If we are not able to adequately protect our intellectual property, we may not be able to compete effectively.
Our success depends, to a significant degree, upon the protection of our proprietary technologies. While we currently own 38 patents and have an additional 31 published pending patent applications in several jurisdictions, we will need to pursue additional protection for our intellectual property as we develop new products and enhance existing products. We may not be able to obtain appropriate protection for our intellectual property in a timely manner, or at all. Our inability to obtain appropriate protections for our intellectual property may allow competitors to enter our markets and produce or sell the same or similar products.
If we are forced to resort to legal proceedings to enforce our intellectual property rights, the proceedings could be burdensome and expensive. In addition, our proprietary rights could be at risk if we are unsuccessful in, or cannot afford to pursue, those proceedings.
We also rely on trade secrets and contract law to protect some of our proprietary technology. We have entered into confidentiality and invention agreements with our employees and consultants. Nevertheless, these agreements may not be honored and they may not effectively protect our right to our un-patented trade secrets and know-how. Moreover, others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets and know-how.
We may need to obtain licenses to patents or other proprietary rights from third parties. We may not be able to obtain the licenses required under any patents or proprietary rights or they may not be available on acceptable terms. If we do not obtain required licenses, we may encounter delays in product development or find that the development, manufacture or sale of products requiring licenses could be foreclosed. We may, from time to time, support and collaborate in research conducted by universities and governmental research organizations. We may not be able to acquire exclusive rights to the inventions or technical information derived from these collaborations, and disputes may arise over rights in derivative or related research programs conducted by us or our partners.
If we infringe on the rights of third parties, we may not be able to sell our products, and we may have to defend against litigation and pay damages.
If a competitor were to assert that our products infringe on its patent or other intellectual property rights, we could incur substantial litigation costs and be forced to pay substantial damages. Such litigation costs could be as a result of direct litigation against us, or as a result of litigation against one or more of our partners to whom we have contractually agreed to indemnify in the event that our intellectual property is the cause of a successful litigious action against our partner. Third-party infringement claims, regardless of their outcome, would not only consume significant financial resources, but would also divert our management's time and attention. Such claims could also cause our customers or potential customers to purchase competitors' products or defer or limit their purchase or use of our affected products until resolution of the claim. If any of our products are found to violate third-party intellectual property rights, we may have to re-engineer one or more of our products, or we may have to obtain licenses from third parties to continue offering our products without substantial re-engineering. Our efforts to re-engineer or obtain licenses could require significant expenditures and may not be successful.
Our controlled release products that are generic versions of branded controlled release products that are covered by one or more patents may be subject to litigation, which could delay FDA approval and commercial launch of our products. We are also subject to litigation and other legal proceedings and may be involved in disputes with other parties in the future which may result in litigation
We expect to file or have our partners file NDAs or ANDAs for our controlled release products under development that are covered by one or more patents of the branded product. It is likely that the owners of the patents covering the brand name product or the sponsors of the NDA with respect to the branded product will sue or undertake regulatory initiatives to preserve marketing exclusivity. Any significant delay in obtaining FDA approval to market our products as a result of litigation, as well as the expense of such litigation, whether or not we or our partners are successful, could have a materially adverse effect on our business, financial condition and results of operations.
The causes of potential future litigation and legal proceedings cannot be known and may arise from, among other things, business activities, the Investment, environmental laws, permitting and licensing activities, volatility in stock prices, or alleged failure to comply with disclosure obligations. The results of litigation and proceedings cannot be predicted with certainty and may include injunctions pending the outcome of such litigation and proceedings. Failure to resolve any such disputes favorably may have a material adverse impact on our financial performance, cash flow and results of operations.
If we are unable to protect our information systems against service interruption, misappropriation of data or breaches of security, our operations could be disrupted, we may suffer financial losses and our reputation may be damaged.
If we or third parties with which we do business were to fall victim to successful cyber-attacks or experience other cybersecurity incidents, including the loss of individually identifiable customer or other sensitive data, we may incur substantial costs and suffer other negative consequences, which may include: remediation costs, such as liability for stolen assets or information, repairs of system damage or replacement of systems, and incentives to customers or business partners in an effort to maintain relationships after an attack; increased cybersecurity protection costs, which may include the costs to continue to make organizational changes, deploy additional personnel and protection technologies, train employees, and engage third party consultants; lost revenues resulting from the unauthorized use of proprietary information or the failure to retain or attract customers following an attack; litigation and legal risks, including regulatory actions by state and federal governmental authorities; increased cybersecurity and other insurance premiums; reputational damage that adversely affects customer or investor confidence; and damage to our competitiveness, stock price, and long-term stockholder value.
Risks Related to Our Securities:
The price of our Common Stock could be subject to significant fluctuations.
Any of the following factors could affect the market price of our Common Stock:
- our failure to achieve and maintain profitability;
- changes in earnings estimates and recommendations by financial analysts;
- actual or anticipated variations in our quarterly results of operations;
- changes in market valuations of similar companies;
- announcements by us or our competitors of significant contracts, new products, acquisitions, commercial relationships, joint ventures or capital commitments;
- the loss of major customers or product or component suppliers;
- the loss of significant partnering relationships; and
- general market, political and economic conditions.
We have a significant number of convertible securities outstanding that could be exercised in the future. Subsequent resale of these and other shares could cause our stock price to decline. This could also make it more difficult to raise funds at acceptable levels pursuant to future securities offerings.
Our Common Stock is a high risk investment.
Our Common Stock has been quoted on OTC Markets under the symbol "IGXT" since January 2007. Beginning in June 2012, our Common Stock was quoted on the OTCQX and, since April 2020, has been quoted on the OTCQB. Our Common Stock was also listed on the TSX Venture Exchange (the "TSX-V") from May 2008 until our graduation to the Toronto Stock Exchange (the "TSX") in October 2021 where our Common Stock is now trading under the under the symbol "IGX".
There is a limited trading market for our Common Stock, which may affect the ability of Shareholders to sell our Common Stock and the prices at which they may be able to sell our Common Stock.
The market price of our Common Stock has been volatile and fluctuates widely in response to various factors which are beyond our control. The price of our Common Stock is not necessarily indicative of our operating performance or long term business prospects. In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our Common Stock. As a result of the foregoing, our Common Stock should be considered a high risk investment.
The application of the "penny stock" rules to our Common Stock could limit the trading and liquidity of our Common Stock, adversely affect the market price of our Common Stock and increase stockholder transaction costs to sell those shares.
As long as the trading price of our Common Stock is below $5.00 per share, the open market trading of our Common Stock will be subject to the "penny stock" rules, unless we otherwise qualify for an exemption from the "penny stock" definition. The "penny stock" rules impose additional sales practice requirements on certain broker-dealers who sell securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse). These regulations, if they apply, require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks. Under these regulations, certain brokers who recommend such securities to persons other than established customers or certain accredited investors must make a special written suitability determination regarding such a purchaser and receive such purchaser's written agreement to a transaction prior to sale. These regulations may have the effect of limiting the trading activity of our Common Stock, reducing the liquidity of an investment in our Common Stock and increasing the transaction costs for sales and purchases of our Common Stock as compared to other securities.
There is no public market for certain Company warrants, which could limit their respective trading price or a holder's ability to sell them.
There is currently no trading market in the United States for the warrants issued by the Company in 2020 and 2021. As a result, a market is unlikely to develop for the Company's warrants in the United States and holders may not be able to sell the Company's warrants in the United States. Future trading prices of the Company's warrants will depend on many factors, including the market for similar securities, general economic conditions and our financial condition, performance and prospects. Accordingly, holders may be required to bear the financial risk of an investment in the Company's warrants for an indefinite period of time until they expire.
Risks related to our outstanding convertible notes.
There is no public market for the Company's Notes, which could limit their respective trading price or a holder's ability to sell them.
There is currently no trading market for the Company's Notes. As a result, a market is unlikely to develop for the Company's Notes and holders may not be able to sell the Company's Notes. Future trading prices of the Company's Notes will depend on many factors, including the market for similar securities, general economic conditions and our financial condition, performance and prospects. Accordingly, holders may be required to bear the financial risk of an investment in the Company's Notes for an indefinite period of time until their maturity.
Our failure to avoid events of default as defined in the Notes could require us to redeem such Notes at a loss.
The Notes provide that, upon the occurrence of an "Event of Default," the Notes may become immediately due and payable. Events of Default under the Notes include, the occurrence of any of the following events with respect to the Notes: (a) failure for 10 business days to pay any of the principal amount or interest on the Notes when due; (b) voluntary or involuntary bankruptcy or insolvency proceedings; or (c) the Company breaches any representation or covenant in the Note that could reasonably be expected to have a material adverse effect and such breach is not cured within 30 days after the notice thereof. Upon an Event of Default for non-payment, voluntary bankruptcy or insolvency or involuntary bankruptcy or insolvency, the Notes become immediately due and payable with the written consent of the holders of a majority in interest of investors. Upon an Event of Default for a Company breach of a representation or covenant, all outstanding Notes automatically become immediately due and payable.
Our ability to avoid such Events of Default under the Notes may be affected by changes in our business condition or results of our operations, or other events beyond our control. If we were to experience an Event of Default and the holders of the Notes became immediately due and payable, we may not have sufficient resources to do so, and we may have to seek additional debt or equity financing to cover the costs of paying the Notes. Any additional debt or equity financing that we may need may not be available on terms favorable to us, or at all. Furthermore, to the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our Shareholders.
General Risk Factors
We may incur losses associated with foreign currency fluctuations.
The majority of our expenses are paid in Canadian dollars, while a significant portion of our revenues are in U.S. dollars. Our financial results are subject to the impact of currency exchange rate fluctuations. Adverse movements in exchange rates could have an adverse effect on our financial condition and results of operations.
Our operations are subject to Canadian and international environmental laws and regulations governing, among other things, emissions to air, discharges to waters and the generation, handling, storage, transportation, treatment and disposal of raw materials, waste and other materials. Many of these laws and regulations provide for substantial fines and criminal sanctions for violations. We believe that we are and have been operating our business and facility in a manner that complies in all material respects with environmental, health and safety laws and regulations; however, we may incur material costs or liabilities if we fail to operate in full compliance. We do not maintain environmental damage insurance coverage with respect to the products which we manufacture.
The decision to establish commercial film manufacturing capability may require us to make significant expenditures in the future to comply with evolving environmental, health and safety requirements, including new requirements that may be adopted or imposed in the future. To meet changing licensing and regulatory standards, we may have to make significant additional site or operational modifications that could involve substantial expenditures or reduction or suspension of some of our operations. We cannot be certain that we have identified all environmental and health and safety matters affecting our activities and in the future our environmental, health and safety problems, and the costs to remediate them, may be materially greater than we expect.
If we are the subject of securities analyst reports or if any securities analyst downgrades our Common Stock or our sector, the price of our Common Stock could be negatively affected.
Securities analysts may publish reports about us or our industry containing information about us that may affect the trading price of our Common Stock. In addition, if a securities or industry analyst downgrades the outlook for our stock or one of our competitors' stocks, the trading price of our Common Stock may also be negatively affected.
We became public by means of a reverse merger, and as a result we are subject to the risks associated with the prior activities of the public company with which we merged.
Additional risks may exist because we became public through a "reverse merger" with a shell corporation. Although the shell did not have any operations or assets and we performed a due diligence review of the public company, there can be no assurance that we will not be exposed to undisclosed liabilities resulting from the prior operations of our company.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 1C. CYBERSECURITY
Cybersecurity Risk Management and Strategy
We operate in an industry subject to various cybersecurity risks that could adversely affect our business, financial condition, and results of operations, including intellectual property theft; fraud; extortion; harm to employees or partners; violation of privacy laws and other litigation and legal risk; and reputational risk. We have initiated a risk-based approach designed to identify and assess the cybersecurity threats that could affect our business and information systems. Our strategy is to maintain a high level of risk awareness, identify critical IT assets, regularly update or replace those assets, and systematically perform vulnerability testing, and to promptly remediate deficiencies. Our cybersecurity program is aligned with industry standards and best practices, such as the National Institute of Standards and Technology ("NIST") Cybersecurity Framework and Cybersecurity and Infrastructure Security Agency ("CISA") best practices.
We are adopting various tools and methodologies to manage cybersecurity risk that will be tested on a regular cadence. We are also in the process of monitoring and evaluating our cybersecurity posture and performance on an ongoing basis through scheduled vulnerability scans, penetration tests and threat intelligence feeds. We may require third-party service providers and consultants with access to personal, confidential or proprietary information to implement and maintain comprehensive cybersecurity practices consistent with applicable legal standards and industry best practices.
There can be no assurance that our cybersecurity risk management program, including our controls, procedures and processes, will be fully complied with or that our program will be fully effective in protecting the confidentiality, integrity and availability of our information systems, product and network. No risks from cybersecurity threats or previous cybersecurity incidents have materially affected, or are reasonably likely to materially affect, our business strategy, financial condition or results of operations. However, there can be no assurance that the controls and procedures in place to monitor and mitigate the risks of cyber threats will be successful or sufficient to avoid material losses or consequences in the future.
The Company is currently in the process of implementing a more formalized cybersecurity program.
Governance
Our cybersecurity risk management and processes are led by our Vice President, Finance and Administration, with support of management, internal personnel and third-party providers. While management is responsible for the day-to-day management of cybersecurity risks, our Board of Directors, through its Audit Committee, has oversight of the Company's processes, policies and procedures for assessing, identifying, and managing material risks from cybersecurity threats including the integration and establishment of cybersecurity processes into the Company's overall risk management system or processes. On a quarterly basis, our VP Finance and Administration, presents necessary updates on our cybersecurity and other information technology risks that may affect us.
ITEM 2. PROPERTIES
On April 24, 2015, we entered into an agreement to lease approximately 17,000 square feet in a property located at 6420 Abrams, St-Laurent, Quebec. The lease has a 10 year and 6-month term which commenced on September 1, 2015 and we have retained two options to extend the lease, with each option being for an additional five years. Under the terms of the lease we are required to pay base rent of approximately CA$128 thousand (approximately $97 thousand) per year. Approximately 9,500 square feet of the new facility is being used to establish manufacturing capabilities for our VersaFilm™ thin film products, approximately 4,000 square feet for our R&D activities, and approximately 3,500 square feet for administration.
On March 6, 2017, we entered into an agreement to lease additional approximately 11,000 square feet in a property located at 6410 Abrams, St-Laurent, Quebec. The lease has an 8 year and 5-month term commencing on October 1, 2017 and we have retained two options to extend the lease, with each option being for an additional five years. Under the terms of the lease we are required to pay base rent of approximately CA$82 thousand (approximately $62 thousand) per year. We use the leased space to manufacture the oral film VersaFilm™.
On August 31, 2021, we entered into an agreement to lease additional approximately 15,000 square feet in a property located at 6400 Abrams, St-Laurent, Quebec. The lease has a 4 year and 6-month term commencing on September 1, 2021 and we have retained two options to extend the lease, with each option being for an additional five years. Under the terms of the lease we are required to pay base rent of approximately CA$152 thousand (approximately $115 thousand) per year. We are currently using the space for warehousing.
ITEM 3. LEGAL PROCEEDINGS
On March 1, 2019, a complaint for patent infringement was filed in United States District Court for the District of Delaware against Chemo Research, S.L., Insud Pharma S.L., IntelGenx Corp., and IntelGenx Technologies Corp. (collectively, the "Defendants") by BioDelivery Sciences International, Inc., and Arius Two, Inc., (collectively, the "Plaintiffs"), asserting that the Defendants infringed upon BioDelivery Sciences International, Inc. Orange Book listed patents for BELBUCA, including United States Patent Nos. 8,147,866 and 9,655,843, both expiring in July of 2027, and United States Patent No. 9,901,539 expiring December of 2032. See BioDelivery Sciences International, Inc. et al v. Chemo Research, S.L. et al, No. 1:19-cv-00444-CFC-CJB (D. Del.). Plaintiffs seek to enjoin Defendants from commercially manufacturing, using, offering for sale, or selling Defendants' generic buprenorphine buccal film within the United States, or importing Defendants' generic buprenorphine buccal film into the United States, until the expiration of U.S. Patent Nos. 8,147,866, 9,655,843, and 9,901,539. Plaintiffs are not seeking damages. Discovery is ongoing. A trial addressing infringement is scheduled to begin on or after April 25, 2022. We believe that we will ultimately be successful in our defense of these matters.
This complaint followed the receipt by BioDelivery Sciences International, Inc. of a notice letter by Chemo Research S.L. on January 31, 2019, stating that it had filed with the FDA an ANDA containing a Paragraph IV Patent Certification, for a generic version of BELBUA Buccal Film in strengths 75 mcg, 150 mcg, 300 mcg, 450 mcg, and 900 mcg. Since the Plaintiffs initiated a patent infringement suit to defend the patents identified in the notice letter within 45 days after receipt, the FDA is prevented from approving the ANDA until the earlier of (i) 30 months or (ii) a decision which determines whether the patents were infringed or invalid.
On March 15, 2019, Plaintiffs filed their same complaint for patent infringement in the United States District Court for the District of New Jersey. See BioDelivery Sciences International, Inc. et al v. Chemo Research, S.L. et al, No. 2:19-cv-08660-KM-MAH (D.N.J.). Plaintiffs voluntarily dismissed their New Jersey case on April 25, 2019.
On September 12, 2022, BioDelivery Sciences International, Inc., and Arius Two, Inc., (collectively, the "Plaintiffs) filed a second complaint for patent infringement against Chemo Research, S.L., Insud Pharma S.L., IntelGenx Corp., and IntelGenx Technologies Corp. and Xiromed, LLC (collectively, the "Defendants") alleging infringement of the same patents based on Defendants' generic buprenorphine buccal film, 600 mcg and 750 mcg doses. See BioDelivery Sciences International, Inc. et al v. Chemo Research, S.L. et al, No. 1:22-cv-01196-CFC (D. Del.). Plaintiffs seek to enjoin Defendants from commercially manufacturing, using, offering for sale, or selling Defendants' generic buprenorphine buccal film within the United States, or importing Defendants' generic buprenorphine buccal film into the United States, until the expiration of U.S. Patent Nos. 8,147,866, 9,655,843, and 9,901,539. Plaintiffs are not seeking damages. Currently, there is no trial date set in for both cases (BioDelivery Sciences International, Inc. et al v. Chemo Research, S.L. et al, No. 1:22-cv-01196-CFC (D. Del.) and BioDelivery Sciences International, Inc. et al v. Chemo Research, S.L. et al, No. 1:19-cv-00444-CFC-CJB (D. Del.) )
On December 8, 2021 we initiated an arbitration proceeding against Tilray related to an alleged breach of the parties' 2018 license, development and supply agreement, as amended (the "Agreement"), with Tilray for the co-development and commercialization of cannabis-infused VersaFilm® products.
The action follows a press release issued by Tilray announcing its launch of medical cannabis oral strips in THC and CBD-rich varieties based on a competitive oral thin film technology to IntelGenx's VersaFilm® platform. We believe this represents a material breach of the Agreement. The arbitration is ongoing.
On November 6, 2023 we announced that it and Tilray Brands Inc. ("Tilray") have entered into a further amendment (the "Second Amendment") to their November 2018 license, development and supply agreement for the co-development and commercialization of cannabinoid-infused VersaFilm® products, settling IntelGenx's arbitration claim against Tilray. Pursuant to the Second Amendment, IntelGenx has received an initial PO from Tilray for three SKUs (CBD20, THC10, THC10:CBD 10), with each SKU totalling 130,000 filmstrips. The Second Amendment also allows for IntelGenx's co-development and commercialization of CBD (pursuant to a previous amendment), THC, and combination THC:CBD products with additional partners. The Second Agreement removes any royalties paid to or from Tilray.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our Common Stock has been quoted on OTC Markets under the symbol "IGXT" since January 2007. Beginning in June 2012, our Common Stock was quoted on the OTCQX and, since April 2020, has been quoted on the OTCQB. Our Common Stock was also listed on the TSX-V from May 2008 until our graduation to the TSX in October 2021 where our Stock is now trading under the under the symbol "IGX".
On March 21, 2024, there were approximately 49 holders of record of our Common Stock, one of which was Cede & Co., a nominee for Depository Trust Company, and one of which was The Canadian Depository for Securities Limited ("CDS"). All of our Common Stock held by brokerage firms, banks and other financial institutions in the United States and Canada as nominees for beneficial owners are considered to be held of record by Cede & Co. in respect of brokerage firms, banks and other financial institutions in the United States, and by CDS in respect of brokerage firms, banks and other financial institutions located in Canada. Cede & Co. and CDS are each considered to be one shareholder of record.
Dividend Policy
We have never declared or paid any cash dividends on our Common Stock. We currently intend to retain any earnings to support operations and to finance the growth and development of our business. Therefore, we do not expect to pay cash dividends in the foreseeable future. Any future determination relating to our dividend policy will be made at the discretion of our Board and will depend on a number of factors, including future earnings, capital requirements, financial conditions and future prospect and other factors that the Board may deem relevant.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
During the fourth quarter of 2023, there were no purchases or repurchases of our equity securities by us or any affiliated purchasers.
Unregistered Sales of Equity Securities and Use of Proceeds
During fiscal year ended 2023, we did not sell equity securities without registration under the Securities Act, except as disclosed on a Current Report on Form 8-K.
Equity Compensation Plan Information
| | Number of Securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a)
| Weighted-average
exercise price of
outstanding options,
warrants and rights(3)
(b) | Number of securities remaining
available for future issuance
under equity compensation plans
(excluding securities reflected in
column (a))
(c) |
| Equity Compensation Plans Approved by Security Holders | 10,264,294(1)(2) | $0.29 | 7,897,816(4) |
| Equity Compensation Plans Not Approved by Security Holders | 0 | - | 0 |
| Total | 10,264,294 | $0.29 | 7,897,816 |
Footnotes:
(1) Includes shares of our Common Stock issuable pursuant to options granted under the 2006, 2016 and 2022 versions of the Stock Option Plans and RSUs awarded under our PRSU Plan.
(2) At the 2022 Annual Meeting of Shareholders, shareholders approved the 2022 Amended and Restated Stock Option Plan, which was adopted by the Board on March 21, 2022.
(3) The weighted average exercise price excludes RSUs, which have no exercise price.
(4) Represents the maximum number of shares of our Common Stock available for grants under the 2022 Amended and Restated Stock Option Plan and the 2018 PRSU Plan as of December 31, 2023.
2022 Amended and Restated Stock Option Plan
The 2016 Stock Option Plan was adopted by the Board in order to make the terms of the Company's then existing 2006 Stock Option Plan more consistent with the requirements of the TSX Venture Exchange and to remove certain provisions which would have enabled the Company to grant incentive stock options in compliance with Section 422 of the Internal Revenue Code. A total of 6,361,525 shares of Common Stock were reserved for issuance under this plan, which includes stock options granted under the previous 2006 Stock Option Plan. In August 2018, the Board approved the amendment of the 2016 Stock Option Plan to increase the total number of shares of Common Stock reserved under the plan to 9,347,747 and in July 2020, the number of shares reserved was further increased to 11,025,965. On March 21, 2022, the Board adopted further amendments to the 2016 Stock Option Plan, which were approved by shareholders at the 2022 Annual Meeting of Shareholders. The number of shares reserved was further increased to 15,465,129.
Employees, directors and eligible consultants of the Company and its affiliates are eligible to participate (the "Eligible Participants" and, following the grant of an option, the "Participants") in the SOP. The Board or one or more committees authorized by the Board are responsible for administering the SOP. As of March 20, 2024, approximately 50 employees, 7 directors, and 2 consultants qualify as Eligible Participants, for a total of 59 Eligible Participants. The SOP permits the granting of options to purchase shares of Common Stock ("Options") to Eligible Participants. There are currently 11,197,948 Options outstanding under the SOP, which represents, as of the date hereof, approximately 6.41% of the issued and outstanding shares of Common Stock of the Company. The number of shares reserved for issuance under the SOP was 15,465,129 (representing approximately 8.85% of the issued and outstanding shares of Common Stock as of the date hereof), of which 2,597,710 remain available for grant (representing approximately 1.49 % of the issued and outstanding shares of Common Stock as of the date hereof).
Under the SOP, the aggregate number of shares of Common Stock that can be issued cannot exceed 10% of the Company's issued and outstanding shares (on a non-diluted basis) from time to time. The number of shares of Common Stock that are subject to Options outstanding at any time must not exceed the number of shares that then remain available for issuance under the SOP. The maximum number of shares of Common Stock issuable to insiders, at any time, and the maximum number of shares of Common Stock issued to insiders, within any one-year period, under all security-based compensation arrangements of the Company, cannot exceed 10% of the issued and outstanding shares. The SOP does not otherwise provide for a maximum number of shares of Common Stock which may be issued to an individual pursuant to the SOP and any other share compensation arrangement (expressed as a percentage or otherwise).
The exercise price under any Option will be determined by the Board in its sole discretion, except that the exercise price may not be less than 100% of the fair market value of a share of Common Stock on the date the Option was granted. The fair market value of a share of Common Stock as of a particular date will be determined with reference to the closing price of a share of Common Stock on the Toronto Stock Exchange on the last trading day prior to the date of determination. The vesting of Options is determined by the Board and specified in each Option agreement. Unless otherwise provided for in the Option agreement, in the event of a change of control, all outstanding Options will become exercisable in full, subject to such terms and conditions as the Board, in its sole discretion, deems appropriate.
The SOP provides that the expiry date of an Option will be the date determined by the Board upon grant, subject to (i) such term not exceeding 10 years from the grant date, (ii) the provisions relating to early expiry, and (iii) should the expiry date of an Option fall during, or within a blackout period, then the expiry date shall automatically be extended to the tenth business day following the end of the blackout period. An Option will expire before its expiry date (i) if a Participant dies, on the date that is 12 months after the Participant's death, or (ii) if Participant's service terminates, at a date determined by the Board upon grant, provided that such date shall be within one year after the Participant's service terminates. Options are not assignable nor transferable, except in the case of death of the Participant, in which case the Options can be transferred to the Participant's heirs or administrators.
The Board may amend, suspend or terminate the SOP or any Option at any time without the consent of Participants, provided that such amendment shall not adversely alter or impair any Option previously granted except as permitted by the SOP and be in compliance with applicable law and stock exchange rules. The Board is required to obtain shareholder approval for any of the following amendments: (i) reducing the exercise price of an Option held by an insider, (ii) extending the expiry date of any Option held by an insider, except in case of an extension due to a blackout period, (iii) removing or exceeding the insider participation limit, (iv) to the maximum number of Shares issuable from treasury under the SOP, or (v) amending the provisions related to the amendment of the SOP and Options. The Board may, subject to regulatory approval, discontinue the SOP at any time without the consent of Participants provided that such discontinuance shall not materially and adversely affect any Options previously granted to a Participant under the SOP.
The following table presents the burn rate of the SOP for the fiscal years ended December 31, 2023, 2022, 2021:
| | 2023 | 2022 | 2021 |
| Number of Options granted during the year | 6,345,000 | 125,000 | 350,000 |
| Weighted average number of shares | 174,658,096 | 164,746,054 | 137,003,313 |
| Burn rate | 3.6% | 0.76% | 0.25% |
PRSU Plan
The PRSU Plan was approved at the 2018 Annual Meeting of Shareholders. The purpose of the PRSU Plan is to provide the Company with a share-related mechanism to attract, retain and motivate qualified directors, employees and consultants of the Company and its subsidiaries, to reward such directors, employees and consultants for their contributions toward the long-term goals and success of the Company and to enable and encourage such directors, employees and consultants to acquire shares of Common Stock as long-term investments and proprietary interests in the Company.
The PRSU Plan permits the Board to grant RSU awards to employees, consultants or directors of the Company, and its subsidiaries, and Performance Share Unit ("PSU") awards to employees and consultants (but not to directors) of the Company, and its subsidiaries (following the grant of an RSU or PSU award, the "PRSU Participants"). In each case, the award of RSUs or PSUs are subject to restrictions in connection with the termination of employment, engagement or term in office, as further described below. The Board may, in its sole discretion, grant the majority of the awards to insiders of the Company. The number of shares reserved for issuance to any one PRSU Participant shall not, in aggregate, exceed 5% of the total number of issued and outstanding shares of Common Stock. The number of shares of Common Stock issuable, at any time, to PRSU Participants that are insiders, and issued to PRSU Participants that are insiders within any one year period, pursuant to the PRSU Plan, or when combined with all of the Company's other security based share compensation arrangements, shall not, in aggregate, exceed 10% of the total number of issued and outstanding shares of Common Stock (on a non-diluted basis).
The number of awards to be credited to each PRSU Participant's award account shall be computed by dividing the award value (being the percentage of annual base salary or such other amount as may be determined from time to time by the Board as the original value of the award to be paid to a PRSU Participant and specified in the PRSU Participant's award agreement) by the closing price of a share of Common Stock on the Toronto Stock Exchange on the last business day prior to the grant date.
The number of shares of Common Stock reserved for issuance and which will be available for issuance pursuant to the awards granted under the PRSU Plan is equal to 2.5% of the issued and outstanding Common Stock of the Company from time to time. As of December 31st, 2023, there were 503,846 awards outstanding under the PRSU Plan, representing, approximately 0.3% of the issued and outstanding shares of Common Stock of the Company, as of such date. As of December 31st, 2023, 3,862,606 shares of Common Stock remained available for award grants (representing approximately 2.2% of the issued and outstanding shares of Common Stock as of such date).
The following table presents the burn rate of the PRSU Plan for the fiscal years ended December 31, 2023, 2022, 2021:
| 2023 | 2022 | 2021 |
Number of awards granted during the year | 450,000 | NIL | NIL |
Weighted average number of shares | 174,658,096 | 164,746,054 | 137,003,313 |
Burn rate | 0.26% | 0% | 0% |
The Board has the authority to condition the grant of RSUs or PSUs upon the attainment of specified performance goals, or such other factors (which may vary between awards) as the Board determines in its sole discretion. The Board has the authority to determine at the time of grant, in its sole discretion, the duration of the vesting period and other vesting terms applicable to the grant of RSUs or PSUs. In the case of PSUs, such awards may be adjusted in accordance with the applicable PSU award agreement. The term of an award is set out in the PRSU Participant's award agreement. The PRSU Participant's rights to an award may be restricted or limited if their employment or term of office is terminated. Additionally, the Board may terminate the PRSU Plan altogether, without notice or shareholder approval, if no awards remain outstanding.
Subject to the terms of a PRSU Participant's award agreement: where a PRSU Participant's employment or term of office or engagement terminates by reason of such PRSU Participant's resignation, disability or death or by reason of a termination by the Company without cause, any unvested awards held by such PRSU Participant (except, only in the case of termination by reason of death, for a portion of the next instalment of any awards due to vest which shall vest immediately in such case) are immediately forfeited; where a PRSU Participant's employment or term of office or engagement terminates by reason of such PRSU Participant's termination for cause (or breach of fiduciary duties in the case of directors) any and all vested and unvested awards held by such PRSU Participant are immediately forfeited; notwithstanding any of the foregoing, the Board may, in its discretion, at any time prior to or following such events, permit the acceleration of vesting of any or all awards, all in the manner and on the terms as may be authorized by the Board and based on an adjustment factor (set out in the award agreement of PSUs) determined in the discretion of the Committee. The Board has the right to determine that any unvested or unearned awards outstanding immediately prior to the occurrence of a change in control shall become fully vested or earned upon the occurrence of such change in control.
Dividend equivalents in the form of additional RSUs or PSUs will be credited to RSUs and PSUs on each dividend payment date for normal cash dividends paid on Shares. The dividend equivalents are calculated by dividing: (i) the product of the dividend declared and paid per Share and the number of RSUs or PSUs held by the Participant on the record date, by (ii) the Market Price at the close of the first business day following the dividend record date. Dividend equivalents credited to a Participant's account will vest proportionally to the related RSUs or PSUs.
If an award under the PRSU Plan expires during or within ten business days after a trading black-out period imposed by the Company, the award's expiration will be extended to ten business days after the end of the trading black-out period.
Subject to certain limitations, the assignability of the awards to permitted assigns (as such term is defined in National Instrument 45-106) of PRSU Participants is allowed. The ability to transfer awards to permitted assigns is contingent on the shares of Common Stock remaining listed on the Toronto Stock Exchange.
Subject to the rules and policies of any stock exchange on which the shares of Common Stock are listed and applicable law, the Board may, without notice or shareholder approval, at any time or from time to time, amend the PRSU Plan for the purposes of: (i) making any amendments to the general vesting provisions of each award, (ii) making any amendments to the provisions related to the termination of employment or services, (iii) adding covenants of the Company for the protection of Participants, provided that the Board will be of the good faith opinion that such additions will not be prejudicial to the rights or interests of the Participants, (iv) making any amendments not inconsistent with the PRSU Plan as may be necessary or desirable, including amendments due to changes in law, provided that such amendments are not prejudicial to the interests of the Participants, or (v) making any changes or corrections to cure or correct any ambiguity, defect, inconsistency, omission, mistake, or manifest error, provided that such changes or corrections are not prejudicial to the rights and interests of the Participants. Notwithstanding the foregoing, the Board may not, without stock exchange and shareholder approval, amend the PRSU Plan to: (i) increase the number of shares of Common Stock issuable under the PRSU Plan or (ii) increase the number of shares of Common Stock issuable to insiders, except as otherwise provided in the PRSU Plan to permit the Board to make adjustments in the event of transactions affecting the Company or its capital, or (iii) amending the provisions related to the amendment of the PRSU Plan.
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Introduction to Management's Discussion and Analysis
The purpose of this section, Management's Discussion and Analysis of Financial Condition and Results of Operations, is to provide a narrative explanation of the financial statements that enables investors to better understand our business, to enhance our overall financial disclosure, to provide the context within which our financial information may be analyzed, and to provide information about the quality of, and potential variability of, our financial condition, results of operations and cash flows. Unless otherwise indicated, all financial and statistical information included herein relates to our continuing operations. 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 information should be read in conjunction with the accompanying audited Consolidated Financial Statements and Notes thereto.
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 psychedelic market by entering into a strategic partnership agreement with atai Life Sciences. The Company has applied and is operating under a CDMO business model. 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. In order to successfully execute our business strategy, it will be essential to create and maintain a fully compliant manufacturing environment capable of meeting customer expectations regarding cGMP compliance and manufacturing capacity.
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.
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 in order to meet expected production volumes from our commercial partners. The new facility should create a fourfold 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
We 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. We have also identified the Animal Health sector, particularly the companion animal segment, as an area where our proprietary oral film technology can significantly improve the administration of medication to animals.
Development of New Drug Delivery Technologies
The rapidly disintegrating film technology contained in our VersaFilm™, is an example 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.
Corporate
On January 9, 2023, the Company announced that its wholly-owned subsidiary, IntelGenx Corp., received a third term loan in the amount of U.S. $3 million pursuant to its amended and restated secured loan agreement with atai Life Sciences. The obligations under the Third Loan are guaranteed by the Company.
On March 21, 2023, the Company announced the closing of an offering by way of a private placement to certain investors in the United States of convertible notes due March 1, 2027 for aggregate gross proceeds of $763,000. The Notes bear interest at a rate of 10% per annum, payable quarterly, and will be convertible into shares of common stock of the Company beginning six months after their issuance at a price of $0.20 per share. The Company intends to use the proceeds of the Offering to finance the Company's Rizaport and Buprenorphine programs as well as for working capital. In connection with the Offering, the Company paid a cash commission of approximately $53,000 in the aggregate and issued non-transferable agent warrants, entitling the agent to purchase 304,000 shares at a price of $0.20 per share until March 21, 2025.
On April 27, 2023, we announced that we received conditional approval from the Toronto Stock Exchange to extend the expiry date of warrants originally issued to Cantone Research Inc. on August 5, 2021. The 613,000 Broker Warrants are exercisable for shares of common stock of the Company at a price of US$0.40 per Share and are set to expire on August 4, 2023. Effective May 8, 2023, the expiry date of such Broker Warrants was extended by an additional 12 months to August 4, 2024. All other terms of the Broker Warrants, including the exercise price, remain unchanged. The Company and Cantone Research Inc. are dealing at arm's length.
On August 31, 2023 the Company announced the closing of the first tranche of a non-brokered private placement (the "Offering") of units ("Units") from atai Life Sciences AG ("atai") for aggregate gross proceeds of approximately US$3 million, including US$750,000 to be received by the Company pursuant to the Subsequent atai Subscription (as defined below) once the Shareholder Approvals (as defined below) have been obtained.
Pursuant to the Offering, (i) United States subscribers could subscribe for Units (the "US Units") at a price of US$1,000 per US Unit, each US Unit being comprised of a US$1,000 principal amount convertible promissory note (the "US Notes") and 5,405 common stock purchase warrants (the "US Warrants").
The US Notes are convertible into shares of common stock of the Company (the "Shares") at the option of the holder at a price of US$0.185 (the "US Conversion Price") at anytime from the date that is six (6) months following their issuance up to and including August 31, 2026, and bear interest at 12% per annum, payable quarterly, in arrears, with first payment due September 30, 2023 and every 3 months thereafter. The US Warrants entitle the holders thereof to purchase Shares at a price of US$0.26 per Share, for a period of 3 years following their issuance.
atai, a significant shareholder and partner of the Company, subscribed for 2,220 US Units for aggregate gross proceeds to the Company of US$2,220,000 (the "Initial atai Proceeds"). In addition, atai committed to subscribe for an additional 750 US Units for additional aggregate proceeds to the Company of US$750,000 (collectively with the Initial atai Proceeds, the "atai Proceeds") on the same terms (the "Subsequent atai Subscription"), subject to the Company obtaining the Shareholder Approvals (as defined below).
Amendment to the Amended and Restated Loan Agreement
On August 31, 2023, the Company entered into an amending agreement (the "Amending Agreement") in respect of the amended and restated loan agreement dated as of September 14, 2021 (the "Loan Agreement") between the Company, as borrower, and atai, as lender pursuant to which, among other things, the maturity date of the Loan Agreement was extended from January 5, 2024 to January 5, 2025, and the Company granted additional security to atai over any non-licensed intellectual property of the Company (the "Loan Amendment").
On September 30, 2023, the Company and atai also agreed, subject to obtaining TSX and shareholder approvals, to enter into a second amendment to the Loan Agreement (the "Second Amendment") to provide, among other things, for the ability for atai to convert the principal and accrued interest outstanding under the Loan Agreement into Shares at the US Conversion Price (the "Conversion Feature"). Assuming the Second Amendment is entered into between the Company and atai prior to the Shareholder Approvals being obtained (as defined below), the Second Amendment will include the same "blocker" provisions as those included in the Notes and the Warrants (see below "Shareholder Approvals").
Call Option
On September 30, 2023, the Company and atai agreed, subject to obtaining TSX approval and the Shareholder Approvals (as defined below), to enter into an amendment (the "Subscription Agreement Amendment") to the subscription agreement entered into by and between the Company and atai in connection with the Offering to provide atai with the right (the "Call Option") to purchase up to an additional 7,401 US Units (the "Call Option Units") at any time prior to August 31, 2026. The Call Option Units, to the extent atai exercises the Call Option in whole or in part, will be issued on the same terms as the US Units, including with respect to the US Conversion Price, maturity date, interest rate and the number of warrants issued in connection therewith. The Subscription Agreement Amendment provides that the issuance of any Call Option Units will result in a corresponding reduction in atai's remaining purchase right pursuant to the amended and restated securities purchase agreement dated May 14, 2021, which such right to be reduced by the number of Shares issuable upon the conversion of the principal amount outstanding under such issued Call Option Units.
Shareholder Approvals
The Notes and the Warrants include "blocker" provisions to ensure that, unless securityholder approval is obtained in accordance with the rules of the TSX, (i) the aggregate number of Shares issuable in connection with the Offering (upon conversion of the Notes, exercise of the Warrants and/or the payment of interest on the Notes in Shares, as the case may be) is limited to 43,664,524 Shares, which equals 24.99% of the issued and outstanding Shares (on a non-diluted basis) as of the date hereof (the "General Cap"), and (ii) the aggregate number of Shares that may be issued to "insiders" of the Company (as such term is defined in the policies of the TSX) pursuant to the Offering (upon conversion of the Notes, exercise of the Warrants and/or the payment of interest on the Notes in Shares, as the case may be), is limited to 17,465,809 Shares, which equals 9.99% of the issued and outstanding Shares as of the date hereof (the "Insider Cap").
The Company obtained the Shareholder Approvals at the special meeting of Shareholders held on November 28, 2023. The shareholders voted to approve all proposals related to financing transactions involving atai previously disclosed by the Company on August 31, 2023.
On December 5, 2023, the Company announced the closing of the previously announced subsequent non-brokered private placement (the "Subsequent atai Subscription") of 750 units ("US Units") with atai Life Sciences AG ("atai") for aggregate gross proceeds of US$750,000, on the same terms as the August 31, 2023, offering of units (the "Initial Offering" and together with the Subsequent atai Subscription, the "Offering"), following the Shareholder Approvals (as defined below) obtained at the special meeting held on November 28, 2023 (the "Special Meeting").
atai, a significant shareholder and partner of the Company, subscribed, on the date hereof, for 750 US Units at a price of US$1,000 per US Unit, each US Unit being comprised of a US$1,000 principal amount convertible promissory note (the "US Notes") and 5,405 common stock purchase warrants (the "US Warrants"). The US Notes are convertible into shares of common stock of the Company (the "Shares") at the option of atai at a price of US$0.185 (the "US Conversion Price") at anytime following their issuance up to and including August 31, 2026, and bear interest at 12% per annum, payable quarterly, in arrears. The US Warrants entitle atai to purchase Shares at a price of US$0.26 per Share until December 4, 2026.
On March 11, 2024, the Company announced that it entered into a third amended and restated loan agreement dated as of March 8, 2024 (amending the second amended and restated loan agreement dated as of September 30, 2023) (the "Loan Agreement") with atai, pursuant to which, among other things, atai has agreed to make (i) one (1) additional term loan in the amount of US$1,000,000, which loan is to be disbursed within three (3) business days of the execution of the Loan Agreement (the "First Tranche Loan"), and (ii) one (1) additional term loan in the amount of US$1,000,000, which loan is to be disbursed upon the achievement of a pre-defined milestone (the "Second Tranche Loan" and collectively with the Second Tranche Loan, the "Additional Term Loans"). The Additional Term Loans will mature on February 1, 2026.
Subject to obtaining approval from the Toronto Stock Exchange (the "TSX"), the Loan Agreement provides for the ability for atai to convert (the "Conversion Feature"), from time to time, (i) the principal outstanding under the First Tranche Loan into shares of common stock of the Company (the "Shares") at a conversion price of US$0.185 per Share (the "Conversion Price"), and (ii) the principal outstanding under the Second Tranche Loan into Shares at a conversion price equal to the greater of (a) the Conversion Price and (b) the 5-day volume-weighted average price (the "5-day VWAP") of the Shares on the TSX ending on the day preceding the disbursement by atai of the Second Tranche Loan to the Company or IntelGenx, less the maximum permissible discount under the applicable TSX rules.
Additionally, and subject to approval of the TSX, the Company may elect, with the consent of atai, to pay any accrued but unpaid interest on the Additional Term Loans in Shares at a price per Share equal to the 5-day VWAP of the Shares ending on the day that is the second business day before the day the interest becomes due and payable, less the maximum permissible discount under the applicable TSX rules.
Concurrently to entering into the Loan Agreement, the Company has issued 4,000,000 warrants (the "Warrants") to atai. The Warrants entitle atai to purchase Shares at a price of US$0.17 per Share, for a period of 36 months following their issuance.
Liquidity Risk
Liquidity risk is the risk that we will not be able to meet our financial obligations as they fall due. We require continued access to capital markets to support our operations, as well as to achieve our strategic plans. Any impediments to our ability to access capital markets, including the lack of financing capability or an adverse perception in capital markets of our financial condition or prospects, could have a materially adverse effect on us. In addition, our access to financing is influenced by the economic and credit market environment. We manage liquidity risk through the management of our capital structure.
Our objective in managing capital is to ensure a sufficient liquidity position to finance our R&D activities, scale up activities, regulatory activities, including product pipeline development general and administrative expenses, working capital and overall capital expenditures. Since inception, we financed our liquidity needs primarily through public offerings of our Common Stock, convertible debentures, convertible notes, bank loans, royalty, up-front and milestone payments, license fees, proceeds from exercise of warrants and options, R&D revenues and the sale of U.S. royalty on future sales of Forfivo XL®. When possible, we try to optimize our liquidity needs by non-dilutive sources, including research tax credits, grants, interest income, as well as with proceeds from collaboration and research agreements or product licensing agreements.
In addition, we manage liquidity risk by continuously monitoring actual and projected cash flows. The Board reviews, approves and monitors our annual operating and capital budgets, as well as any material transactions.
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 fiscal year ended December 31, 2023 report an accumulated other comprehensive loss due to foreign currency translation adjustments of $2,453 primarily due to the fluctuation in the rates used to prepare our financial statements, $219 of which negatively impacted our comprehensive loss for the fiscal year ended December 31, 2023. 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. We use adjusted financial measures to assess our 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. We use Adjusted EBITDA to measure our 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 we believe it provides meaningful information on our 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. We believe 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 our 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 our core operating performance may vary significantly from one period to another. As such, Adjusted EBITDA provides improved continuity with respect to the comparison of our operating results over a period of time. Our method for calculating Adjusted EBITDA may differ from that used by other corporations.
Reconciliation of Non-U.S.-GAAP Financial Information
| | | Three-month period | | | Twelve-month period | |
| | | ended December 31, | | | ended December 31, | |
| | | | | | | | | | | | | |
| In U.S.$ thousands | | 2023 | | | 2022 | | | 2023 | | | 2022 | |
| | | $ | | | $ | | | $ | | | $ | |
| Comprehensive loss | | (1,666 | ) | | (2,314 | ) | | (10,146 | ) | | (11,553 | ) |
| Add (deduct): | | | | | | | | | | | | |
| Depreciation | | 179 | | | 190 | | | 766 | | | 777 | |
| Finance costs | | 570 | | | 218 | | | 1,625 | | | 1,281 | |
| Gain on debt extinguishment | | (1,148 | ) | | - | | | (1,148 | ) | | - | |
| Finance income | | (13 | ) | | (2 | ) | | (41 | ) | | (4 | ) |
| Share-based compensation | | 106 | | | 19 | | | 389 | | | 113 | |
| Other comprehensive loss (income) | | 286 | | | (430 | ) | | 219 | | | 863 | |
| | | | | | | | | | | | | |
| Adjusted EBITDA Loss | | (1,686 | ) | | (2,319 | ) | | (8,336 | ) | | (8,523 | ) |
Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA (Loss))
Adjusted EBITDA Loss improved by $633 for the three-month period ended December 31, 2023 to ($1,686) compared to ($2,319) for the three-month period ended December 31, 2022. Adjusted EBITDA Loss improved by $187 for the twelve-month period ended December 31, 2023 to ($8,336) compared to ($8,523) for the twelve-month period ended December 31, 2022. The improvement in Adjusted EBITDA Loss of $633 for the three‐month period ended December 31, 2023 is mainly attributable to an increase in revenues of $253 and a decrease in SG&A expenses of $472 before consideration of stock-based compensation, offset by increases in Manufacturing expenses of $61 before consideration of stock-based compensation, and R&D expenses of $31 before consideration of stock-based compensation. The improvement of Adjusted EBITDA Loss of $187 for the twelve-month period ended December 31, 2023 is mainly attributable to an increase in revenues of $89, and decreases in SG&A expenses of $238 before consideration of stock-based compensation, and Manufacturing expenses of $112 before consideration of stock-based compensation, offset by an increase in R&D expenses of $252 before consideration of stock-based compensation.
Results of operations for the three-month and twelve-month periods ended December 31, 2023 compared with the three-month and twelve-month periods ended December 31, 2022.
| | | Three-month period | | | Three-month period | |
| | | ended December 31, | | | ended December 31, | |
| | | | | | | | | | | | | |
| In U.S.$ thousands | | 2023 | | | 2022 | | | 2023 | | | 2022 | |
| | | | | | | | | | | | | |
| Revenue | $ | 426 | | $ | 173 | | $ | 1,039 | | $ | 950 | |
| | | | | | | | | | | | | |
| Research and Development Expenses | | 771 | | | 742 | | | 3,274 | | | 3,031 | |
| | | | | | | | | | | | | |
| Manufacturing Expenses | | 541 | | | 477 | | | 1,733 | | | 1,858 | |
| | | | | | | | | | | | | |
| Selling, General and Administrative Expenses | | 906 | | | 1,292 | | | 4,757 | | | 4,697 | |
| | | | | | | | | | | | | |
| Depreciation of tangible assets | | 179 | | | 190 | | | 766 | | | 777 | |
| | | | | | | | | | | | | |
| Operating Loss | | (1,971 | ) | | (2,528 | ) | | (9,491 | ) | | (9,413 | ) |
| | | | | | | | | | | | | |
| Net Loss | | (1,380 | ) | | (2,744 | ) | | (9,927 | ) | | (10,690 | ) |
| | | | | | | | | | | | | |
| Comprehensive Loss | | (1,666 | ) | | (2,314 | ) | | (10,146 | ) | | (11,553 | ) |
Revenue
Total revenues for the three-month period ended December 31, 2023 amounted to $426, representing an increase of $253 or 146% compared to $173 for the three-month period ended December 31, 2022. Total revenues for the twelve-month period ended December 31, 2023 amounted to $1,039 representing an increase of $89 or 9% compared to $950 for the twelve-month period ended December 31, 2022. The increase for the three-month period ended December 31, 2023 compared to the last year's corresponding period is mainly attributable to an increase in R&D Revenues of $255. The increase for the twelve-month period ended December 31, 2023 compared to the last year's corresponding period is attributable to increases in R&D Milestone Revenue of $125 and R&D Revenues of $60, offset by decreases in Product Revenues of $78 and Royalties on Product Sales of $18.
Research and development expenses
R&D expenses for the three-month period ended December 31, 2023 amounted to $771, representing an increase of $29 or 4%, compared to $742 for the three-month period ended December 31, 2022. R&D expenses for the twelve-month period ended December 31, 2023 amounted to $3,274, representing an increase of $243 or 8%, compared to $3,031 recorded in the same period of 2022.
The increase in R&D expenses for the three-month period ended December 31, 2023 is mainly attributable to increases in the allocation of the 20% credit of $116 as per the strategic development agreement with atai, lab supplies of $24, patent expenses of $20 and salary expenses of $5, offset by decreases in study costs of $117 and consulting fees of $23.
The increase in R&D expenses for the twelve-month period ended December 31, 2023 is mainly attributable to increases in the allocation of the 20% credit of $250 as per the strategic development agreement with atai, salary expenses of $92 due to hiring, study costs of $39, and patent expenses of $32, offset by decreases in analytical costs of $77, consulting fees of $54, and an increase in R&D estimated tax credits of $36.
In the twelve-month period ended December 31, 2023 we recorded estimated Research and Development Tax Credits of $154, compared with $118 that was recorded in the same period of the previous year.
Manufacturing expenses
Manufacturing expenses for the three-month period ended December 31, 2023 amounted to $541, representing an increase of $64 or 13%, compared to $477 for the three-month period ended December 31, 2022. Manufacturing expenses for the twelve-month period ended December 31, 2023 amounted to $1,733 representing a decrease of $125 or 7%, compared to $1,858 for the twelve-month period ended December 31, 2022.
The increase in Manufacturing expenses for the three-month period ended December 31, 2023 is mainly attributable to increases in salary expenses of $51 due to hiring, repairs and maintenance of $24, and supplies and consumables of $18, offset by decreases in quality expenses of $21 and consulting fees of $17.
The decrease in Manufacturing expenses for the twelve-month period ended December 31, 2023 is mainly attributable to decreases in salary expenses of $90 due to employee departures and allocation to R&D expenses, quality expenses of $38, repairs and maintenance of $16 and consulting fees of $11, offset by an increase in storage costs of $32.
Selling, general and administrative ("SG&A") expenses
SG&A expenses for the three-month period ended December 31, 2023 amounted to $906, representing a decrease of $386 or 30%, compared to $1,292 for the three-month period ended December 31, 2022. SG&A expenses for the twelve-month period ended December 31, 2023 amounted to $4,757, representing an increase of $60 or 1%, compared to $4,697 recorded in the same period of 2022.
The decreases in SG&A expenses for the three-month period ended December 31, 2023 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 $357 and professional fees of $135, offset by increases in business development expenses of $39, investor relations expenses of $39, rent expense of $12, and travel expenses of $12.
The increase in SG&A expenses for the twelve-month period ended December 31, 2023 is attributable to increases in salary and compensation expenses of $790 (mainly attributable to stock-based compensation expense of $368, and hiring of new officers), investor relations expenses of $131, insurance expense of $73, business development expenses of $23, and rent expense of $15, offset by the variation of the foreign exchange due to the depreciation of the CA dollar vs US currency in the amount of $634 and a decrease in professional fees of $338.
Depreciation of tangible assets
In the three-month period ended December 31, 2023 we recorded an expense of $179 for the depreciation of tangible assets, compared with an expense of $190 thousand for the same period of the previous year. In the twelve-month period ended December 31, 2023 we recorded an expense of $766 for the depreciation of tangible assets, compared with an expense of $777 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 December 31, 2023 amounted to $106 compared to $19 for the three-month period ended December 31, 2022. Share-based compensation warrants and share-based payments expense for the twelve-month period ended December 31, 2023 amounted to $389 compared to $113 for the twelve-month period ended December 31, 2022.
We expensed approximately $377 in the twelve-month period ended December 31, 2023 for options granted to our employees in 2022 and 2023 under the 2016 Stock Option Plans and $12 for options granted to consultants, compared with $101 and $12, respectively that was expensed in the same period of the previous year.
There remains approximately $472 in stock-based compensation to be expensed in fiscal 2024 through 2027, of which $Nil relates to the issuance of options to a consultant. 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
| | | December
31, 2023 | | | December
31, 2022 | | | Increase/
(Decrease) | | | Percentage
Increase/
(Decrease) | |
| | | | | | | | | | | | | |
| Current Assets | $ | 3,441 | | $ | 3,788 | | $ | (347 | ) | | (9%) | |
| | | | | | | | | | | | | |
| Leasehold improvements and Equipment, net | | 3,958 | | | 4,425 | | | (467 | ) | | (11%) | |
| | | | | | | | | | | | | |
| Security Deposits | | 250 | | | 245 | | | 5 | | | 2% | |
| | | | | | | | | | | | | |
| Operating lease right-of-use asset | | 633 | | | 732 | | | (99 | ) | | (14%) | |
| | | | | | | | | | | | | |
| Current Liabilities (excluding convertible notes) | | 5,866 | | | 2,374 | | | 3,492 | | | 147% | |
| | | | | | | | | | | | | |
| Long-term debt | | 7,401 | | | 5,500 | | | 1,901 | | | 35% | |
| | | | | | | | | | | | | |
| Convertible notes | | 6,995 | | | 4,272 | | | 2,723 | | | 64% | |
| | | | | | | | | | | | | |
| Operating lease liability | | 230 | | | 425 | | | (195 | ) | | (46%) | |
| | | | | | | | | | | | | |
| Finance lease liability | | 37 | | | 42 | | | (5 | ) | | (12%) | |
| | | | | | | | | | | | | |
| Capital Stock | | 1 | | | 1 | | | 0 | | | 0% | |
| | | | | | | | | | | | | |
| Additional Paid-in Capital | | 68,662 | | | 67,340 | | | 1,322 | | | 2% | |
Going concern
The Company has financed its operations to date primarily through public offerings of its common stock, proceeds from issuance of convertible notes and debentures, bank loans, royalty, up-front and milestone payments, license fees, proceeds from exercise of warrants and options, and research and development revenues. The Company has devoted substantially all of its resources to its drug development efforts, conducting clinical trials to further advance the product pipeline, the expansion of its facilities, protecting its intellectual property and general and administrative functions relating to these operations. The future success of the Company is dependent on its ability to develop its product pipeline and ultimately upon its ability to attain profitable operations. As of December 31, 2023, the Company had cash totaling approximately $2,282. The Company does not have sufficient existing cash to support operations for the next year following the issuance of these financial statements. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans to alleviate these conditions include pursuing one or more of the following steps to raise additional funding, none of which can be guaranteed or are entirely within the Company's control:
Raise funding through the possible sale of the Company's common stock, including public or private equity financings.
Raise funding through the Regulation A offering.
Raise funding through debt financing.
Continue to seek partners to advance product pipeline.
Expand oral film manufacturing activities.
Continue to contract oral film manufacturing activities.
If the Company is unable to raise further capital when needed or on attractive terms, or if it is unable to procure partnership arrangements to advance its programs, the Company would be forced to potentially delay, reduce or eliminate some of its research and development programs and commercial activities.
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The accompanying consolidated financial statements do not include any adjustments or classifications that may result from the possible inability of the Company to continue as a going concern. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due.
Current assets
Current assets totaled $3,441 at December 31, 2023 compared with $3,788 at December 31, 2022. The decrease of $347 is attributable to decreases in short-term investments of $1,317, security deposits of $119, and accounts receivable of $87, offset by increases in cash of $1,072, prepaid expenses of $86, investment tax credits receivable of $9, and inventory of $9.
Cash
Cash totaled $2,282 as at December 31, 2023 representing an increase of $1,072 compared with the balance of $1,210 as at December 31, 2022. The increase in cash on hand relates to net cash provided by financing activities of $6,776, and net cash provided by investing activities of $1,059, offset by net cash used in operating activities of $6,410 and a negative effect of foreign exchange of $353.
Short term investments
Short term investments totaled $Nil as at December 31, 2023, representing a decrease of $1,317 compared with the balance of $1,317 as at December 31, 2022. The decrease in short term investments is attributable to the redemption of investments to fund operations.
Accounts receivable
Accounts receivable totaled $622 as at December 31, 2023 representing a decrease of $87 compared with the balance of $709 as at December 31, 2022. The decrease is related to the collection of receivables offset by the invoicing of revenues incurred in the three-month period ended December 31, 2023.
Prepaid expenses
As at December 31, 2023, prepaid expenses totaled $223 compared with $137 as of December 31, 2022. The increase may be explained by advance payments made in December 2023.
Investment tax credits receivable
R&D investment tax credits receivable totaled approximately $168 as at December 31, 2023 compared with $159 as at December 31, 2022. The increase is attributable to the accrual estimated and recorded for the year ended December 31, 2023, offset by the collection of the 2022 amount.
Leasehold improvements and equipment
As at December 31, 2023, the net book value of leasehold improvements and equipment amounted to $3,958, compared to $4,425 as at December 31, 2022. In the year ended December 31, 2023, additions to assets totaled $180 and mainly comprised of $89 for manufacturing equipment, $66 for laboratory and office equipment, $20 for leasehold improvements, and variation of foreign exchange fluctuation, offset by depreciation expense of $766.
Security deposit
A security deposit in the amount of CA$300 ($226) 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 December 31, 2023. Security deposits in the amount of CA$26 ($20) for utilities and CA$5 ($4) for Cannabis license were also recorded as at December 31, 2023. Security deposit in the amount of CA$75 ($100) for Company credit cards was also recorded as at December 31, 2023 but classified as short-term.
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities totaled $2,661 as at December 31, 2023 (December 31, 2022 - $1,523). The increase is mainly attributable to increases in trade payables and payroll related accruals as at December 31, 2023.
Accrued interest expense
Accrued interest expense totaled $1,249 as at December 31, 2023 (December 31, 200 - $579). The increase is attributable to the fact that the interest expense has not been paid.
Term loan
Term loan totaled $500 as at December 31, 2023 compared with $Nil as at December 31, 2022. Atai has granted to the Company a secured term loan for $500, bearing interest at 14%. Principal of and interest on this Term Loan from time to time outstanding shall be due and payable from thirty five percent (35%) of the proceeds of each closing of equity financing until the principal balance and any outstanding balance is paid in full. Regardless of whether any closing of equity financing occurs, the outstanding and remaining principal balance and interest on this term loan shall be due and payable by December 31, 2024. The interest for the year ended December 31, 2023 amounts to $5 and is recorded in financing and interest expense (2022 - $Nil).
Loan payable
Loan payable totaled $7,401 as at December 31, 2023 compared with $5,500 as at December 31, 2022. atai has granted to the Company a secured loan in the amount of $8,500, bearing interest at 8%. 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.
On August 31, 2023, the Company entered into an amending agreement (the "Amending Agreement") in respect of the amended and restated loan agreement dated as of September 14, 2021 (the "Loan Agreement") between the Company, as borrower, and atai, as lender pursuant to which, among other things, the maturity date of the Loan Agreement was extended from January 5, 2024 to January 5, 2025, and the Company granted additional security to atai over any non-licensed intellectual property of the Company (the "Loan Amendment").
On September 30, 2023, the Company and atai also agreed, subject to obtaining TSX and Shareholders approval, to enter into a second amendment to the Loan Agreement (the "Second Amendment") to provide, among other things, for the ability for atai to convert the principal and accrued interest outstanding under the Loan Agreement into Shares. On November 28, 2023, the Company announced shareholder approvals of the financing transactions. As a result, atai has the ability to convert the principal and accrued interest under the Loan Agreement into shares of common stock of the Company (the "Shares") at a price of US$0.185 (the "US Conversion Price"). This transaction is accounted for as an extinguishment and the debt was re-measured at fair value on November 28, 2023. This re-measurement resulted in a gain on extinguishment in the amount of $1,148 recognized in finance and interest income.
The loan bears interest at 8% and is convertible into shares of common stock of the Company. The interest for the year ended December 31, 2023 amounts to $671 and is recorded in financing and interest expense (2022 - $423). The accretion expense for the year ended December 31, 2023 amounts to $86 (2022: $Nil). Atai is an insider of the Company as a result of its beneficial ownership of, or control or discretion over, directly or indirectly, greater than 10% of the outstanding Shares.
Convertible notes
Convertible notes totaled $6,995 as at December 31, 2023 as compared to $4,272 as at December 31, 2022. The convertible notes have been recorded as a liability. As at December 31, 2023, convertible notes in the amount of $2,557 (2022 - $Nil) were classified as short-term. The accretion expense for the year ended December 31, 2023 amounts to $287 compared to $175 for the comparative period in 2022. The interest on the convertible notes for the year ended December 31, 2023 amounts to $535 ($380 in 2022) and is recorded in Financing and interest expense.
Shareholders' deficit
As at December 31, 2023, we had accumulated a deficit of $78,457 compared with an accumulated deficit of $68,530 as at December 31, 2022. Total assets amounted to $8,282 and shareholders' deficit totaled $12,247 as at December 31, 2023, compared with total assets and shareholders' deficit of $9,190 and $3,423 respectively, as at December 31, 2022.
Capital stock
As at December 31, 2023 capital stock amounted to $1.746 (December 31, 2022: $1.746). 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 $68,662 as at December 31, 2023, as compared to $67,340 at December 31, 2022. Additional paid in capital increased by $1,322. The increase is due to the value of the atai warrants in connection with the private placement of $912, the value of the Agents' warrants in connection with the March 2023 private placement of $19, stock-based compensation attributable to the amortization of stock options of $389, and $2 for stock options exercised.
Taxation
As at December 31, 2023, the date of our latest annual tax return, we had Canadian and provincial net operating losses of approximately $52,703 (December 31, 2022: $45,041) and $63,394 (December 31, 2022: $52,004) 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 2026 and 2043. A portion of the net operating losses may expire before they can be utilized.
As at December 31, 2023, the Company had non-refundable tax credits of $3,391 thousand (2022: $3,004 thousand) of which $8 thousand is expiring in 2026, $10 thousand is expiring in 2027, $170 thousand is expiring in 2028, $149 thousand is expiring in 2029, $127 thousand is expiring in 2030, $136 thousand is expiring in 2031, $170 thousand is expiring in 2032, $113 thousand is expiring in 2033, $86 thousand expiring in 2034, $101 thousand is expiring in 2035, $139 thousand expiring in 2036, $265 thousand is expiring in 2037, $572 thousand expiring in 2038, $346 thousand expiring in 2039, $226 thousand expiring in 2040, $231 thousand expiring in 2041, $270 thousand expiring in 2042, and $272 thousand expiring in 2043, and undeducted research and development expenses of $19,142 thousand (2022: $17,031 thousand) with no expiration date.
The deferred tax benefit of these items was not recognized in the accounts as it has been fully provided for.
Key items from the statement of cash flows
| In U.S.$ thousands | | December 31,
2023 | | | December 31,
2022 | | | Increase/
(Decrease) | | | Percentage
Increase/
(Decrease) | |
| | | | | | | | | | | | | |
| Operating Activities | $ | (6,525 | ) | $ | (9,516 | ) | $ | 2,991 | | | (31%) | |
| Financing Activities | | 6,776 | | | 2,965 | | | 3,811 | | | 129% | |
| Investing Activities | | 1,174 | | | 3,509 | | | (2,335 | ) | | (67%) | |
| Cash - end of period | | 2,282 | | | 1,210 | | | 1,072 | | | 89% | |
Statement of cash flows
Net cash used in operating activities was $6,525 for the year ended December 31, 2023, compared to net cash used by operating activities of $9,516 for the year ended December 31, 2022. For the year ended December 31, 2023, net cash used by operating activities consisted of a net loss of ($9,927) (2022: $10,690) before depreciation, stock-based compensation, accretion expense, DSU expense, interest paid by issuance of Common Stock, gain on debt extinguishment, and lease non-cash expense in the amount of $407 (2022: $1,228) and an increase in non-cash operating elements of working capital of $2,995 compared with a decrease of $54 for the year ended December 31, 2022.
The net cash provided by financing activities was $6,776 for the year ended December 31, 2023, compared to net cash provided by financing activities of $2,965 for the year ended December 31, 2022. For the year ended December 31, 2023, an amount of $3,000 derives from the issuance of a loan, an amount of $500 derives from the issuance of a term loan, an amount of $2,970 derives from the proceeds from atai private placement, an amount of $697 derives from net proceeds from convertible notes, and an amount of $2 derives from proceeds from exercise of stock options, offset by finance lease payments of $58, transaction costs related to atai private placement of $258, transactions costs related to the convertible notes of $40 and the transaction costs related to the debt extinguishment of $37. For the year ended December 31, 2022, an amount of $3,000 derives from the issuance of loan, offset by finance lease payments of $35.
Net cash provided by investing activities amounted to $1,174 for the year ended December 31, 2023 compared to net cash provided by investing activities of $3,509 for the year ended December 31, 2022. The net cash provided by investing activities for the year ended December 31, 2023 relates to the redemption of short-term investments of $1,354 (2022: $9,519), offset by the acquisition of short-term investments of $Nil (2022: $5,739) and the purchase of leasehold improvements and equipment of $180 (2022: $271).
The balance of cash as at December 31, 2023 amounted to $2,282, compared to $1,210 at December 31, 2022.
Commitments
On April 24, 2015, we entered into an agreement to lease approximately 17,000 square feet in a property located at 6420 Abrams, St-Laurent, Québec. The lease has a 10 year and 6-month term commencing September 1, 2015. IntelGenx has retained two options to extend the lease, with each option being for an additional five years. Under the terms of the lease we are required to pay base rent of approximately CA$128 thousand (approximately $97 thousand) per year.
On March 6, 2017, IntelGenx executed an agreement to lease approximately an additional 11,000 square feet in a property located at 6410 Abrams, St-Laurent, Quebec. The Lease has an 8 year and 5-month term commencing on October 1, 2017 and IntelGenx has retained two options to extend the Lease, with each option being for an additional five years. Under the terms of the Lease we will be required to pay base rent of approximately CA$82 thousand (approximately $62 thousand) per year.
On August 31, 2021, we entered into an agreement to lease additional approximately 15,000 square feet in a property located at 6400 Abrams, St-Laurent, Québec. The lease has a 4 year and 6-month term commencing September 1, 2021 and we have retained two options to extend the lease, with each option being for an additional five years. Under the terms of the lease we are required to pay base rent of approximately CA$152 thousand (approximately $115 thousand) per year.
The aggregate minimum rentals, exclusive of other occupancy charges, for property leases expiring in 2026, are approximately $592 thousand, as follows:
Substantially all our finance lease right-of-use assets and finance lease liability represents leases for laboratory equipment to conduct our business.
The aggregate minimum lease payments for laboratory equipment are approximately $130 thousand, as follows:
IT Infrastructure
We have an IT Infrastructure Disaster Recovery Plan in place. In the event of a disaster (cyber attack), a full recovery of our IT system is estimated to be recovered within a week. During the year ended December 31, 2022, the disaster recovery plans were tested. All recovery tests were successful.
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 $322 (including interest and penalties of $35), 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 $287 and net earnings would decrease by $287.
Subsequent events
Subsequent to the end of the year on January 29, 2024, the Company granted 1,354,268 RSUs to certain employees and directors.
On February 20, 2024, the Company announced the launch of a Regulation A offering of up to 2,000,000 shares of Series A Convertible Cumulative Preferred Stock ("Series A Preferred Stock"), par value $0.00001 per share, at an offering price of $10.00 per share (the "Offering"), for a maximum Offering amount of $20,000,000.
Holders of the Series A Preferred Stock will be entitled to receive cumulative dividends in the amount of $0.20 per share each quarter, or 8% per year. Each share of Series A Preferred Stock will be convertible into twenty (20) shares of our common stock ("Common Stock) at the option of the holder, subject to certain conditions in accordance with the requirements of the Toronto Stock Exchange. Commencing on the fifth anniversary of the initial closing of this offering and continuing indefinitely thereafter, the Company shall have a right to call for redemption the outstanding shares of the Series A Preferred Stock at a call price equal to 150% of the original issue price of the Series A Preferred Stock, and correspondingly, each holder of shares of the Series A Preferred Stock shall have a right to sell the shares of Series A Preferred Stock held by such holder back to the Company at a price equal to 150% of the original issue purchase price of such shares. The Series A Preferred Stock being offered will rank, as to dividend rights and rights upon the Company's liquidation, dissolution, or winding up, senior to the Common Stock.
On March 11, 2024, the Company announced that it entered into a third amended and restated loan agreement dated as of March 8, 2024 (amending the second amended and restated loan agreement dated as of September 30, 2023) (the "Loan Agreement") with atai, pursuant to which, among other things, atai has agreed to make (i) one (1) additional term loan in the amount of US$1,000,000, which loan is to be disbursed within three (3) business days of the execution of the Loan Agreement (the "First Tranche Loan"), and (ii) one (1) additional term loan in the amount of US$1,000,000, which loan is to be disbursed upon the achievement of a pre-defined milestone (the "Second Tranche Loan" and collectively with the Second Tranche Loan, the "Additional Term Loans"). The Additional Term Loans will mature on February 1, 2026.
Subject to obtaining approval from the Toronto Stock Exchange (the "TSX"), the Loan Agreement provides for the ability for atai to convert (the "Conversion Feature"), from time to time, (i) the principal outstanding under the First Tranche Loan into shares of common stock of the Company (the "Shares") at a conversion price of US$0.185 per Share (the "Conversion Price"), and (ii) the principal outstanding under the Second Tranche Loan into Shares at a conversion price equal to the greater of (a) the Conversion Price and (b) the 5-day volume-weighted average price (the "5-day VWAP") of the Shares on the TSX ending on the day preceding the disbursement by atai of the Second Tranche Loan to the Company or IntelGenx, less the maximum permissible discount under the applicable TSX rules.
Additionally, and subject to approval of the TSX, the Company may elect, with the consent of atai, to pay any accrued but unpaid interest on the Additional Term Loans in Shares at a price per Share equal to the 5-day VWAP of the Shares ending on the day that is the second business day before the day the interest becomes due and payable, less the maximum permissible discount under the applicable TSX rules.
Concurrently to entering into the Loan Agreement, the Company has issued 4,000,000 warrants (the "Warrants") to atai. The Warrants entitle atai to purchase Shares at a price of US$0.17 per Share, for a period of 36 months following their issuance.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data of the Company required in this item are set forth beginning on page F-1 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
a. Evaluation of Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the participation of our management, our Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were effective as of December 31, 2023 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company's management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
b. Changes in Internal Controls over Financial Reporting
Our Chief Executive Officer and Chief Financial Officer have concluded that there were no changes in the Company's internal controls over financial reporting during the quarter ended December 31, 2023 that have materially affected or are reasonably likely to materially affect the Company's internal controls over financial reporting.
c. Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control system was designed to provide reasonable assurance to our management and the Board regarding the preparation and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Our management, including the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2023. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on our processes and assessment, as described above, management has concluded that, as of December 31, 2023 our internal control over financial reporting was effective.
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the company's registered public accounting firm pursuant to rules of the SEC, as the Company qualifies as a "smaller reporting company".
ITEM 9B. OTHER INFORMATION
Trading Plans
None.
ITEM 9C. DISCLOSURE REGRADING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Certain information required by this Item 10 relating to our directors, executive officers, audit committee and corporate governance is incorporated by reference herein from the 2024 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
Certain information required by this Item 11 relating to remuneration of directors and executive officers and other transactions involving management is incorporated by reference herein from the 2024 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Certain information required by this Item 12 relating to security ownership of certain beneficial owners and management, and the equity compensation plan information, is incorporated by reference herein from the 2024 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Certain information required by this Item 13 relating to certain relationships and related transactions, and director independence is incorporated by reference herein from the 2024 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Certain information required by this Item 14 regarding principal accounting fees and services is set forth under "Audit Fees" in the 2024 Proxy Statement.
PART IV
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements and Schedules
1. Financial Statements
The following financial statements are filed as part of this report under Item 8 of Part II "Financial Statements and Supplementary Data:
A. Report of Independent Registered Public Accounting Firm Richter LLP, PCAOB ID# 989, Montreal, Quebec
B. Consolidated Balance Sheets as of December 31, 2023 and 2022.
C. Consolidated Statements of Shareholders' Equity for the years ended of December 31, 2023 and 2022.
D. Consolidated Statements of Comprehensive Loss for the years ended of December 31, 2023 and 2022.
E. Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022.
F. Notes to Consolidated Financial Statements.
2. Financial Statement Schedules
Financial statement schedules not included herein have been omitted because they are either not required, not applicable, or the information is otherwise included herein.
(b) Exhibits.
EXHIBIT INDEX
Exhibit
No. | Description |
| | |
| 1.1 | Selling Agency Agreement, dated February 14, 2024, between IntelGenx Technologies Corp. and Digital Offering, LLC (incorporated by reference to the Form 8-K filed on February 20, 2024) |
| | |
| 2.1 | Share exchange agreement dated April 10, 2006 (incorporated by reference to the Form 8-K/A filed on May 5, 2006) |
| | |
| 3.1 | Certificate of Incorporation (incorporated by reference to the Form SB-2 (File No. 333-90149) filed on November 16, 1999) |
| | |
| 3.2 | Amendment to the Certificate of Incorporation (incorporated by reference to amendment No. 2 to Form SB-2 (File No. 333-135591) filed on August 28, 2006) |
| | |
| 3.3 | Amendment to the Certificate of Incorporation (incorporated by reference to the Form DEF 14C filed on April 20, 2007) |
| | |
| 3.4 | Amendment to the Certificate of Incorporation (incorporated by reference to the Form S-1/A filed on May 12, 2017) |
| | |
| 3.5 | Third Amended and Restated By-Laws (incorporated by reference to the Form 8-K filed on March 21, 2022) |
| | |
| 3.6 | Amendment to the Certificate of Incorporation (incorporated by reference to the Form 8-K filed on November 28, 2023) |
| | |
| 3.7 | Certificate of Designations of Preferences, Rights and Limitations of Series A Convertible Cumulative Preferred Stock dated February 8, 2024 (incorporated by reference to the Form 8-K filed on February 14, 2024) |
| | |
| 4.1 | Trust Indenture with TSX Trust Company, dated July 12, 2017 (incorporated by reference to the Form 8-K filed on July 12, 2017) |
| | |
| 4.2 | Warrant Indenture dated February 11, 2020 (incorporated by reference to the Form 8-K filed on February 12, 2020) |
| | |
| 4.3 | Description of the Company's Securities Registered Under Section 12 of the Securities Exchange Act of 1934 (incorporated by reference to the Form 10-K filed on March 26, 2020) |
| | |
| 4.4 | Second Supplemental Trust Indenture, June 25, 2020.(incorporated by reference to the Form 8-K on December 23, 2020) |
| | |
| 4.5 | Form of Common Stock Purchase Warrant (incorporated by reference to the Form 8-K filed on August 31, 2023) |
| | |
| 9.1 | Voting Trust agreement (incorporated by reference to the Form 8-K/A filed on May 5, 2006) |
| | |
| 10.1+ | Horst Zerbe employment agreement dated October 1, 2014 (incorporated by reference to the Form 10-Q filed on November 12, 2014) |
| | |
| 10.2 | Registration rights agreement (incorporated by reference to the Form SB-2 (File No. 333-135591) filed on July 3, 2006) |
| | |
| 10.3 | Principal's registration rights agreement (incorporated by reference to the Form SB-2 (File No. 333-135591) filed on July 3, 2006) |
| | |
| 10.4+ | 2006 Stock Option Plan (incorporated by reference to the Form S-8 filed on November 21, 2006) |
| | |
| 10.5+ | Amended and Restated 2006 Stock Option Plan, May 29, 2008 (incorporated by reference to the Form 10-K filed on March 25, 2009) |
| | |
| 10.6+ | Amended and Restated 2006 Stock Option Plan (incorporated by reference to the Form S-8 filed on November 15, 2010) |
| | |
| 10.8 | Second Amended 2016 Stock Option Plan, July 16, 2020 (incorporated by reference to the Form 8-K on July 17, 2020) |
| | |
| 10.9+ | Employment Agreement Andre Godin, July 2015 (incorporated by reference to the Form 8-K filed on July 20, 2015) |
| | |
| 10.10+ | Employment Agreement Nadine Paiement, January 2016 (incorporated by reference to the Form 10-K filed on March 30, 2016) |
| | |
| 10.11+ | 2016 Stock Option Plan May, 11 2016 (incorporated by reference to the Form S-8 Registration Statement filed on August 3, 2016) |
| | |
| 10.12 | Amended Principal's Registration Rights Agreement, November 8, 2016 (incorporated by reference to Form 10-Q filed on November 10, 2016) |
| | |
| 10.13 | Agency Agreement dated June 28, 2017 (incorporated by reference to the Form 8-K filed on July 5, 2017) |
| 10.14+ | Deferred Share Unit Plan for non-employee directors (incorporated by reference to the Form 10-K filed on March 29, 2018) |
| | |
| 10.15 | Placement Agent Agreement dated May 8, 2018 (incorporated by reference to the Form 8-K filed on May 10, 2018) |
| | |
| 10.16 | Form of Warrant dated May 8, 2018 (incorporated by reference to the Form 8-K filed on May 10, 2018) |
| | |
| 10.17 | Form of Securities Purchase Agreement dated May 8, 2018 (incorporated by reference to the Form 8-K filed on May 10, 2018) |
| | |
| 10.18 | Form of Registration Rights Agreement dated May 8, 2018 (incorporated by reference to the Form 8-K filed on May 10, 2018) |
| | |
| 10.19 | Form of Note dated May 8, 2018 (incorporated by reference to the Form 8-K filed on May 10, 2018) |
| | |
| 10.20 | Placement Agent Agreement between the Company and H.C. Wainwright & Co., LLC dated October 18, 2018 (incorporated by reference to the Form 8-K filed on October 22, 2018) |
| | |
| 10.21 | Placement Agent Agreement between the Company and Echelon Wealth Partners Inc. dated October 18, 2018 (incorporated by reference to the Form 8-K filed on October 22, 2018) |
| | |
| 10.22 | Form of Warrant (incorporated by reference to the Form 8-K on October 22, 2018) |
| | |
| 10.23 | Form of Securities Purchase Agreement (incorporated by reference to the Form 8-K filed on October 22, 2018) |
| | |
| 10.24 | Form of Agent Warrant (incorporated by reference to the Form S-1/A on filed on January 30, 2020) |
| | |
| 10.25 | Agency Agreement dated January 27, 2020 (incorporated by reference to the Form 8-K filed on January 29, 2020) |
| | |
| 10.26 | Loan Agreement dated March 9, 2021 (incorporated by reference to the Form 10-K filed on March 25, 2021) |
| | |
| 10.27[#] | Strategic Development Agreement dated March 14, 2021(incorporated by reference to the Form 10-K filed on March 25, 2021) , |
| | |
| 10.28± | Securities Purchase Agreement dated March 14, 2021(incorporated by reference to the Form 10-K filed on March 25, 2021) |
| | |
| 10.29 | Purchaser Rights Agreement dated March 14, 2021(incorporated by reference to the Form 10-K filed on March 25, 2021) |
| | |
| 10.30 | Amended and Restated Securities Purchase Agreement dated May 14, 2021 (incorporated by reference to the Form 8-K filed on May 17, 2021) |
| | |
| 10.31 | First Amendment to Loan Agreement dated May 14, 2021 (incorporated by reference to the Form 8-K filed on May 17, 2021) |
| | |
| 10.32 | Amendment No. 1 to 6% Subordinated Convertible Unsecured Promissory Note dated May 24, 2021 (incorporated by reference to the Form 8-K filed on May 25, 2021) |
| | |
| 10.33 | Form of Initial Warrant dated May 14, 2021 (incorporated by reference to the Form 10-Q filed on August 4, 2021) |
| | |
| 10.34 | Form of Additional Unit Warrant dated May 14, 2021 (incorporated by reference to the Form 10-Q filed on August 4, 2021) |
| | |
| 10.35 | Form of Note (incorporated by reference to the Form 8-K filed on August 11, 2021) |
| | |
| 10.36 | Second Amended and Restated Loan Agreement between IntelGenx Technologies Corp. and ATAI Life Sciences AG, dated September 30, 2023 (incorporated by reference to the Form 8-K filed on October 12, 2023) |
| | |
| 10.37 | Form of Note (incorporated by reference to the Form 8-K filed on March 24, 2023) |
| | |
| 10.38+ | Employment Agreement between IntelGenx Corp. and Dwight Gorham dated April 13, 2023 (incorporated by reference to the Form 8-K filed on April 18, 2023) |
| | |
| 10.39 | Form of 12% Convertible Promissory Note (incorporated by reference to the Form 8-K filed on August 31, 2023) |
| | |
| 10.40 | First Amendment to the Amended and Restated Loan Agreement between IntelGenx Technologies Corp. and ATAI Life Sciences AG dated August 31, 2023 (incorporated by reference to the Form 8-K filed on August 31, 2023) |
| | |
| 10.41 | Second Amended and Restated Loan Agreement between IntelGenx Technologies Corp. and ATAI Life Sciences AG, dated September 30, 2023 (incorporated by reference to the Form 8-K filed on October 12, 2023) |
| | |
| 21.1 | Subsidiaries of the small business issuer (incorporated by reference to the Form SB-2 (File No. 333-135591) filed on July 3, 2006) |
| | |
| 23.1* | Consent of Richter LLP |
* Filed herewith.
+ Indicates management contract or employee compensation plan.
[# Portions of this exhibit have been redacted in compliance with Regulation S-K Item 601(b)(10). The omitted information is not material and would likely cause competitive harm to the Company if publicly disclosed. The Company agrees to furnish an unredacted copy to the SEC upon its request.]
±Certain schedules and exhibits have been omitted in compliance with Regulation S-K Item 601(a)(5). The Company agrees to furnish a copy of any omitted schedule or exhibit to the SEC upon its request.
ITEM 16. FORM 10-K SUMMARY.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned on March 21, 2024, thereunto duly authorized.
| | INTELGENX TECHNOLOGIES CORP. |
| | | |
| | By: | /s/ Dwight Gorham |
| | | Dwight Gorham |
| | | Chief Executive Officer |
| | | (Principal Executive Officer) |
| | | |
| | By: | /s/ Andre Godin |
| | | Andre Godin |
| | | President and Chief Financial Officer |
| | | (Principal Financial and Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.
| Signature | | Position | | Date |
| | | | | |
| By: /s/ Dwight Gorham | | Chief Executive Officer | | March 21, 2024 |
| Dwight Gorham | | | | |
| | | | | |
| By: /s/Andre Godin | | President and Chief Financial Officer | | March 21, 2024 |
| Andre Godin | | | | |
| | | | | |
| By: /s/ Horst G. Zerbe | | Director, Chairman of the Board | | March 21, 2024 |
| Horst G. Zerbe | | | | |
| | | | | |
| By: /s/Bernd Melchers | | Director | | March 21, 2024 |
| Bernd J. Melchers | | | | |
| | | | | |
| By: /s/Clemens Mayr | | Director | | March 21, 2024 |
| Clemens Mayr | | | | |
| | | | | |
| By: /s/Mark Nawacki | | Director | | March 21, 2024 |
| Mark Nawacki | | | | |
| | | | | |
| By: /s/ Monika Trzcinska | | Director | | March 21, 2024 |
| Monika Trzcinsk | | | | |
| | | | | |
| By: /s/ Sahil Kirpekar | | Director | | March 21, 2024 |
| Sahil Kirpekar | | | | |
| | | | | |
| By: /s/Ryan Barrett | | Director | | March 21, 2024 |
| Ryan Barrett | | | | |
