Item 5. Market for Registrant’s Common Equity
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer’s Purchases of Equity Securities
Our common shares currently trade in the U.S. on the Nasdaq
Capital Market under the trading symbol “FENC” and in Canada on the TSX under the trading symbol “FRX”. The
following table sets forth the quarterly high and low market closing prices, and average daily trading volume on the Nasdaq Capital
Market , and the TSX, for the two most recent full fiscal years:
Nasdaq Capital Market
(in U.S. dollars)
Toronto Stock Exchange
(in Canadian dollars)
Fiscal 2020:
High $
Low $
Volume
High $
Low $
Volume
Quarter ended 12/31/20
$ 8.55
$ 5.99
120,722
$ 11.24
$ 8.00
775
Quarter ended 09/30/20
10.17
5.19
418,223
13.51
6.54
2,640
Quarter ended 06/30/20
9.39
5.43
216,324
12.70
8.00
1,144
Quarter ended 03/31/20
$ 8.10
$ 4.89
64,745
$ 10.79
$ 6.91
1,113
Fiscal 2019:
High $
Low $
Volume
High $
Low $
Volume
Quarter ended 12/31/19
$ 6.49
$ 4.25
30,248
$ 8.45
$ 5.65
321
Quarter ended 09/30/19
4.95
3.85
34,336
6.55
5.00
489
Quarter ended 06/30/19
5.09
3.30
107,826
6.80
4.38
1,622
Quarter ended 03/31/19
$ 7.58
$ 4.64
45,072
$ 10.00
$ 6.22
1,502
As of March 29, 2021, the last reported sale on the TSX was CAD$7.80
per share and the last reported sale on the Nasdaq Capital Market was $6.21 per share.
Record Holders
As of March 29, 2020, there were approximately
38 shareholders of record of our common shares, one of which was Cede & Co., a nominee for Depository Trust Company, or DTC,
and one of which was The Canadian Depository for Securities Limited, or CDS. All of our common shares held by brokerage firms, banks
and other financial institutions in the U.S. or Canada as nominees for beneficial owners are considered to be held of record by Cede &
Co. in respect of brokerage firms, banks and other financial institutions located in Canada. Cede & Co. and CDS are each
considered to be one shareholder of record.
Dividend Policy
We have never declared or paid cash dividends on our common
shares. We currently expect to retain future earnings, if any, for use in the operation and expansion of business and do not
anticipate paying any cash dividends in the foreseeable future.
Material United States Federal and Canadian Income Tax Consequences
Material U.S. Federal Income Tax Considerations
The following summary
describes the material U.S. federal income tax consequences to U.S. Holders (as defined below) of acquiring, owning, and disposing
of our common shares, subject to the qualifications set forth herein.
General
Tax Consequences Not Addressed
This summary does not
address all potential U.S. federal income tax considerations that may be relevant to a particular U.S. Holder. In addition, this
summary does not take into account the individual facts and circumstances that may affect the U.S. federal income tax consequences
to a particular U.S. Holder, including specific tax consequences under an applicable income tax treaty. Accordingly, this summary
is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any U.S. Holder.
This summary does not address any U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, or non-U.S.
tax considerations, and does not discuss tax reporting requirements that may be applicable to any particular U.S. Holder. Each
prospective investor should consult a professional tax advisor with respect to the U.S. federal income, U.S. alternative minimum,
U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences of acquiring, owning, and disposing of our common
shares.
41
Authorities
This summary is based
upon the provisions of the United States Internal Revenue Code (the “Code”), the United States Treasury Regulations
(whether final, temporary, or proposed) promulgated thereunder, the Convention Between Canada and the United States of America
with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the “Canada-U.S. Tax Convention”),
and administrative rulings and judicial decisions interpreting the Code and the United States Treasury Regulations, all as currently
in effect, and all subject to differing interpretations or change, possibly on a retroactive basis. We have not sought, and will
not seek, a ruling from the IRS regarding any matter discussed herein, and no assurance can be given that the IRS would not assert,
or that a court would not sustain, a position that is different from, and contrary to, the positions taken in this summary. This
summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation.
U.S. Holders
For purposes of this summary, the term “U.S. Holder”
means a beneficial owner of our common shares that is for U.S. federal income tax purposes:
· an individual who is a citizen or resident of the United States (as determined under U.S. federal income tax rules);
· a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under
the laws of the United States or of any political subdivision of the United States;
· an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
· a trust that (i) is subject to the primary supervision of a court within the United States and the control of one or more
U.S. persons for all substantial decisions or (ii) has a valid election in effect under applicable United States Treasury
Regulations to be treated as a U.S. person.
An individual may be a resident for U.S. federal income tax
purposes in any calendar year if the individual was present in the United States for at least 31 days in that calendar year and
for an aggregate of at least 183 days during the three-year period ending with the current calendar year. For purposes of this
calculation, all of the days present in the current year, one-third of the days present in the immediately preceding year, and
one-sixth of the days present in the second preceding year are counted. Residents are taxed for U.S. federal income tax purposes
as if they were U.S. citizens.
Non-U.S. Holders Not Addressed
For purposes of this summary, a “non-U.S. Holder”
is a beneficial owner of common shares that is not a U.S. Holder and is not a partnership for U.S. federal income tax purposes.
This summary does not address the U.S. federal income tax consequences to non-U.S. Holders of acquiring, owning, and disposing
our common shares. Each non-U.S. Holder investor should consult a professional tax advisor with respect to the U.S. federal income,
U.S. alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences of acquiring, owning,
and disposing of our common shares.
Certain U.S. Holders Not Addressed
This summary does not address the U.S. federal income tax considerations
applicable U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders that:
· are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts;
· are financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies;
· are broker-dealers, dealers, or traders in securities or currencies that elect to apply a mark-to-market accounting method;
· have a “functional currency” other than the U.S. dollar;
· own common shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement
involving more than one position;
· acquired common shares in connection with the exercise of employee stock options or otherwise as compensation for services;
· hold common shares other than as a capital asset within the meaning of section 1221 of the Code (generally, property held for
investment purposes);
· are partnerships or other “pass-through” entities for U.S. federal income tax purposes (or investors in such partnerships
or entities);
· own, have owned, or will own (directly, indirectly, or by attribution) 10% or more of the total combined voting power of the
outstanding shares of your company;
42
· are U.S. expatriates who are former citizens or long-term residents of the United States;
· have been, are, or will be residents or deemed to be residents in Canada for purposes of the Income Tax Act (Canada) (the “Tax
Act”);
· use or hold, will use or hold, or that are or will be deemed to use or hold common shares in connection with carrying on a
business in Canada;
· are persons whose common shares constitute “taxable Canadian property” under the Tax Act; or
· have a permanent establishment in Canada for the purposes of the Canada-U.S. Tax Convention.
U.S. Holders that are subject to special provisions under the
Code, including, but not limited to, U.S. Holders described immediately above, should consult their own tax advisors regarding
the U.S. federal income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax
consequences of acquiring, owning, and disposing of our common shares.
The following summary is not a substitute
for careful tax planning and advice. U.S. Holders of common shares are urged to consult their own tax advisors concerning the U.S.
federal income tax consequences of the issues discussed herein, in light of their particular circumstances, as well as any considerations
arising under the laws of any foreign, state, local, or other taxing jurisdiction.
General Rules Applicable to the Ownership and Disposition
of Common Shares
The following discussion describes the
general rules applicable to the ownership and disposition of the common shares but is subject in its entirety to the special
rules described below under the headings entitled “Tax Consequences if We Are a Passive Foreign Investment Company”
and “Tax Consequences if We are a Controlled Foreign Corporation.”
Distributions on Common Shares
The gross amount of any distribution (including
amounts, if any, withheld in respect of Canadian withholding tax) actually or constructively received by a U.S. Holder with respect
to our common shares will be taxable to the U.S. Holder as a dividend to the extent of our current or accumulated earnings and
profits as determined under U.S. federal income tax principles. Distributions to a U.S. Holder in excess of earnings and profits
will be treated first as a return of capital that reduces a U.S. Holder’s tax basis in such common shares (thereby increasing
the amount of gain or decreasing the amount of loss that a U.S. Holder would recognize on a subsequent disposition of our common
shares), and then as gain from the sale or exchange of such common shares (see “Sale or Other Taxable Disposition of Our
Common Shares”). The amount of any distribution of property other than cash will be the fair market value of that property
on the date of distribution. In the event we make distributions to holders of common shares, we may or may not calculate our earnings
and profits under U.S. federal income tax principles. If we do not do so, any distribution may be required to be regarded as a
dividend, even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain. The amount
of the dividend will generally be treated as foreign-source dividend income to U.S. Holders.
Non-corporate U.S. Holders, including individuals,
will generally be eligible for the preferential U.S. federal rate on “qualified dividend income,” provided that we
are a “qualified foreign corporation,” the stock on which the dividend is paid is held for a minimum holding period,
and other requirements are satisfied. A “qualified foreign corporation” includes a foreign corporation that is not
a PFIC in the year of the distribution or in the prior taxable year and that is eligible for the benefits of an income tax treaty
with the United States that contains an exchange of information provision and has been determined by the United States Treasury
Department to be satisfactory for purposes of the legislation (such as the Canada-U.S. Tax Convention).
Distributions to U.S. Holders generally
will not be eligible for the “dividends received deduction” generally allowed to U.S. corporations in respect of dividends
received from other U.S. corporations.
Sale or Other Taxable Disposition of
Our Common Shares
Upon the sale, exchange, or other taxable
disposition of our common shares, a U.S. Holder generally will recognize gain or loss equal to the difference between the amount
realized upon the sale, exchange, or other disposition and such U.S. Holder’s tax basis in such common shares sold or otherwise
disposed of. If the U.S. holder receives Canadian dollars in the transaction, the amount realized will be the U.S. dollar value
of the Canadian dollars received, which is determined for cash basis taxpayers on the settlement date for the transaction and for
accrual basis taxpayers on the trade date (although accrual basis taxpayers can also elect the settlement date). A U.S. Holder’s
tax basis in common shares generally will be such holder’s U.S. dollar cost for such common shares. Gain or loss recognized
on such sale or other disposition generally will be long-term capital gain or loss if, at the time of the sale or other disposition,
the common shares have been held for more than one year.
Preferential tax rates currently apply
to long-term capital gain of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates
for long-term capital gain of a corporate U.S. Holder. Deductions for capital losses are subject to significant limitations under
the Code. The gain or loss will generally be U.S.-source gain or loss for foreign tax credit purposes.
43
Additional Medicare Tax on Net Investment
Income
Certain U.S. Holders that are individuals,
estates, or trusts (other than trusts that are exempt from tax) are subject to a tax of 3.8% on “net investment income”
(or undistributed “net investment income,” in the case of estates and trusts) for each taxable year, with such tax
applying to the lesser of such income or the excess of such person’s adjusted gross income (with certain adjustments) over
a specified amount. Net investment income includes dividends on the common shares and net gains from the disposition of the common
shares.
U.S. Holders that are individuals, estates,
or trusts should consult their own tax advisors regarding the applicability of this tax to any of their income or gains in respect
of the common shares.
Receipt of Foreign Currency
The
amount of any distribution paid to a U.S. Holder in foreign currency, or on the sale, exchange, or other taxable disposition of
common shares, generally will be equal to the U.S. dollar value of such foreign currency based on the exchange rate applicable
on the date of receipt (regardless of whether such foreign currency is converted into U.S. dollars at that time). If the
foreign currency received is not converted into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the
foreign currency equal to its U.S. dollar value on the date of receipt. Any U.S. Holder who converts or otherwise disposes of the
foreign currency after the date of receipt may have a foreign currency exchange gain or loss that would be treated as ordinary
income or loss, and generally will be U.S. source income or loss for foreign tax credit purposes. Different rules apply to
U.S. Holders who use the accrual method of tax accounting. Each U.S. Holder should consult its own U.S. tax advisors regarding
the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.
Foreign Tax Credit
Subject to the PFIC rules discussed below, a U.S. Holder
that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on the common shares generally
will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax paid.
Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a
deduction will reduce a U.S. Holder’s income that is subject to U.S. federal income tax. This election is made on a year-by-year
basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year.
Complex limitations apply to the foreign tax credit, including
the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S. federal income tax liability
that such U.S. Holder’s “foreign source” taxable income bears to such U.S. Holder’s worldwide taxable income.
In applying this limitation, a U.S. Holder’s various items of income and deduction must be classified, under complex rules,
as either “foreign source” or “U.S. source.” Generally, dividends paid by a foreign corporation (including
constructive dividends) should be treated as foreign source for this purpose, and gains recognized on the sale of stock of a foreign
corporation by a U.S. Holder should be treated as U.S. source for this purpose, except as otherwise provided in an applicable income
tax treaty, and if an election is properly made under the Code. However, the amount of a distribution with respect to the common
shares that is treated as a “dividend” may be lower for U.S. federal income tax purposes than it is for Canadian federal
income tax purposes, resulting in a reduced foreign tax credit allowance to a U.S. Holder. In addition, this limitation is calculated
separately with respect to specific categories of income. The foreign tax credit rules are complex, and each U.S. Holder should
consult its own U.S. tax advisors regarding the foreign tax credit rules.
Information Reporting and Backup Withholding
Under U.S. federal income tax law, certain
categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation.
For example, certain U.S. Holders who hold certain “specified foreign financial assets” that exceed certain thresholds
are required to report information relating to such assets. The definition of “specified foreign financial assets”
generally includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts
maintained by a financial institution, any stock or security issued by a non-U.S. person, any financial instrument or contract
held for investment that has an issuer or counterparty other than a U.S. person, and any interest in a foreign entity. U.S. Holders
may be subject to these reporting requirements unless their common shares are held in an account at certain financial institutions.
Significant penalties may apply for failure to satisfy applicable reporting obligations.
Distributions paid with respect to common
shares and proceeds from a sale, exchange, or redemption of common shares made within the United States or through certain U.S.-related
financial intermediaries may be subject to information reporting to the IRS and possible U.S. backup withholding (at a rate of
28%). Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct U.S. taxpayer identification number
and makes any other required certification on IRS Form W-9 or that is a corporation or other entity that is otherwise exempt
from backup withholding. Each U.S. Holder should consult its own tax advisors regarding the application of the U.S. information
reporting and backup withholding rules. Backup withholding is not an additional tax. Amounts withheld as backup withholding may
be credited against a holder’s U.S. federal income tax liability, and such holder may obtain a refund of any excess amounts
withheld under the backup withholding rules by filing an appropriate claim for refund with the IRS and furnishing any required
information in a timely manner.
44
The discussion of reporting requirements
set forth above is not intended to constitute a complete description of all reporting requirements that may apply to a U.S. Holder.
A failure to satisfy certain reporting requirements may result in an extension of the time period during which the IRS can assess
a tax and, under certain circumstances, such an extension may apply to assessments of amounts unrelated to any unsatisfied reporting
requirement. U.S. Holders should consult with their own tax advisors regarding their reporting obligations, if any, as a result
of their acquisition, ownership, or disposition of our common shares.
Tax Consequences if We are a Passive
Foreign Investment Company
A foreign corporation generally will be
treated as a PFIC if, after applying certain “look-through” rules, either (i) 75% or more of its gross income
is passive income or (ii) 50% or more of the average value of its assets is attributable to assets that produce or are held
to produce passive income. Passive income for this purpose generally includes dividends, interest, rents, royalties and gains from
securities and commodities transactions. The look-through rules require a foreign corporation that owns at least 25% by value
of the stock of another corporation to treat a proportionate amount of assets and income as held or received directly by the foreign
corporation.
We have not made the analysis necessary
to determine whether or not we are currently a PFIC or whether we have ever been a PFIC. There can be no assurance that we are
not, have never been or will not in the future be a PFIC. If we were to be treated as a PFIC, any gain recognized by a U.S. shareholder
upon the sale (or certain other dispositions) of our common shares (or the receipt of certain distributions) generally would be
treated as ordinary income, and a U.S. shareholder may be required, in certain circumstances, to pay an interest charge together
with tax calculated at maximum rates on certain “excess distributions,” including any gain on the sale or certain dispositions
of our common shares. In order to avoid this tax consequence, a U.S. shareholder (i) may be permitted to make a “qualified
electing fund” election, in which case, in lieu of such treatment, such shareholder would be required to include in its taxable
income certain undistributed amounts of our income or (ii) may elect to mark-to-market our common shares and recognize ordinary
income (or possible ordinary loss) each year with respect to such investment and on the sale or other disposition of the common
shares. Additionally, if we are deemed to be a PFIC, a U.S. shareholder who acquires our common shares from a decedent will be
denied the normally available step-up in tax basis to fair market value for the common shares at the date of the death and instead
will have a tax basis equal to the decedent’s tax basis if lower than fair market value. Neither we nor our advisors have
the duty to or will undertake to inform U.S. shareholders of changes in circumstances that would cause us to become a PFIC. U.S.
shareholders should consult their own tax advisors regarding the application of the PFIC rules including eligibility for and
the manner and advisability of making certain elections in the event we are determined to be a PFIC at any point in time. We intend
to take the action necessary for a U.S. shareholder to make a “qualified electing fund” election in the event we are
a PFIC.
Further, excess distributions treated as
dividends, gains treated as excess distributions and mark-to-market inclusions and deductions, all under the PFIC rules discussed
above, are all included in the calculation of net investment income for purposes of the 3.8% tax described above under the subheading
entitled “Additional Medicare Tax on Net Investment Income”. United States Treasury Regulations provide, subject to
the election described in the following paragraph, that solely for purposes of this additional tax, distributions of previously
taxed income will be treated as dividends and included in net investment income subject to the additional 3.8% tax. Additionally,
to determine the amount of any capital gain from the sale or other taxable disposition of common shares that will be subject to
the additional tax on net investment income, a U.S. Holder who has made a “qualified electing fund” election will be
required to recalculate its basis in the common shares excluding basis adjustments resulting from the “qualified electing
fund” election. Alternatively, a U.S. Holder may make an election which will be effective with respect to all interests in
a PFIC for which a “qualified electing fund” election has been made and which is held in that year or acquired in future
years. Under this election, a U.S. Holder pays the additional 3.8% tax on income inclusions resulting from the “qualified
electing fund” election and on gains calculated after giving effect to related tax basis adjustments.
Tax Consequences if We are a Controlled
Foreign Corporation
A foreign corporation will be treated as
a “controlled foreign corporation” (“CFC”) for U.S. federal income tax purposes if, on any day during the
taxable year of such foreign corporation, more than 50% of the equity interests in such corporation, measured by reference to the
combined voting power or value of the equity of the corporation, is owned directly or by application of the attribution and constructive
ownership rules of Sections 958(a) and 958(b) of the Code by United States Shareholders. For this purpose, a “United
States Shareholder” is any United States person that possesses directly, or by application of the attribution and constructive
ownership rules of Sections 958(a) and 958(b) of the Code, 10% or more of the combined voting power of all classes
of equity in such corporation or 10% or more of the total value of shares of all classes in such corporation. If a foreign corporation
is a CFC on any day during any taxable year, each United States Shareholder of our Company who owns, directly or indirectly, our
common shares on the last day of the taxable year on which we are a CFC will be required to include in its gross income for United
States federal income tax purposes its pro rata share of our “Subpart F income,” even if the Subpart F income is not
distributed. Subpart F income generally includes passive income but also includes certain related party sales, manufacturing and
services income.
45
In addition to the inclusion of “Subpart
F income” of a CFC in the gross income of a United States Shareholder, there may be exposure to an additional tax under the
recently enacted Global Intangible Low Tax Income regime (“GILTI”). Specifically, the GILTI rules impose an annual
minimum tax on U.S. Holders of their share of GILTI income generated through CFCs. This GILTI income very generally equals a CFC’s
income over a 10% return on the CFCs tangible depreciable trade or business assets. The GILTI tax is 10.5% (until 2026 and 13.12%
for tax years after) on U.S. Holders who are C corporations, as they are entitled to a 50% deduction (37.5% after 2025) of the
GILTI income as well as a reduced foreign tax credit on foreign taxes paid on the GILTI income. U.S. Holders who are individuals,
estates or trusts may pay substantially more tax on GILTI income, as they are subject to ordinary tax rates (ranging from 10% to
37% plus the net investment income tax of 3.8%). Such U.S. Holders are not entitled to a deduction on GILTI income or a reduced
foreign tax credit. There is, however, an election available to such U.S. Holders to mitigate the tax impact.
If we are a CFC, the PFIC rules set
forth above, even if we are otherwise considered to be a PFIC, will not be applicable.
United States persons who might, directly,
indirectly or constructively, acquire 10% or more of our common shares, and therefore might be a United States Shareholder, should
consider the possible application of the CFC rules and GILTI rules and consult a tax advisor with respect to such matters.
Material Canadian Federal Income Tax Considerations
Non-Residents of Canada
The following portion of the summary is generally applicable
to a U.S. Holder. Special rules, which are not discussed in this summary, may apply to a U.S. Holder that is an insurer that carries
on an insurance business in Canada and elsewhere.
Disposition of Common Shares
Upon the disposition by a U.S. Holder of common shares in our
Company, the U.S. Holder will not be subject to tax under the Tax Act in respect of any capital gain realized unless the common
shares disposed of constitutes “taxable Canadian property” of the U.S. Holder and the U.S. Holder is not entitled to
relief under an applicable tax treaty or convention. Common shares will generally not constitute “taxable Canadian property”
of such U.S. Holder unless at any time in the preceding 60 months both of the following statements were true: (a) the U.S.
Holder, together with either (i) persons with whom the U.S. Holder does not deal at arm’s length or (ii) partnerships
in which the U.S. Holder or a person in (a) directly or indirectly hold membership interests, held shares and/or rights to
acquire shares representing 25% or more of the issued shares of any class of our capital stock; and (b) more than 50% of the
fair market value of our common stock was derived directly or indirectly from one or any combination of (i) real or immovable
property situated in Canada, (ii) Canadian resource properties, (iii) timber resource properties, and (iv) options
in respect of, or interests in, or for civil law rights in, property described in any of (i) to (iii).
U.S. Holders whose common shares constitute “taxable Canadian
property” should consult their own tax advisors for advice having regard to their particular circumstances.
Dividends Paid on Common Shares
Dividends paid, credited or deemed to have
been paid or credited on our common shares held by a U.S. Holder will be subject to a Canadian withholding tax under the Tax Act
at a rate of 25% of the gross amount of the dividends, subject to reduction by any applicable tax convention. Under the tax convention
between Canada and the United States (the “Tax Treaty”), the rate of withholding tax on dividends generally applicable
to U.S. Holders who beneficially own the dividends is reduced to 15%. In the case of U.S. Holders that are corporations that beneficially
own at least 10% of our voting shares, the rate of withholding tax on dividends generally is reduced to 5%. So-called “fiscally
transparent” entities, such as United States limited liability companies, or LLCs, are not entitled to rely on the terms
of the Tax Treaty, however a member of such entity will be considered to have received the dividend directly and to benefit from
the reduced rates under the Tax Treaty, where the member is considered under U.S. taxation law to have derived the dividend through
that entity and by reason of the entity being a fiscally transparent entity, the treatment of the dividend is the same as its treatment
would be if the amount had been derived directly by the member. Members of such entities are regarded as holding their proportionate
share of our common shares held by the entity for the purposes of the Tax Treaty.
Item 6. Selected Financial Data
Not applicable.
46
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY STATEMENT
The
following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated
financial statements and related notes appearing at the end of this Annual Report. Some of the information contained in this discussion
and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our
business, includes forward looking statements that involve risks and uncertainties. As a result of many factors, including those
factors set forth in the “Risk Factors” section of this Annual Report, our actual results could differ materially from
the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis.
Overview
Our only product
candidate in the clinical stage of development is PEDMARK TM (sodium thiosulfate (STS) anhydrous injection). We have
announced results of two Phase 3 clinical trials for the prevention of cisplatin induced hearing loss, or ototoxicity in children
including the pivotal Phase 3 study SIOPEL 6 , “A Multicentre Open Label Randomised Phase 3 Trial of the Efficacy of
Sodium Thiosulfate in Reducing Ototoxicity in Patients Receiving Cisplatin Chemotherapy for Standard Risk Hepatoblastoma,”
and the proof of concept Phase 3 study “A Randomized Phase 3 Study of Sodium Thiosulfate for the Prevention of
Cisplatin-Induced Ototoxicity in Children”.
We have announced
results of two Phase 3 clinical trials for the prevention of cisplatin induced hearing loss, or ototoxicity in children including
the pivotal Phase 3 study SIOPEL 6 , “A Multicentre Open Label Randomised Phase 3 Trial of the Efficacy of Sodium Thiosulfate
in Reducing Ototoxicity in Patients Receiving Cisplatin Chemotherapy for Standard Risk Hepatoblastoma,” and the proof of
concept Phase 3 study “A Randomized Phase 3 Study of Sodium Thiosulfate for the Prevention of Cisplatin-Induced
Ototoxicity in Children”.
We continue to focus our resources on the
development of PEDMARK TM .
We have licensed from OHSU intellectual
property rights for the use of PEDMARK TM as a chemoprotectant and are developing PEDMARK TM as a protectant
against the hearing loss often caused by platinum-based anti-cancer agents in children. Preclinical and clinical studies conducted
by OHSU and others have indicated that PEDMARK TM can effectively reduce the incidence of hearing loss caused by platinum-based
anti-cancer agents.
Hearing loss among children receiving platinum-based
chemotherapy is frequent, permanent and often severely disabling. The incidence of hearing loss in these children depends upon
the dose and duration of chemotherapy, and many of these children require lifelong hearing aids. In addition, adults undergoing
chemotherapy for several common malignancies, including ovarian cancer, testicular cancer, and particularly head and neck cancer
and brain cancer, often receive intensive platinum-based therapy and may experience severe, irreversible hearing loss, particularly
in the high frequencies.
We estimate in the U.S. and Europe that
annually over 10,000 children with solid tumors are treated with platinum agents. The vast majority of these newly diagnosed
tumors are localized and classified as low to intermediate risk in nature. These localized cancers may have overall survival rates
of greater than 80%, further emphasizing the importance of quality of life after treatment. The incidence of hearing loss in these
children depends upon the dose and duration of chemotherapy, and many of these children require lifelong hearing aids. There is
currently no established preventive agent for this hearing loss and only expensive, technically difficult and sub-optimal cochlear
(inner ear) implants have been shown to provide some benefit. Infants and young children at critical stages of development lack
speech language development and literacy, and older children and adolescents lack speech language development and literacy, and
older children and adolescents lack social-emotional development and educational achievement.
In March 2018, PEDMARK TM
received Breakthrough Therapy and Fast Track designations from the FDA. Further, PEDMARK TM has received Orphan Drug
Designation in the U.S. in this setting.
We initiated our rolling New Drug Application
(“NDA”) for PEDMARK TM for the prevention of ototoxicity induced by cisplatin chemotherapy patients 1 month to <
18 years of age with localized, non-metastatic, solid tumors with the FDA in December 2018. We announced that we had submitted full
completion of the NDA in February 2020. On April 13, 2020, we announced that the FDA had accepted for filing and granted Priority
Review for our NDA. The FDA set a Prescription Drug Fee Act (“PDUFA”) target action date of August 10, 2020 for the completion
of the FDA’s review. On August 10, 2020, we announced that we received a CRL from the FDA regarding our NDA for PEDMARK TM ,
which identified deficiencies in the third-party manufacturing facility that manufactures PEDMARK TM on our behalf. Importantly,
no clinical safety or efficacy issues were identified during the review and there is no requirement for further clinical data. In the
fourth quarter of 2020, we engaged in a Type A meeting with the FDA concerning the CRL that we believe was constructive and collaborative.
We are working closely with our third-party drug manufacturer and the FDA to fully address the CRL, and we plan to resubmit our NDA for
PEDMARK TM in the second quarter of 2021.
47
In August 2018, the Pediatric Committee
(“PDCO”) of the European Medicines Agency (“EMA”) accepted our pediatric investigation plan (PIP) for sodium
thiosulfate with the trade name Pedmarqsi for the condition of the prevention of platinum-induced hearing loss. An accepted PIP
is a prerequisite for filing a Marketing Authorization Application (“MAA”) for any new medicinal product in Europe. The
indication targeted by our PIP is for the prevention of platinum-induced ototoxic hearing loss for standard risk hepatoblastoma
(SR-HB). Additional tumor types of the proposed indication will be subject to the Committee for Medicinal Products for Human Use
(“CHMP”) assessment at the time of the MAA. No deferred clinical studies were required in the positive opinion given
by PDCO. We were also advised that sodium thiosulfate (tradename to be determined) is eligible for submission of an application
for a Pediatric Use Marketing Authorization (“PUMA”). A PUMA is a dedicated marketing authorization covering the indication
and appropriate formulation for medicines developed exclusively for use in the pediatric population and provides data and market
protection up to 10 years. Therefore, this decision allows us to proceed with the submission of a PUMA in the European Union (EU)
with incentives of automatic access to the centralized procedure and up to 10 years of data and market protection. In February 2020,
we announced that we had submitted a MAA for the prevention of ototoxicity induced by cisplatin chemotherapy patients 1 month to
< 18 years of age with localized, non-metastatic, solid tumors.
We
have not received and do not expect to have significant revenues from our product candidate until we are either able to sell our
product candidate after obtaining applicable regulatory approvals or we establish collaborations that provide us with up-front
payments, licensing fees, milestone payments, royalties or other revenue. We generated a net loss of $18.1 million for the year
ended December 31, 2020. We generated a net loss of approximately $12.8 million for the year ended December 31,
2019. As of December 31, 2020, our accumulated deficit was approximately $162.1 million.
Our projections of our capital requirements are
subject to substantial uncertainty, and more capital than we currently anticipate may be required thereafter. To finance our
continuing operations, we may need to raise substantial additional funds through either the sale of additional equity, the issuance
of debt, the establishment of collaborations that provide us with funding, the out-license or sale of certain aspects of our intellectual
property portfolio or from other sources. We may not be able to raise the necessary capital or such funding may not be
available on financially acceptable terms if at all. If we cannot obtain adequate funding in the future, we might be required
to further delay, scale back or eliminate certain research and development studies, consider business combinations or even shut
down some, or all, of our operations.
Our operating expenses will depend on many
factors, including the progress of our drug development efforts and efficiency of our operations and current resources. Our research
and development expenses, which include expenses associated with our clinical trials, drug manufacturing to support clinical programs,
stock-based compensation, consulting fees, sponsored research costs, toxicology studies, license fees, milestone payments, and
other fees and costs related to the development of our product candidate, will depend on the availability of financial resources,
the results of our clinical trials, and any directives from regulatory agencies, which are difficult to predict. Our general and
administration expenses include expenses associated with the compensation of employees, stock-based compensation, professional
fees, consulting fees, insurance and other administrative matters associated in support of our drug development programs.
On May 5, 2020, we announced the completion
of an underwritten public offering of 4,800,000 of our common shares at a public offering price of $6.25 per share. In addition,
we 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 were $34,100 ($32,189 net of commissions, fees and issue costs).
On February 1, 2019, our 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 (“Bridge Bank”), pursuant to which Bridge
Bank agreed to loan $12.5 million to Fennec Pharmaceuticals, Inc., to be made available upon NDA approval of PEDMARK TM
by no later than September 30, 2020. The Loan and Security Agreement was amended on June 26, 2020 to increase the total
potential amount of the loan to $18 million and to extend the outside date for us to receive NDA approval of PEDMARK TM
to December 31, 2020. In connection with this facility, we issued the Bridge Bank a warrant to purchase up to 39,000 of our
common shares at an exercise price of $6.80 per share, with an exercise period of ten years from the date of issuance subject to
certain early termination conditions. Under Accounting Standards Codification ("ASC") 470-50, Modifications and Extinguishments,
the amendment to the facility was considered a modification. As such, we had been amortizing the loan fee and the value of the
warrant over the remainder of the loan term. Following the receipt of the FDA’s CRL in August 2020, we decided to fully
amortize the remaining portions of the loan fee and the value of the warrants. The Loan and Security Agreement expired on December 31,
2020 as a result of us not obtaining NDA approval of PEDMARK TM by that date, with no amounts advanced under the facility
prior to its termination.
We believe that the funds raised in our
May 2020 public offering provides us sufficient funding to carry-out our planned activities, including potential NDA approval
and the commencement of commercialization efforts, for at least the next twelve months as we continue our strategic development
of PEDMARK TM .
48
Results of Operations
Fiscal 2020 versus Fiscal 2019
Fiscal Year Ended
Fiscal Year Ended
Increase
In thousands of U.S. Dollars
December 31, 2020
%
December 31, 2019
%
(Decrease)
Revenue
$ 170
$ -
$ 170
Operating expenses:
Research and development
5,105
29 %
5,607
43 %
(502 )
General and administration
12,950
71 %
7,402
57 %
5,548
Total operating expense
18,055
100 %
13,009
100 %
5,046
Loss from operations
17,885
13,009
4,876
Amortization expense
(402 )
(64 )
(338 )
Unrealized gain on securities
100
-
100
Other loss
(9 )
(17 )
8
Interest income and other, net
87
315
(228 )
Net loss
$ (18,109 )
$ (12,775 )
$ (5,334 )
· Revenues reported represent royalties related to Elion deal with Processa Pharmaceuticals, Inc.
Fennec received $0.005 million in cash and 41,250 in restricted shares of Processa Pharmaceuticals, Inc.
· Research
and development expense decreased by $0.5 million in fiscal 2020 as compared to fiscal 2019,
primarily due to the shift from research and development to pre-commercialization efforts
for PEDMARK TM which took place in the first nine months of 2020.
· The $5.5 million increase in general and administrative expenses is
attributed to the increase in pre-commercialization expenses. Further there was a small rise in compensation to officers, directors and
key contract employees in fiscal 2020 as compared to fiscal 2019.
· Amortization expense relates to the Bridge Bank loan facility as the loan origination fees were
capitalized in fiscal 2019 and 2020. After receiving the CRL from the FDA in August 2020, management decided to amortize the
remaining amounts associated with the loan facility. The facility expired on December 31, 2020.
· Interest income decreased in fiscal 2020 as compared to 2019, due to lower interest rates on money
market accounts for the comparable periods.
· There was an unrealized gain of $0.1 million on the Processa shares between the date acquired,
October 30, 2020, and December 31, 2020. Going forward, the Processa shares will be marked to market at each balance
sheet date. The resulting change in value will result in an unrealized gain or loss.
Quarterly Information
The following table presents selected consolidated
financial data for each of the last eight quarters through December 31, 2020, as prepared under generally accepted accounting
principles within the United States, or U.S. GAAP (dollars in thousands, except per share information).
Period
Net (Loss)/Income for the
Period
Basic Net (Loss)/Income per
Common Share
Diluted Net (Loss)/Income per
Common Share
March 31, 2019
(2,626 )
(0.13 )
(0.13 )
June 30, 2019
(4,730 )
(0.24 )
(0.24 )
September 30, 2019
(1,809 )
(0.09 )
(0.09 )
December 31, 2019
(3,610 )
(0.18 )
(0.18 )
March 31, 2020
(3,826 )
(0.19 )
(0.19 )
June 30, 2020
(4,845 )
(0.21 )
(0.21 )
September 30, 2020
(6,200 )
(0.24 )
(0.24 )
December 31, 2020
(3,238 )
(0.13 )
(0.13 )
Quarter ended December 31, 2020 versus 2019
Quarter Ended
Quarter Ended
Increase
In thousands of U.S. Dollars
December 31, 2020
%
December 31, 2019
%
(Decrease)
Revenue
$ 170
$ -
$ 170
Operating expenses:
Research and development
1,223
36 %
1,172
32 %
51
General and administration
2,293
64 %
2,481
68 %
(188 )
Total operating expense
3,516
100 %
3,653
100 %
(137 )
Loss from operations
3,346
3,653
(307 )
Unrealized gain on securities
100
-
100
Interest income
13
69
(56 )
Amortization expense
-
(18 )
18
Other(loss)/income, net
(5 )
(8 )
3
Net loss
$ (3,238 )
$ (3,610 )
$ 372
49
Revenues reported represent royalties
related to Elion deal with Processa Pharmaceuticals, Inc. Fennec received $0.005 million in cash and 41,250 in
restricted shares of Processa Pharmaceuticals, Inc. We reported a loss from operations of $3.3 million for the three
months ended December 31, 2020, compared to a loss from operations of $3.7 million for the same period in 2019. Research
and development expenses totaled $1.2 million for the three months ended December 31, 2020, which was the same for the
same period in 2019. General and administrative expenses decreased by $0.2 million in the three months ended
December 31, 2020, as compared to the same period in 2019. The decrease arises from our reduced pre-commercialization
activities for PEDMARK TM as we focus on preparing to resubmit our NDA application to the FDA. There was an
unrealized gain of $0.1 million on the Processa shares between the date acquired, October 30, 2020, and
December 31, 2020. Going forward, the Processa shares will be marked to market at each balance sheet date. The resulting
change in value will result in an unrealized gain or loss.
Selected Asset and Liability Data (thousands):
As at
December 31, 2020
As at
December 31, 2019
Cash and equivalents
$ 30,344
$ 13,650
Other current assets
1,073
234
Current liabilities
2,347
2,271
Working capital [current assets – current liabilities]
29,070
11,613
Selected Equity:
Common stock and additional paid in capital
$ 189,967
$ 154,663
Accumulated deficit
(162,140 )
(144,031 )
Shareholders’ equity
29,070
11,875
Liquidity and Capital Resources
· There was a $16.7 million increase in cash and cash equivalents between December 31, 2020
and December 31, 2019. The net increase was the result of our May 2020 public offering of common shares, which raised
net proceeds of $32.0 million, as well as $0.5 million from various stock option exercises, offset by cash used for operating activities.
During the period ended December 31, 2020, cash for operations was used mainly on the pre-commercialization activities of
PEDMARK TM and regulatory submission activities relating to the NDA.
· The increase in other current assets between December 31, 2020 and December 31, 2019
primarily relates to the value of the Processa shares and an increase in the prepaid amount for Director and Officer insurance
premiums and costs associated with our at the market offering agreement, which was disclosed on October 20, 2020.
·
Current liabilities at December 31, 2020 increased $0.076 million compared to December 31, 2019 primarily due to a minor rise in accounts payable associated with our commercialization and manufacturing activities for the production of PEDMARK TM and related regulatory expenses at year-end 2020.
· Working capital increased between December 31, 2020 and December 31, 2019 by $17.5 million. The
increase was a result of cash used in operations offset by $32.0 million from our May 2020 public offering of common shares,
$0.5 million from stock option exercises and $0.1 million in interest income. Cash outflows related to the regulatory and pre-commercial
development activities of PEDMARK TM and general and administrative expenses.
Selected Cash Flow Data
(dollars and shares in thousands)
Year Ended
December 31, 2020
Year Ended
December 31, 2019
Net cash used in operating activities
$ (15,595 )
$ (9,060 )
Net cash provided from investing activities
-
-
Net cash provided by financing activities
32,289
(71 )
Net cash flow
$ 16,694
$ (9,131 )
The net cash flow used in operating activities
for the year ended December 31, 2020 was approximately $15.6 million as compared to $9.1 million in 2019. This increase
relates to the commercial development of PEDMARK TM , preparation for product launch and regulatory activities. Net financing
activities provided approximately $32.0 million from a public offering in May of 2020, and approximately $0.5 million from
the exercise of stock options.
50
We continue to pursue various strategic
alternatives including collaborations with other pharmaceutical and biotechnology companies. Our projections of further capital
requirements are subject to substantial uncertainty. Our working capital requirements may fluctuate in future periods depending
upon numerous factors, including: our ability to obtain additional financial resources; our ability to enter into collaborations
that provide us with up-front payments, milestones or other payments; results of our research and development activities; progress
or lack of progress in our preclinical studies or clinical trials; unfavorable toxicology in our clinical programs, our drug substance
requirements to support clinical programs; change in the focus, direction, or costs of our research and development programs; headcount
expense; the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing our patent claims; competitive
and technological advances; the potential need to develop, acquire or license new technologies and products; our business development
activities; new regulatory requirements implemented by regulatory authorities; the timing and outcome of any regulatory review
process; and commercialization activities, if any.
We had cash and cash equivalents of approximately
$30.3 million as of December 31, 2020. We currently anticipate that our available capital resources, including our existing
cash and cash equivalents and accounts receivable balances, will be sufficient to meet our expected working capital and capital
expenditure requirements as our business is currently conducted for at least the next 12 months.
Financial Instruments
We invest excess cash and cash equivalents
in high credit quality investments held by financial institutions in accordance with our investment policy designed to protect
the principal investment. At December 31, 2020, we had approximately $0.7 million in our cash accounts and $29.6 million
in savings and money market accounts. While we have never experienced any loss or write down of our money market investments
since our inception, the amounts we hold in money market accounts are substantially above the $250,000 amount insured by the FDIC
and may lose value.
Our 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
may be made in U.S. or Canadian obligations and 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 also provides for investment limits on concentrations of securities by issuer and
maximum-weighted average time to maturity of twelve months. This policy applies to all of our financial resources. The
policy risks are primarily the opportunity cost of the conservative nature of the allowable investments. As our main purpose
is research and development, we have chosen to avoid investments of a trading or speculative nature.
We classify investments with original maturities
at the date of purchase greater than three months which mature at or less than twelve months as current. We carry investments
at their fair value with unrealized gains and losses included in other comprehensive income (loss); however, we have not held any
instruments that were classified as short-term investments during the periods presented in this Annual Report.
Off-Balance Sheet Arrangements
Since our inception, we have not had any
material off-balance sheet arrangements.
Contractual Obligations and Commitments
None.
Critical Accounting Policies and Estimates
The preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue
and expense during the reporting period. These estimates are based on assumptions and judgments that may be affected by commercial,
economic and other factors. Actual results could differ from these estimates.
An accounting policy is considered to be
critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time
the estimate is made, and if different estimates reasonably could have been used, or changes in the accounting estimates that are
reasonably likely to occur periodically, could materially impact the financial statements. The following description of critical
accounting policies, judgments and estimates should be read in conjunction with our December 31, 2020 consolidated financial
statements.
Stock-based Compensation
The calculation of the fair values of our
stock-based compensation plans requires estimates that require management’s judgments. Under ASC 718, the fair value
of each stock option is estimated on the grant date using the Black-Scholes option-pricing model. The valuation models require
assumptions and estimates to determine expected volatility, expected life, expected dividends and expected risk-free interest rates.
The expected volatility was determined using historical volatility of our stock based on the contractual life of the award. The
risk-free interest rate assumption was based on the yield on zero-coupon U.S. Treasury strips at the award grant date. We also
used historical data to estimate forfeiture experience. In valuing options granted in the fiscal years ended December 31,
2020 and 2019, we used the following weighted average assumptions:
51
Year Ended December
31, 2020
Year Ended December
31, 2019
Expected dividend
0 %
0 %
Risk-free interest rate
0.63 – 1.90 %
1.63 – 2.70 %
Expected volatility
136 – 148 %
125
– 179 %
Expected life
10.0 years
4.3 – 10.0 years
Common shares and warrants
Common shares are recorded as the net proceeds received on issuance
after deducting all share issuance costs and the relative fair value of investor warrants. Warrants are recorded at relative
fair value and are deducted from the proceeds of common shares and recorded on the consolidated statements of shareholders’
equity as additional paid-in capital.
Outstanding Share Information
Our outstanding comparative share data at December 31,
2020 and December 31, 2019 is as follows (in thousands):
Outstanding Share Type
December 31, 2020
December 31, 2019
Common shares
26,003
19,896
Warrants to purchase common shares
39
39
Options to purchase common shares
2,952
3,088
Total
28,994
23,023
Newly Adopted and Recent 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 Company adopted
this ASU on January 1, 2020. Certain disclosures in ASU 2018-13 would need to be applied on a retrospective basis and others
on a prospective basis. We concluded after evaluation that ASU 2018-13 has no significant effect on our consolidated financial
statements.
In January 2021, the FASB issued ASU
No. 2021-01, Reference Rate Reform (Topic 848). In this ASU, the FASB refines the scope of Topic 848 to clarify that certain
optional expedients and exceptions therein for contract modifications and hedge accounting apply to contracts that are affected
by the discounting transition. Specifically, modifications related to reference rate reform would not be considered an event that
requires reassessment of previous accounting conclusions. The ASU also amends the expedients and exceptions in Topic 848 to capture
the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected
by the discounting transition. The amendments in the ASU are effective immediately for all entities. Entities may choose to apply
the amendments retrospectively as of any date from the beginning of an interim period that includes or is subsequent to March 12,
2020, or prospectively to new modifications from any date within an interim period that includes or is subsequent to January 7,
2021, up to the date that financial statements are available to be issued. The Company chose to apply amendments prospectively
and concluded after evaluation that ASU 2021-01 has no significant effect on our consolidated financial statements.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.