5 Shareholders’ equity (deficit)

Authorized share capital

An unlimited number of common shares, voting and participating, without par value.

In May 2019, the Company completed its initial public offering ("IPO"), whereby the Company issued in total 6,325,000 common shares at a public offering price of $15.00 per share (note 1). The gross proceeds received by the Company from the offering were $94.9 million. Upon the closing of the IPO, all outstanding shares of Class A1, A2, B, C, D1 and D2 preferred shares converted into 17,550,802 common shares.

The Company's board of directors adopted and its shareholders approved the 2019 Employee Share Purchase Plan ("ESPP") in April 2019, which became effective on May 8, 2019. The number of common shares initially reserved for issuance under the ESPP was 278,734 common shares. The number of shares reserved for issuance will automatically increase on January 1 of each calendar year, beginning on January 1, 2020 through January 1, 2029, by the lesser of (1) 1% of the total number of shares of the Company's share capital outstanding on the last day of the calendar month before the date of the automatic increase and (2) 487,837 shares; provided that before the date of any such increase, the Company's board of directors may determine that such increase will be less than the amount set forth in clauses (1) and (2). As of September 30, 2019, no common shares have been issued under the ESPP. The first offering period has not yet been decided by the Company's board of directors.

During the nine-month period ended September 30, 2019, the Company issued a total of 18,153 common shares [2018 – 42,781]for a total cash consideration of $25 [2018 - $37] pursuant to the exercise of 18,153 stock options [2018 – 42,781] at an average exercise price of US$1.3225 per option [2018 – US$0.8298]. As a result, an amount of $26 [2018 - $32] previously included in additional paid-in capital related to the exercised options has been credited to share capital and deducted from additional paid-in capital.

Additional paid-in capital


	Three months ended September 30,				Nine months ended September 30,
	2019		2018		2019		2018
Opening balance	$	3,116	$	2,544	$	2,655	$	2,372
Share-based compensation expense		350		85		837		289
Exercise of stock options		—		—		(26)		(32)
Closing balance	$	3,466	$	2,629	$	3,466	$	2,629

Share-based compensation

The Company's board of directors adopted and its shareholders approved the 2019 Equity Incentive Plan (the "2019 Plan") in April 2019, which became effective on May 8, 2019 in connection with the IPO. Initially, the maximum number of the Company's common shares that may be issued under the 2019 Plan is 4,710,564 shares, which is the sum of (1) 1,923,501 new shares, plus (2) the number of shares (not to exceed 2,787,063 shares) (i) that remained available for the issuance of awards under the Company's Stock Option Plan (the "2011 Plan") at the time the 2019 Plan became effective, and (ii) any shares subject to outstanding options or other share awards that were granted under the 2011 Plan that terminate, expire or are otherwise forfeited, reacquired or withheld. In addition, the number of the Company's common shares reserved for issuance under the 2019 Plan will automatically increase on January 1 of each calendar year, starting on January 1, 2020 through January 1, 2029, in an amount equal to 4% of the total number of the Company's capital shares outstanding on the last day of the calendar month before the date of each automatic increase, or a lesser number of shares determined by the Company's board of directors. As of May 8, 2019, the Company's 2011 Plan was terminated and no further option grants will be made under the 2011 Plan.

On October 15, 2018, the Company amended for a third time and restated the 2011 Plan whereby options to purchase common shares of the Company’s shares may be granted to directors, officers, employees, consultants and members of the scientific advisory board. The 2011 Plan was administered by the Board of Directors. The Board of Directors determined the number of options to be granted, the vesting period and the exercise price of new options. It was the Company’s policy to establish the exercise price at an amount that approximated the fair value of the underlying shares on the date of grant as determined by the Board of Directors.

Under the 2011 Plan, unless otherwise decided by the Board of Directors, options vest and are exercisable as follows: 25% are exercisable from the first anniversary of grant date and 2.0833% become available at the end of each month after the first anniversary of grant date.

The 2011 Plan was terminated as of May 8, 2019 and a total of 2,393,631 options are still outstanding at September 30, 2019.

As of September 30, 2019, there were 2,316,933 options available for awards under the 2019 Plan, of which 241,378 were granted, leaving 2,075,555 available for future grants.

The total outstanding and exercisable options from the 2011 Plan and 2019 Plan as at September 30 were as follows:


	2019			2018
		Weighted			Weighted
		average			average
	Number	exercise		Number	exercise
	of shares	price		of shares	price
Outstanding at beginning of period	2,295,045	$	1.7714	968,782	$	1.1330
Forfeited/expired	—		—	(12,198)		1.0958
Granted – 2011 Plan	116,739		9.4152	970,225		1.5745
Granted – 2019 Plan	241,378		20.3400	—		—
Exercised	(18,153)		1.3225	(42,781)		0.8298
Outstanding at end of period	2,635,009	$	3.8141	1,884,028	$	1.3671
Exercisable at end of period	906,994	$	1.4851	691,983	$	1.1064

As of September 30, 2019, the weighted average remaining contractual life was 6.25 [2018 – 6.25 years]. The weighted average remaining contractual life was 6.7 years for vested options [2018 – 7.0 years]. There were no options forfeited for the nine-month period ended September 30, 2019 (2018 –12,198).

Options granted are valued using the Black-Scholes option pricing model. Amortization of the fair value of the options over vesting years has been expensed and credited to additional paid-in capital in shareholders’ equity (deficit). The weighted average fair values of options granted in the nine-month period ended September 30, 2019 was $11.76 per share [2018 - $1.13]. Share-based compensation expense recognized for the nine-month period ended September 30, 2019 was $837 [2018 - $289].

As of September 30, 2019, there was $6,193 [2018 – $1,336] of total unrecognized compensation cost, related to non-vested share options, which is expected to be recognized over a remaining weighted average vesting period of 2.8 years [2018 – 3.1 years].

The non-vested options as at September 30 were as follows:


	2019			2018
		Weighted			Weighted
	Number	average		Number	average
	of options	fair value		of options	fair value
Non-vested share options at beginning of period	1,706,303	$	1.3458	451,113	$	1.0266
Forfeited/expired	—		—	(12,198)		1.0639
Granted – 2011 Plan	116,739		6.6491	970,225		1.1343
Granted – 2019 Plan	241,378		14.2264	—		—
Vested, outstanding	(336,405)	$	1.2104	(217,018)	$	1.0851
Non-vested share options at end of period	1,728,015	$	3.5297	1,192,122	$	1.1011

The fair value of share-based payment transaction is measured using Black-Scholes valuation model. This model also requires assumptions, including expected option life, volatility, risk-free interest rate and dividend yield, which greatly affect the calculated values.

The fair value of options granted was estimated using the Black-Scholes option pricing model, resulting in the following weighted average assumptions for the options granted for the three-month and nine-month periods ended September 30:


	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
Exercise price	$	21.63		$	1.91		$	16.78		$	1.57
Share price	$	21.63		$	1.91		$	16.78		$	1.57
Volatility		80	%		82	%		80	%		82	%
Risk-free interest rate		1.54	%		2.77	%		1.94	%		2.77	%
Expected life		6.25			6.25			6.25			6.25
Dividend		0	%		0	%		0	%		0	%

Expected volatility is determined using comparable companies for which the information is publicly available. The risk-free interest rate is determined based on the US sovereign rates benchmark in effect at the time of grant with a remaining term equal to the expected life of the option. Expected option life is determined based on the simplified method as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. The simplified method is an average of the contractual term of the options and its ordinary vesting period. Dividend yield is based on the share option’s exercise price and expected annual dividend rate at the time of grant.

The Company recognized share-based compensation expense as follows for the three and nine months ended September 30:


	Three months ended September 30,				Nine months ended September 30,
	2019		2018		2019		2018
Administration	$	194	$	22	$	396	$	72
Research and development		124		53		358		178
Commercial activities		32		10		83		39
	$	350	$	85	$	837	$	289