| Significant Accounting Policies | 3. Significant accounting policies
(a) Cash and cash equivalents The
Company considers all highly liquid securities with an original maturity of three months or less to be cash equivalents. Cash equivalent
balances consist of bankers’ acceptances and bank accounts with variable market rates of interest. As at November 30, 2016
and 2015, the Company had no cash equivalents. The
financial risks associated with these instruments are minimal and the Company has not experienced any losses from investments in
these securities. The carrying amount of cash approximates its fair value due to its short-term nature. (b)
Accounts receivable The
Company reviews its sales and accounts receivable aging and determines whether an allowance for doubtful accounts is required.
(c) Financial instruments The
Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify
as embedded derivatives. For derivative financial instruments that are classified as liabilities, the derivative instrument is
initially recorded at its fair value using the appropriate valuation methodology and is then re-valued at each reporting date,
with changes in the fair value reported in the consolidated statements of operations and comprehensive loss. (d) Investment tax credits The investment tax credits (“ITC") receivable
are amounts considered recoverable from the Canadian federal and provincial governments under the Scientific Research & Experimental
Development (“SR&ED”) incentive program. The amounts claimed under the program represent the amounts based on management
estimates of eligible research and development costs incurred during the year. Realization is subject to government approval. Any
adjustment to the amounts claimed will be recognized in the year in which the adjustment occurs. Refundable ITCs claimed relating
to capital expenditures are credited to property and equipment. Refundable ITCs claimed relating to current expenditures are netted
against research and development expenditures.
(e) Property and equipment Property and equipment are recorded at cost. Equipment
acquired under capital leases are recorded net of imputed interest, based upon the net present value of future payments. Assets
under capital leases are pledged as collateral for the related lease obligation. Repairs and maintenance expenditures are charged
to operations; major betterments and replacements are capitalized. Depreciation bases and rates are as follows:
Assets Basis Rate
Computer equipment Declining balance 30%
Computer software Declining balance 50%
Furniture and fixtures Declining balance 20%
Laboratory equipment Declining balance 20%
Leasehold improvements Straight line Over
term of lease Leasehold improvements and assets acquired under capital
leases are depreciated over the term of their useful lives or the lease period, whichever is shorter. The charge to operations
resulting from depreciation of assets acquired under capital leases is included with depreciation expense.
(f) Impairment of long-lived assets Long-lived assets are reviewed for impairment when events
or circumstances indicate that the carrying value of an asset may not be recoverable. For assets that are to be held and used,
impairment is recognized when the sum of estimated undiscounted cash flows associated with the asset or group of assets is less
than its carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded
as the difference between the carrying value and fair value.
(g) Warrants The
Company previously issued warrants as described in Notes 10 and 14. In fiscal 2013, the outstanding warrants were presented as
a liability because they did not meet the criteria of Accounting Standard Codification (“ASC”) topic 480 Distinguishing
Liabilities from Equity for equity classification. Subsequent changes in the fair value of the warrants were recorded in the consolidated
statements of operations and comprehensive loss. As discussed in Note 3(m) the Company changed its functional currency effective
December 1, 2013 such that these warrants met the criteria for prospective equity classification in ASC topic 480, and the U.S.
dollar translated amount of the warrant liability at December 1, 2013 became the amount reclassified to equity.
(h) Convertible debenture In
fiscal 2013, the Company issued an unsecured convertible debenture in the principal amount of $1.5 million (the “Debenture”)
as described in Note 7. At issuance, the conversion option was bifurcated from its host contract and the fair value of the conversion
option was characterized as an embedded derivative upon issuance as it met the criteria of ASC topic 815 Derivatives and Hedging.
Subsequent changes in the fair value of the embedded derivative were recorded in the consolidated statements of operations and
comprehensive loss. The proceeds received from the Debenture less the initial amount allocated to the embedded derivative were
allocated to the liability and were accreted over the life of the Debenture using the imputed rate of interest. As discussed in
Note 3(m), the Company changed its functional currency effective December 1, 2013 such that the conversion option no longer met
the criteria for bifurcation and was prospectively reclassified to shareholders’ equity under ASC Topic 815 at the U.S. dollar
translated amount at December 1, 2013.
(i) Revenue recognition The Company accounts for revenue in accordance with
the provision of ASC topic 605 Revenue Recognition. The Company earns revenue from non-refundable upfront fees, milestone payments
upon achievement of specified research or development, exclusivity milestone payments and licensing payments on sales of resulting
products and other incidental services. Revenue is realized or realizable and earned when persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, the price to the customer is fixed or determinable, and collectability
is reasonably assured. From time to time, the Company enters into transactions that represent multiple-element arrangements. Management
evaluates arrangements with multiple deliverables to determine whether the deliverables represent one or more units of accounting
for the purpose of revenue recognition. A delivered item is considered a separate unit of accounting
if the delivered item has stand-alone value to the customer, the fair value of any undelivered items can be reliably determined,
and the delivery of undelivered items is probable and substantially in the Company's control. The relevant revenue recognition accounting policy is
applied to each separate unit of accounting. Licensing The
Company recognizes revenue from the licensing of the Company's drug delivery technologies, products and product candidates. Licensing
revenue is recognized as earned in accordance with the contract terms when the amounts can be reasonably estimated and collectability
is reasonably assured. The
Company has a license and commercialization agreement with Par Pharmaceutical Inc. (“Par”). Under the exclusive territorial
license rights granted to Par, the agreement requires that Par manufacture, promote, market, sell and distribute the product. Licensing
revenue amounts receivable by the Company under this agreement are calculated and reported to the Company by Par, with such amounts
generally based upon net product sales and net profit which include estimates for chargebacks, rebates, product returns, and other
adjustments. Licensing revenue payments received by the Company from Par under this agreement are not subject to further deductions
for chargebacks, rebates, product returns, and other pricing adjustments. Based on this arrangement and the guidance per ASC topic
605, the Company records licensing revenue as earned in the consolidated statements of operations and comprehensive loss. Milestones The
milestone method recognizes revenue on substantive milestone payments in the period the milestone is achieved. Milestones are considered
substantive if all of the following conditions are met: (i) the milestone is commensurate with either the vendor’s performance
to achieve the milestone or the enhancement of the value of the delivered item or items as a result of a specific outcome resulting
from the vendor’s performance to achieve the milestone; (ii) the milestone relates solely to past performance; and (iii)
the milestone is reasonable relative to all of the deliverables and payment terms within the arrangement. Non-substantive milestone
payments that might be paid to the Company based on the passage of time or as a result of a partner’s performance are allocated
to the units of accounting within the arrangement; they are recognized as revenue in a manner similar to those units of accounting.
In connection with the license and commercialization agreement with Par, for each day up to a maximum of 180 days from the date
of launch if the Company’s product is the only generic in the market or if there is only one generic competitor, a milestone
payment is earned. The Company recognized milestone revenue of $Nil (2015 - $Nil; 2014 – $354,153) upon achievement of the
milestone Research and development Under arrangements where the license fees and research
and development activities can be accounted for as a separate unit of accounting, non-refundable upfront license fees are deferred
and recognized as revenue on a straight-line basis over the expected term of the Company's continued involvement in the research
and development process. Deferred revenue Deferred revenue represents the funds received from
clients, for which the revenues have not yet been earned, as the milestones have not been achieved, or in the case of upfront fees
for drug development, where the work remains to be completed. During the year ended November 30, 2016, the Company received an
up-front payment of $3,000,000 from Mallinckrodt LLC pursuant to the Mallinckrodt agreement, and initially recorded it as deferred
revenue, as it did not meet the criteria for recognition. As of November 30, 2016, the Company recognized $37,500 of revenue based
on a straight-line basis over the expected term of the Mallinckrodt agreement of 10 years. In 2015, the Company received an up-front
payment of $150,000 from Teva Pharmaceuticals USA, Inc. which it continues to record as deferred revenue as the criteria for revenue
recognition have not been met. As of November 30, 2016, the Company has recorded a deferred revenue balance of $3,112,500 (2015
- $150,000) relating to the underlying contracts. Other
incidental services Incidental services which the Company may provide from
time to time include, consulting advice provided to other organizations regarding FDA standards. Revenue is earned and realized
when all of the following conditions are met: (i) there is persuasive evidence of an arrangement; (ii) service has been rendered;
(iii) the sales price is fixed or determinable; and (iv) collectability is reasonably assured.
(j) Research and development costs Research and development costs related to continued
research and development programs are expensed as incurred in accordance with ASC topic 730. However, materials and equipment are
capitalized and amortized over their useful lives if they have alternative future uses.
(k) Income taxes The Company
uses the liability method of accounting for income taxes. Under the liability The Company accounts
for income taxes in accordance with ASC topic 740-10. This ASC topic The Company records
any interest related to income taxes in interest expense and penalties in selling, general and administrative expense.
(l) Share issue costs Share issue costs are recorded as a reduction of the
proceeds from the issuance of capital stock. (m) Translation of foreign
currencies Previously,
operations of the Company were comprised of only research and development activities conducted in Canada. The Company generated
no cash from operations, though funding for the operations (as in previous years) was primarily through U.S. dollar equity financings.
The functional currency was assessed to be Canadian dollars. By obtaining the final approval of the Company’s generic Focalin
XR® (dexmethylphenidate hydrochloride extended-release) capsules for the 15 and 30 mg strengths with Par in November 2013,
the Company generated and collected U.S. dollar revenues in the year ended November 30, 2014 which represents a significant and
material change in economic facts and circumstances. Management had assessed the functional currency for the fiscal year commencing
December 1, 2013 and concluded that the Company and its wholly owned operating subsidiaries should be measured using the U.S. dollar
as the functional currency. Effective December 1, 2013, the change in functional currency was applied on a prospective basis. The
U.S. dollar translated amounts of nonmonetary assets and liabilities at December 1, 2013 became the historical accounting basis
for those assets and liabilities at December 1, 2013. The impact of the change in functional currency on the measurement and reporting
of warrants and the Debenture is discussed in Note 3(g) and 3(h) above. The change in functional currency resulted in no change
in cumulative translation adjustment going forward as the Company and its wholly owned operating subsidiaries have U.S. dollar
functional currencies. In
respect of other transactions denominated in currencies other than the Company and its wholly owned operating subsidiaries’
functional currencies, the monetary assets and liabilities are translated at the period end rates. Revenue and expenses are translated
at rates of exchange prevailing on the transaction dates. All of the exchange gains or losses resulting from these other transactions
are recognized in the consolidated statements of operations and comprehensive loss. The
Company’s reporting currency is the U.S. dollar.
(n) Stock-based compensation The Company has a stock-based compensation plan
which authorizes the granting of various equity-based incentives including stock options and restricted share units
(“RSU”s). The Company calculates stock-based compensation using the fair value method, under which the fair value
of the options at the grant date is calculated using the Black-Scholes Option Pricing Model, and subsequently expensed over
the vesting period of the option. The provisions of the Company's stock-based compensation plans do not require the Company
to settle any options by transferring cash or other assets, and therefore the Company classifies the awards as equity.
Stock-based compensation expense recognized during the period is based on the value of stock-based payment awards that are
ultimately expected to vest. The Company estimates forfeitures at the time of grant
and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The stock-based compensation
expense is recorded in the consolidated statements of operations and comprehensive loss under research and development expense
and under selling, general and administration expense. Note 11 provides supplemental disclosure of the Company's stock options.
(o) Deferred Share Units Deferred Share Units (“DSU”s) are valued
based on the trading price of the Company’s common shares on the Toronto Stock Exchange. The Company records the value of
the DSU’s owing to non-management board members in the consolidated statement of shareholders’ equity (deficiency).
(p) Loss per share Basic loss per share (“EPS”) is computed
by dividing the loss attributable to common shareholders by the weighted average number of common shares outstanding. Diluted EPS
reflects the potential dilution that could occur from common shares issuable through the exercise or conversion of stock options,
restricted stock awards, warrants and convertible securities. In certain circumstances, the conversion of options, warrants and
convertible securities are excluded from diluted EPS if the effect of such inclusion would be anti-dilutive. The dilutive effect of stock options is determined using
the treasury stock method. Stock options and warrants to purchase 7,540,266, 7,128,082 and 7,149,283 common shares of the Company
during fiscal 2016, 2015, and 2014, respectively, were not included in the computation of diluted EPS because the Company has incurred
a loss for the years ended November 30, 2016, 2015 and 2014 as the effect would be anti-dilutive.
(q) Comprehensive loss The Company follows ASC topic 220. This statement establishes
standards for reporting and display of comprehensive (loss) income and its components. Comprehensive loss is net loss plus certain
items that are recorded directly to shareholders' equity. Other than foreign exchange gains and losses arising from cumulative
translation adjustments, the Company has no other comprehensive loss items.
(r) Fair value measurement Under ASC topic 820, fair value is defined as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at
the measurement date (i.e., an exit price). ASC topic 820 establishes a hierarchy for inputs to valuation techniques used in measuring
fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most
observable inputs be used when available. Observable inputs are inputs that reflect assumptions market participants would use in
pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs
are inputs that reflect the Company's own assumptions about the assumptions market participants would use in pricing the asset
or liability developed based on the best information available in the circumstances. There are three levels to the hierarchy based
on the reliability of inputs, as follows:
● Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities
in active markets. ● Level
2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 2 inputs include quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar
assets and liabilities in markets that are not active.
● Level 3 - Unobservable inputs for the asset or liability. The degree of judgment exercised by the Company in determining
fair value is greatest for instruments categorized in Level 3.
(s) Future Accounting pronouncements In May 2014, the Financial Accounting
Standards Board ("FASB") issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with
Customers, requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised
goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when
it becomes effective. In March 2016, the FASB issued ASU No. 2016-08 to clarify the implementation guidance on considerations of
whether an entity is a principal or an agent, impacting whether an entity reports revenue on a gross or net basis. In April 2016,
the FASB issued ASU No. 2016-10 to clarify guidance on identifying performance obligations and the implementation guidance on licensing.
In May 2016, the FASB issued amendments ASU No. 2016-11 and 2016-12 to amend certain aspects of the new revenue guidance (including
transition, collectability, noncash consideration and the presentation of sales and other similar taxes) and provided certain practical
expedients. The guidance is effective for annual reporting periods beginning after December 15, 2017 (including interim reporting
periods). Early adoption is permitted but not before the annual reporting period (and interim reporting period) beginning January
1, 2017. Entities have the option of using either a full retrospective or a modified approach to adopt the guidance. The Company
is in the process of evaluating the amendments to determine if they have a material impact on the Company’s financial position,
results of operations, cash flows or disclosures. In June 2014, the FASB issued ASU
No. 2014-12 in response to the consensus of the Emerging Issues Task Force on EITF Issue 13-D.2 The ASU clarifies that entities
should treat performance targets that can be met after the requisite service period of a share-based payment award as performance
conditions that affect vesting. Therefore, an entity would not record compensation expense (measured as of the grant date without
taking into account the effect of the performance target) related to an award for which transfer to the employee is contingent
on the entity’s satisfaction of a performance target until it becomes probable that the performance target will be met. No
new disclosures are required under the ASU. The ASU’s guidance is effective for all entities for reporting periods (including
interim periods) beginning after December 15, 2015. Early adoption is permitted. The Company does not expect the adoption of the
amendments to have a material impact on the Company’s financial position, results of operations or cash flow. In March 2016,
the FASB issued new guidance ASU No. 2016-09 which simplifies several aspects of the accounting for employee share-based payment
transactions, including the income tax consequences, classification of awards as either equity or liabilities, accounting for forfeitures,
and classification on the statement of cash flows. The guidance is effective for reporting periods (including interim periods)
beginning after December 15, 2016. Early adoption is permitted. The Company is in the process of evaluating the amendments to determine
if they have a material impact on the Company’s financial position, results of operations, cash flows or disclosures. In 2014, the FASB issued ASU No.
2014-15, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial
statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to
continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain
disclosures if “conditions or events raise substantial doubt about the entity’s ability to continue as a going
concern.” The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and
interim periods thereafter, with early adoption permitted. The Company is in the process of evaluating the amendments to
determine if they have a material impact on the Company’s financial position, results of operations, cash flows or
disclosures. In November 2014, the FASB issued
ASU No. 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued
in the Form of a Share is More Akin to Debt or to Equity, which applies to any entity that is an issuer of, or invests in, hybrid
financial instruments that are issued in the form of a share. The amendments in ASU No. 2014-16 clarify that an entity must take
into account all relevant terms and features when reviewing the nature of the host contract. Additionally, the amendments state
that no one term or feature would define the host contract’s economic characteristics and risks. Instead, the economic characteristics
and risks of the hybrid financial instrument as a whole would determine the nature of the host contract. ASU No. 2014-16’s
amendments will be effective for public business entities for fiscal years, and interim periods within those fiscal years, starting
after December 15, 2015, with early adoption permitted. The Company is in the process of evaluating the amendments to determine
if they have a material impact on the Company’s financial position, results of operations, cash flows or disclosures. In January 2016, the FASB issued ASU
No. 2016-01, which makes limited amendments to the guidance in U.S. GAAP on the classification and measurement of financial instruments.
The new standard significantly revises an entity’s accounting related to (1) the classification and measurement of investments
in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. It
also amends certain disclosure requirements associated with the fair value of financial instruments. ASU No. 2016-01 is effective
for fiscal years beginning after December 15, 2017, and interim periods within those annual periods. The Company is in the process
of evaluating the amendments to determine if they have a material impact on the Company’s financial position, results of
operations, cash flows or disclosures. In February 2016, the FASB issued
new guidance, ASU No. 2016-02, Leases (Topic 842). The main difference between current U.S. GAAP and the new guidance is the recognition
of lease liabilities based on the present value of remaining lease payments and corresponding lease assets for operating leases
under current U.S. GAAP with limited exception. Additional qualitative and quantitative disclosures are also required by the new
guidance. Topic 842 is effective for annual reporting periods (including interim reporting periods) beginning after December 15,
2018. Early adoption is permitted. The Company is in the process of evaluating the amendments to determine if they have a material
impact on the Company’s financial position, results of operations, cash flows or disclosures. In August 2016, the FASB issued ASU
2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments, which will make eight
targeted changes to how cash receipts and cash payments are presented and classified in the Statement of Cash Flows. ASU 2016-15
will be effective on May 1, 2018, and will require adoption on a retrospective basis unless it is impracticable to apply, in which
case the Company would be required to apply the amendments prospectively as of the earliest date practicable. The Company is in
the process of evaluating the amendments to determine if they have a material impact on the Company’s financial position,
results of operations, cash flows or disclosures. In August 2016, the FASB issued ASU
2017-01 that changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities
is a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired
is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets
and activities is not a business. ASU 2017-01 also requires a business to include at least one substantive process and narrows
the definition of outputs by more closely aligning it with how outputs are described in ASC 606.1. ASU 2017-01 is effective for
public business entities for fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption
is permitted. The Company is in the process of evaluating the amendments to determine if they have a material impact on the Company’s
financial position, results of operations, cash flows or disclosures. |
