FENNEC PHARMACEUTICALS INC. 10-Q

Item 1. Financial Statements Fennec Pharmaceuticals Inc. Condensed Consolidated Balance Sheets (U.S. Dollars and shares in thousands) June 30, 2020 December 31, (unaudited) 2019 Assets Current assets: Cash and cash equivalents $ 38,729 $ 13,650 Prepaid expenses 166 226 Other current assets 4 8 Total current assets 38,899 13,884 Non-current assets: Deferred issuance costs 528 326 Amortization of deferred issuance costs (111 ) (64 ) Total non-current assets: 417 262 Total assets $ 39,316 $ 14,146 Liabilities and stockholders' equity Current liabilities: Accounts payable $ 2,755 $ 1,612 Accrued liabilities 435 659 Total current liabilities 3,190 2,271 Commitments and Contingencies (Note 7) Stockholders' equity: Common stock, no par value; unlimited shares authorized; 25,356 shares issued and outstanding (2019-19,896) 138,359 106,392 Additional paid-in capital 49,226 48,271 Accumulated deficit (152,702 ) (144,031 ) Accumulated other comprehensive income 1,243 1,243 Total stockholders’ equity 36,126 11,875 Total liabilities and stockholders’ equity $ 39,316 $ 14,146 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 Fennec Pharmaceuticals Inc. Condensed Consolidated Statements of Operations (U.S. Dollars and shares in thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2020 2019 2020 2019 Revenue $ - $ - $ - $ - Operating expenses: Research and development 1,121 1,969 2,514 3,640 General and administrative 3,724 2,844 6,166 3,853 Loss from operations (4,845 ) (4,813 ) (8,680 ) (7,493 ) Other income (expense): Other gain/(loss) 13 (10 ) 4 (10 ) Amortization expense (30 ) (17 ) (47 ) (29 ) Interest income and other 17 110 52 176 Total other income/(expense), net - 83 9 137 Net loss $ (4,845 ) $ (4,730 ) $ (8,671 ) $ (7,356 ) Basic net loss per common share $ (0.21 ) $ (0.24 ) $ (0.40 ) $ (0.37 ) Diluted net loss per common share $ (0.21 ) $ (0.24 ) $ (0.40 ) $ (0.37 ) Weighted-average number of common shares outstanding, basic 23,393 19,896 21,635 19,896 Weighted-average number of common shares outstanding, diluted 23,393 19,896 21,635 19,896 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 Fennec Pharmaceuticals Inc. Condensed Consolidated Statements of Cash Flows (U.S. Dollars in thousands) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2020 2019 2020 2019 Cash flows used in: Operating activities: Net loss $ (4,845 ) $ (4,730 ) $ (8,671 ) $ (7,356 ) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of deferred issuance cost 30 17 47 29 Stock-based compensation - contractors 21 331 42 374 Stock-based compensation - employees 522 1,669 913 1,890 Changes in operating assets and liabilities: Prepaid assets 54 52 60 112 Other current assets (2 ) 3 4 - Accounts payable 1,080 (70 ) 1,143 196 Accrued liabilities 24 (28 ) (403 ) (480 ) Net cash used in operating activities (3,116 ) (2,756 ) (6,865 ) (5,235 ) Financing activities: Issuance of shares, net of issuance costs 31,967 - 31,967 - Capitalized deferred issuance cost (23 ) - (23 ) (71 ) Net cash provided by financing activities 31,944 - 31,944 (71 ) Increase/(decrease) in cash and cash equivalents 28,828 (2,756 ) 25,079 (5,306 ) Cash and cash equivalents - Beginning of period 9,901 20,231 13,650 22,781 Cash and cash equivalents - End of period $ 38,729 $ 17,475 $ 38,729 $ 17,475 Non-cash deferred issuance cost (warrant value) $ 179 $ - $ 179 $ 255 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 Fennec Pharmaceuticals Inc. Condensed Consolidated Statements of Stockholders' Equity Three and Six-Months Ended June 30, 2020 and 2019 (U.S. dollars and shares in thousands) (Unaudited) Accumulated Additional Other Total Common Stock Paid-in Accumulated Comprehensive Stockholders' Number (Note 4) Amount Capital Deficit Income Equity Balance at December 31, 2018 19,896 $ 106,392 $ 44,934 $ (131,256 ) $ 1,243 $ 21,313 Stock options issued to employees - - 221 - - 221 Stock options issued to contractors - - 43 - - 43 Warrants issued to consultants - - 255 - - 255 Net loss - - - (2,626 ) - (2,626 ) Balance at March 31, 2019 19,896 106,392 45,453 (133,882 ) 1,243 19,206 Stock options issued to employees - - 1,669 - - 1,669 Stock options issued to contractors - - 331 - - 331 Net loss - - - (4,730 ) - (4,730 ) Balance at June 30, 2019 19,896 $ 106,392 $ 47,453 $ (138,612 ) $ 1,243 $ 16,476 Balance at December 31, 2019 19,896 $ 106,392 $ 48,271 $ (144,031 ) $ 1,243 $ 11,875 Stock options issued to employees - - 391 - - 391 Stock options issued to contractors - - 21 - - 21 Net loss - - - (3,826 ) - (3,826 ) Balance at March 31, 2020 19,896 106,392 48,683 (147,857 ) 1,243 8,461 Issuance of securities 5,460 31,967 - - - 31,967 Stock options issued to employees - - 522 - - 522 Stock options issued to contractors - - 21 - - 21 Net loss - - - (4,845 ) - (4,845 ) Balance at June 30, 2020 25,356 $ 138,359 $ 49,226 $ (152,702 ) $ 1,243 $ 36,126 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 Fennec Pharmaceuticals Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements (U.S. dollars and shares in thousands, except per share information) 1. Nature of Business and Going Concern Fennec Pharmaceuticals Inc. (“Fennec,” the “Company,” “we,” “us,” or “our”) is a biopharmaceutical company focused on the development of PEDMARK TM (a unique formulation of sodium thiosulfate) for the prevention of platinum-induced ototoxicity in pediatric cancer patients. We incorporated under the Canada Business Corporations Act (“CBCA”) in September 1996. Effective on August 25, 2011, the Company continued from the CBCA to the Business Corporations Act (British Columbia) (the “Continuance”). The Continuance was approved by our shareholders at our June 2011 Annual and Special Meeting and by resolution of the Board of Directors on August 10, 2011. We have four wholly-owned subsidiaries: Oxiquant, Inc. and Fennec Pharmaceuticals, Inc., both Delaware corporations, Cadherin Biomedical Inc., a Canadian company and Fennec Pharmaceuticals (EU) Limited (“Fennec Limited”), an Ireland company formed in 2018. With the exception of Fennec Pharmaceuticals, Inc., all subsidiaries are inactive. These unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) 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. During the three and six-months ended June 30, 2020, the Company incurred a loss from operations of $4,845 and $8,680, respectively. At June 30, 2020, it had an accumulated deficit of $152.7 million and had experienced negative cash flows from operating activities during the three and six-months ended June 30, 2020 in the amount of $3,116 and $6,865, respectively. On May 5, 2020, the Company announced the completion of an underwritten public offering of 4,800,000 common shares at a public offering price of $6.25 per share. In addition, Fennec issued an additional 660,204 common shares in connection with the partial exercise of the underwriters’ over-allotment option. The approximate total gross proceeds from the offering was $34.1 million ($32.0 million net of commissions, fees and issue costs). On February 1, 2019, Fennec entered into a Loan and Security Agreement with Bridge Bank, a division of Western Alliance Bank, an Arizona corporation, pursuant to which the Bank agreed to loan $12.5 million to the Company, to be made available upon New Drug Application NDA approval of PEDMARK by no later than September 30, 2020. The proceeds from the loan will be used for working capital purposes and to fund general business requirements in accordance with the terms of the Loan and Security Agreement. Interest under the Term Loans shall bear interest, on the outstanding daily balance thereof, at a floating per annum rate equal to the Effective Interest Rate (as defined in the Loan and Security Agreement) which is equal to the sum of the Prime Rate published in the Wall Street Journal (currently 3.25%) plus one percent (1.00%). The debt facility is to have interest-only monthly payments due for the first eighteen months from the funding date and then monthly principal and interest payments are due through the remainder of the term which has a maturity date of October 1, 2023. In connection with the facility, Fennec granted Bridge Bank a warrant to purchase up to 39 common shares at an exercise price of $6.80 per common share, for a term of ten years from the date of issuance, subject to early termination under certain conditions. On June 26, 2020, Fennec announced an amendment to the Loan and Security Agreement with Bridge Bank. This amendment provides Fennec with an $18 million debt facility comprised of two term loans. Term Loan A consists of $12.5 million to be funded upon New Drug Application (NDA) approval of PEDMARK TM in the U.S. Term Loan B consists of $5.5 million to be funded upon the occurrence of a revenue event in 2021. The interest-only period for the facility has the ability to be extended from 18 months to 24 months from the funding of Term Loan A, provided that Term Loan B is funded, and certain conditions are met. The fee in connection with Loan B, can either be 2.13% of the Loan B amount in cash, or the Company can issue a warrant with a value equal to 3.25% of the Loan B amount. The Company has until August 6, 2020 to decide how to pay for the extended facility. These statements reflect the fee being settled with a warrant. Under Accounting Standards Codification ("ASC") 470-50, Modifications and Extinguishments, the amendment was considered a modification. As such, the Company is amortizing the loan fee and the value of the warrant over the remainder of the loan term. The Company intends to use the proceeds from the loans to provide working capital for commercialization activities for PEDMARK TM upon NDA approval. 7 Fennec Pharmaceuticals Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements (U.S. dollars and shares in thousands, except per share information) The Company believes the aforementioned debt facility, plus funds raised in the public offering which closed in May 2020, provides sufficient funding for the Company to carry-out its planned activities including NDA approval and the commencement of commercialization efforts for at least the next twenty months as it continues its strategic development of PEDMARK TM . 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 accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with US GAAP and are the responsibility of the Company’s management. These unaudited interim condensed consolidated financial statements do not include all of the information and notes required by US GAAP for annual financial statements. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes filed with the Securities and Exchange Commission (“SEC”) in the Company's Annual Report on Form 10-K for the year ended December 31, 2019. The Company's accounting policies are consistent with those presented in the audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2019. These unaudited interim condensed consolidated financial statements have been prepared in U.S. dollars. All amounts presented are in thousands except for per share amounts. Use of estimates The preparation of financial statements in conformity with US 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 of the date of the interim condensed consolidated financial statements and the reported amounts of expense during the reporting period. Actual results could differ from those estimates. In the opinion of management, these unaudited interim condensed consolidated financial statements include all adjustments, which are normal and recurring in nature, necessary for the fair presentation of the Company’s financial position at June 30, 2020 and to state fairly the results for the periods presented. The most significant estimates utilized during the quarter ended June 30, 2020 included estimates necessary to value grants of stock options to employees and various contractors, disclosed in Note 4. New accounting pronouncements In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 removes certain disclosures, modifies certain disclosures and adds additional disclosures. The ASU was effective for us on January 1, 2020, and interim periods within that fiscal year. Certain disclosures in ASU 2018-13 would need to be applied on a retrospective basis and others on a prospective basis. The Company concluded after evaluation, that the impact of ASU 2018-13 on our consolidated financial statements and disclosures was de minimis. 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 highly rated financial institutions in accordance with its investment policy designed to protect the principal investment. At June 30, 2020, the Company had $38,729 in cash, savings and money market accounts ($13,650 at December 31, 2019). At June 30, 2020, the Company held $604 in cash of which $34 (as presented in U.S. dollars) was in Canadian dollars ($24 at December 31, 2019 as presented in U.S. dollars). At June 30, 2020, the Company held $38,125 in money market investments. Money market investments typically have minimal risks. The Company has not experienced any loss or write-down of its money market investments since inception. 8 Fennec Pharmaceuticals Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements (U.S. dollars and shares in thousands, except per share information) 3. Earnings per Share Earnings per common share is presented under two formats: basic earnings per common share and diluted earnings per common share. Basic earnings per common share is computed by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period, plus the potentially dilutive impact of common stock equivalents (i.e. stock options and warrants). Dilutive common share equivalents consist of the incremental common shares issuable upon exercise of stock options and warrants. The following table sets forth the computation of basic and diluted net loss per share: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Numerator: Net (loss) $ (4,845 ) $ (4,730 ) $ (8,671 ) $ (7,356 ) Denominator: Weighted-average common shares, basic 23,393 19,896 21,635 19,896 Dilutive effect of stock options - - - - Dilutive effect of warrants - - - - Incremental dilutive shares - - - - Weighted-average common shares, dilutive 23,393 19,896 21,635 19,896 Net (loss) per share, basic and diluted $ (0.21 ) $ (0.24 ) $ (0.40 ) $ (0.37 ) The following outstanding options and warrants were excluded from the computation of basic and diluted net loss per share for the periods presented because including them would have had an anti-dilutive effect: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Options to purchase common stock 3,563 2,843 3,563 2,843 Warrants to purchase common stock 39 39 39 39 4. Stockholders' Equity Authorized capital stock The Company’s authorized capital stock consists of an unlimited number of shares of no-par common stock. Warrants to Purchase Common Stock During the three and six-months ended June 30, 2020, there were no warrants issued or exercised. During the three and six-months ended June 30, 2019, the Company issued warrants to purchase common stock priced in U.S. dollars with a weighted average price of $6.80. These warrants have not been exercised and have weighted average remaining life of 8.58 years as of June 30, 2020. The following table details the Company’s warrant activity from December 31, 2019: Investor Warrants Common Shares Issuable Upon Exercise of Outstanding Warrants Weighted-Average Exercise Price $USD Outstanding December 31, 2019 39 6.80 Issued - - Outstanding March 31, 2020 39 6.80 Issued - - Outstanding June 30, 2020 39 6.80 Total 39 6.80 9 Fennec Pharmaceuticals Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements (U.S. dollars and shares in thousands, except per share information) Investor Warrants Common Shares Issuable Upon Exercise of Outstanding Warrants Weighted-Average Exercise Price $USD Outstanding December 31, 2018 - - Issued 39 6.80 Outstanding March 31, 2019 39 6.80 Issued - - Outstanding June 30, 2019 39 6.80 Total 39 6.80 The value of warrants issued was estimated using the Black-Scholes option pricing model using the following assumptions in the table below. The expected volatility was determined using historical volatility of our stock based on the contractual life of the award. The Company capitalized the non-cash expense of $179 associated with the anticipated issuance of warrants for the Loan B facility on August 6, 2020 and the $255 associated with issuing the above warrants on February 1, 2019. The Company also incurred legal, professional and share registration fees totaling $23 in 2020 and $71 in 2019 which were also capitalized. The combined capitalized asset, deferred issuance cost, has been placed on the balance sheet and is being amortized over the life of the loan facility. Valuation Assumptions Black-Scholes Model Assumptions February 1, 2019 Expected dividend 0.00 % Risk free rate 2.70 % Expected volatility 179 % Expected life 10 years Stock option plan On June 22, 2020, shareholders of the Company approved a resolution adopting the Equity Incentive Plan (the “Plan”). This Plan replaces the Amended and Restated Stock Option Plan passed by shareholders in 2019. The Plan expands the types of instruments which may be issued as incentive compensation to employees, directors and designated contractors. In addition to stock options, the Plan may also issue: stock appreciation rights, restricted stock awards, restricted stock units, unrestricted stock awards, cash-based awards and dividend equivalent rights. The Company believes this Plan gives it the ability to align incentives with strategic objectives. The Compensation Committee of the Board of Directors administers the Company’s 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. Currently, the maximum number of option shares issuable is twenty-five percent (25%) of the total number of issued and outstanding shares of common stock. Based upon the current shares outstanding, a maximum of 6,339 options are authorized for issuance under the Plan. For all options issued under the Plan, the exercise price is 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 ten years from the date of grant. The Plan allows the issuance of Canadian and U.S. dollar grants. The table below outlines recognized contractor and employee expense for the three and six-month periods ended June 30, 2020 and 2019. Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Contractor options expense recognized $ 21 $ 331 $ 42 $ 374 Employee options expense recognized 522 1,669 913 1,890 Total option expense recognized $ 543 $ 2,000 $ 955 $ 2,264 10 Fennec Pharmaceuticals Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements (U.S. dollars and shares in thousands, except per share information) Stock option activity The following is a summary of option activity for each of the quarterly periods in fiscal year 2020 for stock options denominated in U.S. dollars: Number of Weighted-Average US Denominated Options Options (thousands) Exercise Price $USD Outstanding December 31, 2019 2,440 $ 3.59 Granted - - Exercised - - Outstanding at March 31, 2020 2,440 $ 3.59 Granted 475 6.97 Outstanding at June 30, 2020 2,915 $ 4.52 During the three-month period ended June 30, 2020, there were 475 US denominated options issued. Of the 2,915 US denominated options granted and outstanding at June 30, 2020, 2,023 are fully vested and exercisable. The following is a summary of option activity for each of the quarterly periods in fiscal year 2019 for stock options denominated in U.S. dollars: Number of Weighted-Average US Denominated Options Options (thousands) Exercise Price $USD Outstanding December 31, 2018 1,850 $ 3.80 Granted - - Exercised - - Outstanding at March 31, 2019 1,850 $ 3.80 Granted 345 4.69 Outstanding at June 30, 2019 2,195 $ 3.94 The following is a summary of option activity for the three and six-month periods ended June 30, 2020 for stock options denominated in Canadian dollars: Number of Weighted-Average Canadian Denominated Options Options (thousands) Exercise Price $CAD Outstanding December 31, 2019 648 $ 2.43 Granted - - Exercised - - Outstanding at March 31, 2020 648 $ 2.43 Granted - - Exercised - - Outstanding at June 30, 2020 648 $ 2.43 For the three and six-month periods ended June 30, 2020, there was no issuance activity related to Canadian dollar denominated options. As of June 30, 2020, all 648 outstanding options denominated in Canadian dollars were fully vested and exercisable. The following is a summary of option activity for the three and six-month periods ended June 30, 2019 for stock options denominated in Canadian dollars: Number of Weighted-Average Canadian Denominated Options Options (thousands) Exercise Price $CAD Outstanding December 31, 2018 648 $ 2.43 Granted - - Exercised - - Outstanding at March 31, 2019 648 $ 2.43 Granted - - Exercised - - Outstanding at June 30, 2019 648 $ 2.43 11 Fennec Pharmaceuticals Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements (U.S. dollars and shares in thousands, except per share information) Valuation assumptions The value of options granted were estimated using the Black-Scholes option pricing model using the following assumptions in the table below. The expected volatility was determined using historical volatility of our stock based on the contractual life of the award. There were 475 options issued during the three months ended June 30, 2020, (345 for the same period in 2019). Assumptions for the valuation of the option grants are described in the table below: Three Months Ended June 30, Black-Scholes Model Assumptions 2020 2019 Expected dividend 0.00 % 0.00 % Risk free rate 0.63 – 0.65 % 2.06 – 2.41 % Expected volatility 143 – 144 % 136 – 156 % Expected life 10 years 7 – 10 years 5. Fair Value Measurements The Company adopted the Fair Value Measurements and Disclosure Topic of the FASB in 2011. This Topic applies to certain assets and liabilities that are being measured and reported on a fair value basis. The Topic defines fair value, establishes a framework for measuring fair value in accordance with US 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. Fair Value Measurement at June 30, 2020 and December 31, 2019 (in thousands) Quoted Price in Active Market for Identical Instruments Significant Other Observable Inputs Significant Unobservable Inputs Level 1 Level 2 Level 3 Total 2020 2019 2020 2019 2020 2019 2020 2019 Assets Cash and cash equivalents 604 (1) 347 (1) 38,125 13,303 - - 38,729 13,650 (1) The Company held approximately, $604 in cash as of June 30, 2020, of which approximately, $34 was in Canadian funds (translated into U.S. dollars). As of December 31, 2019, the Company held approximately $347 of which approximately $30 was in Canadian funds (translated into U.S. dollars). 6. Commitments and Contingencies Oregon Health & Science University Agreement On February 20, 2013, Fennec entered into a new exclusive license agreement with OHSU for exclusive worldwide license rights to intellectual property directed to thiol-based compounds, including sodium thiosulfate and their use in oncology (the "OHSU Agreement"). OHSU will receive certain milestone payments, royalty on net sales for licensed products and a royalty on any consideration received from sublicensing of the licensed technology. On May 18, 2015, Fennec negotiated an amendment ("Amendment 1") to the OHSU Agreement, which expands Fennec’s exclusive license to include the use of N-acetylcysteine as a standalone therapy and/or in combination with sodium thiosulfate for the prevention of ototoxicity induced by chemotherapeutic agents to treat cancers. Further, Amendment 1 adjusts select milestone payments entered in the OHSU Agreement including but not limited to the royalty rate on net sales for licensed products, royalty rate from sublicensing of the licensed technology and the fee payable upon the regulatory approval of a licensed product. 12 Fennec Pharmaceuticals Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements (U.S. dollars and shares in thousands, except per share information) The term of the OHSU Agreement as amended by Amendment 1 expires on the date of the last to expire claim(s) covered in the patents licensed to Fennec or 8 years, whichever is later. In the event a licensed product obtains regulatory approval and is covered by the Orphan Drug Designation, the parties will in good faith amend the term of the agreement. Sodium thiosulfate is currently protected by methods of use patents that the Company exclusively licensed from OHSU that expire in Europe in 2021 and that expire in the United States in 2038. The OHSU Agreement is terminable by either Fennec or OHSU in the event of a material breach of the agreement by either party after 45 days prior written notice. Fennec also has the right to terminate the OHSU Agreement at any time upon 60 days prior written notice and payment of all fees due to OHSU under the OHSU Agreement. Executive Severance In the event of his termination with us other than for cause, we will be obligated to pay Mr. Raykov a one-time severance payment equal to twelve months of salary (as of August 5, 2020 $430,000). In the event of his termination with us other than for cause, we will be obligated to pay Mr. Andrade a one-time severance payment equal to six months of salary (as of August 5, 2020 $155,875). In the event of her termination with us other than for cause, we will be obligated to pay Ms. Goel a one-time severance payment equal to three months of salary (as of August 5, 2020 $90,000) Leases We have an operating lease in Research Triangle Park, North Carolina utilizing small space within a commercial building. The operating lease has payments of $200 per month with no scheduled increases. This operating lease is terminable with 30 days’ notice and has no penalties or contingent payments due. On January 23, 2020, the Company entered into an Office Service Agreement (the “Office Service Agreement”) with Regus to lease office space at in Hoboken, New Jersey. Per the terms of the Office Service Agreement, the monthly rent payments are $1,150. The Company was required to pay a security deposit of $2,300, which is the equivalent to two months of rent. The Office Service Agreement commenced on January 27, 2020 and terminates on July 31, 2020, thereafter the lease may continue on a month-to-month basis with either party being able to terminate the agreement by providing one months' advance written notice of termination. COVID-19 The Company’s operations may be affected by the recent and ongoing outbreak of the coronavirus disease 2019 (COVID-19) which was declared a pandemic by the World Health Organization in March 2020. The ultimate disruption which may be caused by the outbreak is uncertain; however, it may result in a material adverse impact on the Company’s financial position, operations and cash flows. Possible effects may include, but are not limited to, disruption to the Company’s product launch which includes the ability of sales reps to communicate with oncologists, absenteeism in the Company’s labor workforce, unavailability of products and supplies used in operations, and a decline in value of assets held by the Company, including inventories, property and equipment, and marketable securities. COVID-19 has not had a material effect on the Company’s operations to date as the Company has historically had a workforce which works remotely, preparations for product launch have been under the assumption of a virtual launch and product supplies have not been impacted. Loan Security Agreement On February 1, 2019, the Company’s wholly owned subsidiary Fennec Pharmaceuticals Inc. entered into a Loan and Security Agreement (the “Loan and Security Agreement”) with Bridge Bank, a division of Western Alliance Bank, an Arizona corporation (the “Bank”), pursuant to which the Bank agreed to loan $12.5 million to Fennec Pharmaceuticals, Inc., to be made available upon New Drug Application (“NDA”) approval of PEDMARK by no later than September 30, 2020. The proceeds from the loan will be used for working capital purposes and to fund general business requirements in accordance with the terms of the Loan and Security Agreement. Interest under the Term Loans shall bear interest, on the outstanding daily balance thereof, at a floating per annum rate equal to the Effective Interest Rate (as defined in the Loan and Security Agreement) which is equal to the sum of the Prime Rate published in the Wall Street Journal (currently 3.25%) plus one percent (1.00%). The debt facility is to have interest-only monthly payments due for the first eighteen months from the funding date and then monthly principal and interest payments are due through the remainder of the term which has a maturity date of October 1, 2023. In connection with the facility, Fennec granted Bridge Bank a warrant to purchase up to 39 common shares at an exercise price of $6.80 per common share, for a term of ten years from the date of issuance, subject to early termination under certain conditions. 13 Fennec Pharmaceuticals Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements (U.S. dollars and shares in thousands, except per share information) On June 26, 2020, Fennec announced an amendment to the Loan and Security Agreement with Bridge Bank. This amendment provides Fennec with an $18 million debt facility comprised of two term loans. Term Loan A consists of $12.5 million to be funded upon New Drug Application (NDA) approval of PEDMARK TM in the U.S. Term Loan B consists of $5.5 million to be funded upon the occurrence of a revenue event in 2021. The interest-only period for the facility has the ability to be extended from 18 months to 24 months from the funding of Term Loan A, provided that Term Loan B is funded, and certain conditions are met. Under Accounting Standards Codification ("ASC") 470-50, Modifications and Extinguishments, the amendment was considered a modification. As such, the Company is amortizing the loan fee and the value of the warrant over the remainder of the loan term. The Company intends to use the proceeds from the loans to provide working capital for commercialization activities for PEDMARK TM upon NDA approval. The combined value of the granted warrants and the associated costs to secure the loan facility (approximately $528 thousand) were capitalized on the balance sheet as a long-term asset. The asset, deferred issuance cost, will be amortized evenly over the full term of the agreement (56 months). During the quarter ended June 30, 2020, the Company recorded amortization expense of roughly $30 as a result of the amortization of the asset related to deferred issuance cost. A total of $111 has been amortized as of June 30, 2020. 7. Subsequent Events Management has evaluated subsequent events through the date of this filing and concluded there are no events of significance which require disclosure. 14