UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter June 30, 2007
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 000-31187
INTELGENX TECHNOLOGIES CORP.
Delaware | 87-0638336 |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) |
incorporation or organization) |
6425 Abrams, Ville Saint Laurent, Quebec H4S 1X9, Canada
(Address of principal executive offices)
(514) 331-7440
(Issuers telephone number)
(Former Name, former Address, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the issuers common equity, as of the latest practicable date. (August 14, 2007) Class A 16,007,489
Check whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes [ ] No [X]
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
IntelGenx Technologies Corp. TABLE OF CONTENTS
Form 10-QSB
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PART I. FINANCIAL INFORMATION |
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Item 1. | Financial Statements | 1 |
Consolidated Balance Sheet | 2 | |
Statement of Shareholders Equity | 3 | |
Statement of Operations and Comprehensive Loss | 5 | |
Statement of Cash Flows | 6 | |
Notes to Financial Statements | 7 | |
Item 2. | Management's Discussion and Analysis and Results of Operations | 11 |
Item 3. | Controls and Procedures | 15 |
PART II. OTHER INFORMATION |
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Item 1. | Legal Proceedings | 16 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 16 |
Item 3. | Defaults upon Senior Securities | 16 |
Item 4. | Submission of Matters to a Vote of Security Holders | 16 |
Item 5. | Other Information | 16 |
Item 6. | Exhibits | 16 |
Signatures | 17 | |
IntelGenx Technologies Corp. | |
Consolidated Interim Financial Statements | |
June 30, 2007 | |
(Expressed in U.S. Funds) | |
Contents | |
Balance Sheet | 2 |
Statement of Shareholders' Equity | 3 - 4 |
Statement of Operations and Comprehensive Loss | 5 |
Statement of Cash Flows | 6 |
Notes to Interim Financial Statements | 7 - 10 |
IntelGenx Technologies Corp. |
|
|
|
|
Consolidated Balance Sheet |
|
|
|
|
(Expressed in U.S. Funds) |
|
|
|
|
(Unaudited) |
|
|
|
|
|
June 30, |
December 31, |
||
|
2007 |
|
2006 |
|
|
|
(Audited) | ||
Assets |
|
|
|
|
Current |
|
|
|
|
Cash and cash equivalents |
$ |
1,350,629 |
$ |
227,578 |
Accounts receivable |
|
161,559 |
|
135,223 |
Income taxes recoverable |
|
10,261 |
|
9,380 |
Prepaid expenses |
|
5,380 |
|
72,914 |
Investment tax credits receivable |
|
101,969 |
|
43,880 |
|
1,629,798 |
|
488,975 |
|
Deferred Charges (note 3) |
|
92,908 |
|
- |
Property and Equipment |
|
173,396 |
|
161,861 |
$ |
1,896,102 |
$ |
650,836 |
|
Liabilities |
|
|
|
|
Current |
|
|
|
|
Accounts payable and accrued liabilities |
|
249,869 |
|
129,994 |
Current maturity of long-term debt |
|
- |
|
24,026 |
|
249,869 |
|
154,020 |
|
Loan Payable, Shareholder |
|
94,155 |
|
86,076 |
Long-Term Debt |
|
- |
|
82,661 |
Convertible Notes, less unamortized discount of $1,063,242 (note 4) |
|
436,758 |
|
- |
Shareholders' Equity |
|
|
|
|
Capital Stock (note 5) |
|
925,748 |
|
925,748 |
Additional Paid-in-Capital |
|
1,201,491 |
|
239,815 |
Accumulated Deficit |
|
(1,025,440) |
|
(817,865) |
Accumulated Other Comprehensive (Loss) Gain |
|
13,521 |
|
(19,619) |
|
1,115,320 |
|
328,079 |
|
$ |
1,896,102 |
$ |
650,836 |
See accompanying notes | |
Approved on Behalf of the Board: | |
Director | |
Director |
-2-
IntelGenx Technologies Corp. | ||||||||||
Consolidated Statement of Shareholders' Equity | ||||||||||
For the Period Ended June 30, 2007 | ||||||||||
(Expressed in U.S. Funds) | ||||||||||
(Unaudited) | ||||||||||
|
|
|
|
Accumulated |
|
|
|
|
||
|
|
|
Additional |
|
Other |
|
|
|
Total |
|
Capital Stock |
Paid-In |
Comprehensive |
Accumulated |
Shareholders' |
||||||
Number |
Amount |
Capital |
|
Gain |
|
Deficit |
|
Equity |
||
Balance - December 31, 2006 |
16,007,489 |
$ |
925,748 |
$ 239,815 |
$ |
(19,619) |
$ |
(817,865) |
$ |
328,079 |
Foreign currency translation adjustment for the period |
- |
|
- |
- |
|
33,140 |
|
- |
|
33,140 |
Warrants issued |
- |
|
- |
633,652 |
|
- |
|
- |
|
633,652 |
Stock-based compensation |
- |
|
- |
39,077 |
|
- |
|
- |
|
39,077 |
Beneficial conversion feature |
- |
|
- |
540,395 |
|
- |
|
- |
|
540,395 |
Transaction costs |
- |
|
- |
(251,448) |
|
- |
|
- |
|
(251,448) |
Net loss for the period |
- |
|
- |
- |
|
- |
|
(207,575) |
|
(207,575) |
Balance - June 30, 2007 |
16,007,489 |
$ |
925,748 |
$ 1,201,491 |
$ |
13,521 |
$ |
(1,025,440) |
$ |
1,115,320 |
-3-
IntelGenx Technologies Corp. | |||||||||||
Consolidated Statement of Shareholders' Equity | |||||||||||
For the Period Ended June 30, 2006 | |||||||||||
(Expressed in U.S. Funds) | |||||||||||
(Unaudited) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
Additional |
|
Other |
|
|
|
Total |
|
|
Capital Stock |
Paid-In |
Comprehensive |
Accumulated |
Shareholders' |
||||||
|
Number |
|
Amount |
Capital |
|
Gain |
|
Deficit |
|
Equity |
|
Balance - December 31, 2005 |
10,000 |
$ |
77 |
$ |
- |
$ |
4,825 |
$ |
(36,729) |
$ |
(31,827) |
March 9, 2006 - recall and cancellation of issued shares |
(10,000) |
|
(77) |
|
- |
|
- |
|
- |
|
(77) |
March 9, 2006 - issue of common shares |
10,991,000 |
|
77 |
|
- |
|
- |
|
- |
|
77 |
April 28, 2006 - issue of common shares |
3,191,489 |
|
898,408 |
|
- |
|
- |
|
- |
|
898,408 |
April 28, 2006 - recapitalization in connection with share exchange |
1,825,000 |
|
133,250 |
|
- |
|
- |
|
- |
|
133,250 |
Foreign currency translation adjustment for the period |
- |
|
- |
|
- |
|
301 |
|
- |
|
301 |
Warrants issued |
- |
|
- |
|
19,420 |
|
- |
|
- |
|
19,420 |
Net loss for the period |
- |
|
- |
|
- |
|
- |
|
(127,577) |
|
(127,577) |
Balance - June 30, 2006 |
16,007,489 |
$ |
1,031,735 |
$ |
19,420 |
$ |
5,126 |
$ |
(164,306) |
$ |
891,975 |
-4-
IntelGenx Technologies Corp. | ||||
Consolidated Statement of Operations and Comprehensive Loss | ||||
(Expressed in U.S. Funds) | ||||
(Unaudited) | ||||
For the three-month period | For the six-month period | |||
ended June 30 | ended June 30 | |||
|
2007 |
2006 |
2007 |
2006 |
Revenue |
$ 335,923 |
$ 93,168 |
$ 423,378 |
$ 188,686 |
Expenses |
|
|
|
|
Research and development |
152,776 |
156,683 |
256,641 |
239,701 |
Research and development tax credits |
(28,547) | (23,916) | (49,887) | (46,099) |
Management salaries |
42,390 |
15,585 |
66,991 |
30,154 |
General and administrative |
30,391 |
23,378 |
62,869 |
39,579 |
Professional fees |
153,943 |
697 |
217,803 |
6,644 |
Depreciation |
8,474 |
9,113 |
17,752 |
17,565 |
Foreign exchange |
(1,680) |
837 |
(892) |
842 |
Interest and financing fees |
45,909 |
24,136 |
59,676 |
27,877 |
|
403,656 |
206,513 |
630,953 |
316,263 |
Net Loss |
(67,733) | (113,345) | (207,575) | (127,577) |
Other Comprehensive Loss |
|
|
|
|
Foreign currency translation adjustment |
31,850 |
35 |
33,140 |
301 |
Comprehensive Loss |
$ (35,883) | $(113,310) | $ (174,435) | $ (127,276) |
Basic Weighted Average Number of Shares Outstanding |
16,007,489 |
14,463,954 |
16,007,489 |
12,737,071 |
Basic and Diluted Loss Per Common Share (note 9) |
- |
(0.01) | (0.01) | (0.01) |
See accompanying notes |
-5-
IntelGenx Technologies Corp. | ||||||||
Consolidated Statement of Cash Flows | ||||||||
(Expressed in U.S. Funds) | ||||||||
(Unaudited) |
|
|
|
|
|
|
|
|
For the Three-month period |
|
For the Six-month period |
||||||
|
ended June 30th |
|
ended June 30th |
|||||
|
2007 |
2006 |
|
2007 |
|
2006 |
||
Funds Provided (Used) - |
|
|
|
|
|
|
|
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
$ |
(67,733) |
$ |
(113,345) |
$ |
(207,575) |
$ |
(127,577) |
Depreciation |
|
8,474 |
|
9,113 |
|
17,752 |
|
17,565 |
Financing fee paid in warrants |
|
- |
|
19,420 |
|
- |
|
19,420 |
Investor relations services |
|
32,782 |
|
- |
|
64,521 |
|
- |
Stock-based compensation |
|
14,682 |
|
- |
|
39,077 |
|
- |
Interest accretion |
|
17,548 |
|
- |
|
17,548 |
|
- |
|
|
5,753 |
|
(84,812) |
|
(68,677) |
|
(90,592) |
Changes in non-cash operating elements of working capital |
|
109,156 |
|
(115,001) |
|
41,528 |
|
(151,798) |
|
|
114,909 |
|
(199,813) |
|
(27,149) |
|
(242,390) |
Financing Activities |
|
|
|
|
|
|
|
|
Bank indebtedness |
|
- |
|
(12,119) |
|
- |
|
- |
Long-term debt |
|
- |
|
- |
|
- |
|
29,294 |
Repayment of long term debt |
|
(101,896) |
|
(1,520) |
|
(107,871) |
|
(5,848) |
Loan payable, shareholder |
|
- |
|
3,986 |
|
- |
|
3,617 |
Issue of capital stock |
|
- |
|
1,341,750 |
|
- |
|
1,341,750 |
Transaction costs |
|
(229,323) |
|
(443,342) |
|
(229,323) |
|
(443,342) |
Promissory note |
|
- |
|
(25,685) |
|
- |
|
- |
Convertible notes |
|
1,500,000 |
|
- |
|
1,500,000 |
|
- |
|
|
1,168,781 |
|
863,070 |
|
1,162,806 |
|
925,471 |
Investing Activities |
|
|
|
|
|
|
|
|
Additions to property and equipment |
|
(10,765) |
|
(55,771) |
|
(14,371) |
|
(86,799) |
Increase in Cash and Cash Equivalent |
|
1,272,925 |
|
607,486 |
|
1,121,286 |
|
596,282 |
Effect of Foreign Exchange on Cash and Cash Equivalent |
|
1,857 |
|
35 |
|
1,765 |
|
301 |
Cash and Cash Equivalents Beginning of Period |
|
75,847 |
|
- |
|
227,578 |
|
10,938 |
End of Period |
$ |
1,350,629 |
$ |
607,521 |
$ |
1,350,629 |
$ |
607,521 |
See accompanying notes
-6-
IntelGenx Technologies Corp. |
Notes to Consolidated Interim Financial Statements |
June 30, 2007 |
(Expressed in U.S. Funds) |
1.
Basis of Presentation and Reorganization of the Corporation
Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and item 310(b) of Regulation S-B and are prepared using the same accounting policies as outlined in note 4 of IntelGenx Technologies Corp. financial statements for the year ended December 31, 2006 and 2005 except for those discussed in note 3 below. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2007 are not necessarily indicative of the results that may be expected for the year ended December 31, 2007. The unaudited financial statements should be read in conjunction with the financial statements and notes thereto included in the IntelGenx Technologies Corp. audited financial statements for the years ended December 31, 2006 and 2005.
2.
Going Concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has reported an accumulated deficit of $1,025,440 (2006 - $817,865). To date, these losses have been financed principally through capital stock, long-term debt and debt from related parties. Additional capital and/or borrowings will be necessary in order for the Company to continue in existence and attaining profitable operations.
Management has continued to develop a strategic plan to build a management team, maintain reporting compliance and establish contracts with pharmaceutical companies. Management anticipates generating revenue through development contracts during the year. The Company has raised capital in the six month period ended June 30, 2007 and has commenced the process of raising additional capital. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due.
3.
Deferred Charges
Costs related to the issuance of debt have been deferred and are being amortized on a straight-line basis over the term of the related debt.
-7-
4. Convertible
Notes On May 22, 2007 the Company entered
into convertible note agreements with certain institutional and accredited
investors for amounts totalling $1,500,000. The convertible notes bear interest
at the rate of 8% per annum and are repayable on September 22, 2009. Interest is
payable quarterly and payments will commence on July 1, 2007. The notes are
convertible into common stock of the Company, at the option of the holders, at a
rate of $0.70 per share. The Company also issued to the holders 2,142,857 stock
purchase warrants exercisable at $1.02 per share before May 22, 2012. The Company may, at its option, elect
to pay the interest by the issuance of shares of common stock. The number of
shares is to be determined by dividing the amount of the interest payment by the
number which is 85% of the average market price of the Company's common shares
for the 20 trading days immediately prior to the interest payment date assuming
the average market price is equal or greater than $0.70 as adjusted for reverse
and forward share split, recapitalizations and the like that occur after the
date of the Securities Purchase Agreements. In accordance with EITF 98-5
"Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios", the Company recognized the value of
the embedded beneficial conversion feature of $540,395 as additional paid-in
capital and an equivalent discount which will be expensed over the term of the
convertible notes. In addition, in accordance with EITF 00-27 "Application of
Issue No.98-5 to Certain Convertible Instruments", the Company has allocated the
proceeds of issuance between the convertible notes and the detachable warrants
based on their relative fair value. Accordingly, the Company recognized the fair
value of the detachable warrants of $540,395 as additional paid-in capital and
an equivalent discount against the convertible notes. The difference between the
face amount of the convertible notes and their carrying value is amortized over
the life of the convertible notes. The Black-Scholes Model was used to calculate
the fair value of the warrants. The underlying assumptions included in the
Black-Scholes Model were as follows:
IntelGenx Technologies Corp.
Notes to Consolidated Interim Financial
Statements
June 30, 2007
(Expressed in U.S. Funds)
|
Expected volatility | 75% |
|
Contractual life | 5 years |
|
Risk-free interest rate | 4.39% |
|
Dividend yield | Nil |
Substantially all of the assets of the Company have been pledged as security of the convertible notes. As at June 30, 2007, accrued interest amounting to $13,076 has been recorded and $17,548 of interest has been accreted.
-8-
5. Capital Stock
IntelGenx Technologies Corp.
Notes to Consolidated Interim Financial
Statements
June 30, 2007
(Expressed in U.S. Funds)
|
June 30, | December 31, | ||||
|
2007 | 2006 | ||||
|
Authorized - | |||||
|
100,000,000 | common shares of $0.00001 par value | ||||
|
20,000,000 | preferred shares | ||||
|
Issued - | |||||
|
16,007,489 common shares | $ | 925,748 | $ | 925,748 |
On April 10, 2007, the Board of Directors of the Corporation approved an amendment, subject to shareholder approval, to the Corporation's Certificate of Incorporation, as amended, to increase the number of authorized common shares from 20,000,000 to 100,000,000 and to authorize the creation of 20,000,000 shares of "blank check" preferred shares. On April 10, 2007, the majority stockholder of the Corporation approved the same resolution as the Board of Directors.
6.
Additional Paid-In Capital
On May 22, 2007, IntelGenx Technologies Corp. issued 214,286 stock purchase warrants exercisable into common shares at $0.70 per share which expire on May 22, 2011. As at June 30, 2006, no stock purchase warrants were exercised. The stock purchase warrants were issued as part of the transaction costs in connection with the convertible notes described in note 4. The stock purchase warrants were accounted for at their fair value, as determined by the Black-Scholes valuation model, of $93,257, using the following assumptions:
|
Expected volatility | 75% |
|
Contractual life | 4 years |
|
Risk-free interest rate | 4.39% |
|
Dividend yield | Nil |
Along with the above warrants, the Company paid cash consideration of $229,323 for transaction costs. These costs were allocated between deferred charges and Additional Paid-in Capital based on the relative fair value of the convertible notes, the beneficial conversion feature and the warrants.
-9-
IntelGenx Technologies Corp. |
Notes to Consolidated Interim Financial Statements |
June 30, 2007 |
(Expressed in U.S. Funds) |
7.
Income Taxes
On January 1, 2007, the Company adopted Financial Accounting Standards Board (FASB) Interpretation (FIN) No. 48, "Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109" (FIN 48), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that the Company recognize in its financial statements, the impact of a tax position, if that position is more likely than not for being sustained on audit, based on the technical merits of the position. The adoption of FIN 48 did not have a material impact on our consolidated financial statements.
As of June 30, 2007, the federal and provincial income tax returns filed for the years 2003 to 2006 remain subject to examination by the taxation authorities.
8.
Related Party Transactions
During the six month period ending June 30, 2006, the Company incurred expenses of approximately $8,800 (2006 - $9,109) for laboratory equipment leased from a shareholder and $2,700 (2006 - $2,693) for interest on the loan payable shareholder.
Included in professional fees are approximately $17,400 (2006 - $Nil) paid to a non-employee director of the Company.
Included in interest and financing fees are approximately $19,000 (2006 - nil) for share-based compensation to a former officer and director of the Company.
Included in accounts payable and accrued liabilities is approximately $7,300 (2006 - $25,000) payable to shareholders.
The above related party transactions have been measured at the exchange amount which is the amount of the consideration established and agreed to by the related parties.
9.
Basic and Diluted Loss Per Common Share
Basic and diluted loss per common share is calculated based on the weighted average number of shares outstanding during the period. The warrants, share based compensation and convertible notes have been excluded from the calculation of diluted loss per share since they are anti-dilutive.
-10-
MANAGEMENTS DISCUSSION AND ANALYSIS The following information should be read in conjunction with
the unaudited consolidated financial statements for the six months period ended
June 30, 2007 and 2006 and notes thereto. Unless otherwise indicated or the
context otherwise requires, the "Company" we," "us," and "our" refer to
IntelGenx Technologies Corp. and its subsidiaries including IntelGenx Corp. ("IntelGenx")
Overview Company Background We are a drug delivery company established in 2003 and
headquartered in Montreal, Quebec, Canada, which focuses on the development of
novel oral immediate-release and controlled-release products for the generic
pharmaceutical market. Our business strategy is to develop pharmaceutical
products based on our proprietary drug delivery technologies and then license
commercial rights for such products to pharmaceutical partners once the
viability of a product has been demonstrated. We expect a partner company will,
in some cases, fund development of the licensed products, complete the
regulatory approval process with the U.S. Food and Drug Administration (FDA) or
other regulatory agencies relating to the licensed products, and assume
responsibility for marketing and distributing such products. In addition, the Company anticipates that it may undertake
full development of certain products without seeking a partner until the product
reaches the marketing and distribution stage. The Company will assess the
potential for successful development of a product and associated costs, and then
determine at which stage it is most prudent to seek a partner, balancing such
costs against the potential for additional returns earned by partnering later in
the development process. The Company has also undertaken a strategy under which it
will work with pharmaceutical companies in order to develop new dosage forms in
addition to already existing ones for pharmaceutical products for which patent
protection is about to expire. Under §(505)(b)(2) of the Food, Drug, and
Cosmetics Act, the FDA will grant a market exclusivity of up to three years for
such a new dosage form. The Company anticipates significant returns from
successfully obtaining market exclusivity in this manner. The Company is currently continuing to develop the existing products in its
pipeline and may also perform research and development on other potential
products as the opportunities present themselves. The Company does not currently
plan to acquire a manufacturing facility. The Company currently purchases and or
leases, on an as-needed basis, the equipment necessary for performing research
and development activities related to its products. The Company will hire new personnel, primarily in the area of
research and development, on an as-needed basis as the Company enters into
partnership agreements and increases its research and development activities.
-11-
IntelGenx Technologies Corp.
Notes to Consolidated Interim Financial
Statements
June 30, 2007
(Expressed in U.S. Funds)
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The IntelGenx Acquisition On April 28, 2006, the Company entered into a Share Exchange Agreement,
whereby the Company, (through its wholly-owned subsidiary 6544361 Canada, Inc.,
a Canadian company) acquired 100% of the issued and outstanding common stock and
warrants of IntelGenx, (the "IntelGenx Acquisition"). Pursuant to the Share
Exchange Agreement, and several separate related agreements, we issued, as
consideration for the IntelGenx common stock, 14,507,489 shares of our common
stock to various shareholders of IntelGenx along with 100,000 common stock
purchase warrants to an IntelGenx shareholder. The warrants granted are
exercisable at $0.41 per share of common stock, and expire on April 28, 2008.
The total shares of common stock issued by the Company pertaining to the
IntelGenx Acquisition constituted 90.6 % of the 16,007,489 shares of our common
stock then outstanding. Following the completion of the IntelGenx Acquisition,
IntelGenx continued its operations as subsidiary of the Company. As part of the IntelGenx Acquisition, we issued a controlling
amount of shares to the former IntelGenx shareholders who effectively gained
controlling interest in the Company. According to US GAAP regulations, IntelGenx
is deemed to be the accounting acquirer of the Company and the discussion of
operations below relates to the operations of IntelGenx. Results of Operations six months ended June 30, 2007 compared to the six
month period ended June 30, 2006. Increase/ Percentage 2007 2006 Change 423,378 188,686 223,773 124.4% 256,641 239,701 16,942 7.1% 3,788 8.2% 129,860 69,733 47,118 58.8% 217,803 6,644 211,029 3178% 59,676 27,877 32,471 114.0% 62.7% Revenue Our revenues from R&D services provided were $412,459 and
$10,919 for interest for a total of $423,378 for the six months period ended
June 30, 2007. This compares to $188,686 for the same period in 2006 with no
additional interest revenue. We anticipate our revenue from development
contracts in place at the time of filing of this report to be approximately
$750,000 for the year 2007. We also expect revenue from additional research and
development service contracts for which we are presently in discussions with
potential clients. If we are successful in signing on potential clients, we
would receive some additional upfront fees and research and development fees
during the current year. Research and development Costs related to research and development increased to
$256,641 from $239,701 in the first half of 2007 compared to 2006, which
reflects the increased expenses due to the commencement of new development
projects and the continuation of projects started in 2005 and 2006. Included in
these costs are R&D Salaries of $166,873, $9,522 of which are non-cash
compensation. Since research and development expenses are directly related to
the amount of R&D work performed, management expects a further increase of R&D
expenses during the current year due to a further increase of development
projects. To the extent that those projects are covered by development
agreements, a portion of those expenses will be offset by development fees
received from development partners for development services provided. For the
six months ended June 30, 2007, we have recorded estimated Research and
Development Tax Credits and refunds of $49,887 ($46,099 in 2006).
(Decrease)
Revenue
$
$
$
Research and
Development Expenses
Research and Development Tax Credit
(49,887)
(46,099)
General and
Administrative Expenses
Professional Fees
Interest and financing
fees
Net
income (loss)
(207,575)
(127,577)
(79,998)
-12-
General and Administrative General administrative expenses increased to $129,860 for the
six months period ended June 30, 2007 ($69,733 in 2006). Included in those
expenses are management salaries of $66,991 ($30,154 in 2006). The increase in
general and administrative expenses is attributed to the increase in corporate
operations. Management expects general and administrative expenses from
operations to increase according to an increase in operating activities in 2007.
Professional Fees Professional Fees increased to $217,803 from $6,644 for the
same period in 2006, $64,521 of which are non-cash compensation for Investor
Relations contracts ($0 in 2006). The increase reflects amounts paid to our
legal counsel and auditors as well as additional fees relating to our filing
requirements in the U.S. and Canada. Share-Based Compensation Expense, Warrants and Stock Based
Payments Share-based compensation expenses, warrants and share based
payments totaled $103,598 for the six months period ended June 30, 2007 as
compared to $0 for the six months ended June 30, 2006. We expensed $64,521 stock based payments in consideration of
investor relation services rendered during the six months ended June 30, 2007.
We also expensed $39,077 options that were granted to company employees in 2006
under the 2006 Stock Option Plan and vested during the first half of 2007. No
options were issued in prior years. There remains approximately $81,000 in stock
based compensation to be expensed in fiscal 2007 and 2008 related to the
issuance of options during 2006. We anticipate issuance of additional options
and warrants in the future, which will continue to result in stock, based
compensation expense and may result in warrant amortization expense. Financing Cost We incurred interest and financing fee expenses of $59,676
during the period ended June 30, 2007 compared to $27,877 for the same period in
2006. Included in those expenses are non cash financing fees of $19,044
(included in $29,877 above) which we recorded for the amortization of 62,500
options issued to an officer of the company in connection with the IntelGenx
Acquisition in April 2006. The options were granted under the 2006 Stock Option
Plan. We accrued $13,000 of interest payable on convertible
debentures which we issued on May 22, 2007. We expect to pay additional $60,000
in interest for those debentures until the end of 2007. The remainder of $10,085
interest expense relates to a long term debt which was paid off in May 2007 and
interest paid on the shareholder loan. Net Income We recorded a loss of $207,575 in the period ended June 30,
2007 compared to a net loss of $127,577 for the same period in 2006. Management
believes that we will continue to operate at a net loss until such time as we
can complete our business development efforts and begin to realize increased
sales revenues later in 2007.
-13-
Prepaid Expenses At June 30, 2007 we had prepaid expenses of $5,380 compared
to $136,569 at June 30, 2006. During the period we amortized 162,500 shares in
consideration of investor relation services. This investor relation contract was
acquired as a prepaid asset of $133,250 at the time of the IntelGenx Acquisition
in April 2006. The investor relations contract is now fully amortized. Liquidity and Capital Resources The net cash used in operating activities was $27,149 for the
six months ended June 30, 2007 compared to a use of funds of $242,390 for the
same period in 2006. The net cash provided by financing activities was $863,070
for the six months ended June 30, 2007 compared to a source of funds of $925,471
for the same period in 2006. The net cash used in investing activities was
$55,771 for the six months ended June 30, 2007 compared to a use of funds of
$86,799 for the same period in 2006. At June 30, 2007, we had cash and cash equivalents of
$1,350,629 ($607,251 for 2006). We also had accounts receivable of $161,559, and
$101,969 of investment tax credits receivable ($136,306 and $95,748 respectively
for 2006). At June 30, 2007, we had accounts payable and accrued
liabilities of $236,795. Professional fees represent $133,642 of this amount
with $77,153 relating to fees in connection with the Debenture Financing of May
22, 2007. Other accruals include the $13,000 of interest on the convertible
debentures due July 1 and $7,300 due to a shareholder. With the funds received as a result of the financing in May
2007, we are confident that we have sufficient cash available to satisfy our
requirements for the current year. At June 30, 2007, we had total assets of
$1,896,102 and shareholders equity of $ 1,115,320. Convertible Debenture Financing The Company completed on May 22, 2007, the sale of 8% Secured
Convertible Debentures in an aggregate principal amount of $1,500,000 to certain
institutional and accredited investors pursuant to a Securities Purchase
Agreement. The debentures are convertible at any time into shares of the
Company's common stock at a fixed conversion price of $0.70. The investors shall
have five years from May 22, 2007 to exercise 2,142,857 warrants. The warrants
are exercisable on a one to one basis and the exercise price is $1.02 per share.
The Debentures mature twenty-eight months from the date of issuance and they are
secured by a lien on substantially all of the assets of the Company. The Company
received net proceeds of approximately $1.36 million. In connection with the placement, the Company granted 214,857
warrants to the placement agent. The warrants are exercisable at $0.70 per share
and expire May 22, 2011. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements.
-14-
Forward-Looking and Cautionary Statements This report contains certain forward-looking statements that
involve risks and uncertainties relating to, among other things, our future
financial performance or future events. Forward-looking statements give
managements current expectations, plans, objectives, assumptions or forecasts
of future events. All statements other than statements of current or historical
fact contained in this Form 10QSB, including statements regarding our future
financial position, business strategy, budgets, projected costs and plans and
objectives of management for future operations, are forward-looking statements.
In some cases, you can identify forward-looking statements by terminology such
as "anticipate," "estimate," "plans," "potential," "projects," "ongoing,"
"expects," "management believes," "we believe," "we intend," and similar
expressions. These statements involve known and unknown risks, estimates,
assumptions and uncertainties that could cause actual results to differ
materially from the results set forth in this Annual Report. You should not
place undue reliance on these forward-looking statements. You should be aware
that our actual results could differ materially from those contained in the
forward-looking statements due to a number of factors such as: These factors should be considered
carefully and readers are cautioned not to place undue reliance on such forward
looking statements. These forward-looking statements speak only as of the date
on which they are made, and except to the extent required by federal securities
laws, we undertake no obligation to update any forward-looking statements to
reflect events or circumstances after the date on which the statement is made or
to reflect the occurrence of unanticipated events. In addition, we cannot assess
the impact of each factor on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements. Item 3. Controls and Procedures. As of the end of the period covered
by this report, we carried out an evaluation, under the supervision and with the
participation of management, including our chief executive officer and principal
financial officer, of the effectiveness of the design and operation of our
disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e)
of the Securities Exchange Act of 1934. Based upon that evaluation, our chief
executive officer and principal financial officer concluded that our disclosure
controls and procedures are effective to cause the material information required
to be disclosed by us in the reports that we file or submit under the Exchange
Act to be recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms. There have been no significant changes
in our internal controls or in other factors which could significantly affect
internal controls subsequent to the date we carried out our evaluation.
continued development of our technology;
lack of product revenues
successful completion of clinical trials and obtaining regulatory approval to
market
ability to protect our intellectual property
dependence on collaborative partners
ability to generate positive cash flow
ability to raise additional capital if and when necessary
dependence on key personnel;
competitive factors;
the operation of our business; and
general economic conditions.
-15-
PART II Item 1. Legal Proceedings There are no material pending legal proceedings to which we are a party or to
which any of our property is subject and to the best of our knowledge, no such
actions against us are contemplated or threatened. Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds This Item is not applicable. Item 3. Defaults Upon Senior Securities
This Item is not applicable. Item 4. Submission of Matters to a Vote of
Security Holders On April 10, 2007, the Board of Directors of the Corporation approved an
amendment, subject to shareholder approval, to the Corporation's Certificate of
Incorporation, as amended, to increase the number of authorized common shares
from 20,000,000 to 100,000,000 and to authorize the creation of 20,000,000
shares of "blank check" preferred shares. On April 10, 2007, the majority
stockholder of the Corporation approved the same resolution as the Board of
Directors. Item 5. Other Information This Item is not applicable. Item 6. Exhibits (a) Exhibits: Exhibit 31.1 Exhibit 31.2 Exhibit 32.1 Exhibit 32.2
Certification of C.E.O. Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
Certification of Principal Accounting Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of C.E.O. pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Accounting Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
-16-
SIGNATURES In accordance with the requirements
of the Securities Exchange Act of 1934, the Registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
|
INTELGENX TECHNOLOGIES CORPORATION | |||
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|
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Date: August 14, 2007 |
By: /S/ | Horst Zerbe | ||
|
Horst Zerbe | |||
|
President, C.E.O. and | |||
|
Director | |||
|
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|
||||
Date: August 14, 2007 |
By: /S/ | Gino Di Iorio | ||
|
Gino Di Iorio | |||
|
Chief Financial Officer |
-17-