UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

Amendment No. 2

 

FORM 10-K/A

 

 

 

(Mark One)

x

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

For the fiscal year ended December 31, 2013

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: 001-32295

 

ADHEREX TECHNOLOGIES INC.

(Exact Name of Registrant as Specified in Its Charter)

 

British Columbia, Canada (State or Other Jurisdiction of Incorporation or Organization	20-0442384 (I.R.S. Employer Identification No.)
PO Box 13628, 68 TW Alexander Drive Research Triangle Park, NC (Address of Principal Executive Offices)	27709 (Zip Code)

(919) 636-4530

(Registrant's telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act:  None

 

 

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES ¨   NO x

 

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  YES ¨   NO x

 

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 x   NO ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes x   No¨

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   x

 

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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):  

Large accelerated filer  ¨

Accelerated filer  ¨

Non-accelerated filer  ¨ (Do not check if a smaller reporting company)

Smaller reporting company  x

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES ¨   NO x

 

The aggregate market value of the voting stock held by non-affiliates of the Registrant, computed by reference to the closing sales price of the Common Shares as reported by the OTCQB on June 30, 2013 (the last business day of the Registrant’s most recently completed second fiscal quarter) was $2,802,147 based upon a total of 9,340,489 shares held as of June 30, 2013 by persons believed to be non-affiliates of the Registrant (for purposes of this calculation, all of the Registrant’s officers, directors and 10% owners known to the Company are deemed to be affiliates of the Registrant).

 

As of March 14, 2014, there were 29,307,618 shares of Adherex Technologies Inc. common stock outstanding.

 

 

Explanatory Note

 

Adherex Technologies, Inc. (the “Company”) is filing this Amendment No. 2 on Form 10-K/A (this “Amendment”) to amend the Company’s Annual Form 10-K for the year ended December 31, 2013, as filed with the Securities and Exchange Commission on March 31, 2014 (the “Form 10-K”). This Amendment is being filed solely to revise the report of the Company’s independent registered public accounting firm contained in Item 8 of the Form 10-K, which inadvertently omitted a reference to the adjustments to retrospectively give effect of the stock split as described in Note 2 and Note 6 to the consolidated financial statements, and to remove the reference to Canadian generally accepted auditing standards.  Other than the matters described above, no changes have been made to the 2013 10-K and this Amendment No. 2 does not otherwise amend, update or change the financial statements or disclosures in the 2013 10-K.

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 of 15(d) the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	Adherex Technologies Inc.
	By:	/s/ Rostislav Raykov
		Rostislav Raykov
		Chief Executive Officer and Director
		Date:  April 8, 2014

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signatures		Title		Date
/s/     Rostislav Raykov		Chief Executive Officer		April 8, 2014
Rostislav Raykov		(principal executive officer) and Director
/s/     Krysia Lynes		Chief Financial Officer		April 8, 2014
Krysia Lynes		(principal financial officer and principal accounting officer)
/s/     Chris A. Rallis		Director		April 8, 2014
Chris A. Rallis
/s/     Steven D. Skolsky		Director		April 8, 2014
Steven D. Skolsky

 

Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act

 

The registrant intends to furnish proxy materials to its security holders subsequent to the filing of this annual report on Form 10-K and shall furnish copies of such proxy materials to the Commission when such materials are sent to security holders.

 

 

 

ADHEREX TECHNOLOGIES INC.

 

INDEX TO FINANCIAL STATEMENTS

 

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-4
Consolidated Statements of Operations	F-5
Consolidated Statements of Cash Flows	F-6
Consolidated Statements of Stockholders’ Deficiency	F-7
Notes to Consolidated Financial Statements	F-11

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Shareholders of Adherex Technologies Inc.

 

We have audited the accompanying consolidated balance sheets of Adherex Technologies Inc. and subsidiaries (a development stage company) (the "Company") as of December 31, 2013 and 2012, and the related consolidated statements of operations, stockholders' deficiency, and cash flows for the years then ended, and cumulatively for the period from September 3, 1996 (date of inception) to December 31, 2013.  These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits. The Company's financial statements for the period September 3, 1996 (date of inception) to December 31, 2008, before the effects of the adjustments to retrospectively give effect of the stock split as described in Note 2 and Note 6 to the consolidated financial statements, were audited by other auditors whose report, dated March 30, 2009, expressed an unqualified opinion on those statements.  The financial statements for the period September 3, 1996 (date of inception) to December 31, 2008 reflect a net loss of $97,979,000. The other auditors' report has been furnished to us, and our opinion, insofar as it relates to the amounts included for such prior period, is based solely on the report of such other auditors.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.

 

In our opinion, based on our audits and the report of other auditors, such financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended, and for the period from September 3, 1996 (date of inception) to December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.

 

We have also audited the adjustments to the consolidated financial statements for the period from September 3, 1996 (date of inception) to December 31, 2008 to retrospectively give effect of the stock split as described in Note 2 and Note 6 to the consolidated financial statements. In our opinion, such retrospective adjustments are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the financial statements of the Company for the period from September 3, 1996 (date of inception) to December 31, 2008 other than with respect to the retrospective adjustments and, accordingly, we do not express an opinion or any other form of assurance on the financial statements for the period from September 3, 1996 (date of inception) to December 31, 2008 taken as a whole.

 

As discussed in Note 1 to the consolidated financial statements, the accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company is a development stage biopharmaceutical company with a portfolio of product candidates under development for use in the treatment of cancer, as discussed in Note 1 to the consolidated financial statements. During the year ended December 31, 2013, the Company incurred a loss from operations of $1,931,000. At December 31, 2013, it had an accumulated deficit of $108,698 and had experienced negative cash flows from operating activities since inception in the amount of $87,247,000. In addition, it had a deficiency in working capital at December 31, 2013 and the Company's operating losses since inception raise substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also discussed in Note 1 to the financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Deloitte LLP
Chartered Professional Accountants, Chartered Accountants
Licensed Public Accountants
Ottawa, Canada

 

March 14, 2014

 

 

Report of Independent Auditors

 

To the Shareholders of Adherex Technologies Inc.

 

In our opinion, the consolidated statements of operations and cash flows, not separately presented herein, and statement of stockholders’ equity, present fairly, in all material respects the results of operations and cash flows for the period from September 3, 1996 (date of inception) to December 31, 2008, before the adjustments to retrospectively give effect of the reverse stock split as described in Notes 2 and 6 of Adherex Technologies Inc. (a development stage company) (the “Company”) in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively give effect of the reverse stock split as described in Notes 2 and 6 and accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by other auditors.

/s/ PricewaterhouseCoopers LLP

Chartered Professional Accountants, Licensed Public Accountants
Ottawa, Canada
March 30, 2009

 

 

Adherex Technologies Inc.

(a development stage company)

Consolidated Balance Sheets

(U.S. Dollars and shares in thousands, except per share amounts)

 

		December 31, 2013				December 31, 2012
Assets
Current assets
Cash and cash equivalents		$	1,663			$	2,303
Prepaid expense			81				56
Other current assets			8				6
Total assets		$	1,752			$	2,365
Liabilities and stockholders’ equity
Current liabilities
Accounts payable		$	212			$	259
Accrued liabilities			132				423
Derivative liabilities			2,863				6,640
Total current liabilities			3,207				7,322
Total liabilities			3,207				7,322
Commitments and contingencies (Note 8)
Stockholders’ (deficit) equity
Common stock, no par value; unlimited shares authorized; (2013 - 29,158, 2012 - 25,158 shares issued and outstanding)			66,790				65,952
Additional paid-in capital			39,210				38,391
Deficit accumulated during development stage			(108,698	)			(110,543	)
Accumulated other comprehensive income			1,243				1,243
Total stockholders’ (deficit) equity			(1,455	)			(4,957	)
Total liabilities and stockholders’ (deficit) equity		$	1,752			$	2,365

 

 (The accompanying notes are an integral part of these consolidated financial statements)

 

 

Adherex Technologies Inc.

(a development stage company)

Consolidated Statements of Operations

(U.S. dollars and shares in thousands, except per share information)

 

		Year Ended December 31, 2013				Year Ended December 31, 2012				Cumulative From September 3, 1996 to December 31, 2013
Revenue		$	-			$	-			$	-
Operating expenses:
Research and development			597				2,075				69,765
Impairment of capital assets			-				-				386
Gain on deferred lease inducements			-				-				(497	)
Acquired in-process research and development			-				-				13,094
General and administration			1,334				1,545				33,428
Loss from operations			(1,931	)			(3,620	)			(116,176	)
Other income (expense):
Gain/(loss) on derivative warrants			3,777				(1,563	)			7,034
Settlement of Cadherin Biomedical Inc. litigation			-				-				(1,283	)
Interest expense			-				-				(19	)
Other (expense)/income			(3	)			(5	)			256
Interest income			2				25				2,899
Total other income/(expense)			3,776				(1,543	)			8,887
Net income/(loss) and total comprehensive income/(loss)		$	1,845			$	(5,163	)		$	(107,289	)
Earnings/(loss) per share of common stock, basic		$	0.06			$	(0.21	)
Earnings/(loss) per share of common stock, diluted		$	0.06			$	(0.21	)
Weighted-average number of shares of common stock outstanding, basic			29,158				25,158
Weighted-average number of shares of common stock outstanding, diluted			31,714				25,158

 

(The accompanying notes are an integral part of these consolidated financial statements)

 

 

Adherex Technologies Inc.

(a development stage company)

Consolidated Statements of Cash Flows

(U.S. Dollars and shares in thousands, except per share amounts)

 

		Year Ended December 31, 2013				Year Ended December 31, 2012				Cumulative From September 3, 1996 to December 31,2013
Cash flows from (used in):
Operating activities:
Net income/(loss)		$	1,845			$	(5,163	)		$	(107,289	)
Adjustments for non-cash items:
(Gain)/Loss on derivative warrants			(3,777	)			1563				(7,034	)
Depreciation and amortization			-				-				1,404
Non-cash Cadherin Biomedical Inc. litigation expense			-				-				1,187
Unrealized foreign exchange loss							-				36
Loss on impairment of capital assets			-				-				386
Amortization of and gain on lease inducements			-				-				(412	)
Non-cash severance expense			-				-				168
Stock options issued to consultants			25				152				1,073
Stock options issued to employees			62				174				10,331
Acquired in-process research and development			-				-				13,094
Changes in non-cash working capital			(365	)			280				(191	)
Net cash used in operating activities			(2,210	)			(2,994	)			(87,247	)
Investing activities:
Purchase of capital assets			-				-				(1,440	)
Disposal of capital assets			-				-				115
Proceeds from sale of assets			-				-				24
Release of restricted cash			-				-				190
Restricted cash			-				-				(209	)
Purchase of short-term investments			-				-				(22,148	)
Redemption of short-term investments			-				-				22,791
Investment in Cadherin Biomedical Inc.			-				-				(166	)
Acquired intellectual property rights			-				-				(640	)
Net cash used in investing activities			-				-				(1,483	)
Financing activities:
Conversion of long-term debt to equity			-				-				68
Long-term debt repayments			-				-				(65	)
Capital lease repayments			-				-				(8	)
Issuance of common stock			1,570				-				88,013
Registration expense			-				-				(465	)
Financing expenses			-				-				(544	)
Proceeds from convertible note			-				-				3,017
Other liability repayments			-				-				(87	)
Security deposits received			-				-				35
Proceeds from exercise of stock options			-				-				51
Net cash provided from financing activities			1,570				-				90,015
Effect of exchange rate changes on cash and cash equivalents			-				-				378
Net change in cash and cash equivalents			(640	)			(2,994	)			1,663
Cash and cash equivalents - Beginning of year			2,303				5,297				-
Cash and cash equivalents - End of year		$	1,663			$	2,303			$	1,663

 

(The accompanying notes are an integral part of these consolidated financial statements)

 

 

Adherex Technologies Inc.

(a development stage company)

Consolidated Statement of Stockholders' Deficiency

(U.S. dollars and shares in thousands, except per share information)

		Common Stock								Non-redeemable Preferred Stock				Additional Paid-in				Accumulated Other Comprehensive				Deficit Accumulated During Development				Total Stockholders’
		Number				Amount				of Subsidiary				Capital				Income				Stage				(Deficit)/Equity
Balance as at Sept. 3 1996			-			$	-			$	-			$	-			$	-			$	-			$	-
Issuance of common stock			89				-				-				-				-				-				-
Net loss			-				-				-				-				-				(37	)			(37	)
Balance at June 30, 1997			89				-				-				-				-				(37	)			(37	)
Net loss			-				-				-				-				-				(398	)			(398	)
Balance at June 30, 1998			89				-				-				-				-				(435	)			(435	)
Exchange of Adherex Inc. shares for Adherex Technologies Inc. shares			(89	)			-				-				-				-				-				-
Issuance of common stock			239				1,615				-				-				-				-				1,615
Cumulative translation adjustment			-				-				-				-				20				-				20
Net loss			-				-				-				-				-				(958	)			(958	)
Balance at June 30, 1999			239				1,615				-				-				20				(1,393	)			242
Issuance of common stock			16				793				-				-				-				-				793
Issuance of equity rights			-				-				-				171				-				-				171
Issuance of special warrants			-				-				-				255				-				-				255
Settlement of advances:
Issuance of common stock			16				175				-				-				-				-				175
Cancellation of common stock			(7	)			-				-				-				-				-				-
Cumulative translation adjustment			-				-				-				-				16				-				16
Net loss			-				-				-				-				-				(1,605	)			(1,605	)
Balance at June 30, 2000			264				2,583				-				426				36				(2,998	)			47
Issuance of common stock:
Initial Public Offering (“IPO”)			74				5,727				-				-				-				(38	)			5,689
Other			5				341				-				-				-				-				341
Issuance of special warrants			-				-				-				1,722				-				-				1,722
Conversion of special warrants			30				1,977				-				(1,977	)			-				-				-
Issuance of Series A special warrants			-				-				-				4,335				-				-				4,335
Conversion of Series A special warrants			69				4,335				-				(4,335	)			-				-				-
Conversion of equity rights			4				171				-				(171	)			-				-				-
Cumulative translation adjustment			-				-				-				-				182				-				182
Net loss			-				-				-				-				-				(2,524	)			(2,524	)
Balance at June 30, 2001			446				15,134				-				-				218				(5,560	)			9,792
Cumulative translation adjustment			-				-				-				-				11				-				11
Net loss			-				-				-				-								(3,732	)			(3,732	)
Balance at June 30, 2002			446				15,134				-				-				229				(9,292	)			6,071

 

(The accompanying notes are an integral part of these consolidated financial statements)

(continued on next page)

 

 

Adherex Technologies Inc.

(a development stage company)

Consolidated Statement of Stockholders' Deficiency (continued)

(U.S. dollars and shares in thousands, except per share information)

 

		Common Stock								Non-redeemable Preferred Stock				Additional Paid-in				Accumulated Other Comprehensive				Deficit Accumulated During Development				Total Stockholders’
		Number				Amount				of Subsidiary				Capital				Income				Stage				(Deficit)/Equity
Common stock issued for Oxiquant acquisition			446				11,077				-				543				-				-				11,620
Exercise of stock options			1				4				-				-				-				-				4
Distribution to shareholders			-				-				-				-				-				(158	)			(158	)
Stated capital reduction			-				(9,489	)			-				9,489				-				-				-
Stock options issued to consultants			-				-				-				4				-				-				4
Equity component of June convertible notes			-				-				-				1,058				-				-				1,058
Financing warrants			-				-				-				53				-				-				53
Cumulative translation adjustment			-				-				-				-				(159	)			-				(159	)
Net loss			-				-				-				-				-				(17,795	)			(17,795	)
Balance at June 30, 2003			893				16,726				-				11,147				70				(27,245	)			698
Stock options issued to consultants			-				-				-				148				-				-				148
Repricing of warrants related to financing			-				-				-				18				-				-				18
Equity component of December convertible notes			-				-				-				1,983				-				-				1,983
Financing warrants			-				-				-				54				-				-				54
Conversion of June convertible notes			96				1,216				-				(93	)			-				-				1,123
Conversion of December convertible notes			60				569				-				(398	)			-				-				171
Non-redeemable preferred stock			-				-				1,045				-				-				-				1,045
December private placement			640				8,053				-				5,777				-				-				13,830
May private placement			259				6,356				-				2,118				-				-				8,474
Exercise of stock options			1				23				-				-				-				-				23
Amalgamation of 2037357 Ontario Inc.			44				660				(1,045	)			363				-				-				(22	)
Cumulative translation adjustment			-				-				-				-				(219	)			-				(219	)
Net loss			-				-				-				-				-				(6,872	)			(6,872	)
Balance at June 30, 2004			1,993				33,603				-				21,117				(149	)			(34,117	)			20,454
Stock options issued to consultants			-				-				-				39				-				-				39
Stock options issued to employees			-				-				-				604				-				-				604
Cost related to SEC registration			-				(493	)			-				-				-				-				(493	)
Acquisition of Cadherin Biomedical Inc.			37				1,252				-				-				-				-				1,252
Cumulative translation adjustment			-				-				-				-				1,392				-				1,392
Net loss – six months ended December 31, 2004			-				-				-				-				-				(6,594	)			(6,594	)
Balance at December 31, 2004			2,030				34,362				-				21,760				1,243				(40,711	)			16,654

 

(The accompanying notes are an integral part of these consolidated financial statements)

(continued on next page)

 

 

Adherex Technologies Inc.

(a development stage company)

Consolidated Statement of Stockholders' Deficiency (continued)

(U.S. dollars and shares in thousands, except per share information)

		Common Stock								Non-redeemable Preferred Stock				Additional Paid-in				Accumulated Other Comprehensive				Deficit Accumulated During Development				Total Stockholders’
		Number				Amount				of Subsidiary				Capital				Income				Stage				(Deficit)/ Equity
Financing costs			-				(141	)			-				-				-				-				(141	)
Exercise of stock options			1				25				-				-				-				-				25
Stock options issued to consultants			-				-				-				276				-				-				276
July private placement			337				7,060				-				1,074				-				-				8,134
Net loss			-				-				-				-				-				(13,871	)			(13,871	)
Balance at December 31, 2005			2,368				41,306				-				23,110				1,243				(54,582	)			11,077
Stock options issued to consultants			-				-				-				100				-				-				100
Stock options issued to employees			-				-				-				491				-				-				491
May private placement			431				5,218				-				822				-				-				6,040
Net loss			-				-				-				-				-				(16,440	)			(16,440	)
Balance at December 31, 2006			2,799				46,524				-				24,523				1,243				(71,022	)			1,268
Stock options issued to consultants			-				-				-				59				-				-				59
Stock options issued to employees			-				-				-				2,263				-				-				2,263
February financing			4,209				17,842				-				5,379				-				-				23,221
Exercise of warrants			116				563				-				131				-				-				694
Net loss			-				-				-				-				-				(13,357	)			(13,357	)
Balance at December 31, 2007			7,124				64,929				-				32,355				1,243				(84,379	)			14,148
Stock options issued to consultants			-				-				-				88				-				-				88
Stock options issued to employees			-				-				-				2,417				-				-				2,417
Net loss			-				-				-				-				-				(13,600	)			(13,600	)
Balance at December 31, 2008			7,124				64,929				-				34,860				1,243				(97,979	)			3,053
Stock options issued to consultants			-				-				-				10				-				-				10
Stock options issued to employees			-				-				-				355				-				-				355
Net loss			-				-				-				-				-				(3,012	)			(3,012	)
Balance at December 31, 2009			7,124				64,929				-				35,225				1,243				(100,991	)			406
Stock options issued to consultants			-				-				-				53				-				-				53
Stock options issued to employees			-				-				-				2,439				-				-				2,439
April Financing			13,337				-				-				-				-				-				-
Net loss			-				-				-				-				-				(7,823	)			(7,823	)
Balance at December 31, 2010			20,461				64,929				-				37,717				1,243				(108,814	)			(4,925	)
Stock options issued to consultants			-				-				-				20				-				-				20
Stock options issued to employees			-				-				-				129				-				-				129
Rights Offering			4,697				1,023				-				199				-				(1,250	)			(28	)
Net income			-				-				-				-				-				4,685				4,685
Balance at December 31, 2011			25,158				65,952				-				38,065				1,243				(105,379	)			(119	)

 

(The accompanying notes are an integral part of these consolidated financial statements)

(continued on next page)

 

 

Adherex Technologies Inc.

(a development stage company)

Consolidated Statement of Stockholders' Deficiency (continued)

(U.S. dollars and shares in thousands, except per share information)

 

		Common Stock								Non-redeemable Preferred Stock				Additional Paid-in				Accumulated Other Comprehensive				Deficit Accumulated During Development				Total Stockholders’
		Number				Amount				of Subsidiary				Capital				Income				Stage				(Deficit)/ Equity
Stock options issued to consultants			-				-				-				152				-				-				152
Stock options issued to employees			-				-				-				174				-				-				174
Net income			-				-				-				-				-				(5,163	)			(5,163	)
Balance at December 31, 2012			25,158				65,952				-				38,391				1,243				(110,543	)			(4,957	)
Stock options issued to consultants			-				-				-				25				-				-				25
Stock options issued to employees			-				-				-				62				-				-				62
Rights Offering			4,000				838				-				732				-				-				1,570
Net income			-				-				-				-				-				1,845				1,845
Balance at December 31, 2013			29,158			$	66,790			$	-			$	39,210			$	1,243			$	(108,698	)		$	(1,455	)

 

(The accompanying notes are an integral part of these consolidated financial statements)

 

 

Adherex Technologies Inc.

(a development stage company)

Notes to the Consolidated Financial Statements

(U.S. dollars and shares in thousands, except per share information)

 1.         Going Concern

 

Adherex Technologies Inc. (“Adherex”), a British Columbia corporation together with its wholly owned subsidiaries Oxiquant, Inc. (“Oxiquant”) and Adherex, Inc., both Delaware corporations, and Cadherin Biomedical Inc. (“CBI”), a Canadian corporation, collectively referred to herein as the “Company,” is a development stage biopharmaceutical company with a portfolio of product candidates under development for use in the treatment of cancer. With the exception of Adherex Inc., all subsidiaries are inactive.

 

These consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States (“U.S.”) of America that are applicable to a going concern which contemplates that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business.

 

The Company is a development stage company and during the year ended December 31, 2013, incurred a loss from operations of $1,931. At December 31, 2013, it had an accumulated deficit of $108,698, and had experienced negative cash flows from operating activities since inception in the amount of $87,247. In addition, it had a deficiency in working capital at December 31, 2013 and the Company's operating losses since inception.

 

These circumstances raise substantial doubt as to the ability of the Company to meet its obligations as they come due and, accordingly, the use of accounting principles applicable to a going concern may not be appropriate. The Company will need to obtain additional funding in the future in order to finance our business strategy, operations and growth through the issuance of equity, debt or collaboration. If we fail to arrange for sufficient capital on a timely basis, we may be required to curtail our business activities until we can obtain adequate financing.

 

These financial statements do not reflect the potentially material adjustments in the carrying values of assets and liabilities, the reported expenses, and the balance sheet classifications used, that would be necessary if the going concern assumption were not appropriate.

 

2.         Significant Accounting Policies

 

Basis of presentation

 

The consolidated financial statements include the accounts of Adherex and of all its wholly-owned subsidiaries and all inter-company transactions and balances have been eliminated upon consolidation.

 

On August 10, 2011, the Board of Directors approved a 1-for-18 reverse stock split, or “Share Consolidation”, which became effective on August 25, 2011. The 1-for-18 reverse stock split affected all of the Company’s common shares, stock options and warrants outstanding at the effective date. Consequently, the Company has retroactively adjusted its financial statements for all periods presented to show the shares, stock options and warrants as if they had always been presented on this basis. The number of units and unit prices (including with respect to the units issued in our April 2010 Private Placement and the Rights Offering) have not been adjusted to reflect the Share Consolidation, and the number of warrants outstanding have not been adjusted to reflect the Share Consolidation (in accordance with the terms of the warrants, the number of shares of common stock issuable thereunder were adjusted as a result of the Share Consolidation but not the number of warrants outstanding).

 

 Use of estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that impact the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the consolidated financial statements and the reported amounts of revenue and expense during the reporting period. Significant estimates include the valuation of derivative warrant liability and the valuation of stock based compensation. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

Cash equivalents consist of highly liquid investments with original maturities at the date of purchase of three months or less.

 

The Company places its cash and cash equivalents in investments held by financial institutions in accordance with its investment policy designed to protect the principal investment. At December 31, 2013, the Company had $1,663 in cash accounts (2012- $2,303). Money market investments typically have minimal risk; however, in recent years the financial markets have been volatile resulting in concerns regarding money market investments. The Company has not experienced any loss or write-down of its money market investments. 

 

Financial instruments

 

Financial instruments recognized on the balance sheets at December 31, 2013 and December 31, 2012 consist of cash and cash equivalents, accounts payable, accrued liabilities and derivative liabilities, the carrying values of which, with the exception of the derivative liabilities, approximate fair value due to their relatively short time to maturity. The Company does not hold or issue financial instruments for trading. The derivative liabilities are carried at fair value.

 

  

The Company’s investment policy is to manage investments to achieve, in the order of importance, the financial objectives of preservation of principal, liquidity and return on investment. Investments, when made, are made in U.S. or Canadian bank securities, commercial paper of U.S. or Canadian industrial companies, utilities, financial institutions and consumer loan companies, and securities of foreign banks provided the obligations are guaranteed or carry ratings appropriate to the policy. Securities must have a minimum Dun & Bradstreet rating of A for bonds or R1 low for commercial paper.

 

The policy risks are primarily the opportunity cost of the conservative nature of the allowable investments. As the main purpose of the Company is research and development, the Company has chosen to avoid investments of a trade or speculative nature.

 

Common stock and warrants

 

At December 31, 2007, the Company had warrants outstanding to purchase common stock that were denominated in both U.S. and Canadian dollars, which resulted in the Company having warrants outstanding that were denominated outside the Company’s U.S. dollar functional currency.

 

In November 2007, the Emerging Issues Task Force (“EITF”) of the FASB issued EITF No. 07-5, Issue Summary No.1 “Determining Whether an Instrument (or an Embedded Feature) is Indexed to an Entity's Own Stock” (“EITF 07-5”), codified as ASC 815-40.  In June 2008, one of the conclusions reached under EITF 07-05 was a consensus that an equity-linked financial instrument would not be considered indexed to the entity's own stock if the strike price is denominated in a currency other than the issuer's functional currency. The issues brought to the EITF for discussion related to how an entity should determine whether certain instruments or embedded features are indexed to its own stock. This discussion included equity-linked financial instruments where the exercise price is denominated in a currency other than the issuer's functional currency; such as the Company’s outstanding warrants to purchase common stock that were denominated in Canadian dollars. This conclusion reached under EITF 07-05 clarified the accounting treatment for these and certain other financial instruments as it related to FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), codified as ASC 815-10. SFAS 133 specifies that a contract that would otherwise meet the definition of a derivative under SFAS 133, issued or held by the reporting entity that is both (a) indexed to its own stock and (b) classified in stockholders' equity in its statement of financial position should not be considered a derivative financial instrument for purposes of applying SFAS 133. As a result, the Company’s outstanding warrants denominated in Canadian dollars were not considered to be indexed to its own stock and should therefore be treated as derivative financial instruments and recorded at their fair value as a liability. The Company issued further Canadian dollar denominated warrants on April 30, 2010 and March 29, 2011 and this resulted in warrants being shown as a liability which is marked to market as at December 31, 2013 and December 31, 2012. At December 31, 2013, the derivative liabilities were valued at $2,863 (2012: $6,640) and the unrealized gain on the value of the underlying securities was $3,777 (2012: loss $1,563) for the year ended December 31, 2013.

 

Revenue recognition

 

At this time, the Company does not have any revenue.

 

Research and development costs and investment tax credits

 

Research costs, including employee compensation, laboratory fees, lab supplies, and research and testing performed under contract by third parties, are expensed as incurred. Development costs, including drug substance costs, clinical study expenses and regulatory expenses are expensed as incurred.

 

Investment tax credits, which are earned as a result of qualifying research and development expenditures, are recognized when the expenditures are made and their realization is reasonably assured. They are applied to reduce related capital costs and research and development expenses in the year recognized.

 

Income taxes

 

The Company accounts for income taxes under the asset and liability method that requires the recognition of deferred tax assets or liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and tax basis of assets and liabilities. The Company provides a valuation allowance to reduce its deferred tax assets when it is more likely than not that such assets will not be realized.

 

The Company accounts for uncertainty in income taxes by following the Financial Accounting Standards Board issued Interpretation No. 48 (‘‘FIN 48’’), codified as ASC 740-10-25, ‘‘Accounting for Uncertainty in Income Taxes – an Interpretation of SFAS No. 109.’’ FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with Statement of Financial Accounting Standards No. 109, ‘‘Accounting for Income Taxes.’, codified as ASC 740-10. FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing tax returns to determine whether the tax positions have met a “more-likely-than-not” threshold of being sustained by the applicable tax authority. Tax benefits related to tax positions not deemed to meet the “more-likely-than-not” threshold are not permitted to be recognized in the financial statements. Upon adoption of FIN 48, the Company has elected an accounting policy that continues to classify accrued interest and penalties related to liabilities for income taxes in income tax expense.

 

  

Foreign currency translation

 

The U.S. dollar is the functional currency for the Company’s consolidated operations. For those entities, all gains and losses from currency translations are included in results of operations.

 

Earnings/(Loss) per share

 

Basic net earnings/(loss) per share is computed by dividing net earnings/(loss) by the weighted average number of shares of common stock outstanding during the year. Diluted net earnings per share is computed using the same method, except the weighted average number shares of common stock outstanding includes convertible debentures, stock options and warrants, if dilutive as determined using the if-converted method and treasury methods. Accordingly, options to purchase 5,319 and warrants to purchase 21,665 shares at December 31, 2013, were not included in earnings per share. These options and warrant were not included in the computation of diluted earnings per share because the exercise prices were greater than the average market price of the common shares at that date, and accordingly, such options would have an antidilutive effect. In 2012 we incurred a net loss and accordingly none of the options or warrants outstanding, 5,498 and 18,385, respectively, were included in loss per share because their effect would be antidilutive.

 

Newly adopted accounting pronouncements

 

In February 2013, the FASB issued ASU 2013-02 to improve the reporting of reclassifications out of accumulated other comprehensive income. The ASU provides amendments to the Comprehensive Income subtopic of the FASB ASC, such that companies must report the effect of significant reclassifications out of accumulated comprehensive income on the respective line items in net income. For other amounts that are not required to be reclassified in their entirety to net income, an entity may cross reference to the relevant note disclosure. The Company was required to adopt this ASU in the first quarter for fiscal 2013. The adoption of this standard did not have a significant impact on the Company’s reporting.

 

Recent accounting pronouncements

 

In July 2013, the FASB issued ASU No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists," an amendment to FASB Accounting Standards Codification, or "ASC" Topic 740, Income Taxes, or "FASB ASC Topic 740." This update clarifies that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations where a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption and retrospective application are permitted. This accounting guidance is not expected to have a material impact on our consolidated financial statements or financial statement disclosures.

 

 3.        Stock options

 

The Compensation Committee of the Board of Directors administers the Company’s stock option plan.  The Compensation Committee designates eligible participants to be included under the plan and approves the number of options to be granted from time to time under the plan. On June 24, 2010, at the Company’s annual meeting, shareholders approved an amendment to the Company’s Stock Option Plan (the “Plan Maximum Amendment”). The Plan Maximum Amendment relates to changing the maximum number of shares of common stock issuable under the Stock Option Plan from a fixed number of 20,000 to the number of shares that represent twenty five percent (25%) of the total number of all issued and outstanding shares of common stock from time to time. Based upon the current shares outstanding, a maximum of 7,290 options are authorized for issuance under the plan.  The option exercise price for all options issued under the plan is based on the fair value of the underlying shares on the date of grant. All options vest within three years or less and are exercisable for a period of seven years from the date of grant.  The stock option plan, as amended, allows the issuance of Canadian and U.S. dollar grants. A summary of the stock option transactions, for both the Canadian and U.S. dollar grants, through the year ended December 31, 2013 is below.

 

  

The following options granted under the stock option plan are exercisable in Canadian dollars:

 

						Exercise Price in Canadian Dollars
		Number of Options				Range				Weighted- average
Outstanding at December 31, 2011			4,171				0.54-0.81			$	0.78
Granted			-				-				-
Exercised			-				-				-
Forfeited or expired			-				-				-
Outstanding at December 31, 2012			4,171				0.54-0.81				0.78
Granted			-				-				-
Exercised			-				-				-
Forfeited or expired			(78	)			0.81				0.81
Outstanding at December 31, 2013			4,093			$	0.54-0.81			$	0.79

 

Price in Canadian Dollars				# outstanding and exercisable at December 31, 2013				Weighted average remaining life (years)
$	0.54				88				4.26
$	0.63				303				4.21
$	0.81				3,702				3.97
TOTAL					4,093				3.99

 

The following options granted under the stock option plan are exercisable in U.S. dollars:

 

						Exercise Price in U.S. Dollars
		Number of Options				Range				Weighted- average
Outstanding at December 31, 2011			963				$0.50 - 24.30			$	8.51
Granted			1,137				0.15 - 0.56				0.32
Exercised			-				-				-
Forfeited or expired			(773	)			5.04 – 24.30				9.92
Outstanding at December 31, 2012			1,327				0.15 - 11.34				0.67
Granted			315				0.24 - 0.98				0.32
Exercised			-				-				-
Forfeited or expired			(11	)			5.22 - 10.26				10.14
Outstanding at December 31, 2013			1,631			$	$0.15-10.26			$	0.60

 

Price in US Dollars				# Outstanding and Exercisable at December 31, 2013				Remaining life (years)
$	0.15				33				5.71
$	0.18				61				5.45
$	0.20				254				5.33
$	0.24				250				6.74
$	0.32				31				6.71
$	0.35				689				5.97
$	0.50				94				4.95
$	0.56				100				6.05
$	0.63				44				4.70
$	0.80				25				6.35
$	0.98				10				6.47
$	1.80				4				1.73
$	5.04				7				0.23
$	5.22				2				1.42
$	7.20				2				0.71
$	10.26				12				0.38
$	11.34				13				0.13
					1,631				5.73

 

  

Stock compensation expense for the fiscal years ended December 31, 2013 and 2012 was $87 and $326 respectively.  These amounts have been included in the general and administrative expenses for the respective periods. The weighted average fair value per share of options granted during the fiscal years ended December 31, 2013 and 2012 was $0.32 and $0.32, respectively. The intrinsic value (being the difference between the share price as at December 31, 2013 and exercise price) of stock options outstanding at December 31, 2013 was NIL.

 

The fair values of options granted in fiscal years ended December 31, 2013 and 2012 were estimated on the date the options were granted based on the Black-Scholes option-pricing model, using the following weighted average assumptions:

 

		Year Ended December 31, 2013				Year Ended December 31, 2012
Expected dividend			0	%			0	%
Risk-free interest rate			1.10-1.73	%			1.09–1.26	%
Expected volatility			144-175	%			118-133	%
Expected life		7 years				7 years

 

The Company uses the historical volatility and adjusts for available relevant market information pertaining to the Company’s share price.

 

 4.      Derivative Liabilities

 

Effective January 1, 2009, the Company adopted ASC Topic 815-40, "Derivatives and Hedging" (ASC 815-40). One of the conclusions reached under ASC 815-40 was that an equity-linked financial instrument would not be considered indexed to the entity's own stock if the strike price is denominated in a currency other than the issuer's functional currency. The conclusion reached under ASC 815-40 clarified the accounting treatment for these and certain other financial instruments. ASC 815-40 specifies that a contract would not be treated as a derivative if it met the following conditions: (a) indexed to the Company's own stock; and (b) classified in shareholders' equity in the Company's statement of financial position. The Company's outstanding warrants denominated in Canadian dollars are not considered to be indexed to its own stock because the exercise price is denominated in Canadian dollars and the Company's functional currency is United States dollars. Therefore, these warrants have been treated as derivative financial instruments and recorded at their fair value as a liability. All other outstanding convertible instruments are considered to be indexed to the Company's stock, because their exercise price is denominated in the same currency as the Company's functional currency, and are included in stockholders' deficiency.

 

The Company's derivative instruments include warrants to purchase 18,035 shares, the exercise prices for which are denominated in a currency other than the Company's functional currency, as follows:

·

Warrants to purchase 13,337 shares at CAD$1.44 per whole share that expire on April 30, 2015; and

·

Warrants to purchase 4,698 shares exercisable at CAD$1.44 per whole share that expire on March 29, 2016.

 

These warrants have been recorded at their fair value as a liability at issuance and will continue to be re-measured at fair value as a liability at each subsequent balance sheet date. Any change in value between reporting periods will be recorded as unrealized gain/(loss). These warrants will continue to be reported as a liability until such time as they are exercised or expire. The fair value of these warrants is estimated using the Black-Scholes option-pricing model.

 

As of December 31, 2013, the fair value of the warrants expiring April 30, 2015 and March 29, 2016 was determined to be $2,015 and $794 respectively (December 31, 2012 – warrants expiring April 30, 2015, fair value of $4,698, March 29, 2016, fair value of $1,847), and the gain on these warrants for the twelve months ended December 31, 2013 was $2,683 and $1,052, respectively (December 31, 2012 - warrants expiring April 30, 2015, loss of $1,026; March 29, 2016, gain of $507). There is no cash flow impact for these derivatives until the warrants are exercised. If these warrants are exercised, the Company will receive the proceeds from the exercise at the current exchange rate at the time of exercise.

 

Gain/(Loss) on Derivative Instruments		Twelve months ended December 31, 2013				Twelve months ended December 31, 2012
Warrant expiring April 15, 2015			2,683				(1,026	)
Warrant expiring March 29, 2016			1,052				(507	)
Rights offering derivative			-				-
Options to contractors			42				(30	)
Total			3,777				(1,563	)

 

During the fiscal year ended December 31, 2011, the Company issued 108 options to contractors with a Canadian dollar denominated strike price. Consequently, the Company now has derivatives relating to these options since the strike price is denominated in a currency other than the US dollar functional currency of the Company. While there is an exception to this rule for employees in ASU 2010-13 "Compensation-Stock Compensation (Topic 718):Effect of Denominating the exercise price of a share based payment award in the currency of the market in which the underlying equity security trades", no such exception exists for contractors. These options will be marked to market until the earlier of their expiry or exercise. The fair value of these options at December 31, 2013 and December 31, 2012 was $54 and $96 respectively. The gain for the twelve months ended December 31, 2013 and December 31, 2012 was $42 and a loss of $30 respectively.

 

  

5.         Fair Value Measurements

 

The Company has adopted Fair Value Measurements and Disclosure Topic of the FASB. This Topic applies to certain assets and liabilities that are being measured and reported on a fair value basis. The Fair Value Measurements Topic defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosure about fair value measurements. This Topic enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The Topic requires that financial assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

 

Level 1: Quoted market prices in active markets for identical assets or liabilities.

 

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

 

Level 3: Unobservable inputs that are not corroborated by market data.

 

Assets/Liabilities Measured at Fair Value on a Recurring Basis

 

Fair Value Measurement at December 31, 2013

 

		Quoted Price in Active Markets				Significant Other				Significant
		for Identical Instruments				Observable Inputs				Unobservable Inputs
		Level 1				Level 2				Level 3				Total
Assets
Cash equivalents		$	-			$	1,663			$	-			$	1,663
Liabilities
Derivative liabilities			-				2,863				-				2,863

 

The Company's financial instruments include cash equivalents and derivative liabilities. Only cash equivalents and derivative liabilities are carried at their fair value. The derivative liabilities include warrants denominated in a currency other than the Company’s functional currency and options issued to contractors in a currency other than the functional currency of the Company. The warrants are carried at fair value and calculated using the Black-Scholes option pricing model using the following assumptions; expected dividend 0%; risk-free interest rate of 1.10%-1.73%; expected volatility of 144% - 175%; and a 1.3 or 2.2 year remaining life. The options also use the Black Scholes model with the following assumptions: expected dividend 0%; risk-free interest rate of 1.43%-1.46% expected volatility of 154%- 172%; and a 3.9-4.4 year remaining life. The risk free rate was based on Bank of Canada Bond issues of similar term. Expected volatility was estimated by using historical volatility of weekly close share prices for a period equal to the remaining life of the instrument.

 

6.         Shareholders’ Equity

 

Authorized capital stock

 

The Company’s authorized capital stock consists of an unlimited number of shares of no par common stock.

 

On August 10, 2011, the Board of Directors approved a 1-for-18 reverse stock split, or “share consolidation”, which became effective on August 25, 2011. The 1-for-18 reverse stock split affected all of the Company’s common shares, stock options and warrants outstanding at the effective date. Consequently, the Company has retroactively adjusted its financial statements for all periods presented to show the share shares, stock options and warrants as if they had always been presented on this basis. The number of units and unit prices (including with respect to the units issued in our 2011 Private Placement and the Rights Offering) have not been adjusted to reflect the Share Consolidation, and the number of warrants outstanding have not been adjusted to reflect the Share Consolidation (in accordance with the terms of the warrants, the number of shares of common stock issuable thereunder were adjusted as a result of the Share Consolidation but not the number of warrants outstanding).

 

Equity financings

 

On November 22, 2013, the Company completed the closing of non-brokered private placement (the “Offering”) of 4,000 units for gross proceeds of US$1,600.  Each unit (a “Unit”) was issued at a price of $0.40 per Unit and consisted of one common share of the Company (the “Common Shares”) and one common share purchase warrant (the “Warrants”). Each Warrant entitles the holder thereof to acquire one Common Share at a price of US$0.50 per share for a period of five years from the date of issuance.

 

Warrants to Purchase Common Stock 

At December 31, 2013, the Company had the following warrants outstanding to purchase common stock priced in Canadian dollars with a weighted average exercise price of $1.44 and a weighted average remaining life of 2.6 years. The Company also had warrants outstanding to purchase common stock priced in U.S. dollars with a weighted average price of $0.50 and a weighted average remaining life of 6.9 years: 

 

  

Warrant Description (Warrants in thousands)		Common Shares Issuable Upon Exercise of Outstanding Warrants at December 31, 2013				Exercise Price CND/USD		Expiration Date
Investor Warrants (1)			13,337			$1.44 CND		April 30, 2015
Investor Warrants (2)			4,698			$1.44 CND		March 29, 2016
Investor Warrants (3)			4,000			$0.50 USD		November 22, 2020
			22,035

 

(1) On April 30, 2010, the Company announced that it had completed a first closing of a non-brokered private placement (“Private Placement”) of 240,066 units, at a price of $0.03 CAD per unit for net proceeds of CAD$7,200. Each unit consisted of one common share and one common share purchase warrant (a “Warrant”). As a result of the Share Consolidation, each eighteen (18) Warrants now entitle the holder thereof to purchase one common share of the Company at a purchase price of CAD$1.44 per whole share for a period of five years from the issue date.

 

(2) On March 29, 2011, the Company announced that it had completed a non-brokered rights offering of 84,559 units, at a price of $0.03 CAD per unit for total net proceeds of $2,547. Each unit consisted of one common share and one common share purchase warrant (a “Warrant”). As a result of the Share Consolidation, each eighteen (18) Warrants now entitle the holder thereof to purchase one common share of the Company at a purchase price of CAD$1.44 per whole share for a period of five years from the issue date.

 

7.         Research and Development

 

 Investment tax credits earned as a result of qualifying research and development expenditures and government grants have been applied to reduce research and development expenses as follows:

 

		Year Ended December 31,				Year Ended December 31,				Cumulative From September 3,1996 to December 31,
		2013				2012				2013
Research and development		$	579			$	2,075			$	69,746
Investment tax credits			-				-				(1,632	)
National Research Council grants			-				-				(197	)
		$	579			$	2,075			$	67,917

 

8.      Commitments and Contingencies

 

LifeSci Advisors, LLC.

 

The Company has a service agreement with LifeSci Advisors, LLC under which it is required to make several payments over the course of the agreement. LifeSci Advisors, LLC services include, but are not limited to, an investor meeting program and creating a key message platform.

 

		Less than 1 year				1-3 years				Total
LifeSci Advisors, LLC			55				-				55
Total		$	55			$	-			$	55

 

Oregon Health & Science University Agreement

 

On February 20, 2013, Adherex entered into a new exclusive license agreement with Oregon Health & Science University (“OHSU”) for exclusive worldwide license rights to intellectual property directed to thiol-based compounds, including STS and their use in oncology (the "New OHSU Agreement"). OHSU will receive certain milestone payments, a 2.5 percent royalty on net sales for licensed products which can be reduced to 1.0 percent upon a $150,000 buy down and a 5 percent royalty on any consideration received from sublicensing of the licensed technology. Milestone payment fees payable to OHSU include $100,000 upon first commercial sale for any licensed product.

 

On February 20, 2013, Adherex terminated the previous exclusive license agreement with OHSU and Oxiquant a wholly owned subsidiary of Adherex, dated September 26, 2002 (the "Previous OHSU Agreement"). Pursuant to the Previous OHSU Agreement, OHSU granted Oxiquant an exclusive worldwide license to intellectual property directed to thiol-based compounds including STS and their use in oncology. In consideration, OHSU was issued 13,902 shares of common stock of Oxiquant that were subsequently converted upon the acquisition of Oxiquant into 21,250 shares of Adherex common stock, and warrants to purchase shares of Adherex common stock that subsequently expired in 2007.

 

  

The term of the New OHSU Agreement expires on the date of the last to expire claim(s) covered in the patents licensed to Adherex, unless earlier terminated as provided in the agreement. STS is currently protected by methods of use patents that the Company exclusively licensed from OHSU that expire in Europe in 2021 and are currently pending in the United States. The New OHSU Agreement is terminable by either Adherex or OHSU in the event of a material breach of the agreement by either party after 45 days prior written notice. Adherex also has the right to terminate the New OHSU Agreement at any time upon 60 days prior written notice and payment of all fees due to OHSU under the New OHSU Agreement.

 

 9. Subsequent Events

 

Exercise of Stock Options

 

On March 5, 2013, Dr. Tom Spector exercised 150,000 options which were granted to him on November 20, 2012 pursuant to the Company’s Amended and Restated Stock Option Plan at an aggregate exercise price of $52,500 or $0.35 per common share. On June 19, 2013 Dr. Spector resigned as Chief Scientific Officer of the Company.

 

Non-Executive Compensation

 

On January 24, 2014, the board approved an increase in non-executive compensation from $1,500 per meeting attended to $2,000 per meeting attended for both Chris Rallis and Steven Skolsky. There was no change to the non-cash compensation for Mr. Rallis or Mr. Skolsky.

 

10.      Income Taxes

 

The Company operates in both U.S. and Canadian tax jurisdictions. Its income is subject to varying rates of tax and losses incurred in one jurisdiction cannot be used to offset income taxes payable in another. A reconciliation of the combined Canadian federal and provincial income tax rate with the Company’s effective tax rate is as follows:

 

		Year Ended December 31,				Year Ended December 31,
		2013				2012
Domestic gain			2,620				(4,397	)
Foreign loss			(775	)			(766	)
Gain before income taxes			1,845				(5,163	)
Expected statutory rate (recovery)			26.50	%			26.50	%
Expected provision for (recovery of) income tax			489				(1,368	)
Permanent differences			(977	)			489
Change in valuation allowance			230				2,467
Non-refundable investment tax credits			-				-
Effect of foreign exchange rate differences			36				(245	)
Effect of change in future enacted tax rates			-				(1,378	)
Effect of tax rate changes and other			222				36
Provision for income taxes		$	-			$	-

 

The Canadian statutory come tax rate of 26.5 percent is comprised of federal income tax at approximately 15.5 percent and provincial income tax at approximately 11.0 percent.

 

The primary temporary differences which gave rise to future income taxes (recovery) at December 31, 2013, December 31, 2012:

 

		December 31, 2013				December 31, 2012
Future tax assets:
SR&ED expenditures			2,195				2,195
Income tax loss carryforwards			22,220				21,783
Non-refundable investment tax credits			1,719				1,719
Share issue costs			31				25
Accrued expenses			-				-
Fixed and intangible assets			1,006				970
Harmonization credit			-				248
			27,170				26,940
Less: valuation allowance			(27,170	)			(26,940	)
Net future tax assets		$	-			$	-

 

There are no current income taxes owed, nor are any income taxes expected to be owed in the near term.

At December 31, 2013 the Company has unclaimed Scientific Research and Experimental Development ("SR&ED") expenditures, income tax loss carry forwards and non-refundable investment tax credits. The unclaimed amounts and their expiry dates are as listed below:

 

  

		Federal				Province/ State
SR&ED expenditures (no expiry)		$	8,283			$	-
Income tax loss carryforwards (expiry date):
2014			6,089				6,089
2015			11,499				11,499
2021			26				-
2022			233				-
2023			133				-
2024			1,536				1,455
2025			4,795				4,768
2026			20,562				20,496
2027			8,340				8,320
2028			10,840				10,823
2029			8,502				8,502
2030			2,608				2,607
2031			3,377				3,377
2032			3,491				3,491
2033			1,817				1,817
Investment tax credits (expiry date):
2018			10
2019			8
2020			96
2021			55
2022			548
2023			399
2024			178
2025			199
2026			86
2027			90
2028			50