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 six-month period ended June 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 August 11, 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.
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.
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 May 2nd and 3rd, 2022, IntelGenx's management attended the Bloom Burton & Co. Healthcare Conference at the Metro Toronto Convention Centre in Toronto, Canada. Management also presented an update on the Company' business on May 3rd, 2022.
Following the end of the second quarter on July 05, 2022, the Company announced that, in accordance with the terms of the trust indenture governing the Debentures, as supplemented, issued (i) 19,381,223 shares of common stock of the Company 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 also due on the Debentures as of June 30, 2022. 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.
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 six-month period ended June 30, 2022 report an accumulated other comprehensive loss due to foreign currency translation adjustments and changes in fair value of $2,365 primarily due to the fluctuations in the rates and fair values used to prepare our financial statements, $994 of which negatively impacted our comprehensive loss for the six-month period ended June 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.
Reconciliation of Non-US GAAP Financial Information
| | | Three-month period ended November 30 | | | Six-month period
ended November 30 | |
| | | ended June 30, | | | ended June 30, | |
| | | 2022 | | | 2021 | | | 2022 | | | 2021 | |
| | | $ | | | $ | | | $ | | | $ | |
| Comprehensive loss | | (3,246 | ) | | (2,500 | ) | | (6,264 | ) | | (4,797 | ) |
| Add (deduct): | | | | | | | | | | | | |
| Depreciation | | 196 | | | 198 | | | 391 | | | 390 | |
| Finance costs | | 400 | | | 435 | | | 777 | | | 769 | |
| Finance income | | - | | | (151 | ) | | (1 | ) | | (151 | ) |
| Share-based compensation | | 31 | | | 25 | | | 63 | | | 56 | |
| Other comprehensive loss (income) | | 662 | | | 309 | | | 994 | | | 345 | |
| | | | | | | | | | | | | |
| Adjusted EBITDA Loss | | (1,957 | ) | | (1,684 | ) | | (4,040 | ) | | (3,388 | ) |
Adjusted Earnings (Loss) before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA (Loss))
Adjusted EBITDA (Loss) increased by $273 for the three-month period ended June 30, 2022 to ($1,957) compared to ($1,684) for the three-month period ended June 30, 2021. The increase in Adjusted EBITDA (Loss) of $273 for the three-month period ended June 30, 2022 is mainly attributable to an increase in SG&A expenses of $285 before consideration of stock-based compensation, an increase in R&D expenses of $219 before consideration of stock-based compensation, and an increase in manufacturing expenses of $5 before consideration of stock-based compensation, offset by a increase in revenues of $236.
Adjusted EBITDA (Loss) increased by $652 for the six-month period ended June 30, 2022 to ($4,040) compared to ($3,388) for the six-month period ended June 30, 2021. The increase in Adjusted EBITDA (Loss) of $652 for the six-month period ended June 30, 2022 is mainly attributable to an increase in R&D expenses of $544 before consideration of stock-based compensation and an increase in SG&A expenses of $435, offset by an increase in Revenues of $187 and a decrease in Manufacturing expenses of $140 before consideration of stock-based compensation.
Results of operations for the three-month and six-month periods ended June 30, 2022 compared with the three-month and six-month periods ended June 30, 2021.
| | | Three-month period
ended June 30, | | | Six-month period ended
June 30, | |
| | | | | | | |
| | | 2022 | | | 2021 | | | 2022 | | | 2021 | |
| | | | | | | | | | | | | |
| Revenue | $ | 398 | | $ | 162 | | $ | 635 | | | 448 | |
| | | | | | | | | | | | | |
| Research and Development Expenses | | 787 | | | 565 | | | 1,585 | | | 1,036 | |
| | | | | | | | | | | | | |
| Manufacturing expenses | | 482 | | | 478 | | | 952 | | | 1,099 | |
| | | | | | | | | | | | | |
| Selling, General and Administrative Expenses | | 1,117 | | | 828 | | | 2,201 | | | 1,757 | |
| | | | | | | | | | | | | |
| Depreciation of tangible assets | | 196 | | | 198 | | | 391 | | | 390 | |
| | | | | | | | | | | | | |
| Operating loss | | (2,184 | ) | | (1,907 | ) | | (4,494 | ) | | (3,834 | ) |
| | | | | | | | | | | | | |
| Net loss | | (2,584 | ) | | (2,191 | ) | | (5,270 | ) | | (4,452 | ) |
| | | | | | | | | | | | | |
| Comprehensive loss | | (3,246 | ) | | (2,500 | ) | | (6,264 | ) | | (4,797 | ) |
Revenue
Total revenues for the three-month period ended June 30, 2022 amounted to $398, representing an increase of $236 or 146% compared to $162 for the three-month period ended June 30, 2021. Total revenues for the six-month period ended June 30, 2022 amounted to $635, representing an increase of $187 or 42% compared to $448 for the six-month period ended June 30, 2021. The increase for the three-month period ended June 30, 2022 compared to the last year's corresponding period is mainly attributable to an increases in R&D revenues of $210 and Royalties on Product Sales of $28. The increase for the six-month period ended June 30, 2022 compared to the last year's corresponding period is mainly attributable to increases in R&D Revenues of $309 and Royalties on Product Sales of $40, offset by a decrease in Product revenues of $162.
Research and development ("R&D") expenses
R&D expenses for the three-month period ended June 30, 2022 amounted to $787, representing an increase of $222 or 39%, compared to $565 for the three-month period ended June 30, 2021. R&D expenses for the six-month period ended June 30, 2022 amounted to $1,585, representing an increase of $549 or 53%, compared to $1,036 for the six-month period ended June 30, 2021.
The increase in R&D expenses for the three-month period ended June 30, 2022 is mainly attributable to increases in study costs of $165, the allocation of the 20% credit of $74 as per the strategic development agreement with atai, decrease in R&D estimated tax credits of $64 and consulting fees of $28, offset by decreases in analytical costs of $73, patent expenses of $20, and lab supplies of $18. The increase in R&D expenses for the six-month period ended June 30, 2022 is mainly attributable to increases in study costs of $361, salary expenses of $111 due to new hires, the allocation of the 20% credit of $184 as per the strategic development agreement with atai, a decrease in R&D estimated tax credits of $89 and an increase in consulting fees of $47, offset by decreases in analytical costs of $163, patent expenses of $37, R&D batch development expenses of $37, and lab supplies of $8.
In the three-month period ended June 30, 2022 we recorded estimated Research and Development Tax Credits of $Nil, compared with $64 that was recorded in the same period of the previous year. In the six-month period ended June 30, 2022 we recorded estimated Research and Development Tax Credits of $39, compared with $128 that was recorded in the same period of the previous year.
Manufacturing expenses
Manufacturing expenses for the three-month period ended June 30, 2022 amounted to $482, representing an increase of $4 or 1%, compared to $478 for the three-month period ended June 30, 2021. Manufacturing expenses for the six-month period ended June 30, 2022 amounted to $952 representing a decrease of $147 or 13%, compared to $1,099 for the six-month period ended June 30, 2021.
The increase in Manufacturing expenses for the three-month period ended June 30, 2022 is mainly attributable to an increase in salary expenses of $52, offset by a decrease in supplies and consumables of $47. The decrease in Manufacturing expenses for the six-month period ended June 30, 2022 is mainly attributable to a decrease in supplies and consumables of $245, offset by increases in quality expenses of $30, and salary expenses of $29, repairs and maintenance of $24, and consulting fees of $13.
Selling, general and administrative ("SG&A") expenses
SG&A expenses for the three-month period ended June 30, 2022 amounted to $1,117, representing an increase of $289 or 35%, compared to $828 for the three-month period ended June 30, 2021. SG&A expenses for the six-month period ended June 30, 2022 amounted to $2,201 representing an increase of $444 or 25%, compared to $1,757 for the six-month period ended June 30, 2021.
The increase in SG&A expenses for the three-month period ended June 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 $377 and increases in professional fees of $183, insurance expense of $54, leasehold expenses of $29 and investor relations expenses of $17, offset by a decrease in salaries and compensation expenses of $371 (mainly attributable to the revaluation of previously issued DSUs which was caused by the decrease in the Company's share price during the quarter). The increase in SG&A expenses for the six-month period ended June 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 $385 and increases professional fees of $317, insurance expense of $77, leasehold expenses of $71, business development expenses of $22 and investor relations expenses of $17, offset by a decrease in salaries and compensation expenses of $456, mainly attributable to the revaluation of previously issued DSUs which was caused by the decrease in the Company's share price during the quarter).
Depreciation of tangible assets
In the three-month period ended June 30, 2022 we recorded an expense of $196 for the depreciation of tangible assets, compared with an expense of $198 for the same period of the previous year. In the six-month period ended June 30, 2022 we recorded an expense of $391 for the depreciation of tangible assets, compared with an expense of $390 for the same period of the previous year.
Share-based compensation expense, warrants and stock-based payments
Share-based compensation warrants and share-based payments expense for the three-month period ended June 30, 2022 amounted to $31 compared to $25 for the three-month period ended June 30, 2021. Share-based compensation warrants and share-based payments expense for the six-month period ended June 30, 2022 amounted to $63 compared to $56 for the six-month period ended June 30, 2021.
We expensed approximately $28 in the three-month period ended June 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 $57 in the six-month period ended June 30, 2022 for options granted to our employees in 2021 and 2022 under the 2016 Stock Option Plan and $6 for options granted to a consultant in 2021, compared with $56 and $Nil, respectively that was expensed in the same period of the previous year.
There remains approximately $83 in stock-based compensation to be expensed in fiscal 2022 and 2023, of which $18 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
| | | June 30,
2022 | | | December
31, 2021 | | | Increase/
(Decrease) | | | Percentage
Increase/
(Decrease) | |
| | | | | | | | | | | | | |
| Current Assets | $ | 8,190 | | $ | 11,437 | | $ | (3,247 | ) | | (28%) | |
| | | | | | | | | | | | | |
| Leasehold improvements and Equipment, net | | 4,864 | | | 5,213 | | | (349 | ) | | (7%) | |
| | | | | | | | | | | | | |
| Security Deposits | | 257 | | | 252 | | | 5 | | | 2% | |
| | | | | | | | | | | | | |
| Operating lease right-of-use asset | | 878 | | | 1,003 | | | (125 | ) | | (12%) | |
| | | | | | | | | | | | | |
| Current Liabilities (excluding convertible debentures) | | 2,260 | | | 2,773 | | | (513 | ) | | (18%) | |
| | | | | | | | | | | | | |
| Long-term debt | | 5,500 | | | 2,500 | | | 3,000 | | | 120% | |
| | | | | | | | | | | | | |
| Convertible debentures | | - | | | 4,247 | | | (4,247 | ) | | (100%) | |
| | | | | | | | | | | | | |
| Convertible notes | | 4,181 | | | 3,709 | | | 472 | | | 13% | |
| | | | | | | | | | | | | |
| Operating lease liability | | 540 | | | 642 | | | (102 | ) | | (16%) | |
| | | | | | | | | | | | | |
| Finance lease liability | | 63 | | | 84 | | | (21 | ) | | (25%) | |
| | | | | | | | | | | | | |
| Capital Stock | | 1 | | | 1 | | | 0 | | | 0% | |
| | | | | | | | | | | | | |
| Additional Paid-in-Capital | | 67,119 | | | 63,104 | | | 4,015 | | | 6% | |
Current assets
Current assets totaled $8,190 as at June 30, 2022 compared with $11,437 at December 31, 2021. The decrease of $3,247 is mainly attributable to decreases in cash of $1,970, short-term investments of $1,002, accounts receivable of $92, investment tax credits receivable of $217, and security deposits of $4, offset by increases in prepaid expenses of $15 and inventory of $23.
Cash
Cash totaled $1,975 as at June 30, 2022 representing a decrease of $1,970 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 $4,884 and net cash used in investing activities of $126, offset by net cash provided by financing activities of $2,982 and a positive effect of foreign exchange of $58.
Accounts receivable
Accounts receivable totaled $588 as at June 30, 2022 representing a decrease of $92 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 June 30, 2022.
Prepaid expenses
As at June 30, 2022 prepaid expenses totaled $120 compared with $105 as of December 31, 2021. The increase may be explained by advance payments made in the six-month period ended June 30, 2022.
Investment tax credits receivable
R&D investment tax credits receivable totaled approximately $219 as at June 30, 2022 compared with $436 as at December 31, 2021. The decrease is attributable to the fact that the 2020 amount was collected in 2022, offset by the accrual estimated and recorded for the first six months of 2022.
Leasehold improvements and equipment
As at June 30, 2022, the net book value of leasehold improvements and equipment amounted to $4,864, compared to $5,213 at December 31, 2021. In the six-month period ended June 30, 2022 additions to assets totaled $106 and mainly comprised of $54 for lab and office equipment, $45 for manufacturing equipment, $4 for computer equipment and $3 for leasehold improvements, and variation of foreign exchange fluctuation, offset by depreciation expense of $391.
Security deposit
A security deposit in the amount of CAD$300 ($233) 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 June 30, 2022. Security deposits in the amount of CAD$26 ($20) for utilities and CAD$5 ($4) for Cannabis license were also recorded as at June 30, 2022. Security deposit in the amount of CAD$260 ($201) for Company credit cards was also recorded as at June 30, 2022 but classified as short-term.
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities totaled $1,978 as at June 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 June 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 $3,000,000 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, 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 six-month period ended June 30, 2022 amounts to $201 (2021: $55) and is recorded in financing and interest expense.
Convertible debentures
Convertible debentures totaled $Nil as at June 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 ($6,082,000) of debentures at a price of CAD$1,000 ($776) per debenture in July 2017 and August 2017. On June 25, 2021, the debenture holders approved the extension of the maturity date of the convertible debentures from June 30, 2021 to June 30, 2022 and the conversion price was reduced from CAD$1.35 ($1.08) to CAD$0.50 ($0.40). 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 were recorded as a liability. The accretion expense for the six-month period ended June 30, 2022 amounts to CAD$125,000 ($98,000) ((CAD$147,000) ($118,000) in Q2-2021).
During the six-month period ended June 30, 2022, CAD$60,000 ($46,000) 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 six-month period ended June 30, 2021, CAD$384,000 ($311,000) of convertible debentures were converted into 768,000 common shares at the option of the holders, resulting in an increase in additional paid-in capital of $289,000.
The interest accrued on the convertible debentures as at June 30, 2022 amounts to CAD$218,000 ($171,000) and was paid by issuance of 573,684 common shares on July 5, 2022. The interest on the convertible debentures amounted to CAD$289,000 ($232,000) for the six-month period ended June 30, 2021. The interest expense is recorded in Financing and interest expense.
Convertible notes
Convertible notes totaled $4,181 as at June 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 six-month period ended June 30, 2022 amounts to $85 compared to $146 for the comparative period in 2021. The interest on the convertible notes for the six-month period ended June 30, 2022 amounts to $154 ($121 in 2021) and is recorded in Financing and interest expense.
Shareholders' equity
As at June 30, 2022 we had accumulated a deficit of $63,110 compared with an accumulated deficit of $57,863 as at December 31, 2021. Total assets amounted to $14,189 and shareholders' equity totaled $1,645 as at June 30, 2022, compared with total assets and shareholders' deficit of $17,905 and $3,871 respectively, as at December 31, 2021.
Capital stock
As at June 30, 2022 capital stock amounted to $1.741 (December 31, 2021: $1.5457). 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 $67,119 as at June 30, 2022, as compared to $63,104 as at December 31, 2021. Additional paid in capital increased by $4,015. The increase is due to the issuance of common shares of $4,230, stock-based compensation attributable to the amortization of stock options granted to employees of $63, 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.
Key items from the statement of cash flows
| | | June 30,
2022 | | | June 30,
2021 | | | Increase/
(Decrease) | | | Percentage
Increase/
(Decrease) | |
| | | | | | | | | | | | | |
| Operating Activities | $ | (4,884 | ) | $ | (3,370 | ) | $ | (1,514 | ) | | 45% | |
| Financing Activities | | 2,982 | | | 13,648 | | | (10,666 | ) | | (78%) | |
| Investing Activities | | (126 | ) | | (4,988 | ) | | 4,862 | | | (97%) | |
| Cash - end of period | | 1,975 | | | 6,121 | | | (4,146 | ) | | (68%) | |
Statement of cash flows
Net cash used in operating activities was $4,884 for the six-month period ended June 30, 2022, compared to $3,370 for the six-month period ended June 30, 2021. For the six-month period ended June 30, 2022, net cash used by operating activities consisted of a net loss of $5,270 (2021: $4,452) before depreciation, accretion expense, stock-based compensation, DSU expense, gain on debt extinguishment and lease non-cash expense in the amount of $553 (2021: $938) and a decrease in non-cash operating elements of working capital of $167 (2021: increase of $144).
The net cash provided by financing activities was $2,982 for the six-month period ended June 30, 2022, compared to $13,648 in the same period of the previous year. An amount of $Nil derives from the proceeds from the issuance of shares (2021: $12,346) and an amount of $3,000 derives from the issuance of a loan (2021: $2,500), offset by finance lease payments of $18 (2021: $10), repayment of term loans for an amount of $Nil (2021: $737), the transaction costs related to the issuance of shares of $Nil (2021: $422) and the transaction costs related to the debt extinguishment of $Nil (2021: $29).
Net cash used investing activities amounted to $126 for the six-month period ended June 30, 2022 compared to $4,988 in the same period of 2021. The net cash used in investing activities for the six-month period ended June 30, 2022 relates to the acquisition of short-term investments of $5,739 (2021: $6,000) and the purchase of leasehold improvements and equipment of $106 (2021: $22), offset by the redemption of short-term investments of $5,719 (2021: $1,034).
The balance of cash as at June 30, 2022 amounted to $1,975, compared to $6,121 as at June 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.
PART II
Item 1. Legal Proceedings
This Item is not applicable
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
This Item is not applicable.
Item 3. Defaults Upon Senior Securities
This Item is not applicable.
Item 4. (Reserved)
Item 5. Other Information
This Item is not applicable.
Item 6. Exhibits
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| INTELGENX TECHNOLOGIES CORP. |
| | | | |
| Date: August 11, 2022 | By: | /s/ Horst G. Zerbe | |
| | | Dr. Horst G. Zerbe | |
| | | Chief Executive Officer and | |
| | | Director | |
| | | | |
| | | | |
| Date: August 11, 2022 | By: | /s/ Andre Godin | |
| | | Andre Godin | |
| | | Principal Accounting Officer | |
