FENNEC PHARMACEUTICALS INC. 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer) have concluded based on their evaluation as of December 31, 2020 that our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) are effective. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer and principal accounting officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Management's Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting, as defined in rules promulgated under the Exchange Act, is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and affected by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Consolidated Financial Statements for external purposes in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that: · Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; · Provide reasonable assurance that transactions are recorded as necessary to permit preparation of Consolidated Financial Statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our Board of Directors; and · Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our Consolidated Financial Statements. Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be circumvented by collusion or improper override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process, and it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making its assessment, management used the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in its 2013 Internal Control — Integrated Framework . Based on its assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2020. Because we are a non-accelerated filer and smaller reporting company, Haskell & White LLP, our independent registered public accounting firm, is not required to attest to or issue a report on the effectiveness of our internal control over financial reporting. 53 Changes in Internal Control over Financial Reporting There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control over financial reporting that occurred during the last fiscal quarter covered by this Annual Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Inherent Limitation on the Effectiveness of Internal Controls The effectiveness of any system of internal control over financial reporting is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting can only provide reasonable, not absolute, assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure that such improvements will be sufficient to provide us with effective internal control over financial reporting. Item 9B. Other Information None. 54 PART III Item 10. Directors, Executive Officers and Corporate Governance The following table sets forth the name of each of our executive officers and directors, such person’s principal occupation or employment, all other positions with us held by such person, if any, the year in which such person became a director of Fennec and such person’s age. Our Board has an Audit Committee, a Compensation Committee, and a Governance Committee. The current members of such committees are noted in the table below: Name and Province/State and Country of Residence, Position Current Principal Occupation and Principal Occupation For Previous Five Years Director Since Age Rostislav Raykov, New Jersey, USA Chief Executive Officer, Director CEO of Fennec Pharmaceuticals Inc.; Co-Founder and Manager, DCML LLC; previously Portfolio Manager at Alchem Partners; previously Portfolio Manager at John Levin & Company July 2009 45 Robert Andrade, Texas, USA Chief Financial Officer CFO of Fennec Pharmaceuticals; previously senior analyst at Magnetar Capital; previously Portfolio Manager at Millennium Partners N/A 45 Shubh Goel, New Jersey, USA Chief Commercial Officer CCO of Fennec Pharmaceuticals Inc.; previously VP of Commercial Strategy and Operations at Odonate Therapeutics, Inc.; previously Executive Director, Global Early Commercialization at Celgene Corporation N/A 47 Chris A. Rallis, North Carolina, USA Director (1)(2) Executive in-residence at Pappas Capital; previously CEO of ImmunoBiosciences August 2011 67 Marco Brughera, Milano, Italy Director (2)(3) CEO of Leadiant Biosciences SpA; previously Global Head Rare Disease and R&D at Sigma-tau; VP Preclinical Development at Nerviano Medical Sciences . August, 2016 64 Adrian J. Haigh, Dublin, Ireland Director (1)(3) Senior Vice President and General Manager of EMEA Region at PTC Therapeutics; previously Chief Operating Officer at Gentium GmbH; previously Regional VP Commercial Operations at Biogen Idec April 2014 60 Khalid Islam, Zug, Switzerland Chairman of Board, Director (1) Founder/co-founder of Sirius Healthcare Partners GMbH; previously Chairman and CEO of Gentium S.p.A.; previously CEO of Arpida AG April 2014 64 Jodi Cook, Pennsylvania, USA, Director (2)(3) Former SVP, Head of Gene Therapy Strategy PTC Therapeutics, Inc, Former COO Agilis Biotherapeutics, Former Assistant Professor of Audiology Mayo Clinic September 2019 53 (1) Member of the Audit Committee (2) Member of the Compensation Committee (3) Member of the Governance Committee Rostislav Raykov Mr. Raykov has served as a director of Fennec since July 2009 and as Chief Executive Officer since July 2009. From January 2006 to December 2007, Mr. Raykov was a portfolio manager for Alchem Investment Partners and John Levin & Co. Prior to founding Alchem, Mr. Raykov was a portfolio manager and securities analyst for John A. Levin & Co. Event Driven Fund (2002-2005). Prior to joining John A. Levin & Co., Mr. Raykov was a securities analyst for the Merger Fund at Tiedemann Investment Group (1999-2002) and an investment banking analyst at Bear Stearns (1998-1999). Mr. Raykov earned a B.S. in Business Administration from the University of North Carolina at Chapel Hill. As a result of these and other professional experiences, Mr. Raykov has financial expertise and experience with the Corporation as it has developed within the drug development industry and, as such, is able to provide the Corporation with unique insight and guidance. Robert Andrade Mr. Andrade has served as Chief Financial Officer since November 2015. Mr. Andrade was previously Chief Financial Officer and Director of Fennec from September 2009 until August 2013. In addition to his role with Fennec, Mr. Andrade was a private investor in 2015, and a senior analyst at Magnetar Capital from 2013 - 2014. Mr. Andrade graduated from University of Southern California, where he earned a Masters of Arts degree and Bachelor of Arts degree in economics. 55 Shubh Goel Ms. Goel has been employed by us since September 2019. Ms. Goel is a proven leader with 20 years of global commercial experience successfully building and executing the launch of several oncology products. Most recently, she served as Vice President of Commercial Strategy and Operations at Odonate Therapeutics, Inc. Prior to Odonate, Ms. Goel previously served in multiple leadership positions at Celgene Corporation, including serving as Executive Director, Global Early Commercialization and previously as Head of U.S. Marketing, Oncology. While at Celgene, she oversaw the successful execution of the U.S. launch of Abraxane® in pancreatic cancer and had overall responsibility for marketing the U.S. solid tumor franchise. Ms. Goel received a B.Sc. degree in biochemistry from the University of Bath. Chris A. Rallis Mr. Rallis has served as a director of Fennec since August 2011. Mr. Rallis has been an executive-in-residence at Pappas Capital, a life science venture capital firm since January 2008. Previously, Mr. Rallis was the President and Chief Executive Officer of ImmunoBiosciences, Inc. (“IBI”), a vaccine technology company formerly located in Raleigh, North Carolina from April 2006 through June 2007. Prior to joining IBI, Mr. Rallis served as an executive in residence (part-time) for Pappas Capital, and as a consultant for Duke University and Panacos Pharmaceuticals, Inc. Mr. Rallis is the former President and Chief Operating Officer (“COO”) and director of Triangle Pharmaceuticals, Inc., which was acquired by Gilead Sciences in January 2003 for approximately $465 million. Prior to assuming the role of President and COO in March 2000, he was Executive Vice President, Business Development and General Counsel. While at Triangle, Mr. Rallis participated in 11 equity financings generating gross proceeds of approximately $500 million. He was also primarily responsible for all business development activities which included a worldwide alliance with Abbott Laboratories and the in-licensing of ten compounds. Before joining Triangle in 1995, Mr. Rallis served in various business development and legal management roles with Burroughs Wellcome Co. over a 13-year period, including Vice President of Strategic Planning and Business Development. Mr. Rallis also serves on the board of Tenax Therapeutics, Inc., a biopharmaceutical company located in Morrisville, North Carolina. Mr. Rallis received his A.B. degree in economics from Harvard College and a J.D. from Duke University. As a result of these and other professional experiences, Mr. Rallis possesses particular healthcare industry knowledge and experience which strengthens the Board’s collective qualifications, skills, and experience. Dr. Marco Brughera Dr. Brughera has been a director of Fennec since August 2016. Since January 2011, Dr. Brughera has been CEO of Lediant Biosciences SpA and has held several positions for the Sigma-Tau Group, including CEO and Global Head of Sigma Tau Rare Disease, President of Sigma-Tau Research and President of Sigma-Tau Pharmaceuticals. He drove the commercial revival of a lead oncology product line resulting in its successful sale for a total of around $900M. He also successfully out-licensed the Defibrotide US rights to Jazz Pharmaceuticals. From 2004 to 2010, Dr. Brughera served as the Vice President of Preclinical Development at Nerviano Medical Sciences (NMS), a pharmaceutical oncology-focused integrated discovery and development company. He also served as the Managing Director at Accelera, an independent contract research organization with the NMS Group. From 1999 to 2004, Dr. Brughera held several senior level positions in the areas of research and development with Pharmacia and Pfizer. Prior to 1999, he held various positions at Pharmacia & Upjohn and Farmitalia Carlo Erba SpA, an Italian pharmaceutical company. He currently serves on the Board of Exelead and Naicons and previously was Board member of Soligenix, Lee’s Pharmaceuticals and Gentium. Dr. Brughera earned his degree in veterinary medicine from the University of Milan and is a European Registered Toxicologist. Dr. Brughera has wide-spread experience and knowledge of pharmaceutical drug development in international companies. His knowledge in particular, of clinical drug development in Europe, deepens the Board’s collective qualifications, skills and experience. Adrian J. Haigh Mr. Haigh has been a director of Fennec since April 2014. Mr. Haigh has been Senior Vice President and Head of International Operations at PTC Therapeutics since September 2014. Previously Mr. Haigh served as Chief Operating Officer at Gentium GmbH since March 2011. Prior to joining Gentium, Mr. Haigh served as Regional VP Commercial Operations at Biogen Idec where he managed several affiliates and also the global distributor business and prior to that was the General Manager of Amgen Nordis and Portugal. He served as the Executive Vice President of Global Marketing and Corporate Planning at EUSA Pharma and joined EUSA from Amgen where he led the international oncology franchise. Mr. Haigh previously has held senior commercial and marketing positions at SmithKline Beecham, Schering Plough, Organon and Novo Nordisk. He has been a Director of Fennec Pharmaceuticals Inc. since April 28, 2014 and a Director at Arch Biopartners Inc. since August 21, 2014. He received a Bachelor of Arts with Honors in Economic History from Huddersfield Polytechnic, West Yorkshire, England and a Diploma in Marketing from the Institute of Marketing. As a result of these and other professional experiences, Mr. Haigh has extensive international oncology development expertise which strengthens the Board’s collective qualifications, skills and experience. Dr. Khalid Islam Dr. Islam has been a director of Fennec since April 2014 and is our current Chairman of the Board. Dr. Islam was the Chairman and CEO of Gentium S.p.A. (a Nasdaq-listed company; 2009-2014) where he led the transition from a loss-making to a cash-flow positive and profitable company. Under his leadership, the company value increased from US$25 million leading to a successful all cash US$1 billion merger with Jazz Pharmaceuticals, plc. Subsequent to the sale of Gentium, Dr. Islam has been involved from both an advisory and board level in several public and private healthcare related companies. From 1999-2008, Dr. Islam was President and CEO of Arpida AG where he transitioned the early-stage start-up to a SWX-listed company and raised US$300 million in the IPO and follow-ons. From 1987-1999, he held various positions in HMR & MMD (now Sanofi-Aventis). From 1977-1987, Dr. Islam worked in academia at Imperial College (Univ. of London) and in Milan University, where he was a contract professor. Dr. Islam is a graduate of Chelsea College and received his Ph.D. from Imperial College, University of London. He holds several patents and has published over 80 articles in leading journals. He is an advisor to the venture group Kurma Biofund (Paris). He is a founder/co-founder of Sirius Healthcare Partners GmbH (Zurich), PrevAbr LLC (D.C.), BioAim LLC (L.A.) & Life Sciences Management GmbH (Zug). Dr. Islam is Board Chair at Minoryx Therapeutics (Spain) and Gain Therapeutics (Switzerland), a public company. He currently serves on the board of Gain Therapeutics (GAIN) and Processa Pharmaceuticals (PCSA), both of which are publicly traded. In the past, he has served as Chairman of the Board of Directors of Immunomedics (USA), Pcovery Aps (Copenhagen), Adenium Aps (Copenhagen) and C10 Pharma AS (Oslo) and on the board of Karolinska Development (Sweden) and MolMed S.p.A. (Italy) . Dr. Islam’s extensive international pharmaceutical expertise in transitioning companies from development to production strengthens the Board’s collective qualifications, skills and experience. 56 Dr. Jodi Cook Dr. Cook has been a director of Fennec since September 2019. Dr. Cook previously served as SVP and Head of Gene Therapy Strategy at PTC Therapeutics from August 2018 until February 2020. Previously she was one of the founding members and Chief Operating Officer of Agilis Biotherapeutics, a clinical-stage company focused on gene therapies for rare diseases of the central nervous system, from December 2013 until its acquisition by PTC Therapeutics in August 2018. While at Agilis she led the sale of the company to PTC in a deal that represented significant value to all parties. Dr. Cook’s career spans a wide range of experiences including VP of Clinical Research at InSound Medical and Director of Audiology at Songbird Hearing, both successful biotech start-up companies within the hearing industry. She has been Assistant Professor of Audiology and Director of the Hearing Aid Program at Mayo Clinic. Dr Cook earned a BA from Loyola University in Maryland, M.Aud. from University of South Carolina, and PhD from Arizona State University in Hearing Science. She completed a clinical fellowship at Johns Hopkins School of Medicine in Baltimore, MD. Her extensive scientific, clinical and executive business experience strengthens the Board’s collective qualifications, skills and expertise. Audit Committee On behalf of the Board, the Audit Committee of the Board retains, oversees and evaluates our independent auditors, reviews the financial reports and other financial information provided by us, including audited financial statements, and discusses the adequacy of disclosure with management and the auditors. The Audit Committee also reviews the performance of the independent auditors in the annual audit and in assignments unrelated to the audit, assesses the independence of the auditors, and reviews their fees. The Audit Committee is also responsible for reviewing our internal controls over financial reporting and disclosure. The Audit Committee operates under a written charter adopted by the Board. The directors have appointed an Audit Committee consisting of three directors: Chris A. Rallis, Khalid Islam and Adrian Haigh, each of whom is independent and financially literate within the meaning of National Instrument 52-110 – Audit Committees and is independent under Rule 5605(a)(2) of the Nasdaq listing standards . In addition, the Board has determined that Mr. Rallis qualifies as an “audit committee financial expert,” as defined in Item 407(d)(5) of Regulation S-K promulgated by the SEC based on his business and financial experience described above. Code of Ethics In February 2004, our Board adopted a Mandate of the Board of Directors, Corporate Governance Guidelines and a Code of Business Conduct and Ethics (the “Conduct and Ethics Code”) applicable to all of our officers, directors and employees. We are committed to adhering to applicable legal requirements and maintaining the highest standards of conduct and integrity. The Conduct and Ethics Code sets out the legal and ethical standards of conduct for our personnel and addresses topics such as: reporting obligations and procedures; honest and ethical conduct and conflicts of interest; compliance with applicable laws and Company policies and procedures; confidentiality of corporate information; use of corporate assets and opportunities; public disclosure and books and records; and non-retaliation. The Conduct and Ethics Code was updated in June of 2019 and is available on our website at www.fennecpharma.com. We will post any amendment to this code, as well as any waivers that are required to be disclosed by the rules of the SEC, on our website promptly following the date of such amendment or waiver. We undertake to provide to any person without charge, upon request, a copy of the Conduct and Ethics Code by writing to Attn: Code of Ethics Request, Fennec Pharmaceuticals Inc., 68 TW Alexander Drive, PO Box 13628, Research Triangle Park, North Carolina 27709. Delinquent Section 16(a) Reports Under Section 16(a) of the Exchange Act, our directors and executive officers and any person who beneficially owns more than 10% of our outstanding common shares (“reporting persons”) are required to report their initial beneficial ownership of our common shares and any subsequent changes in that ownership to the SEC and Nasdaq. Reporting persons are required by SEC regulations to furnish to us copies of all reports they file in accordance with Section 16(a). Based solely upon our review of the copies of such reports received by us, or written representations from certain reporting persons that no other reports were required, we believe that during the fiscal year ended December 31, 2020, all Section 16(a) filing requirements applicable to our reporting persons were met. 57 Item 11. Executive Compensation Summary Compensation Table The following table sets out certain information respecting the compensation paid to our Chief Executive Officer, our Chief Financial Officer, and our Chief Commercial Officer (“Named Executive Officers”) for the fiscal years ended December 31, 2020 and December 31, 2019. Name and Principal Position Year Salary ($) Bonus ($) Option Awards ($) (1) Total ($) Rostislav Raykov, CEO 2020 430,000 - 1,694,216 2,124,216 2019 488,692 157,500 830,944 1,477,136 Robert Andrade, CFO 2020 311,750 - 847,108 1,158,858 2019 325,211 100,000 438,555 863,766 Shubh Goel, CCO (2) 2020 360,000 - 169,422 529,422 2019 98,000 115,000 816,538 1,029,538 (1) Represents the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. Dollar value amounts are based on individual grants to each of Mr. Raykov and Mr. Andrade of 250,000 and 150,000 and 125,000 and 80,000 options, respectively, on May 15, 2020 and April 4, 2019, at an exercise price of $6.93 and $4.38 per common share, respectively. Grants to Ms. Goel were for 25,000 and 175,000 options granted on May 15, 2020 and September 9, 2019, respectively, at an exercise price of $6.93 and $4.74, respectively. All option grants expire 10 years after grant date. One-third of these options shall vest and may be exercised one year after the grant date (the “Vesting Commencement Date”). The remaining two-thirds of the options shall vest monthly at a rate of 1/24 th of the remaining grant and shall be exercisable as of the last day of each following month after the Vesting Commencement Date. As of the third anniversary of the grant date, all of the options shall be vested. (2) Ms. Goel was hired as our Chief Commercial Officer in September 2019. Rostislav Raykov Mr. Raykov has been employed by us since July 2009. Pursuant to an employment agreement dated May 3, 2010 between Mr. Raykov and Fennec, Mr. Raykov is employed as our Chief Executive Officer and: (a) received an initial annual salary in the amount of $140,000, subject to annual adjustment by our Board of Directors, (b) upon approval by shareholders of our amended stock option plan was granted options to purchase up to 5.0% of our common shares estimated by us to be outstanding upon completion of our 2010 rights offering, and (c) may receive annual bonuses at the sole discretion of the Board. If Mr. Raykov’s employment terminates due to a change of control of Fennec, Mr. Raykov’s remaining unvested options shall immediately vest and be fully exercisable. If Mr. Raykov is dismissed from employment by us for any reason other than “for cause,” we are obligated to pay Mr. Raykov severance compensation equal to twelve months of salary. The initial term of the agreement was for one year and the agreement automatically extends for additional one-year periods unless terminated by either party in accordance with the agreement. Effective February 10, 2020, Mr. Raykov’s salary was increased from $400,000 to $430,000 per year. Robert Andrade Mr. Andrade has been employed by us since November 2015. Pursuant to an employment agreement dated November 13, 2015, Mr. Andrade is employed as our Chief Financial Officer and: (a) received an initial annual salary in the amount of $165,000, and (b) may receive annual bonuses at the sole discretion of the Board. If Mr. Andrade’s employment terminates due to a change of control of the Fennec, Mr. Andrade’s remaining unvested options shall immediately vest and be fully exercisable. If Mr. Andrade is dismissed from employment by us for any reason other than “for cause,” we are obligated to pay Mr. Andrade severance compensation equal to six months of salary. Effective February 10, 2020, Mr. Andrade’s salary was increased from $290,000 to $311,750 per year. Shubh Goel Ms. Goel has been employed by us since September 2019. Pursuant to an employment agreement dated September 9, 2019, Ms. Goel is employed as Fennec’s Chief Commercial Officer and: (a) receives an initial annual salary in the amount of $360,000, subject to annual adjustment by our Board of Directors, and (b) may receive annual bonus of up to 40% of her base salary per twelve month period, at the discretion of the CEO and the Board of Directors. If Ms. Goel’s employment is terminated by us for any reason other than “for cause”, we are obligated to pay Ms. Goel (i) severance in the amount of three months of employees base salary, (ii) prorate share of any target bonus earned by Ms. Goel and, (iii) accelerated vesting of stock options. The initial term of the agreement was for one year and the agreement automatically extends for additional one-year periods unless terminated by either party in accordance with the agreement. In addition to their employment agreements, Mr. Raykov, Mr. Andrade and Ms. Goel are a party to a confidentiality and intellectual property agreement with the Company. In the employment agreements for each of Mr. Raykov, Mr. Andrade and Ms. Goel, “for cause” is generally defined as (1) material breach of the terms of the employment or intellectual property agreements; (2) failure to perform the duties inherent in their position in good faith and in a reasonable and appropriate manner; or (3) acts of fraud or embezzlement or other intentional misconduct which adversely affects our business. 58 Payments on Termination The following table provides details regarding the estimated incremental payments from us to each of the current Named Executive Officers assuming termination without cause on December 31, 2020. Name Severance Estimated Bonus Value of benefits Rostislav Raykov, CEO $ 430,000 $ - $ 430,000 Robert Andrade, CFO $ 155,875 $ - $ 155,875 Shubh Goel, CCO $ 90,000 $ - $ 90,000 Payments on Change of Control The following table provides details regarding the estimated incremental payments from us to each of the current Named Executive Officers upon change of control. Name Change of Control Multiple Estimated Bonus (1) Value of benefits Rostislav Raykov, CEO 2 X $ 1,030,000 $ 1,030,000 Robert Andrade, CFO 1.25 X $ 448,594 $ 448,594 (1) Change of control payments are calculated based on the two-year annualized average salary plus cash bonus as calculated as of December 31, 2020. In addition to the payments above, an incentive plan has been established pursuant to which, upon completion of a change in control transaction, 1% of the transaction value (up to a maximum of $2,000,000) be set aside and paid to key personnel upon completion of such change in control transaction, with 50% of such incentive pool being payable to the CEO and the balance to other key personnel as determined by the CEO in consultation with the Compensation Committee. Equity Grants, Exercises and Holdings The following table sets forth information concerning the number and value of unexercised options held by each Named Executive Officer as of December 31, 2020. All executive awards, with the exception of those expiring 06/27/2027, 02/06/2028, 04/04/2029 and 05/15/2030, vest and are exercisable immediately. Our current stock option plan provides for grants denominated in US and CAD dollars. Number of Options Name Granted Exercisable Option Exercise Price Expiration Date Rostislav Raykov 250,000 - USD$ 6.93 05/15/2030 150,000 87,500 USD$ 4.83 04/04/2029 100,000 97,222 USD$ 8.38 02/06/2028 100,000 100,000 USD$ 5.10 06/27/2027 150,000 150,000 USD$ 2.45 07/05/2026 25,000 25,000 USD$ 2.69 12/31/2024 83,333 83,333 USD$ 1.59 01/24/2024 16,666 16,666 USD$ 0.72 08/23/2023 50,000 50,000 USD$ 1.05 11/20/2022 Robert Andrade 125,000 - USD$ 6.93 05/15/2030 80,000 46,666 USD$ 4.83 04/04/2029 50,000 48,611 USD$ 8.38 02/06/2028 50,000 50,000 USD$ 5.10 06/27/2027 75,000 75,000 USD$ 2.45 07/05/2026 Shubh Goel 25,000 - USD$ 6.93 05/15/2030 175,000 77,778 USD$ 4.74 09/09/2029 Compensation of Directors Director Compensation Table The following table summarizes the compensation earned by our non-executive directors for the year ended December 31, 2020. 59 Name Fees paid in Cash Stock Awards Option Awards (1)(2) Total Dr. Islam 85,000 – 150,406 235,406 Mr. Brughera 40.000 – 120,325 160,325 Mr. Haigh 40,000 – 120,325 160,325 Dr. Cook 75,000 – 120,325 195,325 Mr. Rallis 42,500 – 120,325 162,825 Total $ 282,500 $ – $ 631,706 $ 914,206 (1) Represents the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. (2) Detail of option grants are presented in the following table: Name Date of Grant Number of Options Granted Option Exercise Price $USD Mr. Rallis August 13, 2020 20,000 6.17 Mr. Brughera August 13, 2020 20,000 6.17 Mr. Haigh August 13, 2020 20,000 6.17 Dr. Islam August 13, 2020 25,000 6.17 Jodi Cook August 13, 2020 20,000 6.17 Total $ 105,000 The annual compensation considerations for non-executive directors also include the awarding of stock options. We believe that granting of options to the non-executive directors serves three primary purposes: (1) to recognize the significant time and effort commitments of being a member of our Board; (2) to provide long-term incentives for future efforts since the value of the options is directly dependent on our market valuation; and (3) to retain quality individuals. When determining whether and how many new option grants will be made, the Compensation Committee takes into account the amount and terms of any outstanding options. We do not require our non-executive directors to own a specific amount of our common shares. Each of Adrian J. Haigh, Khalid Islam, Marco Brughera, Jodi Cook and Chris A. Rallis has entered into an Independent Director Agreement with the Company, which provides for cash compensation as set forth by the Compensation Committee commensurate with that member’s responsibilities. The Compensation Committee may also remunerate members in the form of a grant of options to purchase shares of our common shares. The options immediately vest when granted and are otherwise subject to the terms and conditions of our stock option plan, as amended. The Independent Director Agreements also provide for the reimbursement of such director’s reasonable travel and related expenses incurred in the course of attending board meetings. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The following table sets forth information regarding our common shares beneficially owned as of March 29, 2021 by: (i) each of our officers and directors; (ii) all officers and directors as a group; and (iii) each person known by us to beneficially own five percent or more of our outstanding common shares. Except as indicated below, the security holders listed possess sole voting and investment power with respect to the shares beneficially owned by that person. Except as otherwise indicated below, the address for each listed shareholder is c/o Fennec Pharmaceuticals Inc., 68 TW Alexander Drive, PO Box 13628, Research Triangle Park, North Carolina 27709. Name Common shares Common shares Options Exercisable Within 60 Days Common shares Purchase Warrants Exercisable Within 60 Days Total Stock and Stock Based Holdings (1) % Ownership (1) Adrian J. Haigh – 233,579 - 233,579 0.89 % Dr. Khalid Islam – 313,825 – 313,825 1.19 % Robert Andrade 153,273 380,000 – 682,183 2.02 % Marco Brughera – 115,545 – 115,545 0.44 % Jodi Cook - 40,000 - 40,000 0.15 % Chris A. Rallis – 191,850 – 191,850 0.73 % Shubh Goel - 200,000 - 200,000 0.76 % Rostislav Raykov 196,578 924,999 – 1,268,819 4.17 % All Officers and Directors as a Group 349,851 2,399,798 – 2,749,649 9.68 % Southpoint Capital Advisors, LP. (2) 4,077,214 – – 4,077,214 15.68 % Essetifin SpA (3) 3,993,694 – – 3,993,694 15.36 % Avoro Capital Advisors (4) 1,670,000 - - 1,670,000 6.42 % Sonic Fund II, LP. (5) 2,495,753 - - 2,495,753 9.60 % 60 (1) For purposes of this table “beneficial ownership” is determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, pursuant to which a person or group of persons is deemed to have “beneficial ownership” of any common shares that such person or group has the right to acquire within 60 days after March 29, 2021. For purposes of computing the percentage of outstanding common shares held by each person or group of persons named above, any shares that such person or group has the right to acquire within 60 days after February 11, 2020 are deemed outstanding but are not deemed to be outstanding for purposes of computing the percentage ownership of any other person or group. As of March 29, 2021, there were 26,002,853 common shares issued and outstanding. (2) Southpoint Capital Advisors, LP, 623 Fifth Avenue, Suite 2503, New York, New York 10022. John S. Clark, II holds dispositive power over the shares owned by Southpoint Capital Advisors, LP. (3) Essetifin SpA, Via Sudafrica 20, Rome, Italy 00144. Mario Artali holds dispositive power over the shares owned by Essetifin SpA. (4) Avoro Capital Advisors, 110 Greene Street, Suite 800, New York, NY 10012. Scott Esptein holds dispositive power over the shares held by Avoro Capital Advisors (5) Sonic Fund II, LP, 400 Hobron Lane, Suite 3709, Honolulu, HI 96815. Lawrence Kam holds dispositive power over the shares held by Sonic Fund II, LP. Equity Compensation Plan Information The following table provides certain information with respect to securities authorized for issuance under equity incentive plans as of December 31, 2020. (share amounts are in thousands): Plan Category (a) Number of securities to be issued upon exercise of outstanding options warrants and rights (b) Weighted-average exercise price of outstanding options, warrants and rights (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in Column (a)) Equity compensation plans approved by security holders 2,952 USD $ 4.82 3,549 Total 2,952 – 3,549 * Our current stock option plan allows for the issuance of stock options denominated in both U.S. dollars and Canadian dollars. At December 31, 2020, there were 3.55 million common shares available for future grants under our current stock option plan. Item 13. Certain Relationships and Related Transactions, and Director Independence Related Party Transactions There were no reportable transactions with related parties during the year ended December 31, 2020 in which the amount involved exceeded the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years. Indemnifications Related to Officers and the Board of Directors. We have agreed to indemnify members of our Board of Directors (the “Board”) and certain of our officers if they are named or threatened to be named as a party to any proceeding by reason of the fact that they acted in such capacity. We maintain directors’ and officers’ (“D&O”) insurance coverage to protect against such losses. We have not historically incurred any losses related to these types of indemnifications. Presently, we are defending a suit against our board and certain named officers. Management is unable to estimate a dollar value related to the suit, nor can it determine the probability of an outcome either in favour or against the Company. As a result, we have not recorded any liabilities related to such indemnifications as of December 31, 2020. In addition, as a result of the insurance policy coverage, we believe these indemnification agreements are not significant to our results of operations. Director Independence The Board of Directors is composed of a majority of independent directors. The Board applies the definition of independence found in the Nasdaq listing standards and in Canadian National Instrument 58-101 and National Policy 58-201. The Board has determined that Mr. Brughera, Haigh, Islam, Rallis and Ms. Cook are “independent.” Mr. Raykov, our Chief Executive Officer, is considered to have a material relationship with us by virtue of his executive officer position and is therefore not independent. We are of the view that the composition of our Board reflects a diversity of background and experience that are important for effective corporate governance. Other directorships held by Board members are described in this Annual Report under the heading “Directors and Executive Officers.” 61 Item 14. Principal Accounting Fees and Services The following presents the aggregate fees for professional services and other services rendered by our independent auditors, Haskell & White LLP in fiscal year 2020 and 2019: Fiscal Year 2020 Fiscal Year 2019 Audit Fees (1) 51,600 74,500 Audit-Related Fees (2) 40,000 – Tax Fees (3) - - All Other Fees (4) - 2,500 Total $ 91,600 $ 77,000 (1) Audit Fees include fees for the standard audit work that needs to be performed each year in order to issue an opinion on the consolidated financial statements of the Company. It also includes fees for services that can only be provided by the Company’s auditor such as auditing of non-recurring transactions. (2) Audit-Related Fees include fees assurance and related services that are reasonably related to the performance of the audit or review and are traditionally performed by the independent accountant. (3) Tax Fees (4) All Other Fees include fees for products and services other than Audit Fees, Audit Related Fees and Tax Fees. The Audit Committee does not have formal pre-approval policies and procedures; however, prior to their engagement by us, the Audit Committee approved all of the services performed by Haskell & White LLP as required by SEC regulation. 62 PART IV Item 15. Exhibits, Financial Statement Schedules (a) The following documents are included as part of this Annual Report filed on Form 10-K: 1. Financial Statements – See Index to Financial Statements on page F-1. 2. All schedules are omitted as the information required is inapplicable or the information is presented in the financial statements. 3. Exhibits: Exhibit No. Description Location 3.1 Notice of Articles dated August 25, 2011 Exhibit 3.2I to the Form 8-K of the Company filed August 26, 2011 3.2 Articles dated August 25, 2011 Exhibit 3.2II to the Form 8-K of the Company filed August 26, 2011 3.3 Notice of Alteration Dated September 3, 2014 Exhibit 3.1 to the Form 8-K of the Company filed September 9, 2014 10.1 Fennec Amended and Restated Stock Option Plan* Exhibit 10.1 to the Form 8-K of the Company filed September 29, 2017 10.2 Executive Employment Agreement dated May 3, 2010 by and between Fennec and Rostislav Raykov* Exhibit 10.28 to the Form 10-Q of the Company filed May 14, 2010 10.3 Form of Independent Director Agreement, dated May 3, 2010 Exhibit 10.31 to the Form 10-Q of the Company filed May 14, 2010 10.7 Executive Employment Agreement dated November 12, 2015 by and between Fennec and Robert Andrade* Exhibit 10.40 to the Form 10-Q of the Company filed November 12, 2015 10.9 Purchase Agreement, dated May 9, 2016, between Fennec Pharmaceuticals Inc. and Elion Oncology, LLC. Exhibit 10.42 to the Form 10-Q of the Company filed May 12, 2016 10.10 Loan and Security Agreement dated as of February 1, 2019 by and between Fennec Pharmaceuticals, Inc. and Western Alliance Bank Exhibit 10.1 to the Form 8-K of the Company filed February 4, 2019 10.11 First Amendment to Loan and Security Agreement dated as of June 25, 2020 by and between Fennec Pharmaceuticals, Inc. and Western Alliance Bank Exhibit 10.1 to the Form 8-K of the Company filed June 26, 2020 10.12 At The Market Offering Agreement, dated October 30, 2020, between Fennec Pharmaceuticals Inc. and H.C. Wainwright & Co., LLC Exhibit 1.1 to the Form 8-K of the Company filed October 30, 2020 16.1 Letter Regarding Change in Certifying Accountant Exhibit 16.1 to the Form 8-K of the Company filed May 17, 2017 21 Subsidiaries Exhibit 21 to the 10-K of the Company filed February 14, 2020 23.1 Consent of Haskell & White LLP Independent Registered Public Accounting Firm Filed herewith 63 Exhibit No. Description Location 31.1 Certification of Chief Executive Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 Filed herewith 31.2 Certification of Chief Financial Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 Filed herewith 32.1 Certification of Chief Executive Officer and Chief Financial Officer of the Company in accordance with Section 906 of the Sarbanes-Oxley Act of 2002 Filed herewith 99.1 Press Release for Fiscal Year Ended December 31, 2020 Filed herewith 101.1 Interactive Data File Filed herewith * Indicates a management contract or compensatory plan. ** The Company has received confidential treatment with respect to certain portions of this exhibit. Those portions have been omitted from this exhibit and are filed separately with the U.S. Securities and Exchange Commission. Item 16. Form 10-K Summary None. 64 SIGNATURES Pursuant to the requirements of Section 13 of 15(d) the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. Fennec Pharmaceuticals Inc. By: /s/ Rostislav Raykov Rostislav Raykov Chief Executive Officer and Director Date: March 30, 2021 We, the undersigned directors and officers of Fennec Pharmaceuticals Inc., do hereby constitute and appoint Rostislav Raykov, as our true and lawful attorney-in-fact and agent with power of substitution, to do any and all acts and things in our name and behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which such attorney-in-fact and agent may deem necessary or advisable to enable said corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this Annual Report on Form 10-K, including specifically but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments hereto; and we do hereby ratify and confirm all that said attorney-in-fact and agent, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signatures Title Date /s/ Rostislav Raykov Chief Executive Officer March 30, 2021 Rostislav Raykov (principal executive officer) and Director /s/ Robert Andrade Chief Financial Officer March 30, 2021 Robert Andrade (principal financial officer and principal accounting officer) /s/ Adrian J. Haigh Director March 30, 2021 Adrian J. Haigh /s/ Dr. Khalid Islam Director March 30, 2021 Dr. Khalid Islam /s/ Chris A. Rallis Director March 30, 2021 Chris A. Rallis /s/ Marco Brughera Director March 30, 2021 Marco Brughera /s/ Jodi Cook Director March 30, 2021 Jodi Cook 65 FENNEC PHARMACEUTICALS INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets F-4 Consolidated Statements of Operations F-5 Consolidated Statements of Cash Flows F-6 Consolidated Statements of Shareholders’ Equity F-7 Notes to the Consolidated Financial Statements F-8 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors and Fennec Pharmaceuticals Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Fennec Pharmaceuticals Inc. and subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2020 and 2019, and the consolidated results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB and Canadian generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate. Fair Value of Stock Options – Refer to Note 4 to the Consolidated Financial Statements Critical Audit Matter Description: The Company uses the Black-Scholes option-pricing model to estimate the fair value of its stock options. The Black-Scholes option-pricing model involves the use of significant estimates, including the following: § Expected dividend yield; § Risk-free interest rate; F- 2 § Expected share price volatility; and § Expected life of the award. Given the significant estimates involved in estimating the fair value of stock options, the related audit effort in evaluating management’s estimates in determining the fair value of stock options was extensive and required a high degree of auditor judgment. How the Critical Audit Matter was Addressed in the Audit: We obtained an understanding over the Company’s process to estimate the fair value of stock options, including how the Company develops each of the estimates required to utilize the Black-Scholes option-pricing model. We applied the following audit procedures related to testing the Company’s estimates utilized in the Black-Scholes option-pricing model: § We performed a look-back at the Company’s previously issued dividends, noting there were none. We inquired with management of the Company who informed us that no future dividends were currently anticipated. § We compared the Company’s risk-free interest rate used to the comparable United States treasury yield for a term comparable to the stock options’ expected term. § We recalculated the Company’s historical share price volatility for a term comparable to the stock options’ expected term. § We recalculated the expected term of stock options granted to employees and non-employee directors using the simplified method, whereby, the expected term equals the average of the vesting term and the original contractual term of the option. /s/ Haskell & White LLP HASKELL & WHITE LLP We have served as the Company’s auditor since 2017. Irvine, California March 30, 2021 F- 3 Fennec Pharmaceuticals Inc. Consolidated Balance Sheets (U.S. dollars and shares in thousands) December 31, December 31, 2020 2019 Assets Current assets Cash and cash equivalents $ 30,344 $ 13,650 Prepaid expenses 797 226 Other current assets 276 8 31,417 13,884 Non-Current assets Deferred issuance cost 466 326 Deferred issuance cost (amortization) (466 ) (64 ) - 262 Total assets $ 31,417 $ 14,146 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 1,571 $ 1,612 Accrued liabilities 776 659 Total current liabilities 2,347 2,271 Total liabilities 2,347 2,271 Commitments and Contingencies (Note 7) Shareholders' equity: Common stock, no par value; unlimited shares authorized; 26,003 shares issued and outstanding (2019-19,896) 140,733 106,392 Additional paid-in capital 49,234 48,271 Accumulated deficit (162,140 ) (144,031 ) Accumulated other comprehensive income 1,243 1,243 Total shareholders’ equity 29,070 11,875 Total liabilities and shareholders’ equity $ 31,417 $ 14,146 (The accompanying notes are an integral part of these consolidated financial statements) F- 4 Fennec Pharmaceuticals Inc. Consolidated Statements of Operations (U.S. dollars and shares in thousands, except per share information) Year Ended December 31, December 31, 2020 2019 Revenue Eniluracil royalty $ 170 $ - Operating expenses: Research and development 5,105 5,607 General and administrative 12,950 7,402 Total operating expenses 18,055 13,009 Loss from operations (17,885 ) (13,009 ) Other income/(expense): Amortization expense (402 ) (64 ) Unrealized gain on securities 100 - Other (loss)/income (9 ) (17 ) Interest income 87 315 Total other (expense)/income (224 ) 234 Net loss $ (18,109 ) $ (12,775 ) Loss per common share, basic and diluted $ (0.76 ) $ (0.64 ) Weighted-average number of common shares outstanding basic and diluted (Note 3) 23,704 19,896 (The accompanying notes are an integral part of these consolidated financial statements) F- 5 Fennec Pharmaceuticals Inc. Consolidated Statements of Cash Flows (U.S. dollars in thousands) Year Ended December 31, December 31, 2020 2019 Cash flows (used in) provided by: Operating activities: Net loss $ (18,109 ) $ (12,775 ) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of deferred issuance costs 402 64 Stock-based compensation - consultants 84 417 Stock-based compensation - employees 2,791 2,665 Changes in operating assets and liabilities: Prepaid expenses (163 ) (58 ) Other assets (268 ) (7 ) Accounts payable (41 ) 580 Accrued liabilities (291 ) 54 Net cash used in operating activities (15,595 ) (9,060 ) Financing activities: Cash paid for issuance costs (140 ) (71 ) Issuance of shares, options exercise 462 - Issuance of shares, net of issuance costs 31,967 - Net cash provided by/used in financing activities 32,289 (71 ) Increase in cash and cash equivalents 16,694 (9,131 ) Cash and cash equivalents - Beginning of year 13,650 22,781 Cash and cash equivalents - End of year $ 30,344 $ 13,650 Supplemental disclosures of cash flow information: Non-cash investing and financing activities: Non-cash financing (insurance policy) $ 408 $ - Non-cash deferred issuance cost (warrant value) $ - $ 255 (The accompanying notes are an integral part of these consolidated financial statements) F- 6 Fennec Pharmaceuticals Inc. Consolidated Statements of Shareholders' Equity (U.S. dollars and shares in thousands) Accumulated Additional Other Total Common Stock Paid-in Accumulated Comprehensive Stockholders' Number (Note 7) 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 consultants - - 417 - - 417 Stock options issued to employees - - 2,665 - - 2,665 Warrants issued to consultants - - 255 - - 255 Net loss - - - (12,775 ) - (12,775 ) Balance at December 31, 2019 19,896 $ 106,392 $ 48,271 $ (144,031 ) $ 1,243 $ 11,875 Stock options issued to consultants - - 84 - - 84 Stock options issued to employees - - 2,791 - - 2,791 Issuance of securities 5,460 31,967 - - - 31,967 Exercise of stock options 647 2,374 (1,912 ) - - 462 Net loss - - - (18,109 ) - (18,109 ) Balance at December 31, 2020 26,003 $ 140,733 $ 49,234 $ (162,140 ) $ 1,243 $ 29,070 (The accompanying notes are an integral part of these consolidated financial statements) F- 7 Fennec Pharmaceuticals Inc. Notes to the Consolidated Financial Statements (U.S. dollars and shares in thousands, except per share information) 1 . Nature of Business and Liquidity Fennec Pharmaceuticals Inc. (“Fennec,” “the Company,” “we,” “us,” or “our”) was originally formed as a British Columbia corporation under the name Adherex Technologies Inc. and subsequently changed its name on September 3, 2014. Fennec, together with its wholly owned subsidiaries Oxiquant, Inc. (“Oxiquant”) and Fennec Pharmaceuticals, Inc., both Delaware corporations, and Cadherin Biomedical Inc. (“CBI”), a Canadian corporation and Fennec Pharmaceuticals (EU) Limited (“Fennec Limited”), collectively referred to herein as the “Company,” is a biopharmaceutical company with a product candidate under development for use in the treatment of cancer. With the exception of Fennec Pharmaceuticals, Inc., all subsidiaries are inactive. These 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 year ended December 31, 2020, the Company incurred a loss from operations of $17,885 and still has not earned any significant revenue in its history from the commercial sale of its product candidate. At December 31, 2020 it had an accumulated deficit of $162,140 and had experienced negative cash flows from operating activities in the amount of $15,595 for the year ended December 31, 2020. 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 $34,100 ($32,189 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 TM 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 has agreed to grant Bridge Bank a warrant to purchase up to 39,130 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 $18.0 million debt facility comprised of two term loans. Term Loan A consists of $12.5 million to be funded upon NDA approval of PEDMARK TM in the U.S. to be made available upon NDA approval of PEDMARK TM by no later than December 31, 2020 and 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. On August 6, 2020, the Company paid cash for the extended facility. These statements reflect that fee being settled with cash instead of a warrant. Under Accounting Standards Codification ("ASC") 470-50, Modifications and Extinguishments, the amendment was considered a modification. As such, the Company had been amortizing the loan fee and the value of the warrant over the remainder of the loan term. Following the receipt of the U.S. Food and Drug Administration’s (“FDA”) Complete Response Letter (“CRL”), management decided to fully amortize the remaining portions of the loan fee and the value of the warrants. On August 10, 2020, the Company received a CRL from the FDA regarding its NDA for PEDMARK TM . According to the CRL, after recent completion of a pre-approval inspection of the manufacturing facility of our drug product manufacturer, the FDA identified deficiencies that are required to be resolved prior to the approval of PEDMARK TM . Importantly, no clinical safety or efficacy issues were identified during the review and there is no requirement for further clinical data. The Company plans to work closely with the third-party drug manufacturer and the FDA to fully address the CRL and plans to resubmit the NDA for PEDMARK TM in the second quarter of 2021. The Company believes the funds raised in the public offering which closed in May 2020 provide sufficient funding for the Company to carry out its planned activities including potential NDA approval and the commencement of commercialization efforts for at least the next twelve months as it continues its strategic development of PEDMARK TM . F- 8 Fennec Pharmaceuticals Inc. Notes to the Consolidated Financial Statements (U.S. dollars and shares in thousands, except per share information) These financial statements do not reflect the potentially material adjustments in the carrying values of assets and liabilities, the reported expenses, and the balance sheet classifications used, that would be necessary if the going concern assumption were not appropriate. 2. Significant Accounting Policies Basis of presentation The consolidated financial statements include the accounts of Fennec and of all its wholly-owned subsidiaries. All inter-company transactions and balances have been eliminated upon consolidation. 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 consolidated financial statements and the reported amounts of revenue and expense during the reporting period. Significant estimates include the valuation of stock-based compensation. Actual results could differ from those estimates. Cash and Cash Equivalents Cash equivalents consist of highly liquid investments with original maturities at the date of purchase of three months or less. The Company places its cash and cash equivalents in investments held by highly rated financial institutions in accordance with its investment policy designed to protect the principal investment. At December 31, 2020, the Company had $30.3 million in cash and money market accounts (2019- $13.7 million). Money market investments typically have minimal risks. While the Company has not experienced any loss or write-down of its money market investments, the amounts it holds in money market accounts are substantially above the $250,000 amount insured by the FDIC and may lose value. Financial instruments Financial instruments recognized on the balance sheets at December 31, 2020 and December 31, 2019 consist of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, the carrying values of which, approximate fair value due to their relatively short time to maturity. The Company does not hold or issue financial instruments for trading. The Company’s investment policy is to manage investments to achieve, in the order of importance, the financial objectives of preservation of principal, liquidity and return on investment. Investments, when made, are made in U.S. or Canadian bank securities, commercial paper of U.S. or Canadian industrial companies, utilities, financial institutions and consumer loan companies, and securities of foreign banks provided the obligations are guaranteed or carry ratings appropriate to the policy. Securities must have a minimum Dun & Bradstreet rating of A for bonds or R1 low for commercial paper. The policy risks are primarily the opportunity cost of the conservative nature of the allowable investments. As the main purpose of the Company is research and development, the Company has chosen to avoid investments of a trading or speculative nature. Common shares and warrants The Company has 0.04 million warrants with a weighted average strike price of $6.80 outstanding to purchase common shares that were denominated in United States dollars (“USD”). Revenue The Company's revenue is generated through sales of intellectual property (“IP”). The Company generates its revenue through one segment and the revenue recognized under each of the Company's arrangements during the current period is described below. The terms of these agreements may contain multiple promised goods or services or optional goods and services, including licenses to product candidates, referred to as exclusive licenses, as well as research and development activities to be performed by the Company on behalf of the collaboration partner related to the licensed product candidates. F- 9 Fennec Pharmaceuticals Inc. Notes to the Consolidated Financial Statements (U.S. dollars and shares in thousands, except per share information) Revenue recognition Revenue is recognized when control of the promised goods or services are transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for transferring those goods or providing services. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. When determining whether the customer has obtained control of the goods or services, the Company considers the point at which the customer may benefit from the goods or services. For sale of IP to, revenue is recognized upon grant or transfer of the IP, as the Company's IP is considered functional in nature. Performance obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company's contracts may contain multiple performance obligations if a promise to transfer goods or services is separately identifiable from other promises in a contract and, therefore, is considered distinct. For contracts with multiple performance obligations, the Company determines the standalone selling price of each performance obligation and allocates the total transaction price using the relative selling price basis. The Company recognizes performance obligations based on their nature. Significant payment terms The Company’s revenue arrangements include payments to the Company of one or more of the following: a non-refundable, upfront payment; milestone payments and royalties on commercial sales of IP product candidates, if any. To date, the Company has received upfront payments and several milestone payments but has not received any license or option fees or earned royalty revenue as a result of product sales. Under ASC 606, the Company estimates the amount of consideration to which it will be entitled in exchange for satisfying performance obligations. Based on the Company’s current contracts, variable consideration primarily exists in the following forms: development and regulatory milestones, royalties and sales-based milestones. The Company utilizes the "most likely amount" variable consideration method for estimating development and regulatory milestone consideration to include in the transaction price. The Company only includes an amount of variable consideration in the transaction price to the extent it is probable that a significant reversal in the cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The Company refers to this as the variable consideration constraint. Due to the uncertainty associated with the occurrence of the underlying events which would trigger development and regulatory milestone consideration under its revenue arrangements, with the exception of certain initial conditions precedent milestones , the Company has concluded the variable consideration associated with all development and regulatory milestones to be fully constrained as of the ASC 606 transition date and as of December 31, 2020, and therefore has not included such consideration in the transaction price for any of its revenue arrangements. The Company will reassess this conclusion at each subsequent reporting period and will only include amounts associated with regulatory or development milestones in the transaction price when, or if, the variable consideration is determined to be released from the constraint. In accordance with ASC 606, the Company is required to adjust the transaction price for the effects of the time value of money if the timing of payments agreed to by the parties to the contract, explicitly or implicitly, provides the Company or its customer with a significant benefit of financing the transfer of goods or services. The Company concluded that its licensing and collaboration arrangements do not contain a significant financing component because the payment structure of its agreements arise from reasons other than providing a significant benefit of financing. Contract assets The Company did not have a contract asset as of December 31, 2020 or 2019. Contract liabilities The Company did not have a contract liability as of December 31, 2020 or 2019. Revenue arrangements Elion F- 10 Fennec Pharmaceuticals Inc. Notes to the Consolidated Financial Statements (U.S. dollars and shares in thousands, except per share information) In May 2016, Fennec Pharmaceuticals Inc. (Fennec or the “Company”) sold Eniluracil to Elion Oncology, LLC (Elion). The agreement called for $40,000 in cash and 5% royalties to be paid to Fennec for any income derived from the sale of Eniluracil. The agreement was for the sale, not license of IP. In addition, the agreement did not call for any additional good or service beyond the transfer of IP and related assets (e.g. “all information and know-how”, documentation, etc.). In August 2020, Elion entered into a license agreement with Processa Pharmaceuticals, Inc. (Processa). The license agreement called for equity and cash upon satisfying the “Condition Precedent”, along with development and regulatory milestone payments, Sales Milestone Payments, and Product Royalties. The grant of the license was conditioned upon the “Condition Precedent” which was defined as (i) Processa’s closing of a public offering by October 30, 2020 in which Processa raised at least $15M and (ii) Processa’s shares being listed on NASDAQ. Upon satisfying the “Condition Precedent” Elion was entitled to receive $100,000 in cash and 825,000 in shares of Processa of which the Company is entitled to 5%. In January 2021, the Company received $5,000 in cash and 41,250 restricted shares of Processa common shares. The agreement between Elion and Processa entitles Elion to the payments outlined in the table below. Fennec would be eligible to receive 5% of the following based on future milestone events: Milestone Event Milestone Payment ($) 1st Year Anniversary of Effective Date 100,000 Restricted Shares 2nd Year Anniversary of Effective Date 100,000 Restricted Shares 1st Patient in Dose Confirmation Study 100,000 Restricted Shares NDA Submission 300,000 Restricted Shares 1st FDA Approval in US $5,000,000 2nd FDA Approval in US $3,000,000 1st Regulatory Approval Outside US $2,000,000 2nd Regulatory Approval Outside US $2,000,000 The Company notes that the above payments are conditioned upon the “Condition Precedent” and thus even the restricted shares that are due only upon the passage of time are in fact variable. However, once the “Condition Precedent” occurred only the passage of time occur in order for the 1 st and 2 nd Year Anniversary payments to become due and as such the Company must conclude as of the date the “Condition Precedent” is satisfied that the 1 st and 2 nd Year Anniversary milestone payments are also probable of coming to fruition and thus should be included in the transaction price during the 4 th quarter of 2020 along with the aforementioned “Condition Precedent” payments. The arrangement with Elion contains consideration that is variable based on the customer’s achievement of certain development and regulatory milestones. The next milestone payment the Company may be entitled to receive is 5,000 restricted shares for 1 st patient in Dose Confirmation Study and then another 15,000 restricted shares for the NDA submission. These are considered variable consideration that is fully constrained due to the uncertainty associated with the achievement of the development milestone. The considerations related to royalties (first and second FDA approval in US and first and second regulatory approval outside of US) are also variable consideration that are fully constrained in accordance with the royalty recognition constraint. The variable consideration related to royalties will be recognized in the period the products are sold by Processa and the Company has a present right to payment. The Company recognized $0.2 million in revenue associated with the aforementioned cash and shares it became entitled to for the year ended December 31, 2020. Due to the one year lockup provision on the Processa shares, the Company deemed it reasonable to apply a liquidity discount of 20% to the valuation of the shares associated with the achievement of the October 30, 2020 milestone. Shares associated with the one- and two-year anniversary milestones had a 30 and 40% liquidity discount applied to their fair market valuations. Subsequent changes to the fair value of the underlying securities are recognized as unrealized gains or losses on marketable equity securities within the consolidated statement of operations and comprehensive loss. R esearch and development costs and investment tax credits Research costs, including employee compensation, laboratory fees, lab supplies, and research and testing performed under contract by third parties, are expensed as incurred. Development costs, including drug substance costs, clinical study expenses and regulatory expenses are expensed as incurred. Investment tax credits, which are earned as a result of qualifying research and development expenditures, are recognized when the expenditures are made, and their realization is reasonably assured. They are applied to reduce related capital costs and research and development expenses in the year recognized. F- 11 Fennec Pharmaceuticals Inc. Notes to the Consolidated Financial Statements (U.S. dollars and shares in thousands, except per share information) Income taxes The Company accounts for income taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related financial amounts, using currently enacted tax rates. The Company has deferred tax assets, which are subject to periodic recoverability assessments. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that more likely than not will be realized. As of December 31, 2020, we maintained a full valuation allowance against our deferred tax assets. The provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740-10, Uncertainty in Income Taxes, address the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740-10, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. Foreign currency translation The U.S. dollar is the functional currency for the Company’s consolidated operations. All gains and losses from currency translations are included in results of operations. Loss per share Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the year. Diluted net earnings per share is computed using the same method, except the weighted average number of common shares outstanding includes convertible debentures, stock options and warrants, if dilutive, as determined using the if-converted method and treasury methods. Accordingly, warrants to purchase 0.04 million of our common shares and options to purchase 3.0 million of our common shares at December 31, 2020, were not included in earnings per share. Such options would have an antidilutive effect. In 2019, options to purchase 3.1 million common shares were excluded from the computation of earnings per share as their inclusion would have been antidilutive. 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. F- 12 Fennec Pharmaceuticals Inc. Notes to the Consolidated Financial Statements (U.S. dollars and shares in thousands, except per share information) 3. Loss per Share Loss per common share is presented under two formats: basic loss per common share and diluted loss per common share. Basic loss per common share is computed by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period, plus the potentially dilutive impact of common shares equivalents (e.g. 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 (in thousands except per share data): Year Ended December 31, 2020 December 31, 2019 Numerator: Net loss $ (18,109 ) $ (12,775 ) Denominator: Weighted-average common shares, basic 23,704 19,896 Dilutive effect of stock options – – Dilutive effect of warrants – – Incremental dilutive shares – – Weighted-average common shares, diluted 23,704 19,896 Net loss per share, basic and diluted $ (0.76 ) $ (0.64 ) 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 (in thousands): Year Ended December 31, 2020 December 31, 2019 Options to purchase common shares 2,952 3,088 Warrants to purchase common shares 39 39 4. Stock options The Compensation Committee of the Board of Directors administers the Company’s stock option plan. The Compensation Committee designates eligible participants to be included under the plan and approves the number of options to be granted from time to time under the plan. On June 24, 2010, at the Company’s annual meeting, shareholders approved an amendment to the Company’s Stock Option Plan (the “Plan Maximum Amendment”). The Plan Maximum Amendment relates to changing the maximum number of common shares issuable under the stock option plan from a fixed number of 6.7 million to the number of shares that represents twenty-five percent (25%) of the total number of all issued and outstanding common shares. Based upon the current shares outstanding, a maximum of 6.5 million of our common shares are authorized for issuance under the plan. The option exercise price for all options issued under the plan is based on the fair value of the underlying shares on the date of grant. All options vest within three years or less and are exercisable for a period of ten years from the date of grant. The stock option plan, as amended, allows the issuance of Canadian and U.S. dollar grants. A summary of the stock option transactions, for both the Canadian and U.S. dollar grants, through the year ended December 31, 2020 is below. Summary of $CAD Option Activity Share Prices Reported in $CAD Number of Options Range Weighted Average (in thousands) Outstanding and exercisable at December 31, 2018 648 $ 2.43 $ 2.43 Outstanding and exercisable at December 31, 2019 648 $ 2.43 $ 2.43 Exercised (648 ) $ 2.43 $ 2.43 Outstanding and exercisable at December 31, 2020 - - - Summary of $USD Option Activity Number of Options Range Weighted Average (in thousands) Outstanding and exercisable at December 31, 2018 1,850 $ 0.45 – 12.59 $ 3.80 Granted 590 4.26 – 5.91 4.83 Outstanding and exercisable at December 31, 2019 2,440 $ 0.45 – 12.59 $ 3.80 Granted 705 5.91 – 8.09 6.84 Exercised (193 ) 1.05 – 5.10 2.39 Outstanding and exercisable at December 31, 2020 2,952 $ 0.45 – 12.59 $ 4.82 F- 13 Fennec Pharmaceuticals Inc. Notes to the Consolidated Financial Statements (U.S. dollars and shares in thousands, except per share information) Summary of $USD Option Remaining Life Price in US Dollars Number Outstanding and Exercisable at December 31, 2020 (in thousands) Remaining Life (years) $ 0.45 11 1.63 $ 0.54 19 1.38 $ 0.60 17 1.26 $ 0.72 50 2.65 $ 0.96 10 2.60 $ 1.05 60 2.94 $ 1.13 50 4.95 $ 1.23 8 4.87 $ 1.50 7 0.88 $ 1.59 90 4.55 $ 2.11 36 6.00 $ 2.30 4 4.36 $ 2.31 275 3.32 $ 2.35 4 4.59 $ 2.40 8 2.26 $ 2.44 49 5.44 $ 2.45 225 6.98 $ 2.51 4 4.21 $ 2.55 4 3.86 $ 2.69 90 5.07 $ 2.79 15 5.18 $ 2.94 3 2.38 $ 3.10 10 6.26 $ 3.60 3 3.38 $ 3.67 35 6.38 $ 4.26 85 8.47 $ 4.74 175 8.74 $ 4.83 244 8.80 $ 5.10 240 6.76 $ 5.40 20 8.88 $ 5.91 50 9.00 $ 6.17 180 9.62 $ 6.72 21 6.63 $ 6.93 435 9.37 $ 7.40 40 9.42 $ 8.09 50 9.89 $ 8.38 210 7.11 $ 10.10 20 6.88 $ 10.93 85 7.44 $ 12.59 10 7.26 Total 2,952 7.04 Stock compensation expense for the fiscal years ended December 31, 2020 and 2019 was $2.9 million and $3.1 million respectively. These amounts have been included in the general and administrative expenses for the respective periods. The weighted average fair value per share of options granted and or vested during the fiscal years ended December 31, 2020 and 2019 was $6.84 and $4.83, respectively. The intrinsic value (being the difference between the share price at December 31, 2020 and exercise price) of stock options exercisable at December 31, 2020 was $12.0 million. The intrinsic value of options exercised during the fiscal year ended December 31, 2020 was $2.8 million. The fair value of all options vested during the fiscal year ended December 31, 2020 was $2.4 million. The fair values of options granted in fiscal years ended December 31, 2020 and 2019 were estimated on the date the options were granted based on the Black-Scholes option-pricing model, using the following weighted average assumptions for all options with a ten-year expiration: 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 F- 14 Fennec Pharmaceuticals Inc. Notes to the Consolidated Financial Statements (U.S. dollars and shares in thousands, except per share information) The Company uses the historical volatility and adjusts for available relevant market information pertaining to the Company’s share price. Modification of Existing US Dollar Denominated Options In 2019, the Company modified the terms of all outstanding US denominated options extending the expiration date by a weighted average amount of 2.98 years. The Company recorded option modification expense of approximately $1.34 million in the year ended December 31, 2019, included in the $3.1 million of stock compensation in general and administrative expense, discussed above. Some of the option grants were not fully vested, as a result, the Company will recognize $0.2 million in expense over the next nine quarters. The following table summarizes the effect of the June 18, 2019 transaction: Exercise Price $USD Number of Options Expiration Date Risk Free Rate Expected Life (Years) Volatility Expense Recognized $USD 6/18/19 Expense Recognized $USD After 6/18/19 0.45 11,111 08/17/2022 2.20 % 3.16 71 % 475 - 0.54 9,259 05/17/2022 2.04 % 2.91 67 % 670 - 0.60 8,333 04/04/2022 2.04 % 2.80 68 % 732 - 0.72 16,666 08/23/2023 2.04 % 4.18 125 % 20,642 - 0.96 3,063 08/06/2023 2.04 % 4.13 126 % 6,126 - 1.05 4,762 11/20/2022 2.04 % 3.43 73 % 1,886 - 1.05 83,333 11/20/2022 2.04 % 3.43 73 % 18,566 - 1.13 50,000 12/11/2025 1.80 % 6.48 130 % 33,193 - 1.23 4,062 11/10/2025 1.80 % 6.40 131 % 5,988 - 1.50 6,666 11/18/2021 2.20 % 2.42 66 % 2,247 - 1.59 132,954 01/24/2024 1.86 % 4.60 122 % 139,829 - 2.11 35,545 12/30/2026 1.83 % 7.53 133 % 12,331 - 2.30 4,346 05/11/2025 1.80 % 5.90 127 % 5,475 - 2.31 275,324 04/25/2024 1.86 % 4.85 123 % 404,154 - 2.35 4,254 08/03/2025 1.80 % 6.13 133 % 5,346 - 2.40 8,332 04/03/2023 2.04 % 3.79 130 % 13,640 - 2.44 49,180 06/06/2026 1.80 % 6.98 136 % 19,729 - 2.45 285,000 07/05/2026 1.83 % 7.05 136 % 114,692 526 2.51 3,984 03/16/2025 1.80 % 5.74 127 % 5,401 - 2.55 3,920 11/07/2024 1.86 % 5.39 124 % 5,529 - 2.69 114,000 12/31/2024 1.80 % 5.54 125 % 164,445 - 2.79 21,790 08/04/2024 1.86 % 5.13 125 % 35,363 - 2.94 3,400 05/17/2023 2.04 % 3.91 129 % 6,633 - 3.10 10,000 05/15/2024 1.83 % 7.79 132 % 3,839 - 3.60 2,778 04/03/2027 1.86 % 4.91 123 % 5,609 - 3.67 35,000 05/17/2027 1.83 % 7.91 133 % 14,951 - 4.83 260,000 04/04/2028 1.93 % 9.80 153 % 5,099 59,074 5.10 250,000 06/27/2027 1.83 % 8.02 132 % 94,204 26,291 6.72 21,150 08/17/2027 1.83 % 8.16 131 % 10,298 - 8.38 210,000 02/06/2028 1.83 % 8.64 146 % 58,434 67,273 10.10 20,000 11/16/2027 1.83 % 8.41 137 % 12,193 - 10.93 85,000 06/08/2028 1.83 % 8.97 149 % 51,289 - 12.59 10,000 04/03/2028 1.83 % 8.79 147 % 6,366 - 2,110,313 $ 1,285,374 $ 153,064 F- 15 Fennec Pharmaceuticals Inc. Notes to the Consolidated Financial Statements (U.S. dollars and shares in thousands, except per share information) 5. Fair Value Measurements The Company has adopted ASC 820 Fair Value Measurements and Disclosure Topic of the FASB. This Topic applies to certain assets and liabilities that are being measured and reported on a fair value basis. The Fair Value Measurements Topic defines fair value, establishes a framework for measuring fair value in accordance with 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. Assets/Liabilities Measured at Fair Value on a Recurring Basis Fair Value Measurement at December 31, (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 678 (1) 347 (1) 29,666 13,303 - - 30,344 13,650 Processa common shares - - 136 (2) - - - - (1) The Company held approximately, $678,000 in cash as of December 31, 2020, of which approximately, $45,000 was in Canadian funds (translated into U.S. dollars). As of December 31, 2019, the Company held approximately $347,000, of which approximately 30,000 was in Canadian funds (translated into U.S. dollars). (2) The Company received 41,250 restricted common shares of Processa (PSCA). The share restriction will expire in three tranches: 50%, 25% and 25% at the 6, 9 and 12 month intervals, respectively from October 30, 2020. At October 30, 2020 PSCA shares were trading at $4.11 per share. The Company applied a 20% liquidity discount to the shares and will mark to market at each balance sheet date. 6. Stockholders’ Equity Authorized capital stock The Company’s authorized capital stock consists of an unlimited number of shares of no-par common shares. Warrants to Purchase Common Shares At December 31, 2020, the Company had 39,130 warrants outstanding to purchase common shares at an exercise price of $6.80. The following table summarized our warrant activity. Number of Warrants (in thousands) Range Weighted Average Outstanding and exercisable at December 31, 2018 $ - $ - $ - Granted 39 6.80 6.80 Outstanding and exercisable at December 31, 2019 $ 39 $ 6.80 $ 6.80 Granted - - - Outstanding and exercisable at December 31, 2020 $ 39 $ 6.80 $ 6.80 F- 16 Fennec Pharmaceuticals Inc. Notes to the Consolidated Financial Statements (U.S. dollars and shares in thousands, except per share information) 7. 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 PEDMARK TM 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 PEDMARK TM 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. 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. Securities Class Action Suit Following the U.S. Food and Drug Administration’s (FDA’s) CRL regarding its NDA for PEDMARK TM as described in Note 1, a putative lawsuit was filed against us purportedly on behalf of purchasers of the Company’s securities between December 20, 2018 and August 10, 2020. The lawsuit seeks to recover damages for Fennec investors under federal securities laws. While we believe that the lawsuit is without merit and intend to vigorously defend against it, the lawsuit is in its early stages and no assessment can be made as to its likely outcome or whether the outcome will be material to us. This litigation, and any other securities class actions that may be brought against us, could result in substantial costs and a diversion of our management’s attention and resources. 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 (currently $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 (currently $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 (currently $90,000). 8. Subsequent Events Management has evaluated subsequent events through March 29, 2021, the date the financial statements were available to be issued and has concluded there are no additional events that would require adjustment to our disclosure in the statements. 9. Income Taxes The Company operates in both U.S. and Canadian tax jurisdictions. Its income is subject to varying rates of tax and losses incurred in one jurisdiction cannot be used to offset income taxes payable in another. A reconciliation of the combined Canadian federal and provincial income tax rate with the Company’s effective tax rate is as follows (in thousands except for percentage rates): Year Ended December 31, Year Ended December 31, 2020 2019 Domestic (loss)/gain $ (8,784 ) $ (9,004 ) Foreign loss (9,283 ) (3,734 ) Loss before income taxes (18,067 ) (12,738 ) Expected statutory rate (recovery) 26.50 % 26.50 % Expected provision for (recovery of) income tax (4,788 ) (3,376 ) Permanent differences 752 901 Change in valuation allowance 3,737 2,193 Effect of foreign exchange rate differences - - Effect of change in future enacted tax rates - - Tax credits and other adjustments - - Effect of tax rate changes and other 299 282 Provision for income taxes $ - $ - F- 17 Fennec Pharmaceuticals Inc. Notes to the Consolidated Financial Statements (U.S. dollars and shares in thousands, except per share information) The Canadian statutory come tax rate of 26.0 percent is comprised of federal income tax at approximately 15.0 percent and provincial income tax at approximately 11.0 percent. The primary temporary differences which gave rise to future income taxes (recovery) at December 31, 2020 and December 31, 2019: December 31, 2020 December 31, 2019 Future tax assets: SR&ED expenditures $ 2,086 $ 2,086 Income tax loss carryforwards 26,770 23,182 Non-refundable investment tax credits 1,083 1,121 Share issue costs 139 99 Accrued expenses - - Fixed and intangible assets 1,083 1,083 Reserves - - 31,161 27,572 Less: valuation allowance (31,147 ) (27,572 ) Net future tax assets $ 14 $ - F- 18 Fennec Pharmaceuticals Inc. Notes to the Consolidated Financial Statements (U.S. dollars and shares in thousands, except per share information) Tax Cuts and Jobs Act On December 22, 2017, the then President of the United States signed into law an Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018 (commonly known as “the Tax Cuts and Jobs Act or the “TCJA”), which introduced a comprehensive set of tax reforms. The Tax Cuts and Jobs Act significantly revises U.S. tax law by, among other provisions, lowering the Company’s corporate tax rate from 34% to 21% and eliminating or reducing certain income tax deductions. In December 2017, in accordance with the SEC Staff Accounting Bulletin (“SAB”) 118–Income Tax Accounting Implications of the TCJA, the Company recorded tax effects on a provisional basis based on a reasonable estimate. The TCJA did not have a material impact on the Company's financial statements because its deferred temporary differences are fully offset by a valuation allowance and the Company does not have any offshore earnings from which to record the mandatory transition tax. During 2018, the Company completed its analysis under SAB 118 and no additional tax effects due to rate-remeasurement were required to be recorded. On March 27, 2020 the US government enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) which includes numerous modifications to income tax provisions, including a limitation on business interest expense and net operating loss provisions and the acceleration of alternative minimum tax credits. Given the Company’s history of losses, the CARES Act did not have a material impact on its tax provision. There are no current income taxes owed, nor are any income taxes expected to be owed in the near term. At December 31, 2020 the Company has unclaimed Scientific Research and Experimental Development ("SR&ED") expenditures, income tax loss carry-forwards and non-refundable investment tax credits. The unclaimed amounts and their expiry dates are as listed below: Federal Province/ State SR&ED expenditures (no expiry) $ 7,872 $ - Income tax loss carryforwards (expiry date): 2021 26 - 2022 233 - 2023 1,588 - 2024 4,849 - 2025 6,143 6,169 2026 13,868 2,716 2027 8,136 4,219 2028 10,509 4,164 2029 8,185 2,116 2030 2,608 670 2031 3,378 789 2032 3,491 651 2033 1,789 655 2034 1,812 617 2035 1,804 941 2036 2,208 1,013 2037 4,641 1,638 2038 5,567 - 2039 5,848 - 2040 5,791 - No expiration 15,114 15,114 Investment tax credits (expiry date): 2020 52 2021 521 2022 379 2023 169 2024 189 2025 82 2026 86 2027 47 F- 19