Item 2
:
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction to managements discussion and analysis
The purpose of this section, Managements Discussion and
Analysis of Financial Condition and Results of Operations, is to provide a
narrative explanation of the financial statements that enables investors to
better understand the business of the Company, to enhance the Companys overall
financial disclosures, to provide the context within which the Companys
financial information may be analyzed, and to provide information about the
quality of, and potential variability of, the Companys financial condition,
results of operations and cash flows. Unless otherwise indicated, all financial
and statistical information included herein relates to continuing operations of
the Company. Unless otherwise indicated or the context otherwise requires, the
words, IntelGenx, Company, we, us, and our refer to IntelGenx
Technologies Corp. and its subsidiaries, including IntelGenx Corp. This
information should be read in conjunction with the accompanying unaudited
Consolidated Financial Statements and Notes thereto.
Company background
We are a drug delivery company established in 2003 and
headquartered in Montreal, Quebec, Canada. Our focus is on the development of
novel oral immediate-release and controlled-release products for the
pharmaceutical market. Our business strategy is to develop pharmaceutical
products based on our proprietary drug delivery technologies and, once the
viability of a product has been demonstrated, to license the commercial rights
to partners in the pharmaceutical industry. In certain cases, we rely upon
partners in the pharmaceutical industry to 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, we may choose to pursue the development of certain
products until the project reaches the marketing and distribution stage. We 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.
We have also undertaken a strategy under which we will work
with pharmaceutical companies in order to develop new dosage forms for
pharmaceutical products for which patent protection is nearing expiration. Under
§(505)(b)(2) of the Food, Drug, and Cosmetics Act, the FDA may grant market
exclusivity for a term of up to three years of exclusivity following approval of
a listed drug that contains previously approved active ingredients but is
approved in a new dosage, dosage form, route of administration or combination,
or for a new use, the approval of which was required to be supported by new
clinical trials, other than bioavailability studies, conducted by or for the
sponsor.
We are currently continuing to develop the existing products in
our pipeline and may also perform research and development on other potential
products as opportunities arise.
We currently purchase and/or lease, on an as-needed basis, the
equipment necessary for performing research and development activities related
to our products.
We plan to hire new personnel, primarily in the areas of
research and development, manufacturing, and administration on an as-needed
basis as we enter into partnership agreements, establish our pilot plant
VersaFilm manufacturing capability, and increase our research and development
activities.
11
Key developments
Anti-migraine VersaFilm product
On February 4, 2014, together with our
co-development partner RedHill Biopharma Ltd. ("RedHill"), we announced receipt
of a Complete Response Letter ("CRL") from the FDA regarding the New Drug
Application ("NDA") for our VersaFilm product for the treatment of acute
migraines. The anti-migraine VersaFilm product is a proprietary oral thin film
formulation of rizatriptan benzoate, a 5-HT1 receptor agonist and the active
drug in Merck & Co.'s Maxalt®.
A CRL is issued by the FDA's Center for
Drug Evaluation and Research to inform companies that certain questions and
deficiencies remain that preclude the approval of the application in its present
form. The questions raised by the FDA in the CRL regarding the NDA for the
anti-migraine VersaFilm product primarily relate to Chemistry, Manufacturing
and Controls ("CMC") and to the packaging and labeling of the product. No
questions or deficiencies were raised relating to the product's safety and the
FDA's CRL does not require additional clinical studies.
On March 3, 2014 IntelGenx and RedHill
(the Companies) announced the submission of a response to the FDAs CRL and on
April 24, 2014 the Companies reported that the FDA had acknowledged receipt of
our response and has requested additional CMC data, which the Companies believe
they can supply based on available information.
The Companies further reported that a
supplier of raw material for the anti-migraine VersaFilm product is currently
holding compliance discussions with the FDA, which are independent of RedHill
and IntelGenx and are not specific to our anti-migraine VersaFilm product. The
Companies are diligently working on a variety of options to ensure continued
supply of the raw material regardless of the result of these compliance
discussions and have already identified and audited an alternative active
pharmaceutical ingredient (API) supplier and are preparing to manufacture the
batches required for the CRL response and to conduct the stability studies that
are required to support the switch to the new API.
On April 28, 2014 the Companies
announced the commencement of a comparative bioavailability clinical study
comparing the anti-migraine VersaFilm product to the European reference drug.
The study is intended to support the planned submission of a European Marketing
Authorization Application ("MAA") and follows a positive scientific advice
meeting with the German Federal Institute for Drugs and Medical Devices
("BfArM") announced by RedHill in November 2013. This single-dose, crossover,
comparative bioavailability study includes 26 healthy volunteers and is intended
to evaluate and compare the relative bioavailability and to assess the
bioequivalence of the anti-migraine VersaFilm product and the reference drug,
Maxalt® lingua, marketed in Germany by MSD SHARP & DOHME GMBH.
On May 21, 2014 the Companies announced
positive results from the comparative bioavailability study. The results are
subject to final quality assurance and an independent study report by the
Canadian clinical research organization ("CRO") that conducted the study. The
final independent report from the CRO is expected in the coming weeks.
In light of the positive results from
the bioavailability study and data from prior clinical studies conducted with
the anti-migraine VersaFilm product, and subject to various regulatory
requirements, the Companies plan to submit a European MAA during the third
quarter of 2014.
12
Par Pharmaceutical, Inc.
On January 13, 2014 we announced the
execution of a second development and commercialization agreement with Par
Pharmaceutical, Inc. ("Par") for two new products utilizing our proprietary oral
drug delivery platforms.
Under the terms of the agreement, Par
has obtained certain exclusive rights to market and sell our products in the
USA. In exchange we will receive upfront and milestone payments, together with a
share of the profits upon commercialization. In accordance with confidentiality
clauses contained in the agreement, the specifics of the products and financial
terms remain confidential.
Erectile Dysfunction VersaFilm product
On February 24, 2014 we announced the
completion of a pilot biostudy with our proprietary VersaFilm tadalafil product
for erectile dysfunction that indicated bioequivalence with the leading brand
reference listed drug (RLD) tadalafil product.
This was a randomized, two-period,
two-way crossover study in healthy male subjects. The study was designed to
determine whether VersaFilm tadalafil was bioequivalent as measured by industry
standard pharmacokinetic measures of peak plasma concentration (Cmax) and area
under the curve (AUC). The study results demonstrated that VersaFilm tadalafil
was within an acceptable range of bioequivalency with the RLD on both of these
measures.
Government Funding for CNS VersaFilm product
On April 30, 2014 we announced
financial support from the National Research Council of Canada Industrial
Research Assistance Program (NRC-IRAP). In addition to advisory services and
technological expertise, the funding provided by NRC-IRAP will support further
development of a product for the treatment of central nervous system (CNS)
diseases and disorders. The product will be based upon our proprietary, oral
thin film, VersaFilm, technology.
In order to maintain our competitive
advantage, no specific details related to this project are being disclosed at
this time.
U.S. patent allowances
On February 26, 2014 we announced
receipt of a Notice of Allowance ("NOA") from the United States Patent and
Trademark Office ("USPTO") for U.S. Patent Application Serial No. 11/647,033
entitled "Multilayer tablet" which covers the technology used in our
hypertension product currently under development. A second NOA has been received
for U.S. Patent Application Serial No. 11/782,838 entitled "Controlled-release
pharmaceutical tablets" which is related to the drug delivery technology used in
Forfivo XL®, our first FDA-approved product currently commercialized in the U.S.
These two NOA's conclude the examination of each U.S. patent application and
will result in the issuance of two U.S. patents after administrative processes
are completed.
On April 16, 2014 we announced receipt
of a further NOA from the USPTO for U.S. Patent Application Serial No.
12/836,810 entitled "Oral mucoadhesive dosage form" which covers IntelGenx'
proprietary AdVersa mucoadhesive drug delivery technology. This NOA concludes
the examination of the U.S. patent application and will result in the issuance
of a U.S. patent after the administrative process is completed.
Equity Analyst Coverage by H.C. Wainwright
Subsequent to the end of the quarter,
on July 1, 2014 we announced that H.C. Wainwright initiated equity analyst coverage of IntelGenx with a
"buy" rating and price target of $2. The stock closed at US$0.70 on the OTCQX
and at CAD$0.74 on the TSX-V on Friday, June 27, 2014.
13
A copy of the initiation report can be
accessed by clicking:
https://hcwco.bluematrix.com/docs/pdf/ff51024b-71e2-47c5-ab58-7d05118ab4aa.pdf.
All reports on us prepared by analysts
represent the views of such analysts and are not necessarily those of IntelGenx.
We are not responsible for the content, accuracy or timelines provided by
analysts.
Management Changes
Subsequent to the end of the quarter,
on July 15, 2014 we announced that the board of directors (the "Board") of
IntelGenx had accepted, with immediate effect, the resignation of Dr. Rajiv
Khosla as President and Chief Executive Officer ("CEO") of IntelGenx and as a
member of the Board. The Board immediately appointed Dr. Horst G. Zerbe to serve
as our interim President and CEO until a successor is found, and a Search
Committee has been formed by the Board to begin the search, selection and
appointment of a new President and CEO.
Management Call
Subsequent to the end of the quarter,
on July 18, 2014 we announced that our interim CEO, Dr. Horst G. Zerbe, would
host a conference call on July 23, 2014 at 10:00 AM Eastern Time. During the
conference call, Dr. Zerbe provided a business update, discussed recent
management changes, and answered questions.
A replay of the call is available via
the homepage of our website, www.intelgenx.com, and will remain available until
at least September, 2014.
Currency rate fluctuations
Our operating currency is Canadian dollars, while our reporting
currency is U.S. dollars. Accordingly, our results of operations and balance
sheet position have been affected by currency rate fluctuations. The following
management discussion and analysis takes this into consideration whenever
material.
Results of operations for the six month period ended June
30, 2014 compared with the six month period ended June 30, 2013.
In U.S.$ thousands
|
|
2014
|
|
|
2013
|
|
|
Increase/
(Decrease)
|
|
|
Percentage
Increase/
(Decrease)
|
|
Revenue
|
$
|
382
|
|
$
|
704
|
|
$
|
(322
|
)
|
|
(46%
|
)
|
Research and Development Expenses
|
|
413
|
|
|
215
|
|
|
198
|
|
|
92%
|
|
Selling, General and Administrative
Expenses
|
|
1,003
|
|
|
850
|
|
|
153
|
|
|
18%
|
|
Depreciation of tangible assets
|
|
14
|
|
|
17
|
|
|
(3
|
)
|
|
(18%
|
)
|
Amortization of intangible assets
|
|
20
|
|
|
19
|
|
|
1
|
|
|
5%
|
|
Net Loss
|
|
(1,056
|
)
|
|
(396
|
)
|
|
660
|
|
|
167%
|
|
14
Revenue
Total revenue decreased from $704 thousand in the first six months of 2013 to $382 thousand in the first six months of 2014.
Of the total revenue recorded during the first six months of 2014, $332 thousand (2013: $247 thousand) relates to Forfivo XL®, our first FDA approved product, which was launched in October 2012 under a licensing partnership with Edgemont
Pharmaceuticals LLP (“Edgemont”). Upon entering into the licensing agreement, Edgemont paid us an upfront fee of $1 million, which we recognized as deferred license revenue. The deferred license revenue is being amortized in income
over the period where sales of Forfivo XL® are expected to be exclusive. As a result of this policy, we recognized $153 thousand in income during the first six months of 2014 (2013: $156 thousand). In addition, we recognized
approximately $179 thousand (2013: $91 thousand) of royalty income in the first six months of 2014 that was earned from commercial sales of Forfivo XL®. Pursuant to the contractual terms, royalty income relates to sales of Forfivo
XL® recorded by Edgemont during the quarter preceding receipt of the royalty income by us. 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.
Sales of Forfivo XL® continue to be below expectations and Management continues to explore options to accelerate sales growth of Forfivo XL®.
Revenue for the six months ended June 30, 2014 also includes a $50 thousand milestone payment in respect of one of the two new projects being developed in accordance with our new development and commercialization agreement with Par, utilizing
our proprietary oral drug delivery platforms. As previously stated, in accordance with confidentiality clauses contained in the agreement, the specifics of the product and financial terms remain confidential.
Revenue for the 6 months ended June 30, 2013 includes $256 thousand related to a development milestone for our VersaFilm™ buprenorphine/naloxone product for the treatment of opiate addiction. The milestone became due following the
successful completion of the pivotal bioequivalence study.
Also included in revenue for the first six months of 2013 is $201 thousand related to a development milestone for our anti-migraine VersaFilm™ oral film product. The milestone became due following confirmation that our NDA submission to
the FDA was sufficiently complete to permit a substantive review in accordance with the FDA's "standard" classification process.
Research and development (“R&D”) expenses
R&D expenses, net of R&D investment tax credits, totaled $413 thousand in the six months ended June 30, 2014, representing an increase of $198 thousand to the amount of $215 thousand expensed in the same period of 2013.
The increase in R&D expenses relates primarily to the costs of a pilot clinical study for our VersaFilm™ product for erectile dysfunction that was completed in Q1, 2014 and indicated bioequivalence with the leading brand reference listed
drug tadalafil product. R&D expenses also increased as a result of costs incurred in the development of our second Par project, which is progressing according to plan.
Included within R&D expenses for the first six months of 2014 are R&D Salaries of $240 thousand, of which approximately $4 thousand represents non-cash compensation. This compares to R&D salaries of $284 thousand in the first
six months of 2013, of which approximately $5 thousand represented non-cash compensation. The reduction in R&D salaries is primarily attributable to the retirement, effective December 31, 2013, of Dr. Horst Zerbe, our founder, and former
President and CEO. 50% of Dr. Zerbe’s expenses were previously apportioned to the R&D
department. Dr. Zerbe remained available to us to consult on R&D activities until, following the resignation of Dr. Rajiv Khosla, the Board appointed Dr. Zerbe Interim President and Interim CEO with effect from July 14, 2014.
15
In the six months ended June 30, 2014 we recorded estimated research and development tax credits and refunds of $36 thousand, compared with $69 thousand that was recorded in the same period of the previous year. The amounts of research and
development tax credits and refunds recorded by us may fluctuate from reporting period to reporting period depending upon the level of activity surrounding projects that we are currently progressing, together with whether or not we are able to
fulfill Canadian eligibility criteria for obtaining such tax credits and refunds.
Selling, general and administrative (“SG&A”) expenses
SG&A expenses totaled $1,003 thousand in the first 6 months of 2014, representing an increase of $153 thousand compared with $850 thousand in the first six months of 2013.
The increase in SG&A expenses relates primarily to an increase in legal expenses of approximately $82 thousand related to our Paragraph IV litigation with Wockhardt Bio AG (“Wockhardt”). In August 2013 we received a Paragraph IV
Certification Letter from Wockhardt, advising of the submission of an Abbreviated New Drug Application ("ANDA") to the FDA requesting authorization to manufacture and market generic versions of Forfivo XL® ("Forfivo") 450 mg capsules in the
United States. We continue to enforce our intellectual property rights for Forfivo XL®, which is currently protected by an issued patent listed in the FDA's Approved Drug Products List (Orange Book).
SG&A expenses also increased by approximately $47 thousand due to an increase in the remuneration of our Board of Directors that was effective from April 1, 2014.
Included in SG&A expenses are approximately $53 thousand (2013: $26 thousand) in non-cash compensation from options granted to management employees in 2012 and 2013, $8 thousand (2013: $6 thousand) in non-cash compensation from
options granted to non-employee directors in 2013, and $Nil (2013: $11 thousand) in non-cash compensation from options granted to consultants in 2012.
Depreciation of tangible assets
In the six months ended June 30, 2014 we recorded an expense of $14 thousand for the depreciation of tangible assets, compared with an expense of $17 thousand for the same period of the previous year. As at June 30, 2014 we are carrying
approximately $608 thousand of assets, primarily VersaFilm™ manufacturing equipment, that are not being depreciated as they are not currently in service.
Amortization of intangible assets
The amortization of intangible assets expensed for the first six months of 2014 totaled $20 thousand, compared with $19 thousand in the same period of last year. The expense relates to the amortization of NDA acquisition costs in respect of
the final progress payment to acquire 100% ownership of Forfivo XL®. Commercialization of Forfivo XL® in October 2012 triggered amortization of the asset over its estimated useful life of 39 months.
Share-based compensation expense, warrants and stock based payments
Share-based compensation expense, warrants and share-based payments totaled $65 thousand for the six months ended June 30, 2014, compared with $48 thousand for the six months ended June 30, 2013.
We expensed approximately $57 thousand in the first six months of 2014 for options granted to our employees in 2011 and 2012 under the 2006 Stock Option Plan, and
approximately $8 thousand for options granted to non-employee directors in 2013,
compared with $31 thousand and $6 respectively that was expensed in the same
period of the previous year.
16
We also expensed $11 thousand in the first six months of 2013
for options granted to consultants.
There remains approximately $161 thousand in stock based
compensation to be expensed in fiscal 2014 and 2015, all of which relates to the
issuance of options to our employees and directors during 2012 and 2013. We
anticipate the issuance of additional options and warrants in the future, which
will continue to result in stock-based compensation expense.
Key items from the balance sheet.
In U.S.$ thousands
|
|
June 30,
2014
|
|
|
December
31,
2013
|
|
|
Increase/
(Decrease)
|
|
|
Percentage
Increase/
(Decrease)
|
|
Current Assets
|
$
|
5,541
|
|
$
|
5,550
|
|
$
|
(9
|
)
|
|
(0%
|
)
|
Leasehold improvements and Equipment
|
|
744
|
|
|
588
|
|
|
156
|
|
|
27%
|
|
Intangible Assets
|
|
59
|
|
|
79
|
|
|
(20
|
)
|
|
(25%
|
)
|
Current Liabilities
|
|
624
|
|
|
901
|
|
|
(277
|
)
|
|
(31%
|
)
|
Deferred License Revenue
|
|
154
|
|
|
308
|
|
|
(154
|
)
|
|
(50%
|
)
|
Capital Stock
|
|
1
|
|
|
1
|
|
|
0
|
|
|
0%
|
|
Additional Paid-in-Capital
|
|
22,618
|
|
|
20,934
|
|
|
1,684
|
|
|
8%
|
|
Current assets
Current assets totaled $5,541 thousand at June 30, 2014
compared with $5,550 thousand at December 31, 2013. The decrease of $9 thousand
is attributable to a decrease in accounts receivable of approximately $91
thousand, a decrease in prepaid expenses of approximately $40 thousand, and a
decrease in investment tax credits receivable of approximately $51 thousand,
partly offset by an increase in cash and cash equivalents of approximately $173
thousand
Cash and cash equivalents
Cash and cash equivalents totaled $5,178 thousand as at June
30, 2014 representing an increase of $173 thousand compared with the balance of
$5,005 thousand as at December 31, 2013. The increase in cash on hand relates to
net cash provided by financing activities of $1,619 thousand, partly offset with
net cash used by operating activities of $1,206 thousand, net cash used in
investing activities of $168 thousand and an unrealized foreign exchange loss of
$72 thousand.
The cash provided by financing activities derives from the
exercise of 2,480,988 warrants that were exercised for 2,480,988 common shares
for cash consideration of $1,619 thousand.
Accounts receivable
Accounts receivable totaled $53 thousand as at June 30, 2014
representing a decrease of $91 thousand compared with the balance of $144
thousand as at December 31, 2013. The decreased balance relates to the payment
of
invoices in Q1, 2014 that were issued and outstanding at December 31, 2013.
17
Prepaid expenses
As of June 30, 2014 prepaid expenses totaled $93 thousand compared with $133 thousand as of December 31, 2013. The decrease in prepaid expenses relates to a deposit paid in December 2013 for a biostudy undertaken in the first quarter of
2014, and a deposit paid in 2013 for R&D machinery to be supplied and installed in 2014.
Investment tax credits receivable
R&D investment tax credits receivable totaled approximately $217 thousand as at June 30, 2014 compared with $268 thousand as at December 31, 2013. The decrease relates to the receipt in Q2, 2014 of the balance of the fiscal 2012
investment tax credit receivable in the amount of $106 thousand, partly offset by the accrual recorded for the first six months of 2014.
Leasehold improvements and equipment
As at June 30, 2014, the net book value of leasehold improvements and equipment amounted to $744 thousand, compared to $588 thousand at December 31, 2013. In the six months ended June 30, 2014 additions to assets totaled $168 thousand
and comprised $36 thousand for pilot plant manufacturing equipment for our VersaFilm™ products, $107 thousand for R&D equipment, $16 thousand for leasehold improvements and $9 thousand for computer equipment. In the six
months ended June 30, 2014 we recorded depreciation on leasehold improvements and equipment of $14 thousand and incurred an unrealized foreign exchange gain of $2 thousand.
Intangible assets
As at June 30, 2014 NDA acquisition costs of $59 thousand (December 31, 2013 - $79 thousand) were recorded as intangible assets on our balance sheet and are related to the acquisition of 100% ownership of Forfivo XL®. The asset is being
amortized over its expected useful life of 39 months and amortization commenced upon commercial launch of Forfivo XL® in the fourth quarter of 2012.
Current liabilities
Current liabilities totaled $624 thousand as at June 30, 2014 (December 31, 2013 - $901 thousand) and consisted of accounts payable and accrued liabilities of $266 thousand (December 31, 2013 - $593 thousand) and the current portion
of deferred license revenue of $358 thousand (December 31, 2013 - $308 thousand).
Included in the accounts payable and accrued liabilities balance of $266 thousand as at June 30, 2014 is approximately $41 thousand relating to research and development activities, approximately $34 thousand relating to professional
fees, and approximately $146 thousand relates to accrued payroll liabilities. This compares with approximately $100 thousand relating to research and development activities, approximately $180 thousand relating to professional fees, of
which approximately $87 thousand relates to the public offering completed in December, 2013, and approximately $301 thousand relates to accrued payroll liabilities, that was included in the accounts payable and accrued liabilities balance as
at December 31, 2013.
Deferred license revenue
Pursuant to the execution of a licensing agreement for Forfivo XL®, we received an upfront fee from Edgemont Pharmaceuticals in the first quarter of 2012, which we recognized as deferred license revenue. The deferred license revenue is being
amortized in income over the period where sales of Forfivo XL®™ are expected to be exclusive. As a result of this policy, we have a deferred revenue balance
related to this upfront fee of $462 thousand at June 30, 2014 (December 31,
2013: $616 thousand) that has not been recognized as revenue, of which $154
thousand is recognized as the non-current portion and $308 thousand is
recognized in current assets as the current portion. This compares with $308
thousand and $308 thousand respectively as at December 31, 2013.
18
In January, 2014 IntelGenx entered into a development and
commercialization agreement with Par Pharmaceutical, Inc. for two products. The
Company received $100 thousand upon execution of the agreement, of which $50
thousand has been recognized in current liabilities as deferred revenue until
certain development milestones that are expected to be achieved in 2014 have
been realised.
Shareholders equity
As at June 30, 2014 we had accumulated a deficit of $17,158
thousand compared with an accumulated deficit of $16,102 thousand as at December
31, 2013. Total assets amounted to $6,344 thousand and shareholders equity
totaled $5,566 thousand as at June 30, 2014, compared with total assets and
shareholders equity of $6,217 thousand and $5,008 thousand respectively, as at
December 31, 2013.
Capital stock
As at June 30, 2014 capital stock amounted to $635 compared to
$610 at December 31, 2013. The increase reflects the issuance of 2,480,988
shares related to the exercise of warrants, with all shares issued at par value
of $0.00001. Capital stock is disclosed at its par value with the excess of
proceeds shown in Additional paid-in-capital.
Additional paid-in-capital
Additional paid-in capital totaled $22,618 thousand at June 30,
2014, compared with $20,934 thousand at December 31, 2013. Additional paid-in
capital increased by $1,619 thousand for warrants exercised during the first
quarter, and by $65 thousand for stock based compensation attributable to the
amortization of stock options granted to employees and directors.
Taxation
As at December 31, 2013, the date of our latest annual tax
return, we had Canadian and provincial net operating losses of approximately
$8,874 thousand (2012: $8,390 thousand) and $9,040 thousand (2012: $8,566
thousand) respectively, which may be applied against earnings of future years.
Utilization of the net operating losses is subject to significant limitations
imposed by the change in control provisions. Canadian and provincial losses will
be expiring between 2027 and 2033. A portion of the net operating losses may
expire before they can be utilized.
As at December 31, 2013, we had non-refundable tax credits of
$1,098 thousand (2012 - $914 thousand) of which $22 thousand is expiring in
2017, $212 thousand is expiring in 2018, $186 thousand is expiring in 2019, $158
thousand is expiring in 2020, $169 thousand is expiring in 2021, $232 thousand
is expiring in 2022 and $119 thousand is expiring in 2023. We also had
undeducted research and development expenses of $4,354 thousand (2012: $4,464
thousand) with no expiration date.
The deferred tax benefit of these items was not recognized in
the accounts as it has been fully provided for.
19
Key items from the statement of cash flows
In U.S.$ thousands
|
|
June 30,
2014
|
|
|
June 30,
2013
|
|
|
Increase/
(Decrease)
|
|
|
Percentage
Increase/
(Decrease)
|
|
Operating Activities
|
$
|
(1,206
|
)
|
$
|
(314
|
)
|
$
|
892
|
|
|
284%
|
|
Financing Activities
|
|
1,619
|
|
$
|
782
|
|
$
|
837
|
|
|
107%
|
|
Investing Activities
|
|
(168
|
)
|
|
(161
|
)
|
|
7
|
|
|
4%
|
|
Cash and cash equivalents - end of period
|
|
5,178
|
|
|
2,284
|
|
|
2,894
|
|
|
127%
|
|
Statement of cash flows
Net cash used by operating activities was $1,206 thousand in
the six months ended June 30, 2014, compared with $314 thousand for the six
months ended June 30, 2013. In the first six months of 2014, net cash used by
operating activities consisted of an operating loss of $957 thousand (2013: $312
thousand) net of non-cash related expenses of approximately $99 thousand (2013:
$84 thousand), and a decrease in non-cash operating elements of working capital
of $249 thousand, compared with a decrease of $2 thousand in the same period of
the previous year.
Operating activities will continue to consume our available
funds until we are able to generate increased revenues.
The net cash provided by financing activities was $1,619
thousand in the first six months of 2014, compared with $782 thousand provided
in the same period of the previous year. The net cash provided in the first six
months of 2014 resulted from the exercise of 2,480,988 warrants, whereas the
cash provided in the first six months of 2013 resulted from the exercise of
1,584,000 warrants and 75,000 stock options.
Net cash used in investing activities amounted to $168 thousand
in the six months ended June 30, 2014 compared with $161 thousand in the six
months ended June 30, 2013. Included within the use of funds in the first six
months of 2014 is an investment of approximately $36 thousand (2013: $160
thousand) for pilot plant manufacturing equipment for our VersaFilm products,
$107 thousand (2013: $Nil) for R&D equipment, $16 thousand (2013: $Nil) for
leasehold improvements and $9 thousand (2013: $1 thousand) for computer
equipment.
The balance of cash and cash equivalents as at June 30, 2014
amounted to $5,178 thousand, compared with $2,284 thousand at June 30, 2013.
Off-balance sheet arrangements
We have no off-balance sheet arrangements.