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Item 7. Management’s Discussion and Analysis

2023-03-29 compared with 2022-02-28 · 122 added, 111 removed, 147 unchanged (61% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY STATEMENT

Caution Concerning Forward-Looking Statements

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing at the end of this Annual Report.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward looking statements that involve risks and uncertainties.

the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis.

Our only product candidate in the clinical stage of development is PEDMARK TM (sodium thiosulfate (STS) anhydrous injection).

We have announced results of two Phase 3 clinical trials for the prevention of cisplatin induced hearing loss, or ototoxicity in children including the pivotal Phase 3 study SIOPEL 6 , “A Multicentre Open Label Randomised Phase 3 Trial of the Efficacy of Sodium Thiosulfate in Reducing Ototoxicity in Patients Receiving Cisplatin Chemotherapy for Standard Risk Hepatoblastoma,” and the proof of concept Phase 3 study “A Randomized Phase 3 Study of Sodium Thiosulfate for the Prevention of Cisplatin-Induced Ototoxicity in Children”.

We continue to focus our resources on the development of PEDMARK TM .

We have licensed from OHSU intellectual property rights for the use of PEDMARK TM as a chemoprotectant and are developing PEDMARK TM as a protectant against the hearing loss often caused by platinum-based anti-cancer agents in children.

Preclinical and clinical studies conducted by OHSU and others have indicated that PEDMARK TM can effectively reduce the incidence of hearing loss caused by platinum-based anti-cancer agents.

As a result of many factors, including those factors set forth in the “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” section of this Annual Report, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis.

We are a commercial-stage biopharmaceutical company focused on our only product candidate PEDMARK ® .

On September 20, 2022 we received approval from the FDA for PEDMARK ® (sodium thiosulfate injection) to reduce the risk of ototoxicity associated with cisplatin in pediatric patients one month of age and older with localized, non-metastatic solid tumors.

This approval makes PEDMARK ® the first and only treatment approved by the FDA in this area of significant unmet medical need.

On October 17, 2022 we announced commercial availability of PEDMARK ® in the United States.

We sell our product through an experienced field force including Regional Pediatric Oncology Specialists and medical science liaisons who are helping to educate the medical communities and patients about cisplatin induced ototoxicity and our programs supporting patient access to PEDMARK ® .

Further, we have established Fennec HEARS™, a comprehensive single source program designed to connect PEDMARK ® patients to both patient financial and product access support.

The program offers assistance and resources, regardless of insurance type, that can address co-pays or lack of coverage when certain eligibility requirements are met.

Fennec HEARS also provides access to care coordinators that can answer insurance questions about coverage for PEDMARK ® and provide tips and resources for managing treatment.

We currently have three patents listed for PEDMARK ® in the FDA’s Orange Book which are the “190”, “728” and “984” patents.

The “190” patent is exclusively in-licensed from Oregon Health & Science University (“OHSU”) and relates to a method of using our PEDMARK ® product.

The “190” expires in 2038 and the “728” and “984” patents expire in 2039, respectively, unless held invalid or unenforceable by a court or final jurisdiction.

Further, in January 2023, the USPTO issued Notices of Allowance to us for one additional patent applications that cover the PEDMARK ® pharmaceutical formulation.

We expect this additional U.S.

patent to issue in Q1 of 2023 or Q2 of 2023.

This patent will expire in 2039, unless held invalid or unenforceable by a court of final jurisdiction.

We are also pursuing additional patent applications in both the U.S.

and internationally for PEDMARK ® .

Hearing loss among children receiving platinum-based chemotherapy is frequent, permanent and often severely disabling.

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and Europe, it is estimated that, annually, over 10,000 children may receive platinum-based chemotherapy.

The incidence of ototoxicity depends upon the dose and duration of chemotherapy, and many of these children require lifelong hearing aids.

There is currently no established preventive agent for this hearing loss and only expensive, technically difficult and sub-optimal cochlear (inner ear) implants have been shown to provide some benefit.

The incidence of ototoxicity depends upon the dose and duration of chemotherapy.

Other than PEDMARK ® , there is currently no established preventive agent for this hearing loss and only expensive, technically difficult and sub-optimal cochlear (inner ear) implants have been shown to provide some benefit.

Infants and young children that suffer ototoxicity at critical stages of development lack speech language development and literacy, and older children and adolescents lack social-emotional development and educational achievement.

In March 2018, PEDMARK TM received Breakthrough Therapy and Fast Track designations from the FDA.

Further, PEDMARK TM has received Orphan Drug Designation in the U.S.

in this setting.

We initiated our rolling NDA for PEDMARK TM for the prevention of ototoxicity induced by cisplatin chemotherapy patients 1 month to < 18 years of age with localized, non-metastatic, solid tumors with the FDA in December 2018.

We announced that we had submitted full completion of the NDA in February 2020.

The FDA set a PDUFA target action date of August 10, 2020 for the completion of the FDA’s review.

On August 10, 2020, we announced that we received a CRL from the FDA regarding our NDA for PEDMARK TM , which identified deficiencies in the third-party manufacturing facility that manufactures PEDMARK TM on our behalf.

Importantly, no clinical safety or efficacy issues were identified during the review and there is no requirement for further clinical data.

In May 2021, we announced the resubmission of our NDA for PEDMARK TM and in June 2021 we further announced that the FDA accepted for filing the resubmission of our NDA and set a PDUFA target action date of November 27, 2021.

On November 29, 2021, we announced that we received a CRL from the FDA regarding our NDA for PEDMARK TM , which identified deficiencies in the third-party manufacturing facility that manufactures PEDMARK TM on our behalf.

We are working closely with the FDA to fully address the CRL, and we plan to resubmit our NDA for PEDMARK TM in the first quarter of 2022.

In August 2018, the PDCO of the EMA accepted our PIP for sodium thiosulfate with the trade name Pedmarqsi for the condition of the prevention of platinum-induced hearing loss.

An accepted PIP is a prerequisite for filing a MAA for any new medicinal product in Europe.

The indication targeted by our PIP is for the prevention of platinum-induced ototoxic hearing loss for standard risk hepatoblastoma (SR-HB).

Additional tumor types of the proposed indication will be subject to the CHMP assessment at the time of the MAA.

In August 2018, the Pediatric Committee (“PDCO”) of the European Medicines Agency (“EMA”) accepted our pediatric investigation plan (“PIP”) for sodium thiosulfate with the trade name Pedmarqsi for the condition of the prevention of platinum-induced hearing loss.

An accepted PIP is a prerequisite for filing a Marketing Authorization Application (“MAA”) for any new medicinal product in Europe.

The indication targeted by our PIP is for the prevention of platinum-

induced ototoxic hearing loss for standard risk hepatoblastoma (“SR-HB”).

Additional tumor types of the proposed indication will be subject to the Committee for Medicinal Products for Human Use (“CHMP”) assessment at the time of the MAA.

No deferred clinical studies were required in the positive opinion given by PDCO.

We were also advised that sodium thiosulfate (tradename to be determined) is eligible for submission of an application for a PUMA.

A PUMA is a dedicated marketing authorization covering the indication and

appropriate formulation for medicines developed exclusively for use in the pediatric population and provides data and market protection up to 10 years.

Therefore, this decision allows us to proceed with the submission of a PUMA in the European Union (EU) with incentives of automatic access to the centralized procedure and up to 10 years of data and market protection.

A PUMA is a dedicated marketing authorization covering the indication and appropriate formulation for medicines developed exclusively for use in the pediatric population and provides market protection up to 10 years.

Therefore, this decision allows us to proceed with the submission of a PUMA in the European Union (“EU”) with incentives of automatic access to the centralized procedure and up to 10 years of market protection.

In February 2020, we announced that we had submitted a MAA for the prevention of ototoxicity induced by cisplatin chemotherapy patients 1 month to < 18 years of age with localized, non-metastatic, solid tumors.

We have not received and do not expect to have significant revenues from our product candidate until we are either able to sell our product candidate after obtaining applicable regulatory approvals or we establish collaborations that provide us with up-front payments, licensing fees, milestone payments, royalties or other revenue.

We generated a net loss of $17.4 million for the year ended December 31, 2021.

We generated a net loss of approximately $18.1 million for the year ended December 31, 2020.

As of December 31, 2021, our accumulated deficit was approximately $179.6 million.

The EMA continues its review of our MAA.

Now that we have obtained applicable regulatory approval to sell PEDMARK ® in the United States, we recognize there may still be a need to establish collaborations that provide us with up-front payments, licensing fees, milestone payments, royalties or other revenue.

We generated a net loss of approximately $23.7 million for the fiscal year ended December 31, 2022, and a net loss of $17.4 million for the fiscal year ended December 31, 2021.

As of December 31, 2022, our accumulated deficit was approximately $203.2 million ($179.5 million at December 31, 2021).

We believe that our cash and cash equivalents as of December 31, 2022, which totaled $23.8 million, cash from product sales, plus the remaining Petrichor Financing of $20 million in convertible notes subject to mutual agreement between the Company and Petrichor (see Note 1 and Note 7 to consolidated financial statements contained elsewhere in this report), will be sufficient to meet our cash requirements through at least the next twelve months.

Our projections of our capital requirements are subject to substantial uncertainty, and more capital than we currently anticipate may be required thereafter.

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If we cannot obtain adequate funding in the future, we might be required to further delay, scale back or eliminate certain research and development studies, consider business combinations, or even shut down some, or all, of our operations.

Our operating expenses will depend on many factors, including the progress of our drug development efforts and efficiency of our operations and current resources.

Our research and development expenses, which include expenses associated with our clinical trials, drug manufacturing to support clinical programs, stock-based compensation, consulting fees, sponsored research costs, toxicology studies, license fees, milestone payments, and other fees and costs related to the development of our product candidate, will depend on the availability of financial resources, the results of our clinical trials, and any directives from regulatory agencies, which are difficult to predict.

Our general and administration expenses include expenses associated with the compensation of employees, stock-based compensation, professional fees, consulting fees, insurance and other administrative matters associated in support of our drug development programs.

On May 5, 2020, we announced the completion of an underwritten public offering of 4,800,000 of our common shares at a public offering price of $6.25 per share.

In addition, we issued an additional 660,204 common shares in connection with the partial exercise of the underwriters’ over-allotment option.

The approximate total gross proceeds from the offering were $34,100 ($32,189 net of commissions, fees and issue costs).

On February 1, 2019, our wholly owned subsidiary, Fennec Pharmaceuticals, Inc., entered into a Loan and Security Agreement (the “Bridge Bank Loan and Security Agreement”) with Bridge Bank, a division of Western Alliance Bank, an Arizona corporation (“Bridge Bank”), pursuant to which Bridge Bank agreed to loan $12,500 to Fennec Pharmaceuticals, Inc., to be made available upon NDA approval of PEDMARK TM by the FDA no later than September 30, 2020.

The Bridge Bank Loan and Security Agreement was amended on June 25, 2020 to increase the total potential amount of the loan to $18,000 and to extend the outside date to receive NDA approval of PEDMARK TM to December 31, 2020.

In connection with this facility, we issued Bridge Bank a warrant to purchase up to 39 of our common shares at an exercise price of $6.80 per share, with an exercise period of ten years from the date of issuance subject to certain early termination conditions.

Under Accounting Standards Codification (“ASC”) 470-50, Modifications and Extinguishments, the amendment to the facility was considered a modification.

As such, we had been amortizing the loan fee and the value of the warrant over the remainder of the loan term.

Following receipt of the FDA’s CRL in August 2020, which identified deficiencies in the third-party manufacturing facility that manufactures PEDMARK TM on our behalf, we decided to fully amortize the remaining portions of the loan fee and the value of the warrants.

The warrant issued to Bridge Bank remains outstanding.

On June 24, 2021, we entered into a second amendment to the Bridge Bank Loan and Security Agreement.

This amendment provides Fennec Pharmaceuticals, Inc.

with a $20,000 debt facility comprised of three term loans.

Term Loan A consists of $5,000, which was funded upon closing.

Term Loan B consists of $7,500 to be funded upon NDA approval of PEDMARK TM no later than January 31, 2022.

Term Loan C consists of $7,500 to be funded upon us

achieving consolidated trailing nine-month revenues of $11 million on or before December 31, 2022.

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 B, provided that Term Loan C is funded, and certain other conditions are met.

On January 27, 2022, we entered into a third amendment to the Bridge Bank Loan and Security Agreement extending the outside date to receive NDA approval of PEDMARK TM to September 30, 2022.

Among other customary events of default, failure to obtain NDA approval by September 30, 2022 constitutes an event of default under the Bridge Bank Loan and Security Agreement, upon which Bridge Bank may declare the entire balance of the facility immediately due and payable.

Although Bridge Bank has previously extended the deadline to receive NDA approval, there is no assurance that it will do so again if the NDA is not approved by the current September 30, 2022 deadline.

We intend to use the proceeds from the loans to provide working capital for commercial readiness activities prior to NDA approval as well as commercialization activities for PEDMARK TM , if approved by the FDA.

We believe that the funds raised in our May 2020 public offering provides us sufficient funding to carry-out our planned activities, including potential NDA approval and the commencement of commercialization efforts, for at least the next twelve months as we continue our strategic development of PEDMARK TM .

Our operating expenses will depend on many factors, including the progress of our commercialization efforts and efficiency of our operations and current resources.

Our research and development expenses, which include expenses associated with our clinical trials, drug manufacturing to support clinical programs, consulting fees, sponsored research costs, toxicology studies, license fees, milestone payments, and other fees and costs related to the comercialization of our product, will depend on the availability of financial resources, the results of our clinical trials, and any directives from regulatory agencies, which are difficult to predict.

Results of Operations

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December 31, 2021

PEDMARK product sales, net

Cost of product sales

Operating expenses:

Research and development

General and administration

Selling and marketing

General and administrative

Total operating expense

Loss from operations

Unrealized (loss)/gain on securities

Unrealized loss on securities

Amortization expense

Interest income and other, net

● We had no revenues in fiscal 2021.

In fiscal 2020, revenues reported represent royalties related to the Elion Oncology, LLC (“Elion”) transaction with Processa Pharmaceuticals, Inc.

(“Processa”) (see “Revenue arrangements” under Note 2 of our consolidated financial statements appearing elsewhere in this Annual Report).

In 2020, we received $0.005 million in cash and 41,250 restricted shares of Processa.

Interest expense

Unrealized foreign exchange loss

Interest income

● Commercial launch of PEDMARK ® commenced in October 2022.

The Company recorded net product sales of $1.54 million in fiscal 2022.

The Company recorded discounts and allowances against sales in the amount of $0.2 million and cost of products sold of $0.1 million.

The Company had gross profit of $1.4 million for fiscal year ended 2022.

In fiscal 2021, the Company had no revenues.

● Research and development expense decreased by $1.5 million in fiscal 2022 as compared to fiscal 2021.

● The $0.7 million decrease in general and administrative expenses in fiscal 2021 compared to fiscal 2020 is attributed to the decrease in pre-commercialization expenses.

Many pre-commercialization expenses were completed in fiscal 2020 and did not need to be repeated.

These savings were offset in fiscal 2021 by increased legal expenses of $0.4 million associated with the class action suit, increased payroll expense of $0.5 million with higher average headcount and increased non-cash equity compensation of $1.0 million.

● There was a negligible unrealized loss on the Processa shares for the year ended December 31, 2021.

The Company reduced research and development costs when it received FDA approval of PEDMARK ® .

The majority of traditional research and development expenses associated with PEDMARK ® are now recorded as general and administrative expenses or capitalized into inventory and eventually recorded to costs of product sales.

● The Company began incurring selling and marketing expenses when it expanded its payroll to include an internal salesforce.

Selling and marketing expenses include distribution costs, logistics, shipping and insurance, advertising, wages commissions and out-of-pocket expenses.

The Company recorded $2.8 million in selling and marketing expenses in fiscal 2022.

● There was a $5.5 million increase in general and administrative expenses in fiscal 2022 compared to fiscal 2021.

Payroll and benefits related expenses rose by $4.0 million in fiscal 2022 compared to fiscal 2021.

There was an increase in legal costs of $1.4 million in fiscal 2022 over fiscal 2021.

This net increase is comprised of an increase in $0.2 million in class action suit defense, a decrease in general legal expense of $0.2 million and an increase of $1.4 million in intellectual property litigation.

Pre-commercialization activities rose by $0.4 million in fiscal 2022 over fiscal 2021.

Non-cash expenses associated with equity remuneration increased by $0.2 million.

● The value of our Processa shares declined by $0.2 million for the year ended December 31, 2022.

For fiscal year ended December 31, 2021, there was a gain of $0.03 million.

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The Processa shares are marked to market at each balance sheet date with the resulting change in value being booked as an unrealized gain or loss.

● Amortization expense was down sharply as in fiscal 2020, as we wrote off the entire capitalized amount associated with the Bridge Bank Loan and Security Agreement origination costs.

In fiscal 2021, we capitalized

costs associated with the amended facility.

The origination fees for the amended facility in fiscal 2021were much lower than the original facility.

● Other losses increased by $0.13 million.

This was driven mainly by interest expense.

We pay interest on the financed D&O insurance policy and the $5.0 million of funded debt from Bridge Bank.

● Interest income decreased in fiscal 2021 as compared to fiscal 2020, due to lower average balances and rates on money market accounts for the comparable periods.

● Amortization expense was up $0.1 million in fiscal 2022, as we wrote off the entire capitalized amount associated with the Bridge Bank Loan and Security Agreement origination costs but replaced it with the Petrichor Opportunities Fund I LP Senior Secured Securities Notes.

The increase in amortization relates to the relative size of the deferred asset created by the capitalization of the loan origination and access fees.

● Other losses increased by $0.6 million, driven mainly by interest on long-term debt.

● Interest income increased in fiscal 2022 as compared to fiscal 2021 by $0.1 million, due to higher average balances and sharply increased rates on money market accounts for the comparable periods.

Quarterly Information

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December 31, 2021

PEDMARK product sales, net

Cost of product sales

Operating expenses:

Research and development

Selling and marketing

General and administration

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Amortization expense

Interest expense

Other (loss), net

Revenues reported in the three months ended December 31, 2020, represent royalties related to the Elion transaction with Processa.

On October 30, 2020, we received $0.005 million in cash and 41,250 restricted shares of Processa.

Revenues reported in the three months ended December 31, 2022, represent product sales of PEDMARK ® .

We announced product launch of PEDMARK ® on October 17, 2022.

We reported a loss from operations of $6.1 million for the three months ended December 31, 2022, compared to a loss from operations of $4.2 million for the same period in 2021.

Research and development expenses totaled $0.1 million for the three months ended December 31, 2022, down by $0.4 million over the same period in 2021.

The Company recorded selling and marketing expenses of $2.8 million in the quarter ended December 31, 2022.

General and administrative expenses increased by $1.0 million in the three months ended December 31, 2022, as compared to the same period in 2021.

The increase arises from non-cash equity grants and our pre-commercialization activities for PEDMARK TM as we prepared for potential NDA approval by the FDA in November 2021.

There was an unrealized loss of $0.2 million on the Processa shares as of over fiscal year 2021.

There was an increase of $795 related to product launch activities, $334 related to professional fees, $89 in payroll and benefits and an $87 increase in miscellaneous items.

These increases were offset by a decrease in non-cash equity expenses of $318.

There was an unrealized loss of $0.06 million on the Processa shares for quarter ended December 31, 2022.

The Processa shares will be marked to market at each balance sheet date.

The resulting change in value will result in an unrealized gain or loss.

Other loss increased by $0.06 million.

This relates to interest expense for the funded debt of the loan security agreement.

Interest income was up $0.14 million for the quarter ended December 31, 2022 compared to the same period a year prior.

This was driven by higher daily balances and higher interest rates.

Amortization and interest expenses were up

$0.74 million for the quarter ended December 31, 2022 over the same period in 2021.

The vast majority of this is interest and is driven by larger debt load and higher interest rates.

Selected Asset and Liability Data (thousands):

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Accumulated deficit

Shareholders’ equity

Shareholders’ (deficit) equity

Liquidity and Capital Resources

● There was a $9.2 million decrease in cash and cash equivalents between December 31, 2021 and December 31, 2020.

The net decrease was the result of cash operating expenses, offset by the $5.0 million received from the Bridge Bank Loan and Security Agreement and some negligible amounts received from option exercises.

During the period ended December 31, 2021, cash for operations was used mainly on the pre-commercialization activities of PEDMARK TM and regulatory submission activities relating to the NDA.

● The increase in other current assets between December 31, 2021 and December 31, 2020 primarily relates to an increase in the prepaid amounts for drug product manufacturing and for Director and Officer insurance premiums.

● Current liabilities at December 31, 2021 decreased $0.7 million compared to December 31, 2020 primarily due to a decrease in accounts payable associated with our commercialization and manufacturing activities for the production of PEDMARK TM and related regulatory expenses at year-end 2021.

● Working capital decreased between December 31, 2021 and December 31, 2020 by $8.3 million.

The decrease was a result of cash used in operations offset by $5.0 million received from the Bridge Bank Loan and Security Agreement, and negligible amounts received from stock option exercises and interest income.

Cash outflows related to the regulatory and pre-commercial development activities of PEDMARK TM and other general and administrative expenses.

● There was a $2.7 million increase in cash and cash equivalents between December 31, 2022 and December 31, 2021.

The net increase was the result of cash operating expenses, offset by the net $20.0 million received from the Petrichor note and $0.9 million received from the exercise of 273 options.

During the period ended December 31, 2022, cash for operations was used mainly on the pre-commercialization activities of PEDMARK ® prior to FDA approval and then commercialization activities post NDA approval.

● The increase in other current assets of $1.7 million between December 31, 2021 and December 31, 2022 primarily relates to an increase of $2.1 million in inventory and accounts receivable offset by $0.4 million decrease in the value of Processa shares and prepaid assets.

● Current liabilities at December 31, 2022 increased $3.0 million compared to December 31, 2021.

Accounts payable was up $1.6 million over prior year highlighting our post commercialization activity.

Accrued expenses were up $1.4 million over prior year primarily due to a $1.3 million increase in anticipated bonus payments and employee paid time off.

● Working capital increased by $1.4 million between December 31, 2022 and December 31, 2021.

The increase was a result of cash used in operations offset by net inflow of cash of $20.0 million received from the Petrichor Note, and $0.9 million received from stock option exercises and interest income.

Selected Cash Flow Data

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The net cash flow used in operating activities for the year ended December 31, 2022 was approximately $18.1 million as compared to $14.2 million in 2021.

This decrease relates to slightly lower pre-commercial activities in 2021 as some of the activities were completed in 2020.

Net financing activities in 2021 provided approximately $5.0 million from funding of the Bridge Bank Loan and Security Agreement, net of fees, and de minimis amounts arising from various option exercises.

Financing activities in 2020 mainly consisted of $31.8 million from the public issuance of our common shares and $0.5 million from various option exercises.

There was an increase in net loss of $6.4 million in fiscal 2022 compared to fiscal 2021.

In 2022 non-cash items added back to net loss increased by $0.5 million over 2021 and net changes in balance sheet accounts added back another $0.2 million over 2021.

Net financing activities in 2022 provided approximately $20.7 million from funding of the Petrichor Note, net of fees, and approximately $0.9 million arising from various option exercises.

We continue to pursue various strategic alternatives including collaborations with other pharmaceutical and biotechnology companies.

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our ability to obtain additional financial resources;

our ability to enter into collaborations that provide us with up-front payments,

milestones or other payments;

our ability to enter into collaborations that provide us with up-front payments, milestones or other payments;

results of our research and development activities;

progress or lack of progress in our preclinical studies or clinical trials;

unfavorable toxicology in our clinical programs, our drug substance requirements to support clinical programs;

unfavorable toxicology in our clinical programs, our drug substance requirements to support clinical

change in the focus, direction, or costs of our research and development programs;

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We had cash and cash equivalents of approximately $23.8 million as of December 31, 2022.

We currently anticipate that our available capital resources, including our existing cash and cash equivalents and accounts receivable balances, will be sufficient to meet our expected working capital and capital expenditure requirements as our business is currently conducted for at least the next 12 months.

We currently anticipate that our available capital resources, including our existing cash and cash equivalents, accounts receivable balances and the remaining $20 million available under the SPA by mutual agreement between the Company and Petrichor, will be sufficient to meet our expected working capital and capital expenditure requirements as our business is currently conducted for at least the next 12 months.

Financial Instruments

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The policy risks are primarily the opportunity cost of the conservative nature of the allowable investments.

As our main purpose is research and development, we have chosen to avoid investments of a trading or speculative nature.

Until the company is cash flow positive from operations, we have chosen to avoid investments of a trading or speculative nature.

We classify investments with original maturities at the date of purchase greater than three months which mature at or less than twelve months as current.

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Actual results could differ from these estimates.

An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially

impact the financial statements.

The following description of critical accounting policies, judgments and estimates should be read in conjunction with our December 31, 2022 consolidated financial statements.

Revenue Recognition

Under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, the Company recognizes revenue when its customers obtain control of promised goods or services, in an amount that reflects the consideration which the Company determines it expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps:

(i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) the Company satisfies its performance obligation(s).

As part of the accounting for these arrangements, the Company must make significant judgments, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each performance obligation.

Stock-based Compensation

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Newly Adopted and Recent Accounting Pronouncements

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.

I n May 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40).

This ASU provides measurement guidance for a modification or an exchange of a freestanding equity classified written call option that is not within the scope of another Topic.

The Company adopted the ASU as of January 1, 2022 and its adoption did

not have a significant impact on the Company's consolidated financial statements.

The Company will apply the amendments prospectively to modifications or exchanges occurring on or after January 1, 2022.

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments – Credit Losses (Topic 326) and subsequently related amendments (ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11 and ASU 2022-02).

This guidance replaces the existing incurred loss impairment guidance and establishes a single allowance framework for financial assets carried at amortized cost based on expected credit losses.

The estimate of expected credit losses requires the incorporation of historical information, current conditions, and reasonable and supportable forecasts.

This ASU will be effective for the year ended December 31, 2023.

The Company is currently evaluating the effect the adoption of this ASU will have on the consolidated financial statements.

In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40).

The new standard eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity's own equity.

The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity's own equity.

This ASU will be effective for the year ended December 31, 2024.

The Company is currently evaluating the effect the adoption of this ASU will have on the consolidated financial statements.

In June 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2022-03, Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which (1) clarifies the guidance in Topic 820 on the fair value measurement of an equity security that is subject to contractual restrictions that prohibit the sale of an equity security and (2) requires specific disclosures related to such an equity security.

This ASU will be effective for the year ended December 31, 2024.

The Company is currently evaluating the effect the adoption of this ASU will have on the consolidated financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis