month period ended September 30, 2021. Manufacturing expenses for the nine-month period ended September 30, 2022 amounted to $1,381 representing a decrease of $217 or 14%, compared to $1,598 for the nine-month period ended September 30, 2021.
The decrease in Manufacturing expenses for the three-month period ended September 30, 2022 is mainly attributable to decreases in supplies and consumables of $83 and salary expenses of $9, offset by an increase in repairs and maintenance of $28. The decrease in Manufacturing expenses for the nine-month period ended September 30, 2022 is mainly attributable to a decrease in supplies and consumables of $323, offset by increases in repairs and maintenance of $51, quality expenses of $22, consulting fees of $16, and salary expenses of $16.
Selling, general and administrative ("SG&A") expenses
SG&A expenses for the three-month period ended September 30, 2022 amounted to $1,204, representing an increase of $542 or 82%, compared to $662 for the three-month period ended September 30, 2021. SG&A expenses for the nine-month period ended September 30, 2022 amounted to $3,405 representing an increase of $986 or 41%, compared to $2,419 for the nine-month period ended September 30, 2021.
The increase in SG&A expenses for the three-month period ended September 30, 2022 is mainly attributable to the variation of the foreign exchange due to the depreciation of the CA dollar vs US currency in the amount of $452 and increases in insurance expense of $64, salaries and compensation expenses of $27 due to new hires, investor relations expenses of $5, leasehold expenses of $5, offset by a decrease in professional fees of $10. The increase in SG&A expenses for the nine-month period ended September 30, 2022 is mainly attributable to the variation of the foreign exchange due to the depreciation of the CA dollar vs US currency in the amount of $836 and increases professional fees of $304, insurance expense of $139, leasehold expenses of $74, investor relations expenses of $22, business development expenses of $21 and travel expenses of $12, offset by a decrease in salaries and compensation expenses of $431, mainly attributable to the revaluation of previously issued DSUs which was caused by the decrease in the Company's share price during the nine-month period ended September 30, 2022.
Depreciation of tangible assets
In the three-month period ended September 30, 2022 we recorded an expense of $196 for the depreciation of tangible assets, compared with an expense of $199 for the same period of the previous year. In the nine-month period ended September 30, 2022 we recorded an expense of $587 for the depreciation of tangible assets, compared with an expense of $589 for the same period of the previous year.
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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, 2022 amounted to $31 compared to $25 for the three-month period ended September 30, 2021. Share-based compensation warrants and share-based payments expense for the nine-month period ended September 30, 2022 amounted to $94 compared to $81 for the nine-month period ended September 30, 2021.
We expensed approximately $28 in the three-month period ended September 30, 2022 for options granted to our employees in 2021 and 2022 under the 2016 Stock Option Plan and $3 for options granted to a consultant, compared with $25 and $Nil, respectively that was expensed in the same period of the previous year.
We expensed approximately $85 in the nine-month period ended September 30, 2022 for options granted to our employees in 2021 and 2022 under the 2016 Stock Option Plan and $9 for options granted to a consultant in 2021, compared with $81 and $Nil, respectively that was expensed in the same period of the previous year.
There remains approximately $52 in stock-based compensation to be expensed in fiscal 2022 and 2023, of which $15 relates to the issuance of options to a consultant during 2021. 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, 2022 | December 31, 2021 | Increase/ (Decrease) | Percentage Increase/ (Decrease) | |||||||||
| Current Assets | $ | 5,811 | $ | 11,437 | $ | (5,626 | ) | (49%) | ||||
| Leasehold improvements and Equipment, net | 4,527 | 5,213 | (686 | ) | (13%) | |||||||
| Security Deposits | 242 | 252 | (10 | ) | (4%) | |||||||
| Operating lease right-of-use asset | 774 | 1,003 | (229 | ) | (23%) | |||||||
| Current Liabilities (excluding convertible debentures) | 2,240 | 2,773 | (533 | ) | (19%) | |||||||
| Long-term debt | 5,500 | 2,500 | 3,000 | 120% | ||||||||
| Convertible debentures | - | 4,247 | (4,247 | ) | (100%) | |||||||
| Convertible notes | 4,226 | 3,709 | 517 | 14% | ||||||||
| Operating lease liability | 465 | 642 | (177 | ) | (28%) | |||||||
| Finance lease liability | 51 | 84 | (33 | ) | (39%) | |||||||
| Capital Stock | 1 | 1 | 0 | 0% | ||||||||
| Additional Paid-in Capital | 67,321 | 63,104 | 4,217 | 7% |
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Current assets
Current assets totaled $5,811 as at September 30, 2022 compared with $11,437 at December 31, 2021. The decrease of $5,626 is mainly attributable to decreases in cash of $2,447, short-term investments of $2,754, accounts receivable of $91, investment tax credits receivable of $343, and security deposits of $16, offset by increases in prepaid expenses of $7 and inventory of $18.
Cash
Cash totaled $1,498 as at September 30, 2022 representing a decrease of $2,447 compared with the balance of $3,945 as at December 31, 2021. The decrease in cash on hand relates to net cash used in operating activities of $6,963 offset by net cash provided by financing activities of $2,975, net cash provided by investing activities of $1,233 and a positive effect of foreign exchange of $308.
Accounts receivable
Accounts receivable totaled $589 as at September 30, 2022 representing a decrease of $91 compared with the balance of $680 as at December 31, 2021. The main reason for the decrease is related to the collection in 2022 of revenues accounted for as at December 31, 2021 offset by revenues accounted for as at September 30, 2022.
Prepaid expenses
As at September 30, 2022 prepaid expenses totaled $112 compared with $105 as of December 31, 2021. The increase may be explained by advance payments made in the nine-month period ended September 30, 2022.
Investment tax credits receivable
R&D investment tax credits receivable totaled approximately $93 as at September 30, 2022 compared with $436 as at December 31, 2021. The decrease is attributable to the fact that the 2020 and 2021 amounts were collected in 2022, offset by the accrual estimated and recorded for the nine-month period ended September 30, 2022.
Leasehold improvements and equipment
As at September 30, 2022, the net book value of leasehold improvements and equipment amounted to $4,527, compared to $5,213 at December 31, 2021. In the nine-month period ended September 30, 2022 additions to assets totaled $247 and mainly comprised of $162 for lab and office equipment, $50 for manufacturing equipment, $31 for leasehold improvements and $4 for computer equipment, offset by variation of foreign exchange fluctuation and depreciation expense of $587.
Security deposit
A security deposit in the amount of CAD$300 ($219) 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, 2022. Security deposits in the amount of CAD$26 ($19) for utilities and CAD$5 ($4) for Cannabis license were also recorded as at September 30, 2022. Security deposit in the amount of CAD$260 ($189) for Company credit cards was also recorded as at September 30, 2022 but classified as short-term.
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Accounts payable and accrued liabilities
Accounts payable and accrued liabilities totaled $1,974 as at September 30, 2022 compared with $2,299 as at December 31, 2021. The decrease is mainly attributable to the payment of accruals accounted for as at December 31, 2021.
Loan payable
Loan payable totaled $5,500 as at September 30, 2022 compared with $2,500 as at December 31, 2021. atai has granted to the Company a secured loan in the amount of $5,500, bearing interest at 8%. In September 2021, the Company entered into an amended and restated secured loan agreement with atai pursuant to which atai has made two additional term loans available to the Company for $3,000 each, which will mature on January 5, 2024. The first loan was received on January 7, 2022 and the second loan will be made available on January 6, 2023, subject to the satisfaction of customary conditions. The Loan Agreement also extends the maturity date for the current loans, in an aggregate amount of $5,500, to January 2024. The loan is guaranteed by the Company and secured by all present and future movable property, rights and assets of the Company, excluding any intellectual property or technology controlled or owned by the Company. The loan bears interest at 8%. The interest for the nine-month period ended September 30, 2022 amounts to $311 (2021: $105) and is recorded in financing and interest expense.
Convertible debentures
Convertible debentures totaled $Nil as at September 30, 2022 as compared to $4,247 as at December 31, 2021. The Corporation issued a total aggregate principal amount of CAD$7,600,000 ($5,545,000) of debentures at a price of CAD$1,000 ($730) per debenture in July 2017 and August 2017. On September 25, 2021, the debenture holders approved the extension of the maturity date of the convertible debentures from September 30, 2021 to September 30, 2022 and the conversion price was reduced from CAD$1.35 ($0.98) to CAD$0.50 ($0.36). On September 30, 2022, the Company issued 19,381,223 shares of common stock in payment of the outstanding CAD$5,450,000 ($4,229,000) aggregate principal amount of the convertible debentures. The convertible debentures were recorded as a liability. The accretion expense for the nine-month period ended September 30, 2022 amounts to CAD$125,000 ($96,000) ((CAD$222,000) ($178,000) in Q3-2021).
During the nine-month period ended September 30, 2022, CAD$60,000 ($48,000) of convertible debentures were converted into 120,000 common shares at the option of the holders, resulting in an increase in additional paid-in capital of $48,000.
During the nine-month period ended September 30, 2021, CAD$425,000 ($340,000) of convertible debentures were converted into 850,000 common shares at the option of the holders, resulting in an increase in additional paid-in capital of $321,000.
The interest accrued on the convertible debentures as at September 30, 2022 amounts to CAD$218,000 ($171,000) and was paid by the issuance of 573,684 common shares on July 5, 2022. The interest on the convertible debentures amounted to CAD$430,000 ($344,000) for the nine-month period ended September 30, 2021. The interest expense is recorded in Financing and interest expense.
Convertible notes
Convertible notes totaled $4,226 as at September 30, 2022 as compared to $3,709 as at December 31, 2021. The convertible notes have been recorded as a liability. The accretion expense for the nine-month period ended September 30, 2022 amounts to $130 compared to $192 for the comparative period in 2021. The interest on the convertible notes for the nine-month period ended September 30, 2022 amounts to $285 ($207 in 2021) and is recorded in Financing and interest expense.
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Shareholders' deficit
As at September 30, 2022 we had accumulated a deficit of $65,786 compared with an accumulated deficit of $57,863 as at December 31, 2021. Total assets amounted to $11,354 and shareholders' deficit totaled $1,128 as at September 30, 2022, compared with total assets and shareholders' equity of $17,905 and $3,871 respectively, as at December 31, 2021.
Capital stock
As at September 30, 2022 capital stock amounted to $1.746 (December 31, 2021: $1.545). 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 $67,321 as at September 30, 2022, as compared to $63,104 as at December 31, 2021. Additional paid in capital increased by $4,217. The increase is due to the issuance of common shares of $4,229, interest paid by issuance of common shares of $171, stock-based compensation attributable to the amortization of stock options granted to employees of $94, and the value of the conversion of the convertible debentures of $48, offset by $325 for the adoption of ASU 606-20 where the previously accounted beneficial conversion feature in the amount of $325 was derecognized from the value of the convertible notes on a retroactive basis as at January 1, 2022.
Taxation
As at December 31, 2021, the date of our latest annual tax return, we had Canadian and provincial net operating losses of approximately $39,823 (December 31, 2020: $31,673) and $43,482 (December 31, 2020: $33,905) 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 2041. A portion of the net operating losses may expire before they can be utilized.
As at December 31, 2021, we had non-refundable tax credits of $2,912 thousand (2020: $2,802 thousand) of which $8 thousand is expiring in 2026, $10 thousand is expiring in 2027, $177 thousand is expiring in 2028, $155 thousand is expiring in 2029, $132 thousand is expiring in 2030, $141 thousand is expiring in 2031, $176 thousand is expiring in 2032, $117 thousand is expiring in 2033, $89 thousand expiring in 2034, $104 thousand is expiring in 2035, $144 thousand expiring in 2036, $275 thousand is expiring in 2037, $594 thousand expiring in 2038, $359 thousand expiring in 2039, $298 thousand expiring in 2040, and $183 expiring in 2041 and undeducted research and development expenses of $16,566 thousand (2020: $15,302 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.
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| September 30, 2022 | September 30, 2021 | Increase/ (Decrease) | Percentage Increase/ (Decrease) | |||||||||
| Operating Activities | $ | (6,963 | ) | $ | (5,093 | ) | $ | (1,870 | ) | 37% | ||
| Financing Activities | 2,975 | 15,500 | (12,525 | ) | (81%) | |||||||
| Investing Activities | 1,233 | (5,046 | ) | 6,279 | (124%) | |||||||
| Cash - end of period | 1,498 | 6,019 | (4,521 | ) | (75%) | |||||||
Statement of cash flows
Net cash used in operating activities was $6,963 for the nine-month period ended September 30, 2022, compared to $5,093 for the nine-month period ended September 30, 2021. For the nine-month period ended September 30, 2022, net cash used by operating activities consisted of a net loss of $7,946 (2021: $6,454) before depreciation, accretion expense, stock-based compensation, DSU expense, interest paid by issuance of common shares, and lease non-cash expense in the amount of $937 (2021: $1,246) and an increase in non-cash operating elements of working capital of $46 (2021: $115).
The net cash provided by financing activities was $2,975 for the nine-month period ended September 30, 2022, compared to $15,500 in the same period of the previous year. An amount of $Nil derives from the proceeds from the issuance of shares (2021: $12,346), an amount of $3,000 derives from the issuance of a loan (2021: $2,500), and an amount of $Nil derives from the net proceeds from convertible notes (2021: $1,897), offset by finance lease payments of $25 (2021: $21), repayment of term loans for an amount of $Nil (2021: $737), the transaction costs related to the issuance of shares of $Nil (2021: $422), the transaction costs related to the convertible notes of $Nil (2021: $34), and the transaction costs related to the debt extinguishment of $Nil (2021: $29).
Net cash provided by investing activities amounted to $1,233 for the nine-month period ended September 30, 2022 compared to net cash used in investing activities of $5,046 in the same period of 2021. The net cash provided by investing activities for the nine-month period ended September 30, 2022 relates to the redemption of short-term investments of $7,219 (2021: $1,034), offset by the acquisition of short-term investments of $5,739 (2021: $6,000) and the purchase of leasehold improvements and equipment of $247 (2021: $80).
The balance of cash as at September 30, 2022 amounted to $1,498, compared to $6,019 as at September 30, 2021.
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.
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This Item is not applicable
This Item is not applicable.
This Item is not applicable.
This Item is not applicable.
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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 10, 2022 | By: /s/ Horst G. Zerbe |
Dr. Horst G. Zerbe Chief Executive Officer and Director | |
| Date: November 10, 2022 | By: /s/ Andre Godin |
Andre Godin Principal Accounting Officer | |
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