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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

or

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to________

Commission File Number 000-31187

INTELGENX TECHNOLOGIES CORP.

(Exact name of small business issuer as specified in its charter)

Delaware  87-0638336

(State or other jurisdiction of

incorporation or organization)

 (I.R.S. Employer Identification No.)

6420 Abrams, Ville Saint Laurent, Quebec H4S 1Y2, Canada

(Address of principal executive offices)

(514) 331-7440

(Issuer's telephone number)

____________________________________________________
(Former Name, former Address, if changed since last report)

        Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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  [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer", "non-accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [   ]   Accelerated filer                  [   ]
Non-accelerated filer   [   ] (Do not check if a smaller reporting company) Smaller reporting company [X]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDS DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes [   ]    No [   ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

APPLICABLE TO CORPORATE ISSUERS:

154,951,290 shares of the issuer's common stock, par value $.00001 per share, were issued and outstanding as of May 11, 2022.

1

IntelGenx Technologies Corp.

Form 10-Q

TABLE OF CONTENTS

  PART I. FINANCIAL INFORMATION  
     
Item 1. Financial Statements 3
     
  Consolidated Balance Sheet 4
     
  Statement of Shareholders' Equity 5
     
  Statement of Operations and Comprehensive Loss 6
     
  Statement of Cash Flows 7
     
  Notes to Financial Statements 8
     
Item 2. Management's Discussion and Analysis and Results of Operations 25
     
Item 3. Controls and Procedures 35
     
  PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 35
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 35
     
Item 3. Defaults upon Senior Securities 35
     
Item 4. Reserved 35
     
Item 5. Other Information 35
     
Item 6. Exhibits 36
     
  Signatures 36
 

2

IntelGenx Technologies Corp.

Consolidated Interim Financial Statements

March 31, 2022

(Expressed in U.S. Funds)

(Unaudited)

 

Contents

 

3


IntelGenx Technologies Corp.

Consolidated Balance Sheet

(Expressed in Thousands of U.S. Dollars ($000's) Except Share and Per Share Data)

(Unaudited)

    March 31, 2022     December 31, 2021  
             
Assets            
             
Current            
             
Cash $ 6,614   $ 3,945  
Short-term investments   3,635     6,004  
Accounts receivable   754     680  
Prepaid expenses   132     105  
Investment tax credits receivable   225     436  
Security deposits   208     205  
Inventory (note 3)   88     62  
             
Total current assets   11,656     11,437  
             
Leasehold improvements and equipment, net (note 4)   5,163     5,213  
             
Security deposits   256     252  
             
Operating lease right-of-use-asset   961     1,003  
             
Total assets $ 18,036   $ 17,905  
             
Liabilities            
             
Current            
Accounts payable and accrued liabilities   2,351     2,299  
Current portion of operating lease liability (note 12)   252     249  
Current portion of finance lease liability (note 12)   37     36  
Deferred revenue   138     189  
Convertible debentures (note 7)   4,327     4,247  
Total current liabilities   7,105     7,020  
             
Long-term debt (note 6)   5,500     2,500  
             
Convertible notes (note 8)   4,138     3,709  
             
Operating lease liability (note 12)   604     642  
             
Finance lease liability (note 12)   75     84  
             
Deferred income tax liability   -     79  
             
Total liabilities   17,422     14,034  
             
Contingencies (note 15)            
             
Subsequent events (note 16)            
             
Shareholders' equity            
             
Capital stock, common shares, $0.00001 par value; 450,000,000 shares authorized; 154,651,289 shares issued and outstanding (2021: 154,571,289 common shares) (note 9)   1     1  
             
Additional paid-in capital (note 10)   62,842     63,104  
             
Accumulated deficit   (60,526 )   (57,863 )
             
Accumulated other comprehensive loss   (1,703 )   (1,371 )
             
Total shareholders' equity   614     3,871  
             
  $ 18,036   $ 17,905  

See accompanying notes

Approved on Behalf of the Board:

/s/    Bernd J. Melchers                 Director                                        /s/ Horst G. Zerbe                      Director

4


IntelGenx Technologies Corp.

Consolidated Statement of Shareholders' Equity

For the Period Ended March 31, 2022

(Expressed in Thousands of U.S. Dollars ($000's) Except Share and Per Share Data)

(Unaudited)

                            Accumulated        
                Additional           Other     Total  
    Capital Stock     Paid-In     Accumulated     Comprehensive     Shareholders'  
    Number     Amount     Capital     Deficit     Loss     Equity  
                                     
Balance - December 31, 2021   154,571,289   $ 1   $ 63,104   $ (57,863 ) $ (1,371 ) $ 3,871  
                                     
Modified retrospective adjustment upon adoption of ASU 2020-06   -     -     (325 )   23     -     (302 )
                                     
Other comprehensive loss   -     -     -     -     (332 )   (332 )
                                     
Conversion of convertible debentures (note 7)   80,000     -     31     -     -     31  
                                     
Stock-based compensation (note 10)   -     -     32     -     -     32  
                                     
Net loss for the period   -     -     -     (2,686 )   -     (2,686 )
                                     
Balance - March 31, 2022   154,651,289   $ 1   $ 62,842   $ (60,526 ) $ (1,703 ) $ 614  

See accompanying notes

5

IntelGenx Technologies Corp.

Consolidated Statement of Comprehensive Loss

(Expressed in Thousands of U.S. Dollars ($000's) Except Share and Per Share Data)

(Unaudited)

    For the Three-Month Period  
    Ended March 31,  
    2022     2021  
             
Revenues (note 11) $ 237   $ 286  
             
Total Revenues   237     286  
             
Expenses            
             
Research and development expense   798     471  
Manufacturing expenses   470     621  
Selling, general and administrative expense   1,084     929  
Depreciation of tangible assets   195     192  
             
Total expenses   2,547     2,213  
             
Operating loss   (2,310 )   (1,927 )
             
Interest income   1     -  
             
Financing and interest expense   (377 )   (334 )
             
Net financing and interest expense   (376 )   (334 )
             
Net Loss   (2,686 )   (2,261 )
             
Other Comprehensive Loss            
Foreign currency translation adjustment   17     (27 )
Change in fair value   (349 )   (9 )
             
    (332 )   (36 )
             
             
Comprehensive loss $ (3,018 ) $ (2,297 )
             
Basic and Diluted Weighted Average Number of Shares Outstanding   154,595,511     111,722,199  
             
Basic and Diluted Loss Per Common Share (note 14) $ (0.02 ) $ (0.02 )

See accompanying notes

6

IntelGenx Technologies Corp.

Consolidated Statement of Cash Flows

(Expressed in thousands of U.S. Dollars ($000's) Except Share and Per Share Data)

(Unaudited)

    For the Three-Month Period  
    Ended March 31,  
    2022     2021  
             
Funds (used) provided -            
             
Operating activities            
             
Net loss $ (2,686 ) $ (2,261 )
Depreciation of tangible assets   195     192  
Stock-based compensation   32     31  
Accretion expense   91     138  
DSU expense   68     115  
Lease non-cash expense   1     1  
    (2,299 )   (1,784 )
             
Changes in non-cash items related to operations:            
Accounts receivable   (74 )   (116 )
Prepaid expenses   (27 )   (4 )
Investment tax credits receivable   211     (72 )
Contract asset   -     354  
Inventory   (26 )   126  
Security deposits   -     206  
Accounts payable and accrued liabilities   (21 )   (157

)
Deferred revenues   (51 )   (22 )
             
Net change in non-cash items related to operations   12     315  
             
Net cash used in operating activities   (2,287 )   (1,469 )
             
Financing activities            
Finance lease payments   (9 )   (6 )
Issuance of loan   3,000     2,000  
Repayment of long-term debt   -     (737 )
Net cash provided by financing activities   2,991     1,257  
             
Investing activities            
Additions to leasehold improvements and equipment   (64 )   (12 )
Redemption of short-term investments   5,719     627  
Acquisition of short-term investments   (3,700 )   -  
Net cash provided by investing activities   1,955     615  
             
Increase in cash   2,659     403  
             
Effect of foreign exchange on cash   10     (36 )
             
Cash            
             
Beginning of period   3,945     1,205  
             
End of period $ 6,614   $ 1,572  

See accompanying notes

7

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements
March 31, 2022
(Expressed in U.S. Funds)
(Unaudited)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal and recurring nature.

These financial statements should be read in conjunction with the audited consolidated financial statements at December 31, 2021. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. IntelGenx Technologies Corp. (and collectively with IntelGenx Corp., our wholly-owned Canadian subsidiary, "IntelGenx" or the "Company") prepares its consolidated 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.

The consolidated financial statements include the accounts of IntelGenx Technologies Corp. and IntelGenx Corp. On consolidation, all inter-entity transactions and balances have been eliminated.

The financial statements are expressed in U.S. funds.

Management has performed an evaluation of the Company's activities through the date and time these financial statements were issued and concluded that there are no additional significant events requiring recognition or disclosure.

2.    Significant Accounting Policies

Revenue Recognition

The Company may enter into licensing and collaboration agreements for product development, licensing, supply and manufacturing for its product pipeline. The terms of the agreements may include non-refundable signing and licensing fees, milestone payments and royalties on any product sales derived from collaborations. These contracts are analyzed to identify all performance obligations forming part of these contracts. The transaction price of the contract is then determined. The transaction price is allocated between all performance obligations on a residual standalone selling price basis. The stand-alone selling price is estimated based on the comparable market prices, expected cost plus margin and the Company's historical experience.

8

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

March 31, 2022

(Expressed in U.S. Funds)
(Unaudited)

2.    Significant Accounting Policies (Cont'd)

Revenue is measured based on a consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.

The following is a description of principal activities - separated by nature - from which the Company generates its revenue.

Product revenue

The Company recognizes revenue from the sale of its products when the following conditions are met: delivery has occurred; the price is fixed or determinable; the collectability is reasonably assured and persuasive evidence of an arrangement exists

Research and Development Revenue

Revenues with corporate collaborators are recognized as the performance obligations are satisfied over time, and the related expenditures are incurred pursuant to the terms of the agreement.

Licensing and Collaboration Arrangements

Licenses are considered to be right-to-use licenses. As such, the Company recognizes the licenses revenues at a point in time, upon granting the licenses.

Milestone payments are considered variable consideration. As such, the Company estimates variable consideration at the most likely amount to which we expect to be entitled. The estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, research and other revenues in the period during which the adjustment is recognized. The process of successfully achieving the criteria for the milestone payments is highly uncertain. Consequently, there is significant risk that the Company may not earn all of the milestone payments for each of its contracts.

Royalties are typically calculated as a percentage of net sales realized by the Company's licensees of its products (including their sub-licensees), as specifically defined in each agreement. The licensees' sales generally consist of revenues from product sales of the Company's product pipeline and net sales are determined by deducting the following: estimates for chargebacks, rebates, sales incentives and allowances, returns and losses and other customary deductions in each region where the Company has licensees. Revenues arising from royalties are considered variable consideration. As such, the Company estimates variable consideration at the most likely amount to which we expect to be entitled. The estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.

9

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

March 31, 2022

(Expressed in U.S. Funds)
(Unaudited)

2.    Significant Accounting Policies (Cont'd)

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.

Leases

Leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria are met: the lease transfers ownership of the asset by the end of the lease term, the lease contains an option to purchase the asset that is reasonably certain to be exercised, the lease term is for a major part of the remaining useful life of the asset or the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any one of these criteria.

Substantially all of the Company's operating leases are comprised of office space and property leases. The finance leases are comprised of laboratory equipment leases.

For all leases at the lease commencement date, a right-of-use asset and a lease liability are recognized. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease.

The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any initial costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All right-of-use assets are reviewed for impairment. The lease liability is initially measured as the present value of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company's secured incremental borrowing rate for the same term as the underlying lease.

10

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

March 31, 2022

(Expressed in U.S. Funds)
(Unaudited)

2.    Significant Accounting Policies (Cont'd)

Lease payments included in the measurement of the lease liability comprise the following: the fixed noncancelable lease payments, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early.

Lease modifications result in remeasurement of the lease liability.

Lease expense for operating leases consists of the lease payments plus any initial direct costs, primarily brokerage commissions, and is recognized on a straight-line basis over the lease term. Included in lease expense are any variable lease payments incurred in the period that were not included in the initial lease liability.

The Company has elected not to recognize right-of-use assets and lease liabilities for short-tern leases that have a term of 12 months or less. The effect of short-term leases on our right-of-use asset and lease liability was not material.

Adoption of accounting policies

ASU 2020-06-Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity

The FASB issued ASU 2020-06,1 which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity's own equity.

In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40) ("ASU 2020-06") to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity's own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity's own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective January 1, 2022 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company adopted ASU 2020-06 effective January 1, 2022. The adoption of AASU 2020-06 had a substantial impact on the Company's balance sheet. The August 2021 convertible notes (note 8) contained a beneficial conversion feature. Under the new requirements, the beneficial conversion feature no longer requires to be recognized separately and the convertible notes are treated as a single financial liability. As such, the most significant impact were the reversals of the beneficial conversion feature and the deferred income tax liability.

11

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

March 31, 2022

(Expressed in U.S. Funds)
(Unaudited)

2. Significant Accounting Policies (Cont'd)

The impact of the adoption of ASU 2020-06 on the balance sheet as at December 31, 2021 was:

    As reported
December 31, 2021		     Adoption of ASC
2020-06 Increase
(Decrease)		     Balance
January 1, 2022		  
Convertible notes $ 3,709   $ 388   $ 4,097  
Deferred income tax liability   79     (79 )   -  
Total liabilities   14,034     309     14,343  
Additional paid-in capital   63,104     (325 )   62,779  
Accumulated deficit   (57,863 )   23     (57,840 )
Total shareholders' equity   3,871     (309 )   3,562  
Total liabilities and shareholders' equity   17,905     -     17,905  

3. Inventory

Inventory as at March 31, 2022 consisted of raw materials in the amount of $88 thousand (2021: $62 thousand).

4. Leasehold Improvements and Equipment

                March 31,
2022		     December 31,
2021		  
          Accumulated     Net Carrying     Net Carrying  
    Cost     Depreciation     Amount     Amount  
                         
Manufacturing equipment $ 4,951   $ 1,602   $ 3,349   $ 3,349  
Laboratory and office equipment   1,528     1,131     397     382  
Computer equipment   158     118     40     39  
Leasehold improvements   3,489     2,112     1,377     1,443  
  $ 10,126   $ 4,963   $ 5,163   $ 5,213  

 

12

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

March 31, 2022

(Expressed in U.S. Funds)
(Unaudited)

4. Leasehold Improvements and Equipment (Cont'd)

From the balance of manufacturing equipment, an amount of $1,881 thousand (2021: $1,832 thousand) represents assets which are still under construction as at March 31, 2022 and are consequently not depreciated.

5. Bank Indebtedness

The Company's credit facility is subject to review annually and consists of corporate credits cards of up to CAD$75 thousand ($60 thousand) and $60 thousand, and foreign exchange contracts limited to CAD$425 thousand ($340 thousand).

6. Loan Payable

atai Life Sciences ("atai") has granted to the Company a secured loan in the amount of $2,000,000, bearing interest at 8%. An additional advance for $500,000 was also granted in May 2021. Together with the initial amount of $2,000,000, atai has granted a total amount of $2,500,000 to the Company. In September 2021, the Company entered into an amended and restated secured loan agreement with atai pursuant to which atai has made two additional term loans available to the Company for $3,000,000 each, which will mature on January 5, 2024. The first loan was received on January 7, 2022 and the second loan will be made available on January 6, 2023, subject to the satisfaction of customary conditions. The Loan Agreement also extends the maturity date for the current loans, in an aggregate amount of $2,500,000, to January 2024. The loan is guaranteed by the Company and secured by all present and future movable property, rights and assets of the Company, excluding any intellectual property or technology controlled or owned by the Company. The loan bears interest at 8%. The interest for the three-month period ended March 31, 2022 amounts to $91,000 (2021: $10,000) and is recorded in financing and interest expense.

The components of the Company's debt are as follows:

    March 31, 2022
$		     December 31, 2021
$		  
             
Loan payable to atai   5,500     2,500  
Total debt   5,500     2,500  
             
Less: current portion   -     -  
             
Total long-term debt   5,500     2,500  

 

13

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

March 31, 2022

(Expressed in U.S. Funds)
(Unaudited)

7. Convertible Debentures

On July 12, 2017, the Company closed its previously announced prospectus offering (the "Offering") of convertible unsecured subordinated debentures of the Corporation (the "Debentures") for gross aggregate proceeds of CAD$6,838,000 ($5,472,000). Pursuant to the Offering, the Corporation issued an aggregate principal amount of CAD$6,838,000 ($5,472,000) of Debentures at a price of CAD$1,000 ($800) per Debenture. The Debentures had a maturity date of June 30, 2020 and interest at annual rate of 8% payable semi-annually on the last day of June and December of each year, commencing on December 31, 2017. The interest may be paid in common shares at the option of the Corporation. The Debentures were convertible at the option of the holders at any time prior to the close of business on the earlier of June 30, 2020 and the business day immediately preceding the date specified by the Corporation for redemption of Debentures. The conversion price was CAD$1.35 ($1.08) (the "Conversion Price") per common share of the Corporation ("Share"), being a conversion rate of approximately 740 Shares per CAD$1,000 ($800) principal amount of Debentures, subject to adjustment in certain events.

On August 8, 2017, the Company closed a second tranche of its prospectus Offering of convertible unsecured subordinated debentures of the Corporation for which a first closing took place on July 12, pursuant to which it had raised additional gross proceeds of CAD$762,000 ($610,000).

Together with the principal amount of CAD$6,838,000 ($5,472,000) of Debentures issued on July 12, 2017, the Corporation issued a total aggregate principal amount of CAD$7,600,000 ($6,082,000) of Debentures at a price of CAD$1,000 ($800) per Debenture.

On June 25, 2020, the debentureholders approved the extension of the maturity date of the convertible debentures from June 30, 2020 to June 30, 2022 and the conversion price was reduced from CAD$1.35 ($1.08) to CAD$0.50 ($0.40). This extension was accounted for as an extinguishment and the debentures were re-measured at fair value on June 30, 2020.

The components of the convertible debentures are as follows:

    March 31,
2022		     December 31,
2021		  
             
Face value of the convertible debentures $ 4,003   $ 3,977  
Transaction costs   (75 )   (74 )
Accretion   399     344  
Convertible debentures $ 4,327   $ 4,247  

The convertible debentures have been recorded as a liability. The accretion expense for the three-month period ended March 31, 2022 amounts to CAD$62,000 ($49,000), compared to CAD$73,000 ($58,000) for the comparative period in 2021.

During the three-month period ended March 31, 2022, CAD$40,000 ($32,000) of convertible debentures were converted into 80,000 common shares at the option of the holders, resulting in an increase in additional paid-in capital of $31 thousand.

During the three-month period ended March 31, 2021, CAD$240,000 ($191,000) of convertible debentures were converted into 480,000 common shares at the option of the holders, resulting in an increase in additional paid-in capital of $178 thousand.

14

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

March 31, 2022

(Expressed in U.S. Funds)
(Unaudited)

7. Convertible Debentures (Cont'd)

The interest accrued on the convertible debentures for the three-month period ended March 31, 2022 amounts to CAD$110 thousand ($87 thousand) and is recorded in financing and interest expense. The interest on the convertible debentures amounted to CAD$146 thousand ($115 thousand) for the three-month period ended March 31, 2021.

8. Convertible Notes

On August 5, 2021, the Company announced the closing of an offering by way of private placement to certain investors in the United States of $2.1 million principal amount of 8% convertible notes due July 31, 2025. The Notes will bear interest at a rate of 8% per annum, payable quarterly, and will be convertible into shares of common stock of the Company beginning 6 months after their issuance at a price of $0.40 per Share. The Company intends to use the proceeds of the Offering for the Montelukast clinical program. In connection with the Offering, the Company paid to an agent a cash commission of approximately $199,525 in the aggregate and issued non-transferable warrants to the agent, entitling the holder to purchase 613,000 common shares at a price of $0.40 per Share until August 4, 2023.

Management has determined the value of the agents' warrants to be $164,000.

The convertible notes have been recorded as a liability. Total transactions costs in the amount of $268 thousand were recorded against the liability. The accretion expense for the three-month period ended March 31, 2022 amounts to $21,000 (2021: $Nil). The warrants have been recorded as equity. Upon adoption of ASU 606-20, the beneficial conversion feature was reversed on January 1, 2022.

The components of the convertible notes are as follows:

    March 31,
2022		     December 31,
2021		  
             
Face value of the convertible notes $ 2,101   $ 2,101  
Transaction costs   (403 )   (403 )
Accretion   54     58  
Beneficial conversion feature   -     (411 )
Convertible notes $ 1,752   $ 1,345  

The interest on the convertible notes for the three-month period ended March 31, 2022 amounts to $42,000 (2021: $Nil) and is recorded in financing and interest expense.

On May 8, 2018, the Company closed its previously announced offering by way of private placement (the "Offering"). In connection with the Offering, the Company issued 320 units (the "Units") at a subscription price of $10,000 per Unit for gross proceeds of $3,200,000. A related party of the Company participated in the Offering and subscribed for an aggregate of two Units.

15

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

March 31, 2022

(Expressed in U.S. Funds)
(Unaudited)

8. Convertible Notes (Cont'd)

Each Unit is comprised of (i) 7,940 common shares of the Corporation ("Common Shares"), (ii) a $5,000 convertible 6% note (a "Note"), and (iii) 7,690 warrants to purchase common shares of the Corporation ("Warrants"). Each Note bears interest at a rate of 6% (payable quarterly, in arrears, with the first payment being due on September 1, 2018), matured on June 1, 2021 and is convertible into Common Shares at a conversion price of $0.80 per Common Share. Each Warrant entitled its holder to purchase one Common Share at a price of $0.80 per Common Share until June 1, 2021.

In connection with the Offering, the Company paid to the Agents a cash commission of approximately $157,800 in the aggregate and issued non-transferable agents' warrants to the Agents, entitling the Agents to purchase 243,275 common shares at a price of $0.80 per share until June 1, 2021. Management has determined the value of the agents' warrants to be $50,000.

The proceeds of the Units are attributed to liability and equity components based on the fair value of each component as follows:

    Gross proceeds     Transaction costs     Net proceeds  
Common stock $ 1,627   $ 167   $ 1,460  
Convertible notes   1,086     111     975  
Warrants   487     50     437  
  $ 3,200   $ 328   $ 2,872  

On May 19, 2021, the noteholders approved the amendment of the terms of the convertible notes. The maturity date of the convertible notes was extended from June 1, 2021 to October 31, 2024, the interest rate of the notes increased from 6% to 8%, and the conversion price was reduced from $0.80 to $0.44. These amendments were accounted for as an extinguishment and the notes were re-measured at fair value on June 1, 2021. This re-measurement resulted in a gain on extinguishment in the amount of $151,000 recognized in finance and interest income.

The components of the convertible notes subsequent to the amendments are as follows:

    March 31,
2022		     December 31,
2021		  
             
Face value of the convertible notes $ 909   $ 909  
Transaction costs   (29 )   (29 )
Accretion   29     21  
Convertible notes $ 909   $ 901  

The convertible notes have been recorded as a liability. Total transactions costs in the amount of $29 thousand were recorded against the liability. The accretion expense for the three-month period ended March 31, 2022 amounts to $7,000 (2021: $67,000).

16

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

March 31, 2022

(Expressed in U.S. Funds)
(Unaudited)

8. Convertible Notes (Cont'd)

The interest on the convertible notes for the three-month period ended March 31, 2022 amounts to $20,000 and is recorded in financing and interest expense (2021: $24,000).

On October 15, 2020, the Company announced the closing of an offering by way of private placement to certain investors in the United States of $1.2 million principal amount of 8% convertible notes due October 15, 2024. The Notes will bear interest at a rate of 8% per annum, payable quarterly, and will be convertible into shares of common stock of the Company beginning 6 months after their issuance at a price of $0.18 per Share. The Company intends to use the proceeds of the Offering for working capital purposes. In connection with the Offering, the Company paid to an agent a cash commission of approximately $85,000 in the aggregate and issued non-transferable warrants to the agent, entitling the holder to purchase 482,000 common shares at a price of $0.18 per Share until October 15, 2022.

On October 23, 2020, the Company announced the closing of a second tranche of the Notes to certain investors in the United States of $557 thousand principal amount of 8% convertible notes due October 15, 2024. The Notes will bear interest at a rate of 8% per annum, payable quarterly, and will be convertible into shares of common stock of the Company beginning 6 months after their issuance at a price of $0.18 per Share. In connection with the Offering, the Company paid to an agent a cash commission of approximately $39,000 in the aggregate and issued non-transferable warrants to the agent, entitling the holder to purchase 222,800 common shares at a price of $0.18 per Share until October 15, 2022.

Management has determined the value of the agents' warrants to be $44,000.

The convertible notes have been recorded as a liability. Total transactions costs in the amount of $268 thousand were recorded against the liability. The accretion expense for the three-month period ended March 31, 2022 amounts to $14,000 (2021: $13,000). The warrants have been recorded as equity.

The components of the convertible notes are as follows:

    March 31,
2022		     December 31,
2021		  
             
Attributed value of net proceeds to convertible notes $ 1,397   $ 1,397  
Accretion   80     66  
Convertible note   1,477   $ 1,463  

The interest on the convertible notes for the three-month period ended March 31, 2022 amounts to $33,000 (2021: $35,000) and is recorded in financing and interest expense.

17

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

March 31, 2022

(Expressed in U.S. Funds)
(Unaudited)

9. Capital Stock

    March 31,
2022		     December 31,
2021		  
             
Authorized -            
             
450,000,000 common shares of $0.00001 par value            
20,000,000 preferred shares of $0.00001 par value            
             
Issued -            
             
154,651,289 (December 31, 2021 - 154,571,289) common shares $ 1   $ 1  

On May 11, 2021, the shareholders approved a resolution to amend IntelGenx's Certificate of Incorporation to increase the total number of shares of common stock that IntelGenx is authorized to issue from 200,000,000 shares to 450,000,000 shares.

Atai Life Sciences

On May 11, 2021, the Company announced that a significant majority of its shareholders had approved the resolution approving the previously announced investment in IntelGenx by atai Life Sciences, pursuant to which atai acquired an approximate 25% interest in IntelGenx.

On May 14, 2021, the Company reported that the previously announced $12,346,300 investment in IntelGenx by atai Life Sciences had been completed. As a result of the investment, atai held 25% of the issued and outstanding common stock of IntelGenx.

Under the securities and purchase agreement, atai purchased Initial Units composed of 37,300,000 shares of common stock of the Company and 22,380,000 warrants for aggregate gross proceeds of $12,346,300. Each warrant will entitle atai to purchase one share at a price of $0.35 for a period of three years from closing of the initial investment.

The proceeds of the transaction are attributed to equity components based on the fair value of each component as follows:

    Gross proceeds     Transaction costs     Net proceeds  
Common stock $ 8,695   $ 297   $ 8,398  
Warrants   3,651     125     3,526  
  $ 12,346   $ 422   $ 11,924  

 

18

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

March 31, 2022

(Expressed in U.S. Funds)
(Unaudited)

9. Capital Stock (Cont'd)

The securities purchase agreement also provides atai with the right to subscribe (in cash, or in certain circumstances, atai equity) for up to 130,000,000 additional units for a period of three years from the closing of the initial investment. Each additional unit will be comprised of (i) one share of common stock and (ii) one half of one warrant. The price for the additional units will be (i) until the date which is 12 months following the closing, $0.331 (subject to certain exceptions), and (ii) following the date which is 12 months following the closing, the lower of (A) a 20% premium to the market price on the date of purchase, and (B) $0.50 if purchased in the second year following closing and $0.75 if purchased in third year following closing. Each additional warrant will entitle atai, for a period of three years from the date of issuance, to purchase one share at the lesser of either (i) a 20% premium to the price of the corresponding additional share, or (ii) the price per share under which shares of the Company are issued under convertible instruments that were outstanding on February 16, 2021, the date on which the parties entered into a non-binding letter of intent to enter into a definitive securities purchase agreement, provided that atai may not exercise additional warrants to purchase more than the lesser of 44,000,000 common shares of the Company, and the number of common shares issued by the Company under outstanding convertibles.

10. Additional Paid-In Capital

Stock options

On January 20, 2022, 25,000 options to purchase common stock were granted to an employee under the 2016 Stock Option Plan. The options have an exercise price of $0.34. The options granted vest over a period of 2 years at a rate of 25% every six months and expire 10 years after the grant date. The stock options were accounted for at their fair value, as determined by the Black-Scholes valuation model, of approximately $6 thousand.

On January 11, 2021, 150,000 options to purchase common stock were granted to an employee under the 2016 Stock Option Plan. The options have an exercise price of $0.27. The options granted vest over a period of 2 years at a rate of 25% every six months and expire 10 years after the grant date. The stock options were accounted for at their fair value, as determined by the Black-Scholes valuation model, of approximately $25 thousand.

No stock options were exercised during the three-month periods ended March 31, 2022 and 2021.

Compensation expenses for stock-based compensation of $32 thousand and $31 thousand were recorded during the three-month periods ended March 31, 2022 and 2021, respectively. An amount of $29 thousand expensed in the three-month period ended March 31, 2022 relates to stock options granted to employees and an amount of $3 thousand relates to stock options granted to a consultant. An amount of $31 thousand expensed in the three-month period ended March 31, 2021 relates to stock options granted to employees and an amount of $Nil relates to stock options granted to consultants. As at March 31, 2022, the Company has $120 thousand (2021 - $146 thousand) of unrecognized stock-based compensation.

Warrants

No warrants were exercised during the three-month periods ended March 31, 2022 and 2021.

19

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

March 31, 2022

(Expressed in U.S. Funds)
(Unaudited)

10. Additional Paid-In Capital (Cont'd)

Deferred Share Units ("DSUs")

On January 1, 2022, 543,480 DSUs have been granted under the DSU Plan, accordingly, an amount of $197 thousand has been recognized in general and administrative expenses. No DSUs were granted during the three-month period ended March 31, 2021.

Performance and Restricted Share Units ("PRSUs")

No PRSUs were granted during the three-month periods ended March 31, 2022 and 2021.

11. Revenues


The following table presents our revenues disaggregated by revenue source.  Sales and usage-based taxes are excluded from revenues:
    March 31, 2022     March 31, 2021  
             
Research and development agreements $ 225   $ 126  
Product revenue   -     160  
Royalties on product sales   12     -  
  $ 237   $ 286  

The following table presents our revenues disaggregated by timing of recognition:
    March 31, 2022     March 31, 2021  
(in U.S. $ thousands)            
Product and services transferred at point in time $ 12   $ 160  
Products and services transferred over time   225     126  
  $ 237   $ 286  
20

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

March 31, 2022

(Expressed in U.S. Funds)
(Unaudited)

11. Revenues (Cont'd)

The following table presents our revenues disaggregated by geography, based on the billing addresses of our customers:

    March 31,
2022		     March 31,
2021		  
             
Europe $ 237     214  
Canada   -     72  
  $ 237   $ 286  

Remaining performance obligations

As at March 31, 2022, the aggregate amount of the transaction price allocated to the remaining performance obligation is $1,803 representing research and development agreements, the majority of which is expected to be recognized in the next twelve months. The Company is also eligible to receive up to $2,559 in research and development milestone payments, approximately 100% of which is expected to be recognized in the next three years; up to $433 in commercial sales milestone payments which are wholly dependent on the marketing efforts of our development partners. In addition, the Company is entitled to receive royalties on potential sales.

12. Leases

Operating leases

Substantially all our operating lease right-of-use assets and operating lease liability represents leases for office space and property to conduct our business.

The operating lease expense for the three-month period ended March 31, 2022 included in general and administrative expenses is $69 thousand. The cash outflows from operating leases for the three-month period ended March 31, 2022 was $68 thousand.

The weighted average remaining lease term and the weighted average discount rate for operating leases at March 31, 2022 were 3.9 years and 10%, respectively.

21

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

March 31, 2022

(Expressed in U.S. Funds)
(Unaudited)

12. Leases (Cont'd)

The following table reconciles the undiscounted cash flows for the operating leases as at March 31, 2022 to the operating lease liabilities recorded on the balance sheet:

    Operating Leases  
2022   208  
2023   281  
2024   289  
2025   289  
2026   48  
Total undiscounted lease payments   1,115  
Less: Interest   259  
Present value of lease liabilities $ 856  

 

Current portion of operating lease liability $252
Operating lease liability $604

Finance leases

Substantially all our finance lease right-of-use assets and finance lease liability represents leases for laboratory equipment to conduct our business.

The cash outflows from finance leases for the three-month period ended March 31, 2022 was $9 thousand.

The weighted average remaining lease term and the weighted average discount rate for finance leases at March 31, 2022 were 2.8 years and 6.35%, respectively.

22

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

March 31, 2022

(Expressed in U.S. Funds)
(Unaudited)

12.    Leases (Cont'd)

The following table reconciles the undiscounted cash flows for the finance leases as at March 31, 2022 to the finance lease liabilities recorded on the balance sheet:

    Finance Leases  
       
2022 $ 33  
2023   43  
2024   41  
2025   7  
Total undiscounted lease payments   124  
Less: Interest   12  
Present value of lease liabilities $ 112  

 

Current portion of finance lease liability $37
Finance lease liability $75

13.  Related Party Transactions

Included in management salaries are $3 thousand (2021 - $3 thousand) for options granted to the Chief Executive Officer, $3 thousand (2021 - $3 thousand) for options granted to the Chief Financial Officer, $2 thousand (2021 - $7 thousand) for options granted to the Vice President, Operations, $2 thousand (2021 - $2 thousand) for options granted to the Vice-President, Research and Development, $2 thousand (2021 - $2 thousand) for options granted to Vice-President, Business and Corporate Development and $4 thousand (2021 - $4 thousand) for options granted to the Vice-President, Intellectual Property and Legal Affairs under the 2016 Stock Option Plan.

Also included in general and administrative expense for the three-month period ended March 31, 2022 are director fees of $67 thousand (2021 - $58 thousand) and DSU expense of $68 thousand (2021: $115 thousand).

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.

14.  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 debenture and notes have been excluded from the calculation of diluted loss per share since they are anti-dilutive.

23

IntelGenx Technologies Corp.

Notes to Consolidated Interim Financial Statements

March 31, 2022

(Expressed in U.S. Funds)
(Unaudited)

15. Contingencies

The government authorities have assessed the Company with respect to sales taxes claimed on certain expenses between 2017 and 2020, which the government is denying. The sales tax assessments amount to $340,000 (including interest and penalties of $36,000), which was paid to avoid further interest and penalties. The Company disagrees with the government's position and the sales tax assessments are under appeal. In the event the Company is unsuccessful in its appeal, sales taxes expenses would increase by $304,000 and net earnings would decrease by $304,000.

16. Subsequent Events

On May 10, 2022, the shareholders of the Company approved the 2022 Amendment Resolution to amend and restate the 2016 Stock Option Plan. The Board had previously approved the amendment of the 2016 Stock Option Plan to make certain amendments to align the plan with evolving industry practice and shareholder expectations, as well as amendments of a housekeeping nature, which amendments were subject to ratification by Shareholders.

As a result of the adoption of the 2022 Stock Option Plan, no additional options will be granted under the 2016 Stock Option Plan and all previously granted options will be governed by the 2022 Stock Option Plan. Similar to the 2016 Stock Option Plan, the 2022 Stock Option Plan permits the granting of options to officers, employees, directors and eligible consultants of the Company. An aggregate number of up to 10% of the Company's issued and outstanding shares (on a non-diluted basis) or 15,465,129 will be issuable under the amended plan less 6,157,389 stock options already granted under previous versions of the Company's Stock Option Plan.

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Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations

Introduction to Management's Discussion and Analysis

This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") comments on our business operations, performance, financial position and other matters for the three-month period ended March 31, 2022 and 2021.

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 MD&A should be read in conjunction with the accompanying unaudited Consolidated Financial Statements and Notes thereto. We also encourage you to refer to the Company's MD&A for the year ended December 31, 2021. In preparing this MD&A, we have taken into account information available to us up to May 12, 2022, the date of this MD&A, unless otherwise indicated.

Additional information relating to the Company, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the "2021 Form 10-K"), is available on SEDAR at www.sedar.com and on the U.S. Securities and Exchange Commission (the "SEC") website at www.sec.gov.

All dollar amounts are expressed in U.S. dollars, unless otherwise noted.

Cautionary Statement Concerning Forward-Looking Statements

Certain statements included or incorporated by reference in this MD&A constitute forward-looking statements within the meaning of applicable securities laws. All statements contained in this MD&A that are not clearly historical in nature are forward-looking, and the words "anticipate", "believe", "continue", "expect", "estimate", "intend", "may", "plan", "will", "shall" and other similar expressions are generally intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All forward-looking statements are based on our beliefs and assumptions based on information available at the time the assumption was made. These forward-looking statements are not based on historical facts but on management's expectations regarding future growth, results of operations, performance, future capital and other expenditures (including the amount, nature and sources of funding thereof), competitive advantages, business prospects and opportunities. Forward-looking statements involve significant known and unknown risks, uncertainties, assumptions and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from those implied by forward-looking statements. These factors should be considered carefully and you should not place undue reliance on the forward-looking statements. Although the forward-looking statements contained in this MD&A or incorporated by reference herein are based upon what management believes to be reasonable assumptions, there is no assurance that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this MD&A or as of the date specified in the documents incorporated by reference herein, as the case may be. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which such statements were made or to reflect the occurrence of unanticipated events, except as may be required by applicable securities laws. The factors set forth in Item 1A., "Risk Factors" of the 2021 Form 10-K, as well as any cautionary language in this MD&A, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Before you invest in the common stock, you should be aware that the occurrence of the events described as risk factors and elsewhere in this report could have a material adverse effect on our business, operating results and financial condition.

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Company Background

We are a drug delivery company established in 2003 and headquartered in Montreal, Quebec, Canada.  Our focus is on the contract development and manufacturing of novel oral thin film products for the pharmaceutical market.  More recently, we have made the strategic decision to enter the Canadian cannabis market with non-prescription cannabis infused oral film that launched in early 2021 and in 2020 we made the decision to enter the psychedelic market.  As a full service CDMO, we are offering partners a comprehensive portfolio of pharmaceutical services, including pharmaceutical R&D, clinical monitoring, regulatory support, tech transfer, manufacturing scale-up and commercial manufacturing.

Our business strategy is to leverage our proprietary drug delivery technologies and develop pharmaceutical products with tangible benefits for patients, for our partners and, once a developed product launches, retain the exclusive manufacturing rights. 

Our primary growth strategy is based on providing CDMO services to the pharmaceutical industry by focusing on three key strategic areas: (1) psychedelics, (2) cannabis, and (3) animal health.

We have established a state-of-the-art manufacturing facility for the future manufacture of our VersaFilm™ and VetaFilm™ products. We believe that this (1) represents a profitable business opportunity, (2) will reduce our dependency upon third-party contract manufacturers, thereby protecting our manufacturing process know-how and intellectual property, and (3) allows us to offer our development partners a full service from product conception through to supply of the finished product.

With our current manufacturing equipment, we are only able to manufacture products that do not contain flammable organic solvents.  We initiated a project to expand the existing manufacturing facility, the timing of which will be dictated in part by the completion of agreements with our commercial partners.  This expansion became necessary following requests by commercial partners to increase manufacturing capacity and provide solvent film manufacturing capabilities.  The new facility should create a fivefold increase of our production capacity in addition to offering a one-stop shopping opportunity to our partners and provide better protection of our Intellectual Property.

Product Opportunities that provide Tangible Patient Benefits

In addition to our three key strategic areas we will offer our services to develop oral film products leveraging our VersaFilm™ technology that provide tangible patient benefits versus existing drug delivery forms. Patients with difficulties swallowing medication, pediatrics or geriatrics may benefit from oral films due to the ease of use. Similarly, we are working on oral films to improve bio-availability and/or response time versus existing drugs and thereby reducing side effects.

Development of New Drug Delivery Technologies

The rapidly disintegrating film technology contained in our VersaFilm™, and our AdVersa® mucosal adhesive tablet, are two examples of our efforts to develop alternate technology platforms.  As we work with various partners on different products, we seek opportunities to develop new proprietary technologies.

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COVID-19

Our operations and financial condition have been affected by the COVID-19 pandemic. Though we were granted an exemption by local authorities which permitted us to continue operations during the COVID-19 pandemic, we nevertheless faced multiple operational and financial challenges. Despite these challenges, we have continually been able to minimize the impact on our overall performance. 

In response to the COVID-19 pandemic, we partially reorganized our operations and adopted a remote work policy for employees and management. We also benefited from the Canada Emergency Wage Subsidy as well as the Canada Emergency Commercial Rent Assistance program from our landlord in fiscal year 2020.

Throughout the COVID-19 pandemic, we have been, and remain, in compliance with all federal, provincial, and municipal regulations that have been put in place since the beginning of the pandemic. We will continue to monitor any further developments in this regard, with the health and safety of our employees and management as the primary concern.

Most recent key developments

On January 20, 2022, the Company announced that patient dosing has resumed in the ongoing Phase 2a BUENA clinical trial in patients with mild to moderate Alzheimer's Disease under a previously amended protocol using higher doses of Montelukast VersaFilm®.

On February 01, 2022, the Company announced that its wholly-owned subsidiary, IntelGenx Corp. received a third term loan in the amount of U.S. $3 million pursuant to its amended and restated secured loan agreement with atai Life Sciences.  The obligations under the Third Loan are guaranteed by the Company.

All amounts are expressed in thousands of U.S. dollars unless otherwise stated.

Currency rate fluctuations

Our operating currency is Canadian dollars, while our reporting currency is U.S. dollars. Accordingly, our results of operations and balance sheet position have been affected by currency rate fluctuations. In summary, our financial statements for the three-month period ended March 31, 2022 report an accumulated other comprehensive loss mainly due to foreign currency translation adjustments of $1,703 primarily due to the fluctuations in the rates used to prepare our financial statements, $17 of which positively impacted our comprehensive loss for the three-month period ended March 31, 2022. The following Management Discussion and Analysis takes this into consideration whenever material.

Reconciliation of Comprehensive Loss to Adjusted Earnings (Loss) before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA (Loss))

Adjusted EBITDA is a non-US GAAP financial measure. A reconciliation of the Adjusted EBITDA is presented in the table below. The Company uses adjusted financial measures to assess its operating performance. Securities regulations require that companies caution readers that earnings and other measures adjusted to a basis other than US-GAAP do not have standardized meanings and are unlikely to be comparable to similar measures used by other companies. Accordingly, they should not be considered in isolation. The Company uses Adjusted EBITDA to measure its performance from one period to the next without the variation caused by certain adjustments that could potentially distort the analysis of trends in our operating performance, and because the Company believes it provides meaningful information on the Company's financial condition and operating results.

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IntelGenx obtains its Adjusted EBITDA measurement by adding / (deducting) to comprehensive loss, finance income and costs, depreciation and amortization, income taxes and foreign currency translation adjustment incurred during the period. IntelGenx also excludes the effects of certain non-monetary transactions recorded, such as share-based compensation, for its Adjusted EBITDA calculation. The Company believes it is useful to exclude these items as they are either non-cash expenses, items that cannot be influenced by management in the short term, or items that do not impact core operating performance. Excluding these items does not imply they are necessarily nonrecurring. Share-based compensation costs are a component of employee and consultant's remuneration and can vary significantly with changes in the market price of the Company's shares. Foreign currency translation adjustments are a component of other comprehensive income and can vary significantly with currency fluctuations from one period to another. In addition, other items that do not impact core operating performance of the Company may vary significantly from one period to another. As such, Adjusted EBITDA provides improved continuity with respect to the comparison of the Company's operating results over a period of time. Our method for calculating Adjusted EBITDA may differ from that used by other corporations.

Reconciliation of Non-US-GAAP Financial Information

    Three-month period        
    ended November 31
ended March 31,		        
                         
    2022     2021              
    $     $              
Comprehensive loss   (3,018 )   (2,297 )            
Add (deduct):                        
  Depreciation   195     192              
  Finance costs   377     334              
  Finance income   (1 )   -              
  Share-based compensation   32     31              
  Other comprehensive loss   332     36              
                         
Adjusted EBITDA (Loss)   (2,083 )   (1,704 )            

Adjusted Earnings (Loss) before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA Loss)

Adjusted EBITDA (Loss) increased by $379 for the three-month period ended March 31, 2022 to ($2,083) compared to ($1,704) for the three-month period ended March 31, 2021. The increase in Adjusted EBITDA (Loss) of $379 for the three-month period ended March 31, 2022 is mainly attributable to a increase in R&D expenses of $325 before consideration of stock-based compensation, an increase in SG&A expenses of $150 before consideration of stock-based compensation, and a decrease in revenues of $49, offset by a decrease in Manufacturing expenses of $145 before consideration of stock-based compensation. 

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Results of operations for the three-month period ended March 31, 2022 compared with the three-month period ended March 31, 2021.

    Three-month period        
    ended March 31,        
    2022     2021              
    $     $              
Revenue   237     286              
                         
Research and development Expenses   798     471              
Manufacturing Expenses   470     621              
Selling, General and Administrative Expenses   1,084     929              
Depreciation of tangible assets   195     192              
                         
Operating loss   (2,310 )   (1,927 )            
Net loss   (2,686 )   (2,261 )            
Comprehensive loss   (3,018 )   (2,297 )            

Revenue

Total revenues for the three-month period ended March 31, 2022 amounted to $237, representing a decrease of $49 or 17% compared to $286 for the three-month period ended March 31, 2021.  The decrease for the three-month period ended March 31, 2022 compared to the last year's corresponding period is attributable to an decrease in Product revenues of $160, offset by increases in R&D revenues of $99 and Royalties of $12.

Research and development ("R&D") expenses

R&D expenses for the three-month period ended March 31, 2022 amounted to $798, representing an increase of $327 or 69%, compared to $471 for the three-month period ended March 31, 2021.

The increase in R&D expenses for the three-month period ended March 31, 2022 is mainly attributable to increases in study costs of $202, salary expenses of $112 due to new hires, the allocation of the 20% credit of $111 as per the strategic development agreement with atai and a decrease in R&D estimated tax credits of $24, offset by decreases in analytical costs of $87 and R&D batch development expenses of $37. 

In the three-month period ended March 31, 2022 we recorded estimated Research and Development Tax Credits of $39, compared with $63 that was recorded in the same period of the previous year.

Manufacturing expenses

Manufacturing expenses for the three-month period ended March 31, 2022 amounted to $470, representing a decrease of $151 or 24%, compared to $621 for the three-month period ended March 31, 2021.

The decrease in Manufacturing expenses for the three-month period ended March 31, 2022 is mainly attributable to decreases in supplies and consumables of $200 and salary expenses of $17, offset by  increases in quality expenses of $33 and repairs and maintenance expenses of $30.

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Selling, general and administrative ("SG&A") expenses

SG&A expenses for the three-month period ended March 31, 2022 amounted to $1,084, representing an increase of $155 or 17%, compared to $929 for the three-month period ended March 31, 2021.

The increase in SG&A expenses for the three-month period ended March 31, 2022 is mainly attributable to increases in professional fees of $123, leasehold expenses of $45, insurance expense of $26, business development expenses of $20 and general office expenses of $8, offset by a decrease salary expenses of $75

Depreciation of tangible assets

In the three-month period ended March 31, 2022 we recorded an expense of $195 for the depreciation of tangible assets, compared with an expense of $192 for the same period of the previous year. 

Share-based compensation expense, warrants and stock-based payments

Share-based payments expense for the three-month period ended March 31, 2022 amounted to $32 compared to $31 for the three-month period ended March 31, 2021.

We expensed approximately $29 in the three-month period ended March 31, 2022 for options granted to our employees in 2020, 2021, and 2022 under the 2016 Stock Option Plan and $3 for options granted to a consultant in 2021, compared with $31 and $Nil, respectively that was expensed in the same period of the previous year.

There remains approximately $120 in stock-based compensation to be expensed in fiscal 2022 and 2023, of which $21 relates to the issuance of options to a consultant during 2021. We anticipate the issuance of additional options and warrants in the future, which will continue to result in stock-based compensation expense

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Key items from the balance sheet

    March 31,
2022		     December
31, 2021		     Increase/
(Decrease)		     Percentage
Increase/
(Decrease)		  
                         
Current assets $ 11,656   $ 11,437   $ 219     2%  
                         
Leasehold improvements and equipment, net   5,163     5,213     (50 )   (1%)  
                         
Security deposits   256     252     4     2%  
                         
Operating lease right-of-use asset   961     1,003     (42 )   (4%)  
                         
Current liabilities (excluding convertible debentures)   2,778     2,773     5     0.2%  
                         
  Long-term debt   5,500     2,500     3,000     120%  
                         
Convertible debentures   4,327     4,247     80     2%  
                         
Convertible notes   4,138     3,709     429     12%  
                         
Operating lease liability   604     642     (38 )   (6%)  
                         
Finance lease liability   75     84     (9 )   (11%)  
                         
Capital Stock   1     1     0     0%  
                         
 Additional paid-in-capital   62,842     63,104     (262 )   (0.4%)  

Current assets

Current assets totaled $11,656 as at March 31, 2022 compared with $11,437 as at December 31, 2021. The increase of $219 is mainly attributable to increases in cash of $2,669, accounts receivable of $74, prepaid expenses of $27, security deposits of $3 and inventory of $26, offset by decreases in short-term investments of $2,369 and investment tax credits receivable of $211.

Cash

Cash totaled $6,614 as at March 31, 2022 representing an increase of $2,669 compared with the balance of $3,945 as at December 31, 2021. The increase in cash on hand relates to net cash provided by financing activities of $2,991 and investing activities of $1,955 and a positive foreign exchange effect of $4, offset by net cash used in operating activities of $2,281.

Accounts receivable

Accounts receivable totaled $754 as at March 31, 2022 representing an increase of $74 compared with the balance of $680 as at December 31, 2021. The main reason for the increase is related to the revenues accounted for as at March 31, 2022 offset by the collection in 2022 of revenues accounted for as at December 31, 2021.

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Prepaid expenses

As at March 31, 2022 prepaid expenses totaled $132 compared with $105 as of December 31, 2021. The increase may be explained by advance payments made in January 2022.

Investment tax credits receivable

R&D investment tax credits receivable totaled approximately $225 as at March 31, 2022 compared with $436 as at December 31, 2021. The decrease is attributable to the fact that the 2020 amount was collected in the three month period ended March 31, 2022.

Leasehold improvements and equipment

As at March 31, 2022, the net book value of leasehold improvements and equipment amounted to $5,163, compared to $5,213 at December 31, 2021. In the three-month period ended March 31, 2022 additions to assets totaled $64 and mainly comprised of $31 for lab equipment, $29 for manufacturing equipment and $4 for computer equipment, and variation of foreign exchange fluctuation, offset by depreciation expense of $195.

Security deposit

A security deposit in the amount of CAD$300 ($240) in respect of an agreement to lease approximately 17,000 square feet in a property located at 6420 Abrams, St-Laurent, Quebec, Canada was recorded as at March 31, 2022.  Security deposits in the amount of CAD$15 ($12) for utilities and CAD$5 ($4) for Cannabis license were also recorded as at March 31, 2022.  Security deposit in the amount of CAD$260 ($208) for the Company credit cards was also recorded as at March 31, 2022 but classified as short-term. 

Accounts payable and accrued liabilities

Accounts payable and accrued liabilities totaled $2,351 as at March 31, 2022 compared with $2,299 as at December 31, 2021. 

Loan payable

Loan payable totaled $5,500 as at March 31, 2022 compared with $2,500 as at December 31, 2021.  atai has granted the to the Company a secured loan in the amount of $5,500, bearing interest at 8%. In September 2021, the Company entered into an amended and restated secured loan agreement with atai pursuant to which atai has made two additional term loans available to the Company for $3,000,000 each, which will mature on January 5, 2024.  The first loan was received on January 7, 2022 and the second loan will be made available on January 6, 2023, subject to the satisfaction of customary conditions. The Loan Agreement also extends the maturity date for the current loans, in an aggregate amount of $2,500, to January 2024. The loan is guaranteed by the Company and secured by all present and future movable property, rights and assets of the Company, excluding any intellectual property or technology controlled or owned by the Company.  The loan bears interest at 8%. The interest for the three-month period ended March 31, 2022 amounts to $91 (2021: $10) and is recorded in financing and interest expense.

Convertible debentures

Convertible debentures totaled $4,327 as at March 31, 2022 as compared to $4,247 as at December 31, 2021.  The Corporation issued a total aggregate principal amount of CAD$7,600,000 ($6,082,000) of debentures at a price of CAD$1,000 ($800) per debenture in July 2017 and August 2017.  On June 25, 2021, the debenture holders approved the extension of the maturity date of the convertible debentures from June 30, 2021 to June 30, 2022 and the conversion price was reduced from CAD$1.35 ($1.08) to CAD$0.50 ($0.40).  The convertible debentures have been recorded as a liability as at March 31, 2022. The accretion expense for the three-month period ended March 31, 2022 amounts to CAD$62,000 ($49,000) ((CAD$73,000) ($58,000) in Q1-2021).  The interest on the convertible debentures as at March 31, 2022 amounts to CAD$110,000 ($87,000) ((CAD$146,000) ($115,000) in Q1-2021) and is recorded in Financing and interest expense.

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During the three-month period ended March 31, 2022, CAD$40,000 ($32,000) of convertible debentures were converted into 80,000 common shares at the option of the holders, resulting in an increase in additional paid-in capital of $31,000. 

Convertible notes

Convertible notes totaled $4,138 as at March 31, 2022 as compared to $3,709 as at December 31, 2021. The convertible notes have been recorded as a liability.  The accretion expense for the period ended March 31, 2022 amounts to $42 ($80 in 2021).  The interest on the convertible notes as at March 31, 2022 amounts to $95 ($59 in 2021) and is recorded in Financing and interest expense.

Shareholders' equity

As at March 31, 2022 we had accumulated a deficit of $60,526 compared with an accumulated deficit of $57,863 as at December 31, 2021. Total assets amounted to $18,036 and shareholders' equity totaled $614 as at March 31, 2022, compared with total assets and shareholders' equity of $17,905 and $3,871 respectively, as at December 31, 2021.

Capital stock

As at March 31, 2022 capital stock amounted to $1.5465 (December 31, 2021: $1.5457). 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 $62,842 as at March 31, 2022, as compared to $63,104 as at December 31, 2021. Additional paid in capital decreased by $262.  The decrease is explained by the adoption of ASU 606-20 where the previously accounted beneficial conversion feature in the amount of $325 was derecognized from the value of the convertible notes on a retroactive basis as at January 1, 2022, offset by $63 from which $31 was the value of the conversion of the convertible debentures and $32 from stock based compensation attributable to the amortization of stock options granted to employees.

Taxation

As at December 31, 2021, the date of our latest annual tax return, we had Canadian and provincial net operating losses of approximately $39,823 (December 31, 2020: $31,673) and $43,482 (December 31, 2020: $33,905) 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 2041. A portion of the net operating losses may expire before they can be utilized.

As at December 31, 2021, we had non-refundable tax credits of $2,912 thousand (2020: $2,802 thousand) of which $8 thousand is expiring in 2026, $10 thousand is expiring in 2027, $177 thousand is expiring in 2028, $155 thousand is expiring in 2029, $132 thousand is expiring in 2030, $141 thousand is expiring in 2031, $176 thousand is expiring in 2032, $117 thousand is expiring in 2033, $89 thousand expiring in 2034, $104 thousand is expiring in 2035, $144 thousand expiring in 2036,  $275 thousand is expiring in 2037, $594 thousand expiring in 2038, $359 thousand expiring in 2039, $298 thousand expiring in 2040, and $183 expiring in 2041 and undeducted research and development expenses of $16,566 thousand (2020: $15,302 thousand) with no expiration date.

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The deferred tax benefit of these items was not recognized in the accounts as it has been fully provided for.

Key items from the statement of cash flows

    March 31,
2022		     March 31,
2021		     Increase/
(Decrease)		     Percentage
Increase/
(Decrease)		  
                         
Operating Activities $ (2,287 ) $ (1,469 ) $ (818 )   56%  
Financing Activities   2,991     1,257     1,734     138%  
Investing Activities   1,955     615     1,340     218%  
Cash - end of period   6,614     1,572     5,042     321%  

Statement of cash flows

Net cash used in operating activities was $2,287 for the three-month period ended March 31, 2022, compared to $1,469 for the three-month period ended March 31, 2021. For the three-month period ended March 31, 2022, net cash used by operating activities consisted of a net loss of $2,686 (2021: $2,261) before depreciation, accretion expense, stock-based compensation, DSU expense and lease non-cash expense in the amount of $387 (2021: $477) and an increase in non-cash operating elements of working capital of $12 (2021: $315).

The net cash provided by financing activities was $2,991 for the three-month period ended March 31, 2022, compared to $1,257 for the same period of 2021. For the three-month period ended March 31, 2022, an amount of $3,000 derives from the issuance of a loan, offset by finance lease payments of $9. For the three-month period ended March 31, 2021, an amount of $2,000 derives from issuance of a loan, offset by repayment of term loans for an amount of $737 and finance lease payments for an amount of $6. 

Net cash provided by investing activities amounted to $1,955 for the three-month period ended March 31, 2022 compared to net cash used in investing activities of $615 for the three-month period ended March 31, 2021. The net cash used in investing activities for the three-month period ended March 31, 2022 relates to the redemption of short-term investments of $5,719, offset by the acquisition of short-term investments of $3,700 and the purchase of fixed assets of $64. The net cash provided by investing activities for the three-month period ended March 31, 2021 relates to the redemption of short-term investments of $627, offset by the purchase of fixed assets of $12. 

The balance of cash as at March 31, 2022 amounted to $6,614, compared to $1,572 as at March 31, 2021. 

Subsequent Events

On May 10, 2022, the shareholders of the Company approved the 2022 Amendment Resolution to amend and restate the 2016 Stock Option Plan.  The Board had previously approved the amendment of the 2016 Stock Option Plan to make certain amendments to align the plan with evolving industry practice and shareholder expectations, as well as amendments of a housekeeping nature, which amendments were subject to ratification by Shareholders.

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As a result of the adoption of the 2022 Stock Option Plan, no additional options will be granted under the 2016 Stock Option Plan and all previously granted options will be governed by the 2022 Stock Option Plan.  Similar to the 2016 Stock Option Plan, the 2022 Stock Option Plan permits the granting of options to officers, employees, directors and eligible consultants of the Company. An aggregate number of up to 10%  of the Company's issued and outstanding shares (on a non-diluted basis) or 15,465,129 will be issuable under the amended plan less 6,157,389 stock options already granted under previous versions of the Company's Stock Option Plan.

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.

PART II

Item 1.  Legal Proceedings

              This Item is not applicable

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.  (Reserved)

Item 5.  Other Information

              This Item is not applicable.

35

Item 6.  Exhibits
Exhibit 31.1 Certification of C.E.O. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
Exhibit 31.2 Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
Exhibit 32.1 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.
   
Exhibit 32.2 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.
   
101.INS Inline XBRL Instance Document–the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document
   
101.SCH Inline XBRL Taxonomy Extension Schema Document
   
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
   
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
44

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 CORP.
     
Date:  May 12, 2022          By:  /s/    Horst G.  Zerbe                          
   

Dr. Horst G. Zerbe

Chief Executive Officer and

Director
     
Date:  May 12, 2022          By:  /s/    Andre Godin                                
   

Andre Godin

Principal Accounting Officer

 

36

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