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1. |
Basis of Presentation |
IntelGenx Technologies Corp. (“IntelGenx” or the “Company”) prepares its financial statements in accordance with accounting principles generally accepted in the United States of America (“USA”). This basis of accounting involves the application of accrual accounting and consequently, revenues and gains are recognized when earned, and expenses and losses are recognized when incurred. |
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The consolidated financial statements include the accounts of the Company and its subsidiary companies. On consolidation, all inter-entity transactions and balances have been eliminated. |
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The financial statements are expressed in U.S. funds. |
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2. |
Nature of Business |
The Company specializes in the development of pharmaceutical products in co-operation with various pharmaceutical companies. |
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Technologies |
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The Company has developed three proprietary delivery platforms; including an immediate release oral film “ VersaFilm™ ”, a mucoadhesive tablet “ AdVersa™ ” and a multilayer controlled release tablet “ VersaTab™ ”. |
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The three technology platforms have been designed to address the challenges commonly encountered in oral drug delivery, such as first-pass metabolism, gastrointestinal (“GI”) side effects, or incomplete absorption of the drug in the GI tract. IntelGenx’ technologies are broadly applicable and have the ability to improve the performance of a wide variety of existing pharmaceutical compounds. |
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Product Pipeline |
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IntelGenx’ product pipeline currently consists of 9 products in various stages of development, including products for the treatment of hypertension, erectile dysfunction, benign prostatic hyperplasia, migraine, insomnia, idiopathic pulmonary fibrosis, allergies and pain management. Of the products currently under development, 6 utilize the VersaFilm™ technology, 2 utilize the VersaTab™ technology, and one utilizes the AdVersa™ technology. |
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Approved and Commercialized Products |
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The Company’s first FDA-approved product, Forfivo XL™, was launched in the USA in October 2012 under a licensing partnership with Edgemont Pharmaceuticals LLP. Forfivo XL™ is indicated for the treatment of Major Depressive Disorder (MDD) and is the only extended-release bupropion HCl product to provide a once-daily, 450mg dose in a single tablet. The active ingredient in Forfivo XL is bupropion, the same active ingredient used in Wellbutrin XL®. |
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Sales of the Company’s first commercialized product, a pre-natal multivitamin supplement, marketed in the USA as Gesticare®, were discontinued in the third quarter of 2011. The Company received final royalties from the sale of the product in the fourth quarter of 2011 from Azur Pharma, now part of Jazz Pharmaceuticals plc. |
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3. | Adoption of New Accounting Standards |
In May 2011, the FASB issued Update No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”. The amendments in this Update result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, FASB does not intend for the amendments in this Update to result in a change in the application of the requirements in Topic 820. Some of the amendments clarify FASB’s intent about the application of existing fair value measurement requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. For public entities, ASU 2011-4 is effective during interim and annual periods beginning after December 15, 2011. The adoption of this Statement did not have a material effect on the Company’s financial position or results of operations. |
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In June 2011, the FASB issued Update No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income”. Under the amendments, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This Update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments in this Update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU 2011-05 should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. In December 2011 however, the FASB issued Update No. 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05”. The amendments in this Update supersede changes to those paragraphs in Update 2011-05 that pertain to how, when, and where reclassification adjustments are presented. The adoption of this Statement did not have a material effect on the Company’s financial position or results of operations. |
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4. |
Summary of Significant Accounting Policies |
Revenue Recognition |
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The Company recognizes revenue from research and development contracts as the contracted services are performed or when milestones are achieved, in accordance with the terms of the specific agreements and when collection of the payment is reasonably assured. In addition, the performance criteria for the achievement of milestones are met if substantive effort was required to achieve the milestone and the amount of the milestone payment appears reasonably commensurate with the effort expended. Amounts received in advance of the recognition criteria being met, if any, are included in deferred income. |
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IntelGenx has license agreements that specify that certain royalties are earned by the Company on sales of licensed products in the licensed territories. Licensees usually report sales and royalty information in the 45 days after the end of the quarter in which the activity takes place and typically do not provide forward estimates or current-quarter information. Because the Company is not able to reasonably estimate the amount of royalties earned during the period in which these licensees actually ship products, royalty revenue is not recognized until the royalties are reported to the Company and the collection of these royalties is reasonably assured. |
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In August 2010 the Company entered into a joint development and commercialization agreement with RedHill Biopharma (“RedHill”), an Israeli company, for an anti-migraine product based upon the Company’s VersaFilm™ technology. In accordance with the terms of the agreement, RedHill made up-front and milestone payments in the aggregate amount of $600 thousand, of which $100 thousand was received by the Company in 2012 upon production of pivotal batches. RedHill is required to make additional milestone payments of up to $700,000 as follows: |
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$200 thousand upon the filing of an NDA and acceptance of the filing by the U.S. Food and Drug Administration; and |
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$500 thousand upon receipt of U.S. Food and Drug Administration marketing approval for the product. |
Product Sales: |
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The Company launched Forfivo XL™ in the USA in October 2012 under a licensing partnership with Edgemont Pharmaceuticals LLP (“Edgemont”). Under the terms of the agreement with Edgemont, the commercial launch of Forfivo XL™ triggered launch-related milestone payments for IntelGenx of up to $4.0 million, of which $1 million was invoiced by the Company to Edgemont and recognized as revenue in the fourth quarter of 2012 and the cash received in February 2013. Additional milestones of up to a further $23.5 million are payable upon achieving certain sales and exclusivity targets and the Company expects to commence receiving royalties from sales of the product in the first quarter of 2013. |
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Upon entering into the licensing agreement, Edgemont paid the Company an upfront fee of $1 million, which the Company recognized as deferred license revenue. The deferred license revenue will be amortized in income over the period where sales of Forfivo XL™ are expected to be exclusive. As a result of this policy, the Company has a deferred revenue balance of $923 thousand at December 31, 2012 that has not been recognized as revenue. |
Use of Estimates |
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The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The financial statements include estimates based on currently available information and management's judgment as to the outcome of future conditions and circumstances. Significant estimates in these financial statements include the useful lives and impairment of long-lived assets, stock-based compensation costs, the investment tax credits receivable, the determination of the fair value of warrants issued as part of fundraising activities, and the resulting impact on the allocation of the proceeds between the common shares and the warrants. |
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Changes in the status of certain facts or circumstances could result in material changes to the estimates used in the preparation of the financial statements and actual results could differ from the estimates and assumptions. |
Financial Instruments |
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The Company estimates the fair value of its financial instruments based on current interest rates, market value and pricing of financial instruments with comparable terms. Unless otherwise indicated, the carrying value of these financial instruments approximates their fair value. |
Cash and Cash Equivalents |
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Cash and cash equivalents is comprised of cash on hand and term deposits with original maturity dates of less than three months that are stated at cost, which approximates fair value. |
Accounts Receivable |
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The Company accounts for trade receivables at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a quarterly basis. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer's financial condition, credit history and current economic conditions. The Company writes off trade receivables when they are deemed uncollectible. In the first quarter of 2011, the Company wrote-off a receivable in the amount of $53 thousand that was owed to the Company by Circ Pharma Limited, Ireland, which was deemed to be no longer collectible. The Company records recoveries of trade receivables previously written-off when they receive them. Management has determined that no allowance for doubtful accounts is necessary in order to adequately cover exposure to loss in its December 31, 2012 accounts receivable (2011 - $Nil). The accounts receivable balance of $1,282 thousand as at December 31, 2012 includes $1 million from Edgemont that was received by IntelGenx in February 2013. |
Investment Tax Credits |
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Investment tax credits relating to qualifying expenditures are recognized in the accounts at the time at which the related expenditures are incurred and there is reasonable assurance of their realization. Management has made estimates and assumptions in determining the expenditures eligible for investment tax credits claimed. |
Leasehold Improvements and Equipment |
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Leasehold Improvements and equipment are recorded at cost. Provisions for depreciation are based on their estimated useful lives using the methods as follows: |
On the declining balance method - | ||
Laboratory and office equipment | 20% | |
Computer equipment | 30% | |
On the straight-line method - | ||
Leasehold improvements | over the lease term | |
Manufacturing equipment | 5 – 10 years |
Upon retirement or disposal, the cost of the asset disposed of and the related accumulated depreciation are removed from the accounts and any gain or loss is reflected in income. Expenditures for repair and maintenance are expensed as incurred.
Intangible Assets
Payments made to third parties subsequent to regulatory approval are capitalized and amortized over the remaining useful life of the related product. Amounts capitalized for such payments are included in other intangibles, net of accumulated amortization.
Impairment of Long-lived Assets
Long-lived assets held and used by the Company are reviewed for possible impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the estimated undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value thereof.
Foreign Currency Translation |
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The Company's reporting currency is the U.S. dollar. The Canadian dollar is the functional currency of the Company's Canadian operations, which is translated to the United States dollar using the current rate method. Under this method, accounts are translated as follows: |
Assets and liabilities - at exchange rates in effect at the balance sheet date;
Revenue and expenses - at average exchange rates prevailing during the year;
Equity - at historical rates.
Gains and losses arising from foreign currency translation are included in other comprehensive income.
Income Taxes
The Company accounts for income taxes in accordance with FASB ASC 740 "Income Taxes". Deferred taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Unrecognized Tax Benefits
The Company accounts for unrecognized tax benefits in accordance with FASB ASC 740 “Income Taxes”. ASC 740 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. ASC 740 contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon ultimate settlement with a taxing authority, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.
Additionally, ASC 740 requires the Company to accrue interest and related penalties, if applicable, on all tax positions for which reserves have been established consistent with jurisdictional tax laws. The Company elected to classify interest and penalties related to the unrecognized tax benefits in the income tax provision.
Share-Based Payments | |
The Company accounts for share-based payments to employees in accordance with the provisions of FASB ASC 718 "Compensation—Stock Compensation" and accordingly recognizes in its financial statements share-based payments at their fair value. In addition, the Company will recognize in the financial statements an expense based on the grant date fair value of stock options granted to employees. The expense will be recognized on a straight-line basis over the vesting period and the offsetting credit will be recorded in additional paid-in capital. Upon exercise of options, the consideration paid together with the amount previously recorded as additional paid-in capital will be recognized as capital stock. The Company estimates its forfeiture rate in order to determine its compensation expense arising from stock-based awards. The Company uses the Black-Scholes option pricing model to determine the fair value of the options. |
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The Company measures compensation expense for its non-employee stock-based compensation under ASC 505-50, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services". The fair value of the option issued is used to measure the transaction, as this is more reliable than the fair value of the services received. The fair value is measured at the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital. For common stock issuances to non-employees that are fully vested and are for future periods, the Company classifies these issuances as prepaid expenses and expenses the prepaid expenses over the service period. At no time has the Company issued common stock for a period that exceeds one year. |
Loss Per Share |
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Basic loss per share is calculated based on the weighted average number of shares outstanding during the year. Any antidilutive instruments are excluded from the calculation of diluted loss per share. |
Fair Value Measurements |
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ASC 820 applies to all assets and liabilities that are being measured and reported on a fair value basis. ASC 820 requires new disclosure that establishes a framework for measuring fair value in US GAAP, and expands disclosure about fair value measurements. This statement enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The statement requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories: |
Level 1: | Quoted market prices in active markets for identical assets or liabilities. | |
Level 2: | Observable market based inputs or unobservable inputs that are corroborated by market data. | |
Level 3: | Unobservable inputs that are not corroborated by market data. |
In determining the appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are subject to ASC 820. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3. There are no assets or liabilities measured at fair value as at December 31, 2012.
Fair Value of Financial Instruments
The fair value represents management’s best estimates based on a range of methodologies and assumptions. The carrying value of receivables and payables arising in the ordinary course of business and the investment tax credits receivable approximate fair value because of the relatively short period of time between their origination and expected realization.
Recent Accounting Pronouncements
In December 2011, the FASB issued Update No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities”. The objective of this Update is to provide enhanced disclosures that will enable users of its financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position. This includes the effect or potential effect of rights of setoff associated with an entity’s recognized assets and recognized liabilities within the scope of this Update. The amendments require enhanced disclosures by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with either Section 210-20-45 or Section 815-10-45. ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. Retrospective disclosure is required for all comparative periods presented. The Company is currently evaluating the impact of this Statement on its consolidated financial statements.
In December 2011, the FASB issued Update No. 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05”. The amendments in this Update supersede changes to those paragraphs in Update 2011-05 that pertain to how, when, and where reclassification adjustments are presented. The adoption of this amendment is not expected to have a material effect on the Company’s financial position or results of operations, but will affect the presentation of Other Comprehensive Income in the Company’s financial statements. |
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5. |
Leasehold Improvements and Equipment |
2012 | 2011 | ||||||||||||
In US$ thousands | Accumulated | Net Carrying | Net Carrying | ||||||||||
Cost | Depreciation | Amount | Amount | ||||||||||
Manufacturing equipment | $ | 225 | $ | 0 | $ | 225 | $ | 0 | |||||
Laboratory and office equipment | 418 | 265 | 153 | 138 | |||||||||
Computer equipment | 43 | 34 | 9 | 11 | |||||||||
Leasehold improvements | 63 | 63 | 0 | 0 | |||||||||
$ | 749 | $ | 362 | $ | 387 | $ | 149 |
As of December 31, 2012 no depreciation has been recorded on manufacturing equipment as the equipment is not yet being utilized. |
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6. |
Intangible Assets |
As of December 31, 2012 NDA acquisition costs of $116 thousand (December 31, 2011 - $125 thousand) were recorded as intangible assets on the Company’s balance sheet and represent the net book value of the final progress payment related to the acquisition of 100% ownership of Forfivo XL™. The asset will be amortized over its estimated useful life of 39 months and the Company commenced amortization upon commercial launch of the product in October 2012. |
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7. |
Deferred License Revenue |
Deferred license revenue represents upfront payments received for the granting of licenses to the Company’s patents, intellectual property, and proprietary technology, for commercialization. Deferred license revenue is recognized in income over the period where sales of the licensed products will occur. |
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Upon entering into the licensing agreement with Edgemont Pharmaceuticals the Company received an upfront fee of $1 million, which the Company recognized as deferred license revenue. The deferred license revenue will be amortized in income over a period of 39 months, which is the minimum period where sales of Forfivo XL™ are expected to be exclusive. As a result of this policy, the Company has a deferred revenue balance of $923 thousand at December 31, 2012 that has not been recognized as revenue. |
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8. |
Commitments |
The Company currently operates out of a 3,500 square feet leasehold facility consisting of laboratories and office space at 6425 Abrams, Saint-Laurent, Quebec. The original lease agreement expired in August 2009, since when it has been extended for varying periods whilst the Company sought alternative premises. The most recent extension is defined as the day immediately preceding the fulfillment of certain conditions relating to the occupation of new leased premises at 6410-6420 Abrams. In the first half of 2013, the Company plans to enter into an addendum to its existing lease to include the relocation of the Company’s operations to larger premises consisting of approximately 28,600 of rentable square feet. The term of the amended lease is 10 years following relocation, which is expected to commence in the autumn of 2013 upon completion of certain leasehold improvements. |
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As of December 31, 2012 future minimum payments under operating leases for facilities were as follows (in thousands): |
2013 | 15 | ||
2014 | 0 | ||
Total | $ | 15 |
On October 1, 2009, the Company signed new agreements with each of Little Gem Life Science Partners and SectorSpeak Inc. for investor relation services in the USA and in Canada, respectively. Under the terms of these agreements, the Company was required to pay $4.5 thousand a month to Little Gem Life Science Partners and CDN$5.0 thousand (US$5.0 thousand) monthly to Sector Speak Inc. The Company renegotiated these agreements in May 2012 and reduced payments to $2.5 thousand and CDN$2.5 thousand (US$2.5 thousand) respectively. The agreements automatically renew unless specifically terminated.
On May 7, 2010, the Company executed a Project Transfer Agreement with one of its former development partners whereby the Company acquired full rights to, and ownership of, Forfivo XL™, a novel, high strength formulation of Bupropion hydrochloride, the active ingredient in Wellbutrin XL®. In accordance with the Project Transfer Agreement, and following commercial launch of Forfivo XL™ in October 2012, the Company is required to pay to its former development partner 10% of net sales royalties received under the commercialization agreement that was executed with Edgemont Pharmaceuticals in February 2012.
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9. |
Capital Stock |
2012 | 2011 | ||||||
Authorized - | |||||||
100,000,000 common shares of $0.00001 par value | |||||||
20,000,000 preferred shares of $0.00001 par value | |||||||
Issued - | |||||||
49,890,421 (December 31, 2011 - 48,895,028) common shares | $ | 499 | $ | 489 |
On June 21, 2011, as part of two concurrent private placement offerings, the Company issued approximately 4.8 million shares of common stock, and three-year warrants to purchase up to approximately 2.4 million shares of common stock, for aggregate gross proceeds of approximately US$3.2 million. Each warrant entitles the holder to purchase one half of one common share at an exercise price of $0.74 per common share and expires 36 months after the date of issuance. Proceeds were allocated between the common shares and the warrants based on their relative fair value. The common shares were recorded at a value of $2,024 thousand. (See note 10 for the portion allocated to the warrants).
The private placements consisted of a definitive securities purchase agreement with certain accredited and institutional investors for the issuance and sale in a private placement transaction (the "US Private Offering") of 2,582,536 shares and warrants to purchase up to 1,291,268 shares of common stock, for aggregate gross proceeds of approximately $1.7 million, and a definitive subscription agreement solely with Canadian investors for the issuance and sale in a concurrent non-brokered private placement transaction (the "Canadian Private Offering") of 2,238,806 shares and warrants to purchase up to 1,119,403 shares of common stock, for aggregate gross proceeds of approximately $1.5 million.
The Company paid an agent cash commissions in the amount of approximately $121 thousand, representing 7% of the aggregate gross proceeds received by the Company in the US Private Offering, plus expenses in the amount of approximately $28 thousand, and issued warrants to the agent to purchase 180,778 shares of common stock, representing 7% of the amount of shares sold in the US Private Offering. The Company also paid cash finder's fees in the amount of approximately $105 thousand, representing 7% of the aggregate gross proceeds received by the Company in the Canadian Private Offering; and issued warrants to purchase 156,716 shares of common stock, representing 7% of the amount of shares sold in the Canadian Private Offering. Each warrant entitles the holder to purchase one half of one common share at an exercise price of $0.74 per common share and expires 36 months after the date of issuance.
In addition, the Company paid approximately $114 thousand in cash consideration for other transaction costs, which have been reflected as a reduction of the common shares and the warrants based on their relative fair values. All of the above transaction costs have been reflected as a reduction to the common shares and the warrants based on their relative fair values.
In the year ended December 31, 2012 a total of 50,000 (2011 – 775,000) stock options were exercised for 50,000 (2011 – 775,000) common shares having a par value of $0 thousand (2011 - $Nil) in aggregate, for cash consideration of $28 thousand ($318 thousand), resulting in an increase in additional paid-in capital of $28 thousand (2011 – $318 thousand). |
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During the year ended December 31, 2012 a total of 219,313 (2011 - 299,406) agents’ warrants were exercised for 219,313 (2011 - 299,406) common shares having a par value of $0 thousand in aggregate, for cash consideration of approximately $104 thousand (2011 - $142 thousand), resulting in an increase in additional paid- in capital of approximately $104 thousand (2011 - $142 thousand). |
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Also in the year ended December 31, 2012 a total of 1,205,668 warrants were exercised, of which 491,382 warrants were exercised for 491,382 common shares having a par value of $0 thousand in aggregate, for cash consideration of approximately $233 thousand, resulting in an increase in additional paid-in capital of approximately $233 thousand, and a total of 714,286 warrants were exercised for 234,698 common shares in cashless exercises, resulting in an increase in additional paid-in capital of $Nil. |
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In the year ended December 31, 2011 a total of 4,366,904 warrants were exercised, of which 2,902,618 warrants were exercised for 2,902,618 common shares having a par value of $0 thousand in aggregate, for cash consideration of approximately $1,458 thousand, resulting in an increase in additional paid-in capital of approximately $1,458 thousand, and a total of 1,464,286 warrants were exercised for 515,391 common shares in cashless exercises, resulting in an increase in additional paid-in capital of $Nil. |
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10. |
Additional Paid-In Capital |
Stock Options |
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In November 2006, the Company adopted the 2006 Stock Incentive Plan ("Plan") for the purpose of issuing both Incentive Options and Nonqualified Options to officers, employees, directors and eligible consultants of the Company. A total of 1,600,749 shares of common stock were reserved for issuance under this plan. Options may be granted under the Plan on terms and at prices as determined by the Board of Directors except that the options cannot be granted at less than 100%, of the fair market value of the common stock on the date of the grant. Each option will be exercisable after the period or periods specified in the option agreement, but no option may be exercised after the expiration of 10 years from the date of grant. All options granted to individuals other than non- employee directors will have a total vesting period of 24 months from the date of grant, with one quarter of the total options granted vesting and becoming exercisable every six months. Options granted to non-employees may vest and become 100% fully exercisable immediately upon grant. |
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At the Annual General Meeting on September 8, 2008 the shareholders of the Company approved to amend the 2006 Stock Option Plan to increase the number of shares available for issuance under the Plan from 1,600,749 to 2,074,000, or 10% of the Company’s issued and outstanding common shares as of July 28, 2008. |
A modification was made to the 2006 Stock Option Plan. The life of the options was reduced from 10 years to 5 years to comply with the regulations of the Toronto Stock Exchange. Accordingly, because the grant-date fair value of the modified options was less than the fair value of the original options measured immediately before the modification, no incremental share-based compensation expense resulted from the modification. |
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At the Annual General Meeting on June 3, 2010, the Shareholders of the Company approved an amendment to the 2006 Stock Option Plan to increase the number of shares available for issuance under the Plan from 2,074,000 to 3,308,127, or 10% of the Company’s issued and outstanding shares as of April 5, 2010. |
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On May 12, 2011 the Company granted 50,000 stock options to an employee to purchase common shares. The stock options are exercisable at $0.52 per share and vest over 2 years at 25% every six months. The stock options were accounted for at their fair value, as determined by the Black-Scholes valuation model, of approximately $16 thousand, using the following assumptions: |
Expected volatility | 115% | ||
Expected life | 3.1 years | ||
Risk-free interest rate | 0.96% | ||
Dividend yield | nil |
On November 29, 2011 the Company granted 115,000 stock options to two non-employee directors, 40,000 stock options to a director, 50,000 stock options to two officers, and 35,000 stock options to two employees, to purchase common shares. The stock options are exercisable at $0.54 per share and vest over 2 years at 25% every six months. The stock options were accounted for at their fair value, as determined by the Black-Scholes valuation model, of approximately $74 thousand, using the following assumptions:
Expected volatility | 101% | ||
Expected life | 3.1 years | ||
Risk-free interest rate | 0.40% | ||
Dividend yield | nil |
On June 13, 2012 the Company granted 40,000 stock options to two employees to purchase common shares. The stock options are exercisable at $0.51 per share and vest over 2 years at 25% every six months. The stock options were accounted for at their fair value, as determined by the Black-Scholes valuation model, of approximately $10 thousand, using the following assumptions:
Expected volatility | 83% | ||
Expected life | 3.1 years | ||
Risk-free interest rate | 0.40% | ||
Dividend yield | nil |
On August 8, 2012 the Company granted 50,000 stock options to a consultant to purchase common shares. The stock options are exercisable at $0.55 per share and vest over 1 year at 25% every three months. The stock options were accounted for at their fair value, as determined by the Black-Scholes valuation model, of approximately $12 thousand, using the following assumptions: |
Expected volatility | 81% | ||
Expected life | 1.8 years | ||
Risk-free interest rate | 0.38% | ||
Dividend yield | nil |
On December 4, 2012 the Company granted 30,000 stock options to an employee who is also a director and 25,000 stock options to an officer to purchase common shares. The stock options are exercisable at $0.60 per share and vest over 2 years at 25% every six months. The stock options were accounted for at their fair value, as determined by the Black-Scholes valuation model, of approximately $15 thousand, using the following assumptions:
Expected volatility | 78% | ||
Expected life | 3.1 years | ||
Risk-free interest rate | 0.34% | ||
Dividend yield | nil |
On December 12, 2012 the Company granted 50,000 stock options to a consultant to purchase common shares. The stock options are exercisable at $0.62 per share and vest over 1 year at 25% every three months. The stock options were accounted for at their fair value, as determined by the Black-Scholes valuation model, of approximately $10 thousand, using the following assumptions:
Expected volatility | 70% | ||
Expected life | 1.8 years | ||
Risk-free interest rate | 0.25% | ||
Dividend yield | nil |
During the year ended December 31, 2012 a total of 50,000 (2011 – 775,000) stock options were exercised for 50,000 (2011 – 775,000) common shares having a par value of $0 thousand (2011 - $Nil) in aggregate, for cash consideration of $28 thousand ($318 thousand), resulting in an increase in additional paid-in capital of $28 thousand (2011 – $318 thousand). The intrinsic value of the stock options exercised, as at the date of exercise, totaled $4 thousand.
Information with respect to stock option activity for 2011 and 2012 is as follows: |
Weighted average | |||||||
Number of options | exercise price | ||||||
$ | |||||||
Outstanding – January 1, 2011 | 1,698,088 | 0.53 | |||||
Granted | 290,000 | 0.54 | |||||
Forfeited | (150,000 | ) | (0.76 | ) | |||
Expired | (65,000 | ) | (0.59 | ) | |||
Exercised | (775,000 | ) | (0.41 | ) | |||
Outstanding – December 31, 2011 | 998,088 | 0.59 | |||||
Granted | 195,000 | 0.57 | |||||
Forfeited | (45,000 | ) | (0.49 | ) | |||
Expired | (32,500 | ) | (1.15 | ) | |||
Exercised | (50,000 | ) | (0.55 | ) | |||
Outstanding – December 31, 2012 | 1,065,588 | 0.58 |
Details of stock options outstanding as at December 31, 2012 are as follows: |
Outstanding options | Exercisable options | ||||||||||||||||||||
Weighted | Weighted | ||||||||||||||||||||
Weighted average | average | Aggregate | average | Aggregate | |||||||||||||||||
Exercise | Number of | remaining | exercise | intrinsic | Number of | exercise | intrinsic | ||||||||||||||
prices | options | contractual life | price | value | options | price | value | ||||||||||||||
$ | (years) | $ | $ | $ | $ | ||||||||||||||||
0.31 | 25,000 | 1.25 | 0.31 | 25,000 | 0.31 | ||||||||||||||||
0.37 | 75,000 | 2.67 | 0.37 | 75,000 | 0.37 | ||||||||||||||||
0.45-0.47 | 175,000 | 1.42 | 0.46 | 175,000 | 0.46 | ||||||||||||||||
0.51 | 40,000 | 4.50 | 0.51 | 0 | 0.00 | ||||||||||||||||
0.52-0.54 | 270,000 | 3.89 | 0.54 | 147,500 | 0.54 | ||||||||||||||||
0.55 | 50,000 | 2.67 | 0.55 | 12,500 | 0.55 | ||||||||||||||||
0.60 | 55,000 | 5.00 | 0.60 | 0 | 0.00 | ||||||||||||||||
0.61 | 125,000 | 1.51 | 0.61 | 125,000 | 0.61 | ||||||||||||||||
0.62 | 50,000 | 3.00 | 0.62 | 0 | 0.00 | ||||||||||||||||
0.85 | 200,588 | 0.63 | 0.85 | 200,588 | 0.85 | ||||||||||||||||
1,065,588 | 2.60 | 0.58 | 114,050 | 760,588 | 0.59 | 86,725 |
Stock-based compensation expense recognized in 2012 in regards to the stock options was $59 thousand (2011 - $51 thousand). As of December 31, 2012, total unrecognized compensation expense related to unvested stock options was $72 thousand (2011 - $92 thousand), of which $17 thousand (2011 $Nil) relates to options granted to consultants. The amount of $72 thousand will be recognized as an expense over a period of two years. A change in control of the Company due to acquisition would cause the vesting of the stock options granted to employees and directors to accelerate and would result in $55 thousand being charged to stock based compensation expense.
Warrants
On June 21, 2011 the Company issued approximately 4.8 million stock purchase warrants exercisable into approximately 2.4 million common shares at $0.74 per share which expire on June 21, 2014. The stock purchase warrants were issued in connection with the June 21, 2011 private placements described in note 9. The stock purchase warrants were valued at $817 thousand based on their relative fair value, as determined by the Black-Scholes valuation model using the assumptions below:
Expected volatility | 117% | ||
Expected life | 3 years | ||
Risk-free interest rate | 0.69% | ||
Dividend yield | nil |
On June 21, 2011 the Company issued approximately 0.3 million agents’ stock purchase warrants exercisable into approximately 0.3 million common shares at $0.74 per share which expire on June 21, 2014. The stock purchase warrants were issued in connection with the June 21, 2011 private placements described in note 9. The stock purchase warrants were valued at $153 thousand based on their relative fair value, as determined by the Black-Scholes valuation model using the assumptions below: |
Expected volatility | 117% | ||
Expected life | 3 years | ||
Risk-free interest rate | 0.69% | ||
Dividend yield | nil |
During the year ended December 31, 2012 a total of 219,313 (2011 - 299,406) agents’ warrants were exercised for 219,313 (2011 - 299,406) common shares having a par value of $0 thousand in aggregate, for cash consideration of approximately $104 thousand (2011 - $142 thousand), resulting in an increase in additional paid-in capital of approximately $104 thousand (2011 - $142 thousand).
Also in the year ended December 31, 2012 a total of 1,205,668 warrants were exercised, of which 491,382 warrants were exercised for 491,382 common shares having a par value of $0 thousand in aggregate, for cash consideration of approximately $233 thousand, resulting in an increase in additional paid-in capital of approximately $233 thousand, and a total of 714,286 warrants were exercised for 234,698 common shares in cashless exercises, resulting in an increase in additional paid-in capital of $Nil.
In the year ended December 31, 2011 a total of 4,366,904 warrants were exercised, of which 2,902,618 warrants were exercised for 2,902,618 common shares having a par value of $0 thousand in aggregate, for cash consideration of approximately $1,458 thousand, resulting in an increase in additional paid-in capital of approximately $1,458 thousand, and a total of 1,464,286 warrants were exercised for 515,391 common shares in cashless exercises, resulting in an increase in additional paid-in capital of $Nil.
Information with respect to warrant activity for 2011 and 2012 is as follows: |
Number of | Weighted average | ||||||
warrants | exercise price | ||||||
(All Exercisable) | $ | ||||||
Outstanding – January 1, 2011 | 21,291,223 | 0.66 | |||||
Attached to private placements | 2,748,165 | 0.74 | |||||
Agents’ warrants exercised | (299,406 | ) | (0.47 | ) | |||
Exercised | (4,366,904 | ) | (0.51 | ) | |||
Outstanding - December 31, 2011 | 19,373,078 | 0.71 | |||||
Agents’ warrants exercised | (219,313 | ) | (0.47 | ) | |||
Exercised | (1,205,668 | ) | (0.48 | ) | |||
Expired | (11,843,932 | ) | (0.80 | ) | |||
Outstanding - December 31, 2012 | 6,104,165 | 0.59 |
|
11. |
Income Taxes |
Income taxes reported differ from the amount computed by applying the statutory rates to losses. The reasons are as follows: |
2012 | 2011 | ||||||
Statutory income taxes | $ | ( 605 | ) | $ | ( 694 | ) | |
Net operating losses for which no tax benefits have been recorded | 368 | 514 | |||||
Excess of depreciation over capital cost allowance | 3 | (2 | ) | ||||
Non-deductible expenses | 18 | 4 | |||||
Undeducted research and development expenses | 273 | 231 | |||||
Tax deductible portion of transaction costs | - | - | |||||
Investment tax credit | (57 | ) | (53 | ) | |||
Modification of warrants terms | - | - | |||||
$ | - | $ | - |
The major components of the deferred tax assets classified by the source of temporary differences are as follows:
2012 | 2011 | ||||||
Leasehold Improvements and equipment | $ | 13 | $ | 14 | |||
Net operating losses carryforward | 2,278 | 2,140 | |||||
Undeducted research and development expenses | 1,301 | 1,141 | |||||
Non-refundable tax credits carryforward | 914 | 807 | |||||
4,506 | 4,102 | ||||||
Valuation allowance | (4,506 | ) | (4,102 | ) | |||
$ | - | $ | - |
The valuation allowance at December 31, 2011 was $4,102 thousand. The net change in the valuation allowance during the period ended December 31, 2012, was an increase of $404 thousand. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on consideration of these items, management has determined that enough uncertainty exists relative to the realization of the deferred income tax asset balances to warrant the application of a full valuation allowance as of December 31, 2012.
There were Canadian and provincial net operating losses of approximately $8,390 thousand (2011 - $7,608 thousand) and $8,566 thousand (2011 - $7,437 thousand) respectively, that may be applied against earnings of future years. Utilization of the net operating losses is subject to significant limitations imposed by the change in control provisions. Canadian and provincial losses will be expiring between 2027 and 2032. A portion of the net operating losses may expire before they can be utilized. |
|
As at December 31, 2012, the Company had non-refundable tax credits of $914 thousand (2011 - $803 thousand) of which $24 thousand is expiring in 2017, $213 thousand is expiring in 2018, $193 thousand is expiring in 2019, $186 thousand is expiring in 2020, $187 thousand is expiring in 2021 and $111 thousand is expiring in 2022 and undeducted research and development expenses of $4,464 thousand (2011 - $3,656 thousand) with no expiration date. |
|
The deferred tax benefit of these items was not recognized in the accounts as it has been fully provided for. |
|
Unrecognized Tax Benefits |
|
The Company does not expect its unrecognized tax benefits to change significantly over the next twelve months. |
|
Tax Years and Examination |
|
The Company files tax returns in each jurisdiction in which it is registered to do business. For each jurisdiction a statute of limitations period exists. After a statute of limitations period expires, the respective tax authorities may no longer assess additional income tax for the expired period. Similarly, the Company is no longer eligible to file claims for refund for any tax that it may have overpaid. The following table summarizes the Company’s major tax jurisdictions and the tax years that remain subject to examination by these jurisdictions as of December 31, 2012: |
Tax Jurisdictions | Tax Years | |
Federal - Canada | 2010 and onward | |
Provincial - Quebec | 2010 and onward |
|
12. |
Statement of Cash Flows Information |
In US$ thousands | 2012 | 2011 | |||||
Additional Cash Flow Information: | |||||||
Interest paid | $ | 3 | $ | 3 |
|
13. | Related Party Transactions |
Included in management salaries are $6 thousand (2011 - $4 thousand) for options granted to the Chief Financial Officer and $6 thousand (2011 - $4 thousand) for options granted to the Chief Executive Officer under the 2006 Stock Option Plan and $23 thousand (2011 - $10 thousand) for options granted to non-employee directors. |
|
|
|
Included in general and administrative expenses are director fees of $114 thousand (2011 - $87 thousand) for attendance at board meetings and audit committee meetings. |
|
|
|
A short term loan of $85 thousand bearing interest at 1% per annum was provided to an employee, who is also an officer of the Company, on November 9, 2011. The loan amount, together with interest accrued, was repaid to the Company on February 28, 2012. |
|
|
|
In the year ended December 31, 2012 the amount included in accounts payable and accrued liabilities payable to shareholders, who are also officers of the Company, is $Nil (2011 - $1 thousand). |
|
|
|
The above related party transactions have been measured at the exchange amount which is the amount of the consideration established and agreed upon by the related parties. |
|
15. |
Subsequent Events |
|
|
Subsequent top the year ended December 31, 2012, 362,500 warrants were exercised for 362,500 common shares having a par value of $0 thousand for cash consideration of approximately $172 thousand, resulting in an increase in additional paid-in capital of approximately $172 thousand. |
|
Revenue Recognition |
|
The Company recognizes revenue from research and development contracts as the contracted services are performed or when milestones are achieved, in accordance with the terms of the specific agreements and when collection of the payment is reasonably assured. In addition, the performance criteria for the achievement of milestones are met if substantive effort was required to achieve the milestone and the amount of the milestone payment appears reasonably commensurate with the effort expended. Amounts received in advance of the recognition criteria being met, if any, are included in deferred income. |
|
IntelGenx has license agreements that specify that certain royalties are earned by the Company on sales of licensed products in the licensed territories. Licensees usually report sales and royalty information in the 45 days after the end of the quarter in which the activity takes place and typically do not provide forward estimates or current-quarter information. Because the Company is not able to reasonably estimate the amount of royalties earned during the period in which these licensees actually ship products, royalty revenue is not recognized until the royalties are reported to the Company and the collection of these royalties is reasonably assured. |
|
In August 2010 the Company entered into a joint development and commercialization agreement with RedHill Biopharma (“RedHill”), an Israeli company, for an anti-migraine product based upon the Company’s VersaFilm™ technology. In accordance with the terms of the agreement, RedHill made up-front and milestone payments in the aggregate amount of $600 thousand, of which $100 thousand was received by the Company in 2012 upon production of pivotal batches. RedHill is required to make additional milestone payments of up to $700,000 as follows: |
|
$200 thousand upon the filing of an NDA and acceptance of the filing by the U.S. Food and Drug Administration; and |
|
$500 thousand upon receipt of U.S. Food and Drug Administration marketing approval for the product. |
Product Sales: |
|
The Company launched Forfivo XL™ in the USA in October 2012 under a licensing partnership with Edgemont Pharmaceuticals LLP (“Edgemont”). Under the terms of the agreement with Edgemont, the commercial launch of Forfivo XL™ triggered launch-related milestone payments for IntelGenx of up to $4.0 million, of which $1 million was invoiced by the Company to Edgemont and recognized as revenue in the fourth quarter of 2012 and the cash received in February 2013. Additional milestones of up to a further $23.5 million are payable upon achieving certain sales and exclusivity targets and the Company expects to commence receiving royalties from sales of the product in the first quarter of 2013. |
|
Upon entering into the licensing agreement, Edgemont paid the Company an upfront fee of $1 million, which the Company recognized as deferred license revenue. The deferred license revenue will be amortized in income over the period where sales of Forfivo XL™ are expected to be exclusive. As a result of this policy, the Company has a deferred revenue balance of $923 thousand at December 31, 2012 that has not been recognized as revenue. |
Use of Estimates |
|
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The financial statements include estimates based on currently available information and management's judgment as to the outcome of future conditions and circumstances. Significant estimates in these financial statements include the useful lives and impairment of long-lived assets, stock-based compensation costs, the investment tax credits receivable, the determination of the fair value of warrants issued as part of fundraising activities, and the resulting impact on the allocation of the proceeds between the common shares and the warrants. |
|
Changes in the status of certain facts or circumstances could result in material changes to the estimates used in the preparation of the financial statements and actual results could differ from the estimates and assumptions. |
Financial Instruments |
|
The Company estimates the fair value of its financial instruments based on current interest rates, market value and pricing of financial instruments with comparable terms. Unless otherwise indicated, the carrying value of these financial instruments approximates their fair value. |
Cash and Cash Equivalents |
|
Cash and cash equivalents is comprised of cash on hand and term deposits with original maturity dates of less than three months that are stated at cost, which approximates fair value. |
Accounts Receivable |
|
The Company accounts for trade receivables at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a quarterly basis. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer's financial condition, credit history and current economic conditions. The Company writes off trade receivables when they are deemed uncollectible. In the first quarter of 2011, the Company wrote-off a receivable in the amount of $53 thousand that was owed to the Company by Circ Pharma Limited, Ireland, which was deemed to be no longer collectible. The Company records recoveries of trade receivables previously written-off when they receive them. Management has determined that no allowance for doubtful accounts is necessary in order to adequately cover exposure to loss in its December 31, 2012 accounts receivable (2011 - $Nil). The accounts receivable balance of $1,282 thousand as at December 31, 2012 includes $1 million from Edgemont that was received by IntelGenx in February 2013. |
Investment Tax Credits |
|
Investment tax credits relating to qualifying expenditures are recognized in the accounts at the time at which the related expenditures are incurred and there is reasonable assurance of their realization. Management has made estimates and assumptions in determining the expenditures eligible for investment tax credits claimed. |
Leasehold Improvements and Equipment |
|
Leasehold Improvements and equipment are recorded at cost. Provisions for depreciation are based on their estimated useful lives using the methods as follows: |
On the declining balance method - | ||
Laboratory and office equipment | 20% | |
Computer equipment | 30% | |
On the straight-line method - | ||
Leasehold improvements | over the lease term | |
Manufacturing equipment | 5 – 10 years |
Upon retirement or disposal, the cost of the asset disposed of and the related accumulated depreciation are removed from the accounts and any gain or loss is reflected in income. Expenditures for repair and maintenance are expensed as incurred.
Intangible Assets
Payments made to third parties subsequent to regulatory approval are capitalized and amortized over the remaining useful life of the related product. Amounts capitalized for such payments are included in other intangibles, net of accumulated amortization.
Impairment of Long-lived Assets
Long-lived assets held and used by the Company are reviewed for possible impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the estimated undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value thereof.
Foreign Currency Translation |
|
The Company's reporting currency is the U.S. dollar. The Canadian dollar is the functional currency of the Company's Canadian operations, which is translated to the United States dollar using the current rate method. Under this method, accounts are translated as follows: |
Assets and liabilities - at exchange rates in effect at the balance sheet date;
Revenue and expenses - at average exchange rates prevailing during the year;
Equity - at historical rates.
Gains and losses arising from foreign currency translation are included in other comprehensive income.
Income Taxes
The Company accounts for income taxes in accordance with FASB ASC 740 "Income Taxes". Deferred taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Unrecognized Tax Benefits
The Company accounts for unrecognized tax benefits in accordance with FASB ASC 740 “Income Taxes”. ASC 740 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. ASC 740 contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon ultimate settlement with a taxing authority, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.
Additionally, ASC 740 requires the Company to accrue interest and related penalties, if applicable, on all tax positions for which reserves have been established consistent with jurisdictional tax laws. The Company elected to classify interest and penalties related to the unrecognized tax benefits in the income tax provision.
Share-Based Payments | |
The Company accounts for share-based payments to employees in accordance with the provisions of FASB ASC 718 "Compensation—Stock Compensation" and accordingly recognizes in its financial statements share-based payments at their fair value. In addition, the Company will recognize in the financial statements an expense based on the grant date fair value of stock options granted to employees. The expense will be recognized on a straight-line basis over the vesting period and the offsetting credit will be recorded in additional paid-in capital. Upon exercise of options, the consideration paid together with the amount previously recorded as additional paid-in capital will be recognized as capital stock. The Company estimates its forfeiture rate in order to determine its compensation expense arising from stock-based awards. The Company uses the Black-Scholes option pricing model to determine the fair value of the options. |
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|
|
The Company measures compensation expense for its non-employee stock-based compensation under ASC 505-50, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services". The fair value of the option issued is used to measure the transaction, as this is more reliable than the fair value of the services received. The fair value is measured at the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital. For common stock issuances to non-employees that are fully vested and are for future periods, the Company classifies these issuances as prepaid expenses and expenses the prepaid expenses over the service period. At no time has the Company issued common stock for a period that exceeds one year. |
Loss Per Share |
|
|
|
Basic loss per share is calculated based on the weighted average number of shares outstanding during the year. Any antidilutive instruments are excluded from the calculation of diluted loss per share. |
Fair Value Measurements |
|
ASC 820 applies to all assets and liabilities that are being measured and reported on a fair value basis. ASC 820 requires new disclosure that establishes a framework for measuring fair value in US GAAP, and expands disclosure about fair value measurements. This statement enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The statement requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories: |
Level 1: | Quoted market prices in active markets for identical assets or liabilities. | |
Level 2: | Observable market based inputs or unobservable inputs that are corroborated by market data. | |
Level 3: | Unobservable inputs that are not corroborated by market data. |
In determining the appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are subject to ASC 820. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3. There are no assets or liabilities measured at fair value as at December 31, 2012.
Fair Value of Financial Instruments
The fair value represents management’s best estimates based on a range of methodologies and assumptions. The carrying value of receivables and payables arising in the ordinary course of business and the investment tax credits receivable approximate fair value because of the relatively short period of time between their origination and expected realization.
Recent Accounting Pronouncements
In December 2011, the FASB issued Update No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities”. The objective of this Update is to provide enhanced disclosures that will enable users of its financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position. This includes the effect or potential effect of rights of setoff associated with an entity’s recognized assets and recognized liabilities within the scope of this Update. The amendments require enhanced disclosures by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with either Section 210-20-45 or Section 815-10-45. ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. Retrospective disclosure is required for all comparative periods presented. The Company is currently evaluating the impact of this Statement on its consolidated financial statements.
|
On the declining balance method - | ||
Laboratory and office equipment | 20% | |
Computer equipment | 30% | |
On the straight-line method - | ||
Leasehold improvements | over the lease term | |
Manufacturing equipment | 5 – 10 years |
|
2012 | 2011 | ||||||||||||
In US$ thousands | Accumulated | Net Carrying | Net Carrying | ||||||||||
Cost | Depreciation | Amount | Amount | ||||||||||
Manufacturing equipment | $ | 225 | $ | 0 | $ | 225 | $ | 0 | |||||
Laboratory and office equipment | 418 | 265 | 153 | 138 | |||||||||
Computer equipment | 43 | 34 | 9 | 11 | |||||||||
Leasehold improvements | 63 | 63 | 0 | 0 | |||||||||
$ | 749 | $ | 362 | $ | 387 | $ | 149 |
|
2013 | 15 | ||
2014 | 0 | ||
Total | $ | 15 |
|
2012 | 2011 | ||||||
Authorized - | |||||||
100,000,000 common shares of $0.00001 par value | |||||||
20,000,000 preferred shares of $0.00001 par value | |||||||
Issued - | |||||||
49,890,421 (December 31, 2011 - 48,895,028) common shares | $ | 499 | $ | 489 |
|
Expected volatility | 115% | ||
Expected life | 3.1 years | ||
Risk-free interest rate | 0.96% | ||
Dividend yield | nil |
Expected volatility | 101% | ||
Expected life | 3.1 years | ||
Risk-free interest rate | 0.40% | ||
Dividend yield | nil |
Expected volatility | 83% | ||
Expected life | 3.1 years | ||
Risk-free interest rate | 0.40% | ||
Dividend yield | nil |
Expected volatility | 81% | ||
Expected life | 1.8 years | ||
Risk-free interest rate | 0.38% | ||
Dividend yield | nil |
Expected volatility | 78% | ||
Expected life | 3.1 years | ||
Risk-free interest rate | 0.34% | ||
Dividend yield | nil |
Expected volatility | 70% | ||
Expected life | 1.8 years | ||
Risk-free interest rate | 0.25% | ||
Dividend yield | nil |
Weighted average | |||||||
Number of options | exercise price | ||||||
$ | |||||||
Outstanding – January 1, 2011 | 1,698,088 | 0.53 | |||||
Granted | 290,000 | 0.54 | |||||
Forfeited | (150,000 | ) | (0.76 | ) | |||
Expired | (65,000 | ) | (0.59 | ) | |||
Exercised | (775,000 | ) | (0.41 | ) | |||
Outstanding – December 31, 2011 | 998,088 | 0.59 | |||||
Granted | 195,000 | 0.57 | |||||
Forfeited | (45,000 | ) | (0.49 | ) | |||
Expired | (32,500 | ) | (1.15 | ) | |||
Exercised | (50,000 | ) | (0.55 | ) | |||
Outstanding – December 31, 2012 | 1,065,588 | 0.58 |
Outstanding options | Exercisable options | ||||||||||||||||||||
Weighted | Weighted | ||||||||||||||||||||
Weighted average | average | Aggregate | average | Aggregate | |||||||||||||||||
Exercise | Number of | remaining | exercise | intrinsic | Number of | exercise | intrinsic | ||||||||||||||
prices | options | contractual life | price | value | options | price | value | ||||||||||||||
$ | (years) | $ | $ | $ | $ | ||||||||||||||||
0.31 | 25,000 | 1.25 | 0.31 | 25,000 | 0.31 | ||||||||||||||||
0.37 | 75,000 | 2.67 | 0.37 | 75,000 | 0.37 | ||||||||||||||||
0.45-0.47 | 175,000 | 1.42 | 0.46 | 175,000 | 0.46 | ||||||||||||||||
0.51 | 40,000 | 4.50 | 0.51 | 0 | 0.00 | ||||||||||||||||
0.52-0.54 | 270,000 | 3.89 | 0.54 | 147,500 | 0.54 | ||||||||||||||||
0.55 | 50,000 | 2.67 | 0.55 | 12,500 | 0.55 | ||||||||||||||||
0.60 | 55,000 | 5.00 | 0.60 | 0 | 0.00 | ||||||||||||||||
0.61 | 125,000 | 1.51 | 0.61 | 125,000 | 0.61 | ||||||||||||||||
0.62 | 50,000 | 3.00 | 0.62 | 0 | 0.00 | ||||||||||||||||
0.85 | 200,588 | 0.63 | 0.85 | 200,588 | 0.85 | ||||||||||||||||
1,065,588 | 2.60 | 0.58 | 114,050 | 760,588 | 0.59 | 86,725 |
Expected volatility | 117% | ||
Expected life | 3 years | ||
Risk-free interest rate | 0.69% | ||
Dividend yield | nil |
Expected volatility | 117% | ||
Expected life | 3 years | ||
Risk-free interest rate | 0.69% | ||
Dividend yield | nil |
Number of | Weighted average | ||||||
warrants | exercise price | ||||||
(All Exercisable) | $ | ||||||
Outstanding – January 1, 2011 | 21,291,223 | 0.66 | |||||
Attached to private placements | 2,748,165 | 0.74 | |||||
Agents’ warrants exercised | (299,406 | ) | (0.47 | ) | |||
Exercised | (4,366,904 | ) | (0.51 | ) | |||
Outstanding - December 31, 2011 | 19,373,078 | 0.71 | |||||
Agents’ warrants exercised | (219,313 | ) | (0.47 | ) | |||
Exercised | (1,205,668 | ) | (0.48 | ) | |||
Expired | (11,843,932 | ) | (0.80 | ) | |||
Outstanding - December 31, 2012 | 6,104,165 | 0.59 |
|
2012 | 2011 | ||||||
Statutory income taxes | $ | ( 605 | ) | $ | ( 694 | ) | |
Net operating losses for which no tax benefits have been recorded | 368 | 514 | |||||
Excess of depreciation over capital cost allowance | 3 | (2 | ) | ||||
Non-deductible expenses | 18 | 4 | |||||
Undeducted research and development expenses | 273 | 231 | |||||
Tax deductible portion of transaction costs | - | - | |||||
Investment tax credit | (57 | ) | (53 | ) | |||
Modification of warrants terms | - | - | |||||
$ | - | $ | - |
2012 | 2011 | ||||||
Leasehold Improvements and equipment | $ | 13 | $ | 14 | |||
Net operating losses carryforward | 2,278 | 2,140 | |||||
Undeducted research and development expenses | 1,301 | 1,141 | |||||
Non-refundable tax credits carryforward | 914 | 807 | |||||
4,506 | 4,102 | ||||||
Valuation allowance | (4,506 | ) | (4,102 | ) | |||
$ | - | $ | - |
|
In US$ thousands | 2012 | 2011 | |||||
Additional Cash Flow Information: | |||||||
Interest paid | $ | 3 | $ | 3 |
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