Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction to Management's Discussion and Analysis
This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") comments on our business operations, performance, financial position and other matters for the nine-month period ended September 30, 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.
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 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.
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.
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.
| | | 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.
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.
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% | |
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.
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.
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.
Key items from the statement of cash flows | | | 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.
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 5. Other Information This Item is not applicable.
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 |
| | |
