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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10‑Q

 

(Mark One)

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

For the quarterly period ended June 30, 2020

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: 001-36687

 

XENON PHARMACEUTICALS INC.

(Exact name of Registrant as Specified in its Charter)

 

 

Canada

98-0661854

(State or other jurisdiction of

incorporation or organization)

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

200-3650 Gilmore Way

Burnaby, British Columbia, Canada

V5G 4W8

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (604) 484-3300

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Shares, without par value

 

XENE

 

The Nasdaq Stock Market LLC

(The Nasdaq Global Market)

Indicate by check mark 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      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

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

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

☐  

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

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. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of August 4, 2020, the registrant had 34,994,946 common shares, without par value, outstanding.


 


XENON PHARMACEUTICALS INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2020

TABLE OF CONTENTS

 

 

Page

 

PART I. FINANCIAL INFORMATION

1

 

Item 1. Financial Statements

1

 

Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019

1

 

Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2020 and 2019

2

 

Consolidated Statements of Shareholders’ Equity for the three and six months ended June 30, 2020 and 2019

3

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019

5

 

Notes to Consolidated Financial Statements

6

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

13

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

24

 

Item 4. Controls and Procedures

24

 

PART II. OTHER INFORMATION

25

 

Item 1. Legal Proceedings

25

 

Item 1A. Risk Factors

25

 

Item 6. Exhibits

62

 

SIGNATURES

63

 

In this Quarterly Report on Form 10-Q, “we,” “our,” “us,” “Xenon,” and “the Company” refer to Xenon Pharmaceuticals Inc. and its subsidiary. “Xenon” and the Xenon logo are the property of Xenon Pharmaceuticals Inc. and are registered in the United States and used or registered in various other jurisdictions. This report contains references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this report may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

 

 

 

 

 

 

 

 

-i-


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

XENON PHARMACEUTICALS INC.

Consolidated Balance Sheets

(Unaudited)

(Expressed in thousands of U.S. dollars except share amounts)

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

44,199

 

 

$

24,755

 

Marketable securities

 

 

158,555

 

 

 

116,603

 

Accounts receivable

 

 

1,786

 

 

 

813

 

Prepaid expenses and other current assets

 

 

2,470

 

 

 

2,695

 

 

 

 

207,010

 

 

 

144,866

 

Operating lease right-of-use asset (note 7)

 

 

1,029

 

 

 

933

 

Property, plant and equipment, net

 

 

2,347

 

 

 

1,660

 

Deferred tax assets (note 12)

 

 

290

 

 

 

238

 

Total assets

 

$

210,676

 

 

$

147,697

 

 

 

 

 

 

 

 

 

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses (note 8)

 

$

7,769

 

 

$

8,818

 

Deferred revenue (note 11)

 

 

12,692

 

 

 

29,743

 

Operating lease liability (note 7)

 

 

594

 

 

 

168

 

Term loan (note 9)

 

 

 

 

 

4,650

 

 

 

 

21,055

 

 

 

43,379

 

Deferred revenue, long-term (note 11)

 

 

 

 

 

709

 

Operating lease liability, long-term (note 7)

 

 

323

 

 

 

743

 

Term loan, long-term (note 9)

 

 

 

 

 

10,889

 

 

 

$

21,378

 

 

$

55,720

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Preferred shares, without par value; unlimited shares authorized; issued and

   outstanding: 1,016,000 (December 31, 2019 - 1,016,000) (note 10)

 

$

7,732

 

 

$

7,732

 

Common shares, without par value; unlimited shares authorized; issued and

   outstanding: 34,994,790 (December 31, 2019 - 28,139,228) (note 10)

 

 

397,652

 

 

 

294,244

 

Additional paid-in capital

 

 

42,218

 

 

 

40,646

 

Accumulated deficit

 

 

(257,314

)

 

 

(249,655

)

Accumulated other comprehensive loss

 

 

(990

)

 

 

(990

)

 

 

$

189,298

 

 

$

91,977

 

Total liabilities and shareholders’ equity

 

$

210,676

 

 

$

147,697

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (note 13)

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.

 

 

-1-


XENON PHARMACEUTICALS INC.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(Expressed in thousands of U.S. dollars except share and per share amounts)

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue (note 11)

 

$

13,384

 

 

$

 

 

$

20,462

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

10,720

 

 

 

8,205

 

 

 

22,511

 

 

 

17,342

 

General and administrative

 

 

3,310

 

 

 

2,307

 

 

 

6,630

 

 

 

4,928

 

 

 

 

14,030

 

 

 

10,512

 

 

 

29,141

 

 

 

22,270

 

Loss from operations

 

 

(646

)

 

 

(10,512

)

 

 

(8,679

)

 

 

(22,270

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

912

 

 

 

706

 

 

 

2,028

 

 

 

1,388

 

Interest expense

 

 

(154

)

 

 

(365

)

 

 

(484

)

 

 

(723

)

Foreign exchange gain

 

 

662

 

 

 

135

 

 

 

424

 

 

 

265

 

Loss on repayment of term loan (note 9)

 

 

(988

)

 

 

 

 

 

(988

)

 

 

 

Loss before income taxes

 

 

(214

)

 

 

(10,036

)

 

 

(7,699

)

 

 

(21,340

)

Income tax (expense) recovery (note 12)

 

 

39

 

 

 

29

 

 

 

40

 

 

 

(8

)

Net loss and comprehensive loss

 

 

(175

)

 

 

(10,007

)

 

 

(7,659

)

 

 

(21,348

)

Net loss attributable to preferred shareholders

 

 

(5

)

 

 

(380

)

 

 

(222

)

 

 

(810

)

Net loss attributable to common shareholders

 

$

(170

)

 

$

(9,627

)

 

$

(7,437

)

 

$

(20,538

)

Net loss per common share (note 5):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.00

)

 

$

(0.37

)

 

$

(0.22

)

 

$

(0.80

)

Weighted-average common shares outstanding (note 5):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

34,979,282

 

 

 

25,773,879

 

 

 

34,084,508

 

 

 

25,763,858

 

Diluted

 

 

34,979,282

 

 

 

25,775,559

 

 

 

34,084,508

 

 

 

25,763,858

 

 

 

The accompanying notes are an integral part of these financial statements.

 

 

 

-2-


XENON PHARMACEUTICALS INC.

Consolidated Statements of Shareholders’ Equity

(Unaudited)

(Expressed in thousands of U.S. dollars except share amounts)

 

 

Convertible

preferred shares

 

 

Common shares

 

 

Additional

paid-in

capital

 

 

Accumulated deficit

 

 

Accumulated other

comprehensive

loss (1)

 

 

Total shareholders'

equity

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of

   December 31, 2018

 

 

1,016,000

 

 

$

7,732

 

 

 

25,750,721

 

 

$

265,923

 

 

$

38,515

 

 

$

(207,885

)

 

$

(990

)

 

$

103,295

 

Cumulative effect of accounting

   change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(175

)

 

 

 

 

 

 

(175

)

Net loss for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,341

)

 

 

 

 

 

 

(11,341

)

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

476

 

 

 

 

 

 

 

 

 

 

 

476

 

Issued pursuant to exercise

   of stock options

 

 

 

 

 

 

 

 

 

 

21,233

 

 

 

117

 

 

 

(59

)

 

 

 

 

 

 

 

 

 

 

58

 

Balance as of

   March 31, 2019

 

 

1,016,000

 

 

$

7,732

 

 

 

25,771,954

 

 

$

266,040

 

 

$

38,932

 

 

$

(219,401

)

 

$

(990

)

 

$

92,313

 

Net loss for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,007

)

 

 

 

 

 

 

(10,007

)

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

470

 

 

 

 

 

 

 

 

 

 

 

470

 

Issued pursuant to exercise

   of stock options

 

 

 

 

 

 

 

 

 

 

3,102

 

 

 

22

 

 

 

(11

)

 

 

 

 

 

 

 

 

 

 

11

 

Balance as of

   June 30, 2019

 

 

1,016,000

 

 

$

7,732

 

 

 

25,775,056

 

 

$

266,062

 

 

$

39,391

 

 

$

(229,408

)

 

$

(990

)

 

$

82,787

 

 


 

-3-


XENON PHARMACEUTICALS INC.

Consolidated Statements of Shareholders’ Equity

(Unaudited)

(Expressed in thousands of U.S. dollars except share amounts)

 

 

Convertible

preferred shares

 

 

Common shares

 

 

Additional

paid-in

capital

 

 

Accumulated deficit

 

 

Accumulated other

comprehensive

loss (1)

 

 

Total shareholders'

equity

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of

   December 31, 2019

 

 

1,016,000

 

 

$

7,732

 

 

 

28,139,228

 

 

$

294,244

 

 

$

40,646

 

 

$

(249,655

)

 

$

(990

)

 

$

91,977

 

Net loss for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,484

)

 

 

 

 

 

 

(7,484

)

Issuance of common shares,

  net of issuance costs (note 10a)

 

 

 

 

 

 

 

 

 

 

6,759,187

 

 

 

102,456

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

102,456

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,015

 

 

 

 

 

 

 

 

 

 

 

1,015

 

Issued pursuant to exercise

   of stock options

 

 

 

 

 

 

 

 

 

 

57,857

 

 

 

607

 

 

 

(593

)

 

 

 

 

 

 

 

 

 

 

14

 

Balance as of

   March 31, 2020

 

 

1,016,000

 

 

$

7,732

 

 

 

34,956,272

 

 

$

397,307

 

 

$

41,068

 

 

$

(257,139

)

 

$

(990

)

 

$

187,978

 

Net loss for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(175

)

 

 

 

 

 

 

(175

)

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,472

 

 

 

 

 

 

 

 

 

 

 

1,472

 

Issued pursuant to exercise

   of stock options

 

 

 

 

 

 

 

 

 

 

38,518

 

 

 

345

 

 

 

(322

)

 

 

 

 

 

 

 

 

 

 

23

 

Balance as of

   June 30, 2020

 

 

1,016,000

 

 

$

7,732

 

 

 

34,994,790

 

 

$

397,652

 

 

$

42,218

 

 

$

(257,314

)

 

$

(990

)

 

$

189,298

 

(1)

Our accumulated other comprehensive loss is entirely related to historical cumulative translation adjustments from the application of U.S. dollar reporting when the functional currency of the Company was the Canadian dollar.

The accompanying notes are an integral part of these financial statements.

 

 

-4-


 

XENON PHARMACEUTICALS INC.

Consolidated Statements of Cash Flows

(Unaudited)

(Expressed in thousands of U.S. dollars)

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(7,659

)

 

$

(21,348

)

Items not involving cash:

 

 

 

 

 

 

 

 

Depreciation

 

 

271

 

 

 

179

 

Amortization of discount on term loan

 

 

216

 

 

 

255

 

Deferred income tax recovery

 

 

(52

)

 

 

(11

)

Stock-based compensation

 

 

2,487

 

 

 

955

 

Unrealized foreign exchange (gain) loss

 

 

23

 

 

 

(225

)

Unrealized gain on marketable securities

 

 

(532

)

 

 

(143

)

Loss on repayment of term loan (note 9)

 

 

988

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(1,009

)

 

 

(15

)

Prepaid expenses and other current assets

 

 

225

 

 

 

522

 

Accounts payable and accrued expenses

 

 

(1,054

)

 

 

2,388

 

Deferred revenue

 

 

(17,760

)

 

 

 

Net cash used in operating activities

 

 

(23,856

)

 

 

(17,443

)

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(1,016

)

 

 

(600

)

Purchases of marketable securities

 

 

(146,773

)

 

 

(64,176

)

Proceeds from marketable securities

 

 

105,798

 

 

 

51,145

 

Net cash used in investing activities

 

 

(41,991

)

 

 

(13,631

)

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

Repayment of term loan and repayment fees (note 9)

 

 

(16,743

)

 

 

 

Issuance of common shares, net of issuance costs (note 10a)

 

 

102,456

 

 

 

 

Issuance of common shares pursuant to exercise of stock options

 

 

37

 

 

 

69

 

Net cash provided by financing activities

 

 

85,750

 

 

 

69

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(459

)

 

 

326

 

Increase (decrease) in cash and cash equivalents

 

 

19,444

 

 

 

(30,679

)

Cash and cash equivalents, beginning of period

 

 

24,755

 

 

 

67,754

 

Cash and cash equivalents, end of period

 

$

44,199

 

 

$

37,075

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures:

 

 

 

 

 

 

 

 

Interest paid

 

$

339

 

 

$

468

 

Interest received

 

 

2,191

 

 

 

1,269

 

Cash paid for operating lease

 

 

311

 

 

 

314

 

Supplemental disclosures of non-cash transactions:

 

 

 

 

 

 

 

 

Fair value of stock options exercised on a cashless basis

 

 

876

 

 

 

9

 

 

 

The accompanying notes are an integral part of these financial statements.

 

 

-5-

 

 


 

XENON PHARMACEUTICALS INC.

Notes to Consolidated Financial Statements

(Unaudited)

(Expressed in thousands of U.S. dollars except share and per share amounts)

1.

Nature of the business:

Xenon Pharmaceuticals Inc. (the “Company”), incorporated in 1996 under the predecessor to the Business Corporations Act (British Columbia) and continued federally in 2000 under the Canada Business Corporation Act, is a clinical stage biopharmaceutical company focused on developing innovative therapeutics to improve the lives of patients with neurological disorders. Building upon its extensive knowledge of human genetics and diseases caused by mutations in ion channels, known as channelopathies, the Company is advancing a novel product pipeline of neurology-focused therapies to address areas of high unmet medical need, with a focus on epilepsy.

The Company has incurred significant operating losses since inception. As of June 30, 2020, the Company had an accumulated deficit of $257,314 and a $7,659 net loss for the six months ended June 30, 2020. Management expects to continue to incur significant expenses in excess of revenue and to incur operating losses for the foreseeable future. To date, the Company has financed its operations primarily through funding received from collaboration and license agreements, private placements of common and preferred shares, public offerings of common shares, debt financing, and government funding.

Until such time as the Company can generate substantial product revenue, if ever, management expects to finance the Company’s cash needs through a combination of collaboration agreements, equity and debt financings. The continuation of research and development activities and the future commercialization of its products are dependent on the Company’s ability to successfully raise additional funds when needed. It is not possible to predict either the outcome of future research and development programs or the Company’s ability to continue to fund these programs in the future.

2.

Basis of presentation:

These consolidated financial statements are presented in U.S. dollars.

The Company has one wholly-owned subsidiary as of June 30, 2020, Xenon Pharmaceuticals USA Inc., which was incorporated in Delaware on December 2, 2016.

These unaudited interim consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All intercompany transactions and balances have been eliminated on consolidation. Certain information has been reclassified to conform with the financial statement presentation adopted for the current year.

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, these consolidated financial statements do not include all of the information and footnotes required for complete consolidated financial statements and should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2019 and included in the Company’s 2019 Annual Report on Form 10-K filed with the SEC and with the securities commissions in British Columbia, Alberta and Ontario on March 9, 2020.

These unaudited interim consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods presented. The results of operations for the three and six month periods ended June 30, 2020 and 2019 are not necessarily indicative of results that can be expected for a full year. These unaudited interim consolidated financial statements follow the same significant accounting policies as those described in the notes to the audited consolidated financial statements of the Company included in the Company’s 2019 Annual Report on Form 10-K for the year ended December 31, 2019, with the exception of the policies described in notes 3 and 4 below.

 

-6-


 

3.

Use of estimates

The preparation of the unaudited interim consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant areas of estimates include, but are not limited to, revenue recognition including estimated timing of completion of performance obligations, the determination of stock-based compensation and the amounts recorded as accrued liabilities. These estimates and assumptions take into account historical and forward looking factors that the Company believes are reasonable, including but not limited to the potential impacts arising from the recent novel coronavirus (“COVID-19”) and public and private sector policies and initiatives aimed at reducing its transmission.

There was no material impact to the Company’s consolidated financial statements as of and for the three and six month periods ended June 30, 2020; however, the full extent to which the COVID-19 pandemic may have a direct or indirect impact to our business, results of operations and financial condition, including revenue, expenses, research and clinical development plans and timelines, depends on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19, as well as the economic impact on local, regional, national and global markets. Actual results could differ materially from these estimates. Estimates and assumptions are reviewed quarterly. All revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

4.

Changes in significant accounting policies:

In November 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-08, Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements—Share-Based Consideration Payable to a Customer.   These amendments clarify that companies must measure and classify share-based payment awards to a customer following the guidance in Topic 718. A company will classify awards as liabilities or equity following the guidance in Topic 718, and measure them at their grant-date fair value. The awards will be recorded as a reduction to revenue or an expense based on the guidance in Topic 606. If a company intends to provide an award to a customer and the grant date has not occurred, the transaction price guidance in Topic 606 should be followed to estimate the fair value of the award. A company must adjust the fair value estimate each reporting date until a grant date is achieved and recognize changes in the grant-date fair value of an award as a result of changes in the expected outcome of a service or a performance condition as a reduction in the transaction price. If the terms of the award are modified after the grantee vests in the award and is no longer a customer, the award may be subject to other guidance. The Company has adopted this standard as of January 1, 2020 on a retrospective basis. The adoption of the standard had no impact on the Company’s consolidated balance sheets, consolidated statements of operations and comprehensive loss and consolidated statements of cash flows.

5.

Net income (loss) per common share:

For the three and six months ended June 30, 2020 and 2019, basic net income (loss) per common share are calculated using the two-class method required for participating securities which includes 1,016,000 Series 1 Preferred Shares as a separate class for the respective periods (three and six months ended June 30, 2019 – 1,016,000). The convertible preferred shares entitle the holders to participate in dividends and in earnings and losses of the Company on an equivalent basis as common shares. Accordingly, undistributed earnings (losses) are allocated to common shares and participating preferred shares based on the weighted-average shares of each class outstanding during the period.

The treasury stock method is used to compute the dilutive effect of the Company’s stock options and warrants. Under this method, the incremental number of common shares used in computing diluted net income (loss) per common share is the difference between the number of common shares assumed issued and purchased using assumed proceeds.

The if-converted method is used to compute the dilutive effect of the Company’s convertible preferred shares. Under the if-converted method, dividends on the preferred shares, if applicable, are added back to earnings attributable to common shareholders, and the preferred shares and paid-in kind dividends are assumed to have been converted at the share price applicable at the end of the period. The if-converted method is applied only if the effect is dilutive.

For the three and six months ended June 30, 2020, all stock options, warrants and convertible preferred shares were anti-dilutive and were excluded from the diluted weighted average common shares outstanding for the period.

For the three months ended June 30, 2019, 2,658,217 stock options and all warrants and convertible preferred shares were excluded from the calculation of diluted net loss per common share as their inclusion would be anti-dilutive.  For the six months ended June 30, 2019, all stock options, warrants and convertible preferred shares were anti-dilutive and were excluded from the diluted weighted average common shares outstanding for the period. 

The following table sets out the computation of basic and diluted net loss per common share:

 

-7-


 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allocation of loss attributed to

   shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(170

)

 

$

(9,627

)

 

$

(7,437

)

 

$

(20,538

)

Adjustment for change in fair

   value of liability classified

   stock options

 

 

 

 

 

(5

)