2021
Annual Report
B
FAX Capital — 2021 Annual Report
Table of Contents
4
Letter to Shareholders
6
Management’s Discussion
and Analysis
35
Management’s Responsibility
for Financial Reporting
36
Auditor’s Report
40
Financial Statements
45
Notes to Financial Statements
65
Corporate Information
2021
Annual Report
Competitive Advantage
Investment Approach
Structure
Management Team
• Long-term view
• Active ownership
• Flexible mandate
• Permanent capital
• Public currency
• Internally managed
• Supportive shareholder
• Proven investment team
• Alignment of interests
Investment company focused on significant
minority or majority ownership positions in
high-quality public and private companies.
Overview
Attractive Opportunity
in Small Cap Canadian
Companies
BOOK VALUE PER SHARE (BVPS)
ANNUALIZED RETURNS
Jan. 1, '20 - Dec. 31, '21
31-Dec
2021
31-Dec
2019
31-Dec
2020
$4.34
$5.20
$4.83
FAX's Internal
Rate of Return on
Deployed Capital1
TSX SmallCap
Total Return
Index
TSX Composite
Total Return
Index
16.5%
30.1%
14.9%
1 Non-IFRS Measure
INVESTMENTS FAIR VALUE
INDUSTRY BREAKDOWN
(of deployed capital in disclosed investments)
Healthcare
30%
Real Estate Services/
Infrastructure
39%
Hamilton Thorne Ltd.
(TSXV: HTL)
16%
Information
Services Corp.
(TSX: ISV)
12%
Quisitive Technology
Solutions Inc.
(TSXV: QUIS)
11%
Points.com Inc.
(TSX: PTS, NASDAQ: PCOM)
9%
BioSyent Inc.
(TSXV: RX)
8%
Avante Logixx Inc.
(TSXV: XX)
1%
Tecsys Inc.
(TSX: TCS)
4%
Carson, Dunlop
& Associates Ltd.
(Private)
6%
Cash
33%
Technology
31%
Performance
investments
As at December 31, 2021
4
FAX Capital — 2021 Annual Report
Dear valued shareholder,
When it comes to stock market valuations, there wasn’t much positive to say in 2021. Throughout
the year, the market continued its relatively steady rise and, on most measures, equities were
not only expensive relative to history but near historic extremes. But trying to time the market
based on how expensive it trades relative to history is not a winning strategy, nor is the tendency
to believe that markets reaching new highs is a signal that stocks are overvalued. However, while
no valuation indicator is perfect at predicting future stock market performance, elevated valua
tions have proven to be linked to a higher probability of lower long-term forward returns.
This expectation for weaker forward returns tempered our eagerness to deploy capital through
out 2021. Caution was warranted, and in the first half of the year we deployed $56 million of
capital versus only $9 million in the second half. Our investment returns were similarly bifurcated.
FAX’s portfolio delivered an annualized unlevered IRR of 33% in the first half of 2021 versus an
annualized negative 7% IRR in the second half, as misguided market expectations started com
ing back to reality. Our book value per share (BVPS) peaked in the second quarter at $5.45 and
ended the year at $5.20, growing a respectable 8% year-over-year.
The famous American stock trader Jesse Livermore once said, “There is a time to go long, a time
to go short, and a time to go fishing.”1 The latter half of 2021 certainly felt to us like a time to
go fishing. As a result, we exited the year with approximately 30% of our assets held in cash in
search of a good deal. We’ve become more optimistic early in 2022 that those good deals may
soon be here. High valuations combined with geopolitical instability, the threat of persistently
high inflation, and a more hawkish Fed has given the market jitters, pushing many markets into
bear territory.
Our cash has been an important ballast to offset recent market volatility. We estimate that had
FAX been fully invested on July 1, 2021 through to February 28, 2022, shareholders would have
lost an additional 20 cents in BVPS.2 Our decision to retain a material cash balance appears to
have been a sensible one.
1
Jesse Livermore, AZ Quotes.
2
Assuming an investment in existing portfolio holdings on a pro rata basis.
5
FAX Capital — 2021 Annual Report
The punchbowl of free money and zero interest rate policy that has been feeding the bull mar
ket and allowing valuations to reach historic highs appears to be nearing an end and the party has
quieted down. The market faces several obstacles in 2022 - valuations remain rich and year-over-
year economic and corporate comparisons will be more difficult than the subdued 2020 pandemic
numbers that were lapped in 2021. We’ve reiterated to our shareholders that we cannot predict the
nature or timing of the next crisis, or whether we are at the end of the existing one. We can, howev
er, rely on the durability of the business fundamentals of our current holdings, choose to trust the
markets and its favorable long-term prospects, and continue to commit to the benefits of discipline,
patience and perseverance.
Just as the market can become overwhelmed with greed, it can also succumb to fear. This ‘herd
behaviour’ has been a hallmark of markets for centuries. It has been said that the stock market is
the only market where things go on sale and all the customers run out of the store.3 Our promise
to you, our shareholder, is that when the markets do go on sale we will move decisively against the
herd, stay focused, and prudently look for high quality investment opportunities to enhance long-
term returns.
Your Chief Executive Officer,
Blair Driscoll
March 29, 2022
3
Cullen Roche, posted on Twitter, @cullenroche, August 24, 2015.
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FAX Capital — 2021 Annual Report
Management’s Discussion and Analysis
FAX CAPITAL CORP.
MANAGEMENT DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2021
This Management Discussion and Analysis (“MD&A”) should be read in conjunction with the audited financial
statements of FAX Capital Corp. (the “Company”) for the year ended December 31, 2021 and the related notes. The
Company’s reporting currency is the Canadian dollar and all amounts in this MD&A are expressed in Canadian dollars.
This MD&A is prepared as of March 29, 2022.
The financial information of the Company within this MD&A is derived from the financial statements of the Company
as at and for the year ended December 31, 2021 prepared in accordance with International Financial Reporting
Standards (“IFRS”) accounting policies as issued by the International Accounting Standards Board IASB.
Additional information relating to the Company, including the Company’s most recent financial statements and
Annual Information Form, is available at www.sedar.com. Additional information can also be accessed from the
Company’s website at www.faxcapitalcorp.com.
BUSINESS PROFILE
FAX Capital Corp. is an investment holding company. The Company invests in equity, debt and/or hybrid securities
of high-quality public and private businesses, with a goal of building long-term wealth for shareholders. Our
subordinate voting shares trade on the Toronto Stock Exchange (the “TSX”) under the symbol “FXC”. The Company’s
multiple voting shares are not listed on any exchange. As used herein, the term “shares” or “common shares” refers
collectively to both the Company’s multiple voting shares and subordinate voting shares.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this MD&A constitute “forward-looking statements” within the meaning of
applicable securities laws. Forward-looking statements may relate to the Company’s future outlook and anticipated
events or results and may include statements regarding the financial position, business strategy, growth strategy,
budgets, operations, financial results, taxes, dividends, plans and objectives of the Company. Particularly,
statements regarding future results, performance, achievements, prospects or opportunities of the Company are
forward-looking statements. In some cases, forward-looking statements can be identified by the use of forward-
looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”,
“estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate” or “believes”, or variations of such words
and phrases or state that certain actions, events or results “may”, “could”, “would”, “might”, “will” or “will be taken”,
“occur” or “be achieved”. Forward-looking information in this MD&A includes, but is not limited to, statements with
respect to: the Company’s investment approach, objectives and strategy, including investment selection; the
structuring of its investments; its plans to manage its investments; and the Company’s financial performance.
Forward-looking statements are based on the opinions and estimates of the Company as of the date of this MD&A,
and they are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the
actual results, level of activity, performance or achievements to be materially different from those expressed or
implied by such forward-looking statements, including but not limited to the following factors described in greater
detail in “Risk and Uncertainties”: potential lack of investment diversification; pace of completing investments;
financial market fluctuations and deterioration of political conditions; key employees; reliance on the performance
of underlying assets; investments in private issuers; illiquid assets; competitive market for investment opportunities;
competition and technology risks; credit risk; tax risks; regulatory changes and foreign security risk. Additional risks
7
Management’s Discussion and Analysis
FAX Capital — 2021 Annual Report
and uncertainties are described in the Company’s Annual Information Form dated March 29, 2022, which is available
at www.sedar.com and on the Company’s website at www.faxcapitalcorp.com.
Although the Company has attempted to identify important factors that could cause actual results to differ materially
from those contained in forward-looking statements, there may be other factors that cause results not to be as
anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as
actual results and future events could differ materially from those anticipated in such statements, particularly in
light of recent geopolitical events, including, the continuing global COVID-19 pandemic and the resulting social and
humanitarian impact, Russia’s invasion of Ukraine, rising oil prices and related international tensions which may
create further uncertainty and risk with respect to the Company’s operations and its portfolio companies.
Accordingly, readers should not place undue reliance on forward-looking statements. The Company does not
undertake to update any forward-looking statements contained herein, except as required by applicable securities
laws. New factors emerge from time to time, and it is not possible for the Company to predict all of these factors or
to assess in advance the impact of each such factor on the Company’s business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those contained in any forward-looking
statement.
USE OF NON-IFRS FINANCIAL MEASURES
This MD&A makes reference to the following financial measure which is not recognized under International Financial
Reporting Standards (IFRS) and which does not have a standard meaning prescribed by IFRS: “book value per share”.
The Company’s book value per share is a measure of the performance of the Company as a whole. Book value per
share is measured by dividing shareholders’ equity of the Company at the date of the statement of financial position
by the number of shares outstanding at that date.
The Company’s method of determining this financial measure may differ from other companies’ methods and,
accordingly, these amounts may not be comparable to measures used by other companies. This financial measure
is not a performance measure as defined under IFRS and should not be considered either in isolation of, or as a
substitute for, net earnings prepared in accordance with IFRS.
DEVELOPMENT OF THE BUSINESS
On November 21, 2019, the Company closed a public offering (the “Offering”) of units of the Company (“Units”).
Each Unit consisted of one subordinate voting share of the Company and one subordinate voting share purchase
warrant (a “Founder Warrant”). An aggregate of 15,560,000 Units were issued by the Company at the offering price
of $4.50 per Unit for aggregate gross proceeds of $70.0 million. Also on November 21, 2019, the Company closed
the purchase by Fax Investments Inc. (“Fax Investments”), on a private placement basis, of 26,671,110 multiple
voting shares for aggregate gross proceeds of $120.0 million. Fax Investments did not receive any Founder Warrants
as part of its subscription for multiple voting shares. The aggregate gross proceeds of the Offering and the private
placement (collectively, the “Offerings”) was $190.0 million. The Founder Warrants expired on November 22, 2021,
in accordance with their terms, and were delisted from the TSX.
8
FAX Capital — 2021 Annual Report
Management’s Discussion and Analysis
STRATEGY OVERVIEW
The following description is an overview of the Company’s investment strategy:
•
We intend to invest in approximately 10 to 15 high-quality small cap public and private businesses located
primarily in Canada and, to a lesser extent, the United States.
•
We anticipate taking meaningful and influential stakes in carefully selected public companies that have the
potential to significantly improve the fundamental value of their business over the long-term. We target
small cap businesses with a market capitalization of between $15 million and $1.5 billion.
•
We anticipate taking meaningful positions or control of select private company investments, where we will
seek to enhance returns and provide our shareholders with a unique opportunity to obtain exposure to
high-quality private businesses with enterprise values in the range of $15 million to $250 million.
•
Our ownership position in a portfolio company may range from a minority ownership position to a
significant influence position including, in some instances, control.
•
We intend to use our ownership position to support our portfolio company’s growth and development
through active ownership. The support we extend to our portfolio companies may be provided by way of
board representation, board observer rights, strategic, financial, governance and capital market support.
•
We are long-term investors in businesses and operate with a permanent capital base which enables us to
provide long-term stable capital to our portfolio companies, and to remain patient to maximize the power
of compounding.
INVESTMENT RESTRICTIONS
On May 19, 2021, at the Company’s annual general and special meeting of shareholders, the shareholders confirmed
a further amendment and restatement of the Company’s Amended and Restated By-Law No. 2019-3 (the “A&R
Voluntary Measures By-Law”) in order to remove the Investment Concentration Restriction. Prior to such date, the
Company’s portfolio investments were subject to a concentration restriction which prohibited the Company from
making an investment if, after giving effect to such investment, such investment would exceed twenty percent (20%)
of the Company’s total assets; provided, however, that the Company would nonetheless be permitted to complete
up to two portfolio investments where, after giving effect to each such investment, the total amount of each such
investment would be equal to no more than twenty-five percent (25%) of the Company’s total assets (the
“Investment Concentration Restriction”). Additionally, effective on April 6, 2021, the Company will no longer be
adhering to the original stated investment allocation objective of investing between 60-80% of the net proceeds of
the Offerings in public investments, with the remainder invested in private investments. The Company, however, is
committed to invest at least 75% of the net proceeds of the Offerings on or before November 21, 2022, except where
the Company’s board of directors (the “Board”) determines, acting reasonably and in good faith, that satisfying such
commitment would result in a breach of the Board’s fiduciary duties under applicable corporate law. Pending
deployment of investment into portfolio companies, the Company will invest the net proceeds of the Offerings in
liquid and low risk securities.
COVID-19 Pandemic
COVID-19 was declared a pandemic by the World Health Organization in early 2020. While some regions of the world
have started to roll back the emergency measures they enacted to combat the spread of COVID-19, the overall
impact of the COVID-19 pandemic is still uncertain and dependent on the progression of the virus and on actions
taken by governments, businesses and individuals, which could vary by country and result in differing outcomes.
While the deterioration in economic conditions and reduction in valuations for some businesses may result in
acquisition opportunities for the Company, COVID-19 may present challenges for its investee companies and may
9
Management’s Discussion and Analysis
FAX Capital — 2021 Annual Report
make it more difficult for the Company to deploy capital and complete investments. Further challenges could include
delayed due diligence on target companies due to international or domestic travel restrictions or obtaining onsite
access to target companies’ facilities or physical books and records due to lockdown measures. Additionally, any
target business that the Company identifies that has been required to reduce or suspend business operations for a
period of time due to COVID-19 may be subject to increased business, employment, operating and financial risks. In
particular, the business of Points.com Inc., one of the Company’s investee companies, is predominantly dependent
on the sale or redemption of loyalty currency associated with travel related loyalty programs. As the COVID-19
pandemic has had a significant adverse impact on the demand and availability of air travel and hospitality services,
the value and overall popularity of their loyalty programs may decline significantly or suffer long-term, which could
materially impact the value of the Company’s investment.
The COVID-19 pandemic has also led to higher valuations for certain businesses that have shown to be resilient to
the above-mentioned impacts of COVID-19 or which, in some cases, have benefited from the COVID-19 pandemic.
To the extent that the Company seeks to make investments in these businesses, it may be required to pay a higher
purchase price or may face increased competition from other investors looking to acquire such businesses.
To the extent the COVID-19 pandemic adversely impacts the Company’s and its investee companies’ business, results
of operations and financial condition, it may also have the effect of heightening many of the other risks described or
referenced in this document or in the Company’s most recent Annual Information Form.
The distribution of vaccines has resulted in the easing of restrictions in many economies and contributed to strong
gains in certain economic sectors during 2021. However, there is uncertainty regarding the effectiveness of vaccines
against new variants of the virus, and this contributes towards uncertainty of the timing of a full economic recovery.
As a result, it is not possible to reliably estimate the length and severity of these developments and the impact on
the financial results and condition of the Company in future periods.
COVID 19 has the current and ongoing potential to expose the Company to a number of risks inherent in our business
activities. These include: pace of completing investments, financial market fluctuations and deterioration of political
and economic conditions, and competitive market for investment opportunities. These risks are discussed in further
detail in the Company’s most recent Annual Information Form, dated March 29, 2022, which is available on
www.sedar.com and on the Company’s website at www.faxcapitalcorp.com.
10
FAX Capital — 2021 Annual Report
Management’s Discussion and Analysis
SUMMARY OF INVESTMENT PORTFOLIO
The Company held the following investments as at December 31, 2021 and 2020:
Table 1: Schedule of Investment Portfolio as at December 31, 2021
($ thousands)
% of Portfolio
Description
Number of securities
Cost
Fair Value
Net Change
Fair Value
Public company investments
Information Services Corporation
1,074,967
16,317
27,186
10,869
12.0%
Hamilton Thorne Ltd.
17,649,200
21,853
36,357
14,504
16.0%
Points.com Inc.
1,032,155
20,066
19,931
(135)
8.8%
Quisitive Technology Solutions Inc. (i)
21,000,000
27,000
24,214
(2,786)
10.6%
BioSyent Inc.
2,121,100
15,348
17,520
2,172
7.7%
Avante Logixx Inc.
2,000,000
3,500
2,980
(520)
1.3%
Tecsys Inc.
186,000
7,636
9,786
2,150
4.3%
111,719
137,974
26,255
60.7%
Private company investments
Carson, Dunlop & Associates Ltd. (ii)
12,884
13,400
516
5.9%
124,603
151,374
26,771
66.5%
Cash and cash equivalents
76,087
76,087
-
33.5%
200,690
227,461
26,771
100.0%
(i) Includes 16,000,000 common shares purchased under a private placement arrangement that are subject to a 12 month hold period from the transaction close date of March
22, 2021, and 1,666,667 common shares that are subject to a four month old period from the cose date of November 10, 2021.
(ii) The Company's investment in Carson, Dunlop & Associates Ltd. is held in its majority owned subsidiary 2794677 Ontario Corp.
Table 2: Schedule of Investment Portfolio as at December 31, 2020
($ thousands)
% of Portfolio
Description
Number of securities
Cost
Fair Value
Net change
Fair Value
Public company investments
Information Services Corporation
1,039,067
15,532
20,688
5,156
9.9%
Hamilton Thorne Ltd.
15,899,600
18,535
22,259
3,724
10.7%
Points.com Inc.
978,755
19,064
18,234
(830)
8.7%
People Corporation
1,820,000
14,162
27,391
13,229
13.1%
BioSyent Inc.
908,300
6,292
7,185
893
3.4%
Tecsys Inc.
61,600
1,916
3,069
1,153
1.5%
75,502
98,826
23,324
47.4%
Cash and cash equivalents
109,800
109,800
-
52.6%
185,302
208,626
23,324
100.0%
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Management’s Discussion and Analysis
FAX Capital — 2021 Annual Report
A summary of changes in the fair value of the Company’s investment portfolio for the year ended December 31,
2021 and 2020 is as follows:
Table 3: Summary of Changes in the Company's Investment Portfolio for the Year Ended December 31, 2021
($ thousands)
Purchases
Sales
Public company investments
Information Services Corporation
20,688
785
-
-
5,713
27,186
Hamilton Thorne Ltd.
22,259
3,318
-
-
10,780
36,357
Points.com Inc.
18,234
1,001
-
-
696
19,931
People Corporation
27,391
-
27,700
13,538
(13,229)
-
Quisitive Technology Solutions Inc.
-
27,000
-
-
(2,786)
24,214
BioSyent Inc.
7,185
9,056
-
-
1,280
17,520
Avante Logixx Inc.
-
3,500
-
-
(520)
2,980
Tecsys Inc.
3,069
7,636
3,881
1,965
997
9,786
Private company investments
Carson, Dunlop & Associates Ltd. (i)
-
12,884
-
-
516
13,400
Total investments
98,826
65,179
31,581
15,503
3,447
151,374
(i) The Company's investment in Carson, Dunlop & Associates Ltd. is held in its majority owned subsidiary 2794677 Ontario Corp.
Balance as of
Dec. 31, 2021
Net change in
unrealized gains
(losses) on
investments
Realized gains on
sale of investments
Balance as of
Jan. 1, 2021
Table 4: Summary of Changes in the Company's Investment Portfolio for the Year Ended December 31, 2020
($ thousands)
Purchases
Sales
Public company investments
Information Services Corporation
-
15,532
-
-
5,156
20,688
Hamilton Thorne Ltd.
-
18,535
-
-
3,724
22,259
Points.com Inc.
-
19,064
-
-
(830)
18,234
People Corporation
-
14,162
-
-
13,229
27,391
BioSyent Inc.
-
6,292
-
-
893
7,185
Tecsys Inc.
-
1,916
-
-
1,153
3,069
Total investments
-
75,502
-
-
23,324
98,826
Balance as of
Jan. 1, 2020
Balance as of
Dec. 31, 2020
Net change in
unrealized gains
(losses) on
investments
Realized gains on
sale of investments
12
FAX Capital — 2021 Annual Report
Management’s Discussion and Analysis
UPDATE ON INVESTMENT POSITIONS
PUBLIC COMPANY INVESTMENTS
Information Services Corporation
Business Overview
Information Services Corporation (“ISC”) is a leading provider of registry and information management services and
technology for public data and records. The company is headquartered in Saskatchewan, Canada. ISC was formed as
a Saskatchewan-based crown corporation in January 2000 and was privatized through an initial public offering in
May 2013, when the provincial government sold 69% of the company to public shareholders. ISC is listed on the TSX
under the symbol “ISV”.
ISC operates the following three reportable segments:
Registry Operations: ISC’s Registry Operations delivers registry and information services on behalf of governments
and private sector organizations. Most significantly, ISC operates the province of Saskatchewan’s land, property, and
corporate registry under an exclusive 20-year Master Service Agreement, expiring in 2033. Revenue is earned
through fees charged to governments and private sector organizations for accessing registration, search,
maintenance, and other ancillary services.
Services: ISC’s Services segment delivers solutions uniting public records data, customer authentication, corporate
services, collateral management and asset recovery to support registration, due diligence and lending practices of
clients across Canada. ISC’s offerings are generally categorized into three divisions, namely Corporate Solutions,
Regulatory Solutions, and Recovery Solutions.
Technology Solutions: ISC provides the development, delivery, and support of registry (and related) technology
solutions. Revenue is generated through the sale of software licenses related to the technology platform, the
provision of technology solution definition and implementation services and the provision of monthly hosting,
support and maintenance services.
Additional information about the company, including the impacts of the COVID-19 pandemic on its business
performance, can be found on ISC’s website at www.isc.ca.
Transaction Description
The Company’s Investment Committee approved the investment in ISC in January 2020 and the Company began
accumulating its targeted position shortly thereafter. As at December 31, 2021, the Company owned 1,074,967
common shares in ISC, representing a 6.1% equity ownership interest in the company. The fair value of the
Company’s investment in ISC as at December 31, 2021 was $27.2 million, resulting in an unrealized gain of $10.9
million.
Hamilton Thorne Ltd.
Business Overview
Hamilton Thorne Ltd. (“Hamilton Thorne”) is a global provider of laboratory instruments, consumables, software and
services to the assisted reproductive technology (“ART”), research, and cell biology markets. The company develops,
13
Management’s Discussion and Analysis
FAX Capital — 2021 Annual Report
manufactures and markets products and delivers services that are sold under its own brand names, as well as
provides an array of third-party equipment and consumables to meet customer requirements. Hamilton Thorne is
listed on the TSX Venture Exchange (the “TSXV”) under the trading symbol “HTL”.
Hamilton Thorne’s proprietary instrument, equipment and software product lines include precision laser devices,
imaging systems, incubators, laminar flow workstations, air purification systems, control rate freezers, lab
monitoring systems and micromanipulation systems. Its laser products attach to standard inverted microscopes and
operate as micro-surgical devices, enabling a wide array of scientific applications and In Vitro Fertilization (“IVF”)
procedures. Hamilton Thorne’s image analysis systems are designed to bring quality, efficiency and reliability to
studies of reproductive cells in the human fertility, animal sciences, and reproductive toxicology fields. The
company’s incubators and workstations improve outcomes through controlling temperature, air flow, humidity, and
air quality. Its air filtration products improve air quality in the laboratory. Hamilton Thorne’s micromanipulation
system is targeted to assist the embryologist in performing critical procedures in the IVF lab with a high level of
precision and reliability.
Hamilton Thorne’s branded consumables and services cover a wide range of customer needs. Its GM501 family of
products provides the IVF lab with a comprehensive cell culture media solution, including oocyte handling, sperm
processing, embryo culture, and cryopreservation. Its line of glass micropipettes complements its micromanipulator
system. The company’s quality control assays are used in IVF labs for testing equipment and materials’ toxicity to
ensure the safest environment for successful embryo development. Its services cover a broad range of user needs,
ranging from equipment service contract and maintenance programs; quality control testing services to
manufacturers of medical devices, culture media and consumables used in IVF labs; and laboratory design and
installation services.
The third-party products that Hamilton Thorne distributes cover a wide range of specialized equipment, software,
accessories and consumables utilized by its IVF clinic, animal breeding, research, and cell biology customers,
including microscopes, workstations, vitrification products, dishes and slides.
Hamilton Thorne sells its products and services through a growing direct sales force based in the US, Germany,
France, the UK, Denmark, and Australia, and through distributors, to well over 1,500 fertility clinics, hospitals,
pharmaceutical companies, biotechnology companies, educational institutions and other commercial and academic
research establishments in over 75 countries. The clinical products that Hamilton Thorne markets are generally
cleared for sale in the US, Europe (and other territories accepting a CE Mark), China, and Canada as well as a number
of other markets.
In order to increase the size and scale of its business, broaden its offerings of products and services, and positively
affect its quality of revenue, Hamilton Thorne have augmented organic growth and R&D initiatives through the
strategic acquisition of both operating companies and established product lines. From 2015 to 2019, Hamilton
Thorne completed five acquisitions. These acquisitions have expanded and diversified the range of proprietary
products in its portfolio, significantly increased its service and consumables revenues, and added direct sales
territories.
In April 2021 Hamilton Thorne acquired Tek-Event Pty. Ltd., the manufacturer of the Cell-Tek Microscope Chamber,
a specialized workstation that is used in ART and laboratory markets worldwide with direct sales operations in
Australia. In July 2021 Hamilton Thorne acquired IVFtech ApS, which manufactures laminar flow workstations for
controlling temperature, air flow, and air quality in ART and laboratory markets worldwide, as well as flatbed
incubators and a number of accessory and related products. The company also acquired IVFtech’s affiliated direct
sales business, K4 Technology ApS. These most recent acquisitions added a number of high-quality product lines
with significant growth potential to its product portfolio and established a direct sales presence for the entire
14
FAX Capital — 2021 Annual Report
Management’s Discussion and Analysis
Hamilton Thorne product range in Australia and the Nordics region of Denmark, Sweden, Norway, Finland and
Iceland.
Hamilton Thorne is headquartered in Beverly, Massachusetts. The company has production, sales and/or laboratory
facilities in the US, Germany, England, Denmark, and Australia and sales/support personnel in France, Singapore,
and Malaysia. The company's operations are conducted by its wholly owned subsidiaries, Hamilton Thorne, Inc. and
Embryotech Laboratories Inc., each a Delaware corporation, Gynemed & Co. GmbH KG, a German Limited
Partnership, Planer Limited, a UK limited company, Tek-Event Pty. Ltd, an Australian limited company, and IVFtech
ApS and K4 Technology ApS, each a Danish company.
Additional information about the company, including the impacts of the COVID-19 pandemic on its business
performance, can be found on Hamilton Thorne’s website at www.hamiltonthorne.com.
On January 19, 2021, Marc Robinson, the Company’s Managing Director, Investments, was appointed to the board
of directors of Hamilton Thorne.
Transaction Description
The Company’s Investment Committee approved the investment in Hamilton Thorne in February 2020 and the
Company began accumulating its targeted position shortly thereafter. As at December 31, 2021, the Company
owned 17,649,200 common shares in Hamilton Thorne, representing a 12.4% equity ownership interest in the
company. The fair value of the Company’s investment in Hamilton Thorne as at December 31, 2021 was $36.4
million, resulting in an unrealized gain of $14.5 million.
Points.com Inc.
Business Overview
Points.com Inc. (“Points”) is a global leader in providing technology solutions to the loyalty industry on one unified
operating platform. Points operates a portfolio of white-labelled services that facilitate the accrual or redemption
of loyalty program currency (points or miles) for loyalty programs worldwide. Accrual transactions are typically
focused on generating revenue for its loyalty program partners while redemption transactions are focused on
offering additional engagement options for program members that are cost effective for the loyalty program.
Points’ services benefit loyalty programs in the following ways: (1) driving high margin ancillary revenues through
the sale of loyalty program currency, such as frequent flyer miles or hotel points, to end consumers or third parties;
(2) providing efficient liability management to loyalty program operators by offering a wide range of non-core
redemption options; and (3) enhancing loyalty program member engagement.
All of the company’s services are operated off a single unified operating platform called the Loyalty Commerce
Platform (“LCP”). The LCP provides broad access to loyalty transaction capabilities, program integration, offers and
automated marketing, reporting and analytics, enterprise-grade security, and real-time fraud services. Points has
direct, real-time integrations into its partners’ loyalty program databases that allow for member validation,
information sharing, as well as the debit and/or credit of miles/points.
Points is a trusted partner to the world’s leading loyalty programs, with approximately 60 commercial agreements
or integrations with loyalty programs globally, including Southwest Airlines’ Rapid Rewards, Marriott Bonvoy, Chase
Ultimate Rewards, and the Emirates Skywards program. Most of its commercial contracts enable it to transact
directly or indirectly with the loyalty programs’ member base to facilitate the sale, redemption or earning of loyalty
15
Management’s Discussion and Analysis
FAX Capital — 2021 Annual Report
currency online. Over 99% of Points revenue is transaction based, which consists of a margin, commission or
transaction fee that it earns on the loyalty currency and transactions it processes.
The company is headquartered in Toronto and maintains offices in San Francisco, London England, Singapore and
Dubai. The company’s shares are listed on both the TSX under the trading symbol “PTS” and on the NASDAQ Capital
Market under the trading symbol “PCOM”.
Additional information about the company, including the impacts of the COVID-19 pandemic on its business
performance, can be found on Points’ website at www.points.com.
Transaction Description
The Company’s Investment Committee approved the investment in Points in February 2020 and the Company began
accumulating its targeted position shortly thereafter. As at December 31, 2021, the Company owned 1,032,155
common shares in Points, representing a 6.9% equity ownership interest in the company. The fair value of the
Company’s investment in Points as at December 31, 2021 was $19.9 million, resulting in an unrealized loss of $0.1
million.
Quisitive Technology Solutions Inc.
Business Overview
Quisitive Technology Solutions Inc. (“Quisitive”) was established as a strategic Microsoft National Solution Provider
in the U.S. and has grown its position to a premier global Microsoft partner that harnesses Microsoft cloud platforms
and complementary technologies, including custom solutions and first-party offerings, to generate transformational
impact for enterprise customers. Quisitive has two operating segments, Cloud Solutions and Payment Solutions. The
company’s shares are listed on the TSXV under the trading symbol “QUIS”.
Quisitive’s Cloud Solutions segment is a full-service digital technology consulting firm whose mission is to acquire
and integrate companies to become the leading provider of Microsoft professional services in North America. The
company is a premier, global Microsoft partner that harnesses the Microsoft platform and complementary
technologies, including custom solutions and first-party offerings, to generate meaningful impact for enterprise
customers. The company’s cloud solutions segment encompasses infrastructure, data and analytics, digital
workplace, and application development services that apply the benefits of technology to empower enterprise
customers.
As a complement to its cloud services and applications, the company also develops both horizontal and industry-
focused first-party business applications, including emPerform, MazikCare, MazikThings, and MazikCity to better
serve its customers and their business goals. The company’s industry expertise spans healthcare, manufacturing,
and public sector to address technology opportunities and challenges within these industries by combining seasoned
subject matter expertise with robust IP solutions to generate significant transformation for customers.
As a digital technology consulting company, Quisitive is strategically positioned to help companies through their
digital transformation journey. The foundation of the company’s approach, and the principal products and services
the company delivers, are guided by its focused mission and strategy.
Quisitive’s Payment Solutions segment is comprised of two key business units: merchant services and payment
processing. The payment processing business unit is comprised of the LedgerPay platform which is an innovative
cloud-based payment processing and payments intelligence and data insights solution designed to optimize a
16
FAX Capital — 2021 Annual Report
Management’s Discussion and Analysis
merchant’s payment processing and consumer engagement operations. LedgerPay is a scalable service and the only
payment processing platform solution leveraging the Microsoft Azure cloud to deliver a full suite of acquiring,
issuing, and processing services with unmatched speed, security, and access to customer’s data. Quisitive’s
payments solutions segment provides payment processing services to both merchants and independent sales
organizations (ISOs). The company’s flagship product platform, LedgerPay, is a cloud-based data insights and
payments intelligence suite that turns everyday transaction data into customer loyalty for merchants.
LedgerPay expects to generate revenue through payment processing, consumer data, consumer engagement and
consumer activation transaction fees. LedgerPay’s payments intelligence solution captures and analyzes rich data
from every card-based transaction. Its engagement engine transforms the merchant’s ability to deliver personalized
promotions based on an individual’s historic buying behaviors and category preferences to shoppers at the point of
purchase in real-time. By seamlessly integrating payments, AI-based predictive analytics, and targeted push
marketing operations in a single cloud-based solution, LedgerPay’s payments intelligence service will have the
potential to dramatically increase a merchant’s customer engagement, loyalty, and revenue.
Quisitive’s acquisition of Bankcard on May 7, 2021 brought an established all-in-one merchant payment services
provider to the merchant services segment with over US$3.0 billion of payment volume. BankCard has a seasoned
payments industry management team, strong in-house sales team, deep risk management program and attractive
recurring revenue model with card-not present volume representing approximately 70%. Quisitive’s acquisition of
BankCard is expected to serve as a growth catalyst for the company’s LedgerPay payment processing with a focused
strategy on migrating BankCard merchants to LedgerPay Payment Processing.
Additional information about the company, including the impacts of the COVID-19 pandemic on its business
performance, can be found on Quisitive’s website at www.quisitive.com.
Transaction Description
The Company’s Investment Committee approved the investment in Quisitive on March 3, 2021. On March 8, 2021,
the Company entered into a binding agreement with Quisitive to purchase, on a non-brokered private placement
basis, 16,000,000 common shares of Quisitive from treasury at a price of $1.25 per common share for an aggregate
subscription amount of $20,000,000.
In conjunction with closing the private placement, the Company entered into an Investor Rights Agreement, which
provided, among other things, a right for the Company to nominate one member to the board of directors of
Quisitive, a pre-emptive right to participate in future offerings of securities of the company and requires the
Company not to sell the common shares acquired through the private placement for 12 months following the closing
of the private placement. In connection with the private placement, the Company received a capital commitment
fee payment from Quisitive equal to 3.5% of the aggregate subscription amount. Both the Investor Rights Agreement
and Registration Rights Agreement are available under Quisitive’s profile on www.sedar.com.
On April 8, 2021, the Company completed the purchase of 3,333,333 subscription receipts of Quisitive on a private
placement basis for consideration of $5.0 million. On May 7, 2021, the subscription receipts were converted to
3,333,333 common shares of Quisitive. In connection with this private placement, the Company received a capital
commitment fee payment from Quisitive equal to 3.5% of the aggregate subscription amount.
On June 28, 2021, Quisitive announced that Laurie Goldberg, the Company’s nominee under the Investor Rights
Agreement, was elected to its board of directors.
On November 10, 2021, the Company completed the purchase of 1,666,667 common shares of Quisitive on a private
placement basis for consideration of $2.0 million.
17
Management’s Discussion and Analysis
FAX Capital — 2021 Annual Report
At December 31, 2021, the Company owned 21,000,000 common shares of Quisitive, representing a 5.9% equity
ownership interest in the company. The fair value of the Company’s investment in Quisitive at December 31, 2021
was $24.2 million, resulting in an unrealized loss of $2.8 million.
BioSyent Inc.
Business Overview
BioSyent Inc. (“BioSyent”) is a publicly traded specialty pharmaceutical company which, through its wholly owned
subsidiaries, BioSyent Pharma Inc. and BioSyent Pharma International Inc., sources, acquires or in-licences and
further develops pharmaceutical and other healthcare products for sale in Canada and certain international markets.
The head office of BioSyent is in Mississauga, Ontario. BioSyent is listed on the TSX under the symbol “RX”.
BioSyent’s vision is to be the leading independent Canadian provider of innovative healthcare products. BioSyent is
focused on innovative products that are sourced through international partnerships. These products are unique due
to manufacturing complexities, novel technologies, therapeutic advantages and/or strong, defendable intellectual
property rights. The company’s strategy allows it to commercialize these products as brands acquired or licensed to
it by partners. The company intends for its products to be differentiated and to improve patient lives. BioSyent works
with, and supports, healthcare practitioners in achieving this objective.
BioSyent has developed sourcing arrangements with partners from around the world. The company has a flexible
format for such arrangements. The company generally seeks long-term buy-sell agreements or in-licensing
arrangements with or without royalties or payments linked to milestone events such as regulatory approvals or
reimbursement by formularies. BioSyent exercises diligence when sourcing new products. Some of the steps in this
process involve financial modeling, comparison against investment criteria benchmarks and financial metrics,
reviewing market data and market trends, interviewing key healthcare practitioners or medical advisory boards and
obtaining opinions on reimbursement possibilities with payers. Once the company has decided to proceed with a
new product opportunity, it acquires or licenses exclusive Canadian and/or international market rights to that
product. After the acquisition or in-licensing of the product, the company manages the product through the
regulatory and product registration process and, once approved, commercializes the product in Canada and/or
international markets.
Additional information about the company, including the impacts of the COVID-19 pandemic on its business
performance, can be found on BioSyent’s website at www.biosyent.com.
Transaction Description
The Company’s Investment Committee approved the investment in BioSyent in July 2020. At December 31, 2021,
the Company owned 2,121,100 common shares of BioSyent, representing a 16.6% equity ownership interest in the
company. The fair value of the Company’s investment in BioSyent at December 31, 2021 was $17.5 million, resulting
in an unrealized gain of $2.2 million.
18
FAX Capital — 2021 Annual Report
Management’s Discussion and Analysis
Avante Logixx Inc.
Business Overview
Avante Logixx Inc. (“Avante”) is a leading provider of technology enabled security solutions to both commercial and
residential customers. Avante is an Ontario corporation listed on the TSXV under the trading symbol “XX”.
Avante is organized into two operating segments consisting of Logixx Security Inc. (“Logixx Security”) and Avante
Security Inc. (“Avante Security”), based on the type of customer. Logixx Security focuses on providing enterprise
customers with protective services, electronic security and monitoring and managed services across Canada. Avante
Security focuses on providing residential customers with similar services within central Toronto and Muskoka,
Ontario.
The company’s strategy focuses on acquiring, managing and building a diversified portfolio of industry leading
businesses providing specialized, mission-critical solutions that address the security risks of its customers. Avante’s
businesses continuously develop innovative solutions that enable its customers to achieve their security and risk
objectives.
On August 25, 2021, Avante announced that its board of directors would oversee a strategic review process to
consider and evaluate various strategic alternatives available to the company in the pursuit of maximizing
shareholder value.
On February 9, 2022, it was announced that SSC Security Services Corp. (“SSC”) had entered into a definitive
arrangement agreement (“Arrangement Agreement”) to acquire Avante. Pursuant to the terms of the Arrangement
Agreement, SSC has agreed to acquire all of the issued and outstanding common shares of Avante (“Avante Shares”)
by way of a statutory plan of arrangement (“Plan of Arrangement”) under the Business Corporations Act (Ontario)
(“Transaction”). Under the terms of the Plan of Arrangement, holders of Avante Shares (“Avante Shareholders”) will
receive a combination of cash and common shares in the capital of SSC (“SSC Shares”), as follows: $0.52 per Avante
Share in cash, plus 0.4155 of an SSC Share for each Avante Share held.
The implementation of the Plan of Arrangement will be subject to Avante Shareholder approval at a special meeting
of Avante Shareholders (“Special Meeting”). The Transaction is subject to the approval of (i) at least 66 2/3% of the
votes cast by Avante Shareholders at the Special Meeting; (ii) the TSXV; (iii) the Ontario Superior Court of Justice;
and is also subject to certain other closing conditions customary to a Transaction of this nature. The Special Meeting
was originally expected to be held in the second calendar quarter of 2022, however on March 24, 2022 Avante
announced that it had been in discussions with its significant shareholders with respect to the Transaction and had
agreed with SSC to postpone the Special Meeting for the time being.
Additional information about the company, including the impacts of the COVID-19 pandemic on its business
performance, can be found on Avante’s website at www.avantelogixx.com.
Transaction Description
The Company’s Investment Committee approved the investment in Avante in July 2021. At December 31, 2021, the
Company owned 2,000,000 common shares of Avante, representing a 9.4% equity ownership interest in the
company. The fair value of the Company’s investment in Avante at December 31, 2021 was $3.0 million, resulting in
an unrealized loss of $0.5 million.
Subsequent to December 31, 2021, the Company sold its entire position of Avante common shares for proceeds of
$2.7 million.
19
Management’s Discussion and Analysis
FAX Capital — 2021 Annual Report
Tecsys Inc.
Business Overview
Tecsys Inc.’s (“Tecsys”) principal business activity is the development, marketing and sale of enterprise-wide supply
chain management software for distribution, warehousing, transportation logistics, point-of-use and order
management. Tecsys’ head office is in Montréal, Quebec, and it derives substantially all of its revenue from
customers located in the United States, Canada and Europe. Tecsys is listed on the TSX under the symbol “TCS”.
Tecsys is a global provider of SaaS supply chain solutions that equip the borderless enterprise for growth. Spanning
multiple complex, regulated and high-volume distribution industries, Tecsys delivers dynamic and powerful solutions
for warehouse management, distribution and transportation management, supply management at point of use,
retail order management, as well as financial management and analytics solutions.
Customers around the world trust their supply chains to Tecsys in the healthcare, service parts, third-party logistics,
retail and general wholesale high-volume distribution industries. Tecsys is the market leader in North America for
supply chain solutions for health systems and hospitals.
Tecsys has five principal sources of revenue:
•
software as a service (SaaS) subscription which represent the right to access its software platform in a
hosted and managed environment for a period of time; these subscriptions are typically sold in three to five
year term agreements with auto-renewal provisions;
•
maintenance and support services sold with perpetual licenses and hardware maintenance services; these
services are typically sold in annual agreements with auto-renewal provisions;
•
professional services, including implementation, consulting and training services provided to customers as
well as reimbursable expenses;
•
license revenue on internally developed products and proprietary software as well as third-party software;
and
•
hardware revenue on third-party hardware products and proprietary technology products.
Starting in 2019, Tecsys shifted its business model and began selling its solutions primarily on a SaaS subscription
basis. As such, Tecsys expects SaaS revenue to continue to grow over time. Revenue from maintenance and support
services relate in a large part to its prior business model of selling perpetual licenses with attached maintenance and
support fees. Tecsys expects maintenance and support services revenue to generally decline over time as new
customers acquire SaaS subscriptions and existing customers eventually migrate to SaaS.
Additional information about the company can be found on Tecsys’ website at www.tecsys.com.
Transaction Description
The Company made its initial investment in Tecsys in October 2020. As at December 31, 2020, the Company had
acquired 61,600 common shares of Tecsys for total consideration of $1.9 million. By February 2021, Tecsys’ share
price had increased substantially above its average cost per share and, as such, the Company’s Investment
Committee approved the divesture of this investment. At that time, the Company recognized a realized gain of $2.0
million on its investment of $1.9 million.
The Company’s Investment Committee approved its current investment in Tecsys in May 2021. At December 31,
2021, the Company owned 186,000 common shares of Tecsys, representing a 1.3% equity ownership interest in the
company. The fair value of the Company’s investment in Tecsys at December 31, 2021 was $9.8 million, resulting in
an unrealized gain of $2.2 million.
20
FAX Capital — 2021 Annual Report
Management’s Discussion and Analysis
Subsequent to December 31, 2021, the Company acquired an additional 145,000 common shares of Tecsys for
consideration of $5.4 million, bringing its share ownership to 331,000 common shares.
PUBLIC COMPANY INVESTMENTS MONETIZED DURING THE YEAR
During the year ended December 31, 2021, the Company monetized two if its public company investments, resulting
in the recognition of a realized gain on these investments of $15.5 million.
The Company’s investment in People Corporation (“People Corp.”) was monetized in February 2021. People Corp. is
in the business of delivering employee benefits consulting, third party benefits administration, pension consulting,
human resources consulting and executive search and staff recruitment services. The Company’s initial investment
in People Corp. was made in April 2020. At that time, People Corp. was publicly-traded on the TSXV under the symbol
“PEO”.
On December 14, 2020, People Corp. announced that it had entered into a plan of arrangement (the “Arrangement”),
pursuant to which an entity controlled by certain investment funds managed by the Merchant Banking business of
Goldman Sachs & Co. LLC, acquired all of the outstanding common shares of People Corp. for $15.22 in cash per
share. The purchase price represented a 37% premium to the 20-day volume-weighted average price per share for
the period ended December 11, 2020, and a 36% premium to the closing price of December 11, 2020. The
Arrangement was approved by People Corp.’s shareholders at a special meeting held on February 11, 2021 and
People Corp. obtained a final order from the Ontario Superior Court of Justice (Commercial List) in respect of the
Arrangement on February 12, 2021. People Corp. was delisted from the TSXV at the close of trading on February 18,
2021. As a result of the Arrangement, in the year ended December 31, 2021, the Company recognized a realized gain
of $13.5 million on its investment of $14.2 million.
In February 2021, the Company’s Investment Committee approved the divesture of its investment in Tecsys Inc. At
that time, the Company recognized a realized gain of $2.0 million on its investment of $1.9 million in this company.
PRIVATE COMPANY INVESTMENTS
Carson, Dunlop & Associates Ltd.
Business Overview
Carson, Dunlop & Associates Ltd. (“Carson Dunlop”) is a leading provider of proprietary technology-enabled
education services and software for home inspectors across Canada and the United States, as well as a leading
provider of home inspections services in the Greater Toronto Area. Carson Dunlop’s direct to consumer online
education business through their private career college is the market share leader in Canada with a growing presence
in the United States, and its curriculum is also utilized by third-party colleges and associations. Its home inspection
software tools and mobile app, provided on a credit and subscription basis, are used to generate home inspections
in over 220,000 homes annually across the United States and Canada. The company was founded in 1978 and is
headquartered in Toronto.
Alan Carson, the co-founder of Carson Dunlop and owner, remains the Chief Executive Officer of Carson Dunlop and
a significant shareholder of Carson Dunlop, with an approximate 22% ownership.
On March 23, 2021, Graham Badun was appointed as Chief Executive Officer of 2794677 Ontario Corp. and President
of Carson Dunlop. 2794677 Ontario Corp. is a new platform company controlled by the Company, which holds Carson
21
Management’s Discussion and Analysis
FAX Capital — 2021 Annual Report
Dunlop as its foundational asset, focused on organic growth initiatives and acquisitions of complementary businesses
within property technology, education technology and home services. Mr. Badun also serves as a director of both
companies.
Additional information about Carson Dunlop can be found on its website at www.carsondunlop.com.
Transaction Description
On March 23, 2021, the Company, through its subsidiary 2794677 Ontario Corp., completed the acquisition of an
approximate 78% controlling interest in Carson Dunlop. The Company invested $11,750,000, plus a working capital
adjustment of $1,633,819, for approximately 78% of Carson Dunlop, representing a total enterprise value of $15
million. To fund the acquisition, 2794677 Ontario Corp. issued 12,883,819 new Class A common shares to the
Company for proceeds of $12,883,819 and the Company provided 2794677 Ontario Corp. with an inter-company
loan of $500,000. On June 28, 2021, 2794677 Ontario Corp. issued to the Chief Executive Officer of 2794677 Ontario
Corp. and his spouse collectively 555,556 non-voting Class B common shares for proceeds of $500,000. This resulted
in the Company’s ownership interest in 2794677 Ontario Corp. decreasing from 100% to 95.9%. In July 2021, these
funds were used by 2794677 Ontario Corp. to repay the $500,000 inter-company loan to the Company.
At December 31, 2021, the Company estimated the fair value of its investment in Carson Dunlop using a discounted
cash flow analysis for Carson Dunlop’s three business units based on multi-year free cash flow forecasts with an
assumed after-tax discount rate of 25.0% and a 8.8x earnings before interest, taxes, depreciation and amortization
exit multiple. The free cash flow forecasts used in the valuation were based on estimates derived from financial
information for Carson Dunlop’s three business units prepared in the fourth quarter of 2021 by the Company’s
management.
At December 31, 2021, the fair value of the Company’s investment in Carson Dunlop was increased to $13,400,000,
comprised of its investment of $12,883,819 and a positive market adjustment of $516,181. The increase in fair value
was driven by an improved outlook on the business. The valuation also considered the payment of a $1,700,000
dividend by Carson Dunlop in April 2021, of which $1,331,667 was paid to the Company.
22
FAX Capital — 2021 Annual Report
Management’s Discussion and Analysis
SELECT ANNUAL INFORMATION
Table 5: Statement of Financial Position Highlights
Dec. 31
Dec. 31
Dec. 31
($ thousands)
2021
2020
2019
Cash and cash equivalents
76,086.9
109,800.3
187,991.7
Investments, at fair value
151,374.2
98,826.0
-
Other assets
453.5
1,486.2
757.6
Total assets
227,914.6
210,112.5
188,749.3
Accounts payable and accrued liabilities
4,646.3
2,893.8
1,974.4
Income taxes payable
256.5
250.7
-
Deferred income tax liability
792.7
48.6
-
Total liabilities
5,695.5
3,193.1
1,974.4
Shareholders' equity
222,219.1
206,919.4
186,774.9
Total liabilities and shareholders' equity
227,914.6
210,112.5
188,749.3
Book value per share
5.20
$
4.83
$
4.34
$
Table 6: Statement of Comprehensive Income (Loss) Highlights
Dec. 31
Dec. 31
Dec. 31
($ thousands)
2021
2020
2019
Realized gain on sale of investments
15,502.9
-
-
Net change in unrealized gain on investments
3,447.4
23,323.5
-
Dividends
2,261.1
653.9
-
Capital commitment fees
875.0
-
-
Interest
783.4
1,888.8
544.4
Total revenue
22,869.8
25,866.1
544.4
Total expenses
6,828.5
4,961.4
2,761.4
Income (loss) before income taxes
16,041.3
20,904.7
(2,217.0)
Provision for (recovery of) income taxes
1,000.7
1,583.0
(235.1)
Net income (loss) and comprehensive income (loss)
15,040.6
19,321.7
(1,981.8)
Earnings (loss) per share
Basic
0.35
$
0.45
$
(0.37)
$
Diluted
0.35
$
0.45
$
(0.37)
$
23
Management’s Discussion and Analysis
FAX Capital — 2021 Annual Report
RESULTS OF OPERATIONS
Book Value per Share
The Company’s book value per share at December 31, 2021 was $5.20, an increase of 7.7% or $0.37 per share since
December 31, 2020. The increase in the book value per share is primarily attributed to the Company recording
realized and unrealized gain on its investments of $19.0 million in the year. The following graph shows the Company’s
book value per share since November 21, 2019, the date the Company closed the Offerings.
Year Ended December 31, 2021
In the year ended December 31, 2021, the Company deployed $65.2 million into its public and private company
investment portfolio and as at December 31, 2021 had cash resources of approximately $76.1 million available to be
invested.
The Company had revenue of $22.9 million for the year ended December 31, 2021, compared to revenue of $25.9
million for the comparative period last year. The current year’s revenue consisted of the following:
•
a realized gain on sale of investments of $15.5 million, attributed to a $13.5 million realized gain on the
Company’s sale of its investment in People Corp. and a $2.0 million gain on its sale of its initial investment
in Tecsys Inc.;
•
a net change in unrealized gain on investments of $3.4 million (refer to Table 3);
•
dividend income of $2.3 million, of which $1.3 million was from its investment in Carson Dunlop and $0.9
million was from its investment in ISC;
•
capital commitment fees of $875.0 thousand earned on the Company’s investments in Quisitive; and
•
interest income of $783.4 thousand.
In the comparative period last year, the Company’s revenue consisted of a net change in unrealized gain of
investments of $23.3 million (refer to Table 4), dividend income of $653.9 thousand and interest income of $1.9
million.
For the year ended December 31, 2021, the Company incurred expenses of $6.8 million, as compared to $5.0 million
in 2020. The increase in total expenses is mainly attributed to the higher amount of share-based compensation
recorded in the current year. In the current year, the Company recorded $2.8 million of share-based compensation
expense as compared to $1.2 million last year.
$4.33
$4.34
$4.13
$4.25
$4.49
$4.83
$5.12
$5.45
$5.26
$5.20
$3.60
$3.80
$4.00
$4.20
$4.40
$4.60
$4.80
$5.00
$5.20
$5.40
$5.60
19-11-21
19-12-31
20-03-31
20-06-30
20-09-30
20-12-31
21-03-31
21-06-30
21-09-30
21-12-31
24
FAX Capital — 2021 Annual Report
Management’s Discussion and Analysis
The expenses in the period include the following: share-based compensation expenses of $2.8 million; compensation
expenses of $2.3 million; office, general and administrative expenses of $870.5 thousand; professional fees
(comprised of legal and audit fees) of $630.4 thousand; director fees of $210.0 thousand; brokerage fees and
expenses of $95.9 thousand; depreciation expense of $15.3 thousand; and reimbursement of expenses of ($100.5)
thousand.
For the year ended December 31, 2021, the Company recorded a provision for income taxes of $1.0 million as
compared to a $1.6 million provision for income tax expense in the comparative period last year.
Net income for the year ended December 31, 2021 was $15.0 million or $0.35 per share, compared to a net income
of $19.3 million or $0.45 per share for the year ended December 31, 2020.
SUMMARY OF QUARTERLY RESULTS
The following table sets out selected quarterly results of the Company for the eight quarters prior to the effective
date of this report. The information contained herein is drawn from the interim financial statements of the Company
for each of the aforementioned eight quarters. The multiple voting shares and the subordinate voting shares are
both classes of common shares of the Company.
Table 7: Summary of Quarterly Results
QUARTERLY TREND ANALYSIS
The Company’s results can fluctuate significantly from quarter to quarter because of changes in the fair value of its
investment portfolio. The majority of the Company’s investments are in publicly traded companies and these
investments are valued at the close price on the stock exchange on which they are listed and/or principally traded.
Under IFRS, realized and unrealized gains and losses on the Company’s investments are recorded in revenue on its
statements of comprehensive income.
2021
2021
2021
2021
2020
2020
2020
2020
Dec 31
Sep 30
Jun 30
Mar 31
Dec 31
Sep 30
Jun 30
Mar 31
($ thousands)
Realized gain on sale of investments
-
-
-
15,502.9
-
-
-
-
Net change in unrealized gain (loss) on investments
(2,561.9)
(8,687.0)
15,582.2
(885.9)
15,825.3
10,972.2
5,604.1
(9,078.1)
Dividends
260.3
239.2
1,546.7
215.0
211.8
197.8
191.6
52.7
Capital commitment fees
-
-
175.0
700.0
-
-
-
-
Interest
146.2
166.8
198.8
271.6
307.6
323.5
338.8
918.8
Total revenue
(2,155.4)
(8,281.0)
17,502.7
15,803.6
16,344.7
11,493.5
6,134.5
(8,106.6)
Total expenses
1,845.7
1,682.5
1,672.7
1,627.6
1,728.5
1,152.6
1,003.4
1,077.0
Income (loss) before income taxes
(4,001.2)
(9,963.5)
15,829.9
14,176.0
14,616.2
10,340.9
5,131.1
(9,183.6)
Provision for (recovery of) income taxes
(1,006.6)
(1,521.0)
1,743.2
1,785.1
1,583.0
-
-
-
Net income (loss) and comprehensive income (loss)
(2,994.6)
(8,442.5)
14,086.8
12,390.9
13,033.2
10,340.9
5,131.1
(9,183.6)
($)
Earnings (loss) per common share
Basic
(0.07)
(0.20)
0.33
0.29
0.30
0.24
0.12
(0.21)
Diluted
(0.07)
(0.19)
0.32
0.29
0.30
0.24
0.12
(0.21)
25
Management’s Discussion and Analysis
FAX Capital — 2021 Annual Report
The decrease in the Company’s revenue in the quarters ended December 31, 2021 and September 30, 2021 is
attributed to the unrealized loss on investments. The increase in the Company’s revenue in the quarters ended June
30, 2021, March 31, 2021, December 31, 2020, September 30, 2020 and June 30, 2020 is attributed to the realized
and unrealized gain on investments recorded on the Company’s investments. The decrease in the Company’s
revenue in the quarter ended March 31, 2020 is attributed to the unrealized loss on investments resulting from a
decrease in the fair value of the Company’s public investments due primarily to the initial significant market impact
of COVID-19.
The Company’s quarterly expenses have been relatively consistent for the last five quarters. The Company’s
expenses include the costs to fully support its operations as an investment holding company, including share-based
compensation expenses, compensation expenses, professional fees, and brokerage fees and commissions directly
tied to the Company’s investing activity.
In the quarters ended December 31, 2021, September 30, 2021, June 30, 2021, March 31, 2021 and December 31,
2020, the Company recorded a provision for income taxes of ($1.0) million, ($1.5) million, $1.7 million, $1.8 million
and $1.6 million, respectively.
FOURTH QUARTER ENDED DECEMBER 31, 2021
Net loss before income taxes for the quarter ended December 31, 2021 was $4.0 million, compared to a net income
before income taxes in the quarter ended December 31, 2020 of $14.6 million. Revenue in the quarter ended
December 31, 2021 included a net change in unrealized loss on its investments of $2.6 million, dividend income of
$260.3 thousand and interest income of $146.2 thousand. In the comparative quarter last year, the Company’s
revenue included a net change in unrealized gain on its investments of $15.8 million, dividend income of $211.8
thousand and interest income of $307.6 thousand. Net loss for the quarter ended December 31, 2021 was $3.0
million or ($0.07) per share, compared to a net income of $13.0 million or $0.30 per share for the quarter ended
December 31, 2020.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a cash balance of $76.1 million at December 31, 2021, representing 33.4% of total assets,
compared with $109.8 million, representing 52.3% of total assets, at December 31, 2020. The $33.7 million decrease
in the Company’s cash balance at December 31, 2021 compared to December 31, 2020 is primarily attributed to the
Company’s investing activities. During the year ended December 31, 2021, the Company invested $65.2 million offset
by proceeds of $31.6 million from sale of two of its public company investments. The Company’s current liabilities
increased to $4.9 million at December 31, 2021, representing 2.2% of total assets, from $3.1 million at December
31, 2020. The Company is well capitalized with adequate financial resources to continue its long-term investment
strategy.
The Company’s equity was $222.2 million as at December 31, 2021, compared to $206.9 million as at December 31,
2020. The increase in the Company’s equity balance at December 31, 2021 compared to December 31, 2020 was
primarily attributed to the Company recording net income of $15.0 million in the year ended December 31, 2021.
The Company’s capital is primarily utilized in its ongoing business operations to execute on its public company and
private company investment strategies. Other than the potential impact of COVID-19, as discussed herein, the
Company is not aware of any trends, demands, commitments, events or uncertainties that may result in the
Company’s liquidity or capital resources either materially increasing or decreasing at present or in the foreseeable
future. Material increases or decreases in the Company’s liquidity and capital resources will be substantially
determined by the success or failure of its operation as an investment holding company.
26
FAX Capital — 2021 Annual Report
Management’s Discussion and Analysis
NORMAL COURSE ISSUER BID
The Company’s current Normal Course Issuer Bid (the “NCIB”) commenced on June 8, 2021 and is effective until the
earlier of June 7, 2022 and the date on which the Company has purchased the maximum number of subordinate
voting shares permitted under the NCIB. Pursuant to the NCIB, the Company may purchase up to 1,488,480 of its
subordinate voting shares, representing 10% of the public float. The price that the Company will pay for any such
subordinate voting shares will be the market price of such shares on the TSX, or such Canadian alternative trading
systems, at the time of acquisition. All subordinate voting shares acquired under the NCIB are cancelled.
In connection with its NCIB, the Company has entered into an Automatic Securities Repurchase Plan which provides
standard instructions regarding how the Company’s subordinate voting shares are to be purchased under the NCIB
during certain pre-determined trading blackout periods, subject to pre-established parameters. Outside of these
pre-determined trading blackout periods, purchases under the Company’s previous and current NCIB are completed
based upon management’s discretion and in accordance with the TSX rules.
In the year ended December 31, 2021, there were 343,154 subordinate voting shares (2020 - 193,535) purchased at
a cost of $1.4 million (2020 - $634.5 thousand) under the Company’s NCIB. In the current year, $1.3 million (2020 -
$737.9 thousand) of the total cost was allocated to Subordinated Voting Shares and the remainder of $0.1 million,
being the premium paid to purchase shares above the stated value, was allocated to Retained earnings. In the prior
year, the Subordinated Voting Shares were purchased at a discount to their stated value, which resulted in an
allocation of $103.4 thousand to Retained earnings.
TRANSACTIONS WITH RELATED PARTIES
All transactions with related parties have occurred in the normal course of operations, as follows:
•
The Company and Federated Capital Corp. (“Federated Capital”), the parent company of Fax Investments,
entered into an agreement (the “Administrative Services Agreement”) on November 21, 2019 whereby the
Company is provided access to certain office space and supplies, computers, communication equipment
and administrative personnel provided by Federated Capital. As consideration for such services (including
the use of office space), the Company has agreed to pay Federated Capital a fee equal to the costs and
expenses of Federated Capital in providing such services and office space, plus 5%. For the year ended
December 31, 2021, Federated Capital charged the Company expenses under the Administrative Services
Agreement of $180.3 thousand (2020 - $137.4 thousand). On May 26, 2021, the Company granted the Chief
Executive Officer (“CEO”) $300.0 thousand of Restricted Shares (“RSUs”) in lieu of the Company paying the
CEO short-term cash compensation. Prior to this, Federated Capital paid all compensation related expenses
of the CEO and did not allocate these costs to the Company. In addition, Federated Capital pays the
compensation related expenses of an Executive Vice-President of the Company and does not allocate these
costs to the Company.
•
Fax Investments has agreed to pay at the end of each fiscal year of the Company, certain specified operating
expenses of the Company exceeding 2.85% of the Company’s average month-end book value for such fiscal
year until December 31, 2024. The Company’s specified operating expenses were above this threshold in
the year ended December 31, 2021. Accordingly, the Company has recorded a receivable of $100.5
thousand from Fax Investments for the reimbursement of excess operating expenses in 2021 (2020 - $nil).
•
On March 23, 2021, the Company’s subsidiary, 2794677 Ontario Corp., completed the acquisition of an
approximate 78% controlling interest in Carson Dunlop for cash consideration of $11.8 million, plus a
working capital adjustment of $1.6 million. The acquisition was funded by the Company acquiring Class A
27
Management’s Discussion and Analysis
FAX Capital — 2021 Annual Report
common shares of 2794677 Ontario Corp. for $12.9 million and providing an intercompany loan of $500.0
thousand. The intercompany loan was repaid by 2794677 Ontario Corp. in July, 2021.
In addition, Carson Dunlop agreed to reimburse the Company for its third-party transaction and due
diligence expenses incurred in this transaction. As a result of this commitment, during the year ended
December 31, 2021, Carson Dunlop reimbursed the Company $343.6 thousand of the third-party
transaction and due diligence expenses.
Key Management Personnel
Key management personnel are defined as those individuals having authority and responsibility for planning,
directing, and controlling the activities of the Company. The Company considers its executive officers and its
directors to be its key management personnel. Prior to the grant of the RSUs to the CEO on May 26, 2021 (refer to
Transactions with Related Parties), Federated Capital paid the CEO’s annual base salary of $200.0 thousand and did
not allocate this cost to the Company. In addition, Federated Capital pays an Executive Vice-President’s annual base
salary of $100.0 thousand and does not allocate this cost to the Company.
Compensation related expenses for key management personnel for the year ended December 31, 2021 was $1.5
million (2020 - $668.8 thousand).
These expenditures were allocated as follows in the financial statements:
RISKS AND UNCERTAINTIES
Set out in this section below are certain material risk factors relating to the investment business being carried on by
the Company. As the Company proceeds to develop and carry out its business plans, it will be necessary to
continually monitor, re-evaluate, and manage such risks.
Investors should carefully consider, among other things, the risk factors set forth below. While the risks and
uncertainties that management of the Company believe to be material to the Company’s business are described
below, it is possible that other risks and uncertainties affecting the Company’s business will arise or become material
in the future. These risk factors are not a definitive list of all risk factors associated with an investment in the
Company or in connection with Company’s operations. Additional information about the risks of the Company’s
business is provided in its most recent Annual Information Form, filed with the securities regulatory authorities in
Canada and available under the Company’s profile at www.sedar.com.
If the Company is unable to address these and other potential risks and uncertainties, its business, financial condition
or results of operations could be materially and adversely affected. In this event, the value of its securities could
decline and an investor could lose all or part of their investment.
Table 8: Key Management Personnel
Dec. 31
Dec. 31
($ thousands)
2021
2020
Compensation (Refer to Transactions with Related Parties)
347.7
$
330.8
$
Director fees
210.0
225.8
Share-based compensation
923.2
112.2
1,480.9
$
668.8
$
28
FAX Capital — 2021 Annual Report
Management’s Discussion and Analysis
The following is a description of the principal risk factors that may affect the Company.
Potential Lack of Investment Diversification
The Company does not have any specific limits on the holdings in securities of issuers, or in any one industry or size
of issuer. Additionally, the Company intends to primarily focus on companies located in Canada, although
investments may extend to the United States. Accordingly, the securities in which the Company invests may not be
diversified across many sectors and will be concentrated in specific regions or countries, such as Canada. The
Company may also have a significant portion of investments in the securities of a single issuer.
A relatively high concentration of assets could result in a portfolio that may be more vulnerable to fluctuations in
value resulting from adverse conditions that may affect the economy, a particular industry, or a segment of issuers
than would otherwise be the case if the Company were required to maintain wide diversification. Consequently,
significant declines in the fair value of the Company’s larger investments will produce a material decline in the
Company’s reported earnings.
Pace of Completing Investments
The Company’s business is to identify suitable investment opportunities, pursue such opportunities and
consummate such opportunities. If the Company is unable to source and manage its investments effectively, it would
adversely impact the Company’s financial position and earnings. There can be no assurance as to the pace of finding
and implementing investment opportunities.
Conversely, there may only be a limited number of suitable investment opportunities at any given time. A lengthy
period prior to which capital is deployed may adversely affect the Company’s overall performance. The COVID-19
pandemic may also exacerbate risks relating to the timing and pace of the Company’s investments.
Financial Market Fluctuations and Deterioration of Political Conditions
In accordance with the Company’s business objective and investment strategies, the Company has and will continue
to invest in both private businesses and publicly traded businesses. With respect to publicly traded businesses,
fluctuations in the market price of such securities may negatively affect the value of such investments. In addition,
general instability in the public debt market and other securities markets may impede the ability of businesses to
refinance their debt through selling new securities, thereby limiting the Company’s investment options with respect
to a particular portfolio investment.
To the extent that the economy deteriorates for an extended period of time, one or more of the Company’s
investments could be materially harmed. In addition, the Company’s investments may be affected by changes in
political and market conditions, such as interest rates, availability of credit, inflation rates, changes in laws, and
national and international circumstances. Recent geopolitical events, including, the continuing global COVID-19
pandemic and the resulting social and humanitarian impact, Russia’s invasion of Ukraine, rising oil prices and related
international tensions may create further uncertainty and risk with respect to the prospects of the Company’s
investments or potential investments.
Global capital markets have also recently experienced extreme volatility which may, in conjunction with the factors
set out above and despite the actions of government authorities, contribute to a worsening of general economic
conditions including, rising interest rates, high levels of inflation and unemployment in Canada and other economies,
the unavailability of credit or the devaluation of currencies.
29
Management’s Discussion and Analysis
FAX Capital — 2021 Annual Report
Unexpected changes in these factors and financial market and economic conditions could negatively impair the
Company’s financial condition, profitability and cash flows, and may also have a negative effect on the valuation of,
and the ability of the Company to exit or partially divest from, investment positions.
Depending on market conditions, the Company may incur substantial realized and unrealized losses in future
periods, all of which may materially adversely affect its results of operations and the value of any investment in the
Company.
Key Employees
The Company is substantially dependent on the services of a limited number of individuals including its directors,
executive officers and managing directors at the Company, and in particular, the major investment and capital
allocation decisions they provide. If, for any reason, the Company is not able to obtain the service of key employees
or the services of the Company’s key employees are to become unavailable, there could be a material adverse effect
on the Company’s operations.
The Company is dependent on its ability to retain the services of existing key personnel and to attract and retain
additional qualified and competent personnel in the future. The Company’s inability to recruit and retain qualified
and competent managers could impair the ability of the Company to perform its management and administrative
duties.
The Company’s portfolio investments are also subject to this risk factor. As such, the value and business prospects
of the Company’s portfolio investments depends, in part, on their ability to retain key personnel and on the decision-
making of such personnel.
Reliance on the Performance of Underlying Assets
The Company does not and will not have any operations, activities, or other active businesses other than the
acquisition, retention and management of its investments. Accordingly, although the Company generally intends to
take an active role in overseeing and monitoring its investments, factors unique to its portfolio investments such as
changes in operating performance, profitability, financial position, creditworthiness, management, strategic
direction, achievement of goals, mergers, acquisitions, divestitures, or distribution policies may affect the value of
the Company’s investments, and in turn, the overall performance of the Company. In addition, a decline in the state
of the capital markets, changes in law and/or other events, could have a negative effect on the value of the
Company’s investments and the Company.
Changes that negatively impact the Company’s portfolio investments could adversely affect the Company’s ability
to sell its investments for a capital gain or to otherwise earn revenue.
Investments in Private Issuers
The Company has invested and may, from time to time, invest in the securities of a private issuer. Issuers whose
securities are not publicly traded are not subject to the disclosure and other investor protection requirements that
would be applicable if their securities were publicly traded. The Company must, therefore, rely on its management
team to obtain the information necessary to make an informed investment decision.
The valuations ascribed to such private securities within the Company’s portfolio will be measured at fair value in
accordance with IFRS, and the resulting values may differ from values that would have otherwise been used had a
ready market existed for the investment. The valuation process for these private securities is not based on publicly
available prices and is, to a degree, subjective in nature. These valuations will be reflected in the book value of the
equity securities of the Company.
30
FAX Capital — 2021 Annual Report
Management’s Discussion and Analysis
Illiquid Assets
In accordance with the Company’s business objective and investment strategies, the Company will invest in
securities of small cap companies and private issuers that are either thinly traded or have no market at all. It is
possible that the Company may not be able to sell portions of such positions without facing substantially adverse
prices, or may be required to sell such securities before their intended investment horizon, which could negatively
impact the performance of investments and the Company’s financial condition, profitability and cash flows.
Competitive Market for Investment Opportunities
The Company competes with a large number of other investors, such as private equity funds, mezzanine funds,
investment banks and other equity and non-equity based public and private investment funds, and other sources of
financing, including traditional financial services companies, such as commercial banks. Competitors may have a
lower cost of funds and may have access to funding sources that are not available to the Company. In addition,
certain competitors of the Company may have higher risk tolerances or different risk assessments, which could allow
them to consider a wider variety of investments and establish more relationships and build their respective market
shares. There can be no assurance that the competitive pressures faced by the Company will not have a material
adverse effect on its activities, financial condition and results of operations. In addition, as a result of this
competition, the Company may not be able to take advantage of attractive investment opportunities from time to
time and there can be no assurance that it will be able to identify and make investments.
The success of the Company will depend on the availability of appropriate investment opportunities and the ability
of the Company to identify and source those investments. As noted above, the Company will be competing with
private equity funds, as well as mezzanine funds, institutional investors and, potentially, strategic investors, for
prospective investments. As a result of this competition, there can be no assurance that the Company will be able
to locate suitable additional investment opportunities, acquire such investments on acceptable terms, or achieve an
acceptable rate of return. The COVID-19 pandemic may also lead to increased competition between investors for
businesses in certain industries.
Competition and Technology Risks
The Company may hold investments in the securities of businesses that face intense competitive pressures within
the markets in which they operate. Many factors, including market and technological changes, may erode the
competitive advantages of the businesses in which the Company invests. Accordingly, the Company’s future
operating results will depend, to a degree, on whether or not those businesses are successful in protecting or
enhancing their competitive positioning.
Credit Risk
Credit risk is the risk of a financial loss occurring as a result of default of a counterparty on its obligations to the
Company. The Company may be subject to credit risk on its financial assets, including loans receivable and corporate
debt investments, such as bonds.
Tax Risks
There can be no assurances that the tax laws applicable to the Company under the Income Tax Act (Canada) or under
foreign tax regimes will not be changed in a manner which could adversely affect the Company’s operating results
or profitability.
31
Management’s Discussion and Analysis
FAX Capital — 2021 Annual Report
Regulatory Changes
Certain industries, such as financial services, health care, and telecommunications, remain heavily regulated and
may be more susceptible to an acceleration in regulatory initiatives in Canada and abroad. Investments in these
sectors may be substantially affected by changes in government policy, and the Company cannot predict whether
or not such changes will have a material adverse impact on the Company’s investments or profitability.
Foreign Security Risk
The Company’s investment portfolio may include issuers, domestic or otherwise, with multinational organizations
and who have significant foreign business and foreign currency risk. The value of these securities may be influenced
by foreign government policies, lack of information about foreign corporations, political or social instability and the
possible levy of foreign withholding tax.
CRITICAL ACCOUNTING ESTIMATES
Preparation of financial statements in conformity with IFRS requires management to make judgments, estimates
and assumptions that affect the application of accounting policies, the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during the
period. Estimates and assumptions are continuously evaluated and are based on management’s experience and
other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Uncertainty about these judgments, estimates, and assumptions could result in outcomes that could require a
material adjustment to the carrying amount of the asset or liability affected in future periods.
Information about significant areas of estimation uncertainty considered by management in preparing the financial
statements are as follows:
Fair Value Measurement of Private Company Investment
The Company holds an investment in a private company which is not quoted in active markets and for which there
may or may not be recent comparable transactions. In determining the fair value of this investment, the Company
has made significant accounting judgments and estimates. See Notes 2 and 4 of the Financial Statements for more
information on the fair value measurement technique and types of unobservable inputs employed by the Company
in its valuation of its private company investment.
Amount of Accrued Liabilities
Accrued liabilities are recorded based on an estimate of unbilled work performed by the Company’s vendors as well
as any other payments which the Company will be required to make in relation to the current year's operations.
Management makes these estimates based on historical billings and its knowledge of current operations. These
estimates will affect the reported amounts of accrued liabilities and expenses.
Income Taxes
Income taxes relating to uncertain tax positions are recognized based on the expected value of the tax settlement
with the related tax authority. Judgment is required to determine the amount of tax provision relating to these
uncertain tax positions.
32
FAX Capital — 2021 Annual Report
Management’s Discussion and Analysis
Deferred Tax Assets
Deferred tax assets are recognized in respect of tax losses and other temporary differences to the extent that it is
probable that taxable profit will be available against which the losses can be utilized. Judgment is required to
determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future
taxable profits, together with future tax planning strategies.
Founder Warrants
The Company used the Black-Scholes model to calculate the value of Founder Warrants issued as part of the Offering.
The Black-Scholes model requires six key inputs to determine a value for a warrant: risk-free interest rate, exercise
price, market price at rate of issuance, expected yield, expected life and expected volatility. Certain of the inputs are
estimates, which involve considerable judgment and are or could be affected by significant factors that are out of
the Company’s control. Proceeds from the Offering, net of issuance costs, were allocated between subordinate
voting shares and Founder Warrants issued according to their relative fair value. The Founder Warrants expired on
November 22, 2021, in accordance with their terms, and were delisted from the TSX.
Investment Entity
Management has applied judgment in determining whether the Company meets the criteria required under IFRS 10,
in order to be classified as an investment entity.
FINANCIAL RISK MANAGEMENT
Credit Risk
Credit risk is the risk of loss associated with a counter-party’s inability to fulfil its payment obligations. The Company's
maximum exposure to credit risk was $408.1 thousand as of December 31, 2021 (2020 - $1.4 million), being the
value of its dividend receivable of $260.3 thousand (2020 - $211.8 thousand), interest receivable of $46.1 thousand
(2020 - $871.0 thousand) and receivables from related parties of $101.7 thousand (2020 - $343.6 thousand).
Management believes these receivables are a low credit risk. There have been no changes to the Company's methods
for managing credit risk during the year.
Liquidity Risk
Liquidity risk is the risk that the Company will have sufficient cash resources to meet its financial obligations as they
come due. The Company did not generate cash flows from its principal operations and relied on its cash balance to
pay its liabilities. Management ensures it maintains sufficient cash on hand for continued operations.
There have been no changes to management’s methods for managing liquidity risk since December 31, 2020. The
Company has working capital of $71.6 million as of December 31, 2021 (2020 - $108.1 million) and in management’s
judgment, the Company has sufficient working capital to continue to fund its operations and to pay its liabilities for
the next fiscal year. If required, the company has the ability to sell a portion of its public company investments to
supplement the liquidity requirements.
33
Management’s Discussion and Analysis
FAX Capital — 2021 Annual Report
The following is a maturity analysis of financial liabilities based on their contractual maturities:
Market Risk
Market risk is comprised of equity price risk, foreign currency risk and interest rate risk. The Company’s exposure to
these risks is described below.
Equity Price Risk
Equity price risk is the risk that the fair value of, or future cash flows from, the Company’s financial instruments will
significantly fluctuate due to changes in stock market prices. All securities present a risk of loss of capital. Any equity
and derivative instrument that the Company may hold is susceptible to market price risk arising from uncertainties
about future prices of the instruments. Management moderates this risk through a careful selection of securities
and other financial instruments with the parameters of the Company’s investment strategy. The maximum risk
resulting from financial instruments is equivalent to their fair value.
The most significant exposure for the Company to equity price risk arises from its investment in securities of publicly
and privately traded companies. As at December 31, 2021, for securities of publicly traded companies, had the prices
on respective stock exchanges for those securities increased or decreased by 10%, with all other variables held
constant, net assets would have increased or decreased, respectively, by approximately $13.8 million (December 31,
2020 - $9.9 million) or approximately 6.1% (December 31, 2020 - 4.7%) of total assets. In practice, the actual results
may differ. Management is unable to meaningfully quantify any correlation of the price of its private company
investment to changes in a benchmark index.
There has been no change in the Company's long-term investment strategy, despite the COVID-19 pandemic.
Foreign Currency Risk
Foreign currency risk is the risk that fluctuations in the rates of exchange on foreign currency would impact the
Company’s future cash flows. The Company has minimal exposure to foreign exchange fluctuations as it only has an
immaterial amount of cash held in a United States (“US”) dollar bank account. The Company has no other assets or
liabilities denominated in US dollars. There have been no changes in management's foreign currency risk
management strategies for the year ended December 31, 2021.
Table 9: Maturity Analysis of Financial Liabilities
Less than
1 - 3
4 - 5
($ thousands)
1 year
years
years
Total
December 31, 2021
Accounts payable and accrued liabilities
1,465.2
$
3,181.0
$
-
$
4,646.2
$
1,465.2
$
3,181.0
$
-
$
4,646.2
$
December 31, 2020
Accounts payable and accrued liabilities
1,366.6
$
920.9
$
-
$
2,287.5
$
Due to broker
606.4
-
-
606.4
1,973.0
$
920.9
$
-
$
2,893.8
$
Payments due by period
34
FAX Capital — 2021 Annual Report
Management’s Discussion and Analysis
Interest Rate Risk
Interest rate risk is the risk that the fair value of future cash flows from a financial instrument will fluctuate due to
changes in market interest rates. The Company’s exposure to interest rate risk relates to its ability to earn interest
income on cash and cash equivalents. The fair value of the Company’s cash and cash equivalents affected by changes
of interest rates is minimal. There have been no changes to management’s strategies to mitigate interest rate risk
for the year ended December 31, 2021.
DISCLOSURE CONTROLS AND PROCEDURES
The Company’s disclosure controls and procedures are designed to provide reasonable assurance that (a) material
information relating to the Company is made known to the CEO and the Chief Financial Officer by others, particularly
during the period in which the annual filings are being prepared, and (b) information required to be disclosed by the
Company in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is
recorded, processed, summarized and reported within the time periods specified in securities legislation. Based on
their evaluation, the CEO and the Chief Financial Officer have concluded that as of December 31, 2021, the
company’s disclosure controls and procedures were effective.
INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
IFRS. The Company’s management is responsible for establishing and maintaining adequate internal control over
financial reporting.
All internal control systems have inherent limitations and may become inadequate because of changes in conditions.
Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.
Management has evaluated the effectiveness of the Company’s internal control over financial reporting based on
the Internal Control - Integrated Framework (COSO 2013 Framework) published by The Committee of Sponsoring
Organizations of the Treadway Commission. Based on their evaluations as of December 31, 2021, the Chief Executive
Officer and the Chief Financial Officer have concluded that, as of December 31, 2021, the Company’s internal control
over financial reporting is effective in providing reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with IFRS.
During the fourth quarter of 2021, there have been no changes in the Company’s internal control over financial
reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.
OUTSTANDING SHARE DATA
The Company’s issued and outstanding capital as at December 31, 2021 consisted of 26,971,411 multiple voting
shares and 15,798,682 subordinate voting shares. As at December 31, 2021, the Company had 428,884 Restricted
Share Units (“RSUs”) outstanding. RSUs are share settled in subordinate voting shares. The Company’s issued and
outstanding capital as at March 25, 2022 consisted of 26,971,411 multiple voting shares, 15,621,276 subordinate
voting shares and 428,884 RSUs.
35
FAX Capital — 2021 Annual Report
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
The Financial Statements of FAX Capital Corp. have been prepared by management, which is responsible
for the integrity, objectivity and reliability of the information presented, including selecting appropriate
accounting principles and making judgments and estimates. These Financial Statements have been
prepared in accordance with International Financial Reporting Standards. Financial information
presented elsewhere in this Annual Report is consistent with that in the Financial Statements for
comparable periods.
Systems of internal control and supporting procedures are maintained to provide reasonable assurance
of the reliability of financial information and the safeguarding of all assets controlled by the Company.
These controls and supporting procedures include quality standards in hiring and training employees,
the establishment of organizational structures providing a well-defined division of responsibilities and
accountability for performance, and the communication of policies and guidelines through the
organization.
Ultimate responsibility for the Financial Statements rests with the Board of Directors. The Board is
assisted in discharging this responsibility by an Audit Committee, consisting entirely of independent
directors. This Committee reviews the Financial Statements and recommends them for approval by the
Board. In addition, the Audit Committee reviews the recommendations of the external auditors for
improvements in internal control and the action of management to implement such recommendations.
In carrying out its duties and responsibilities, the Committee meets regularly with management and with
the external auditors to review the scope and timing of their audit, to review their findings and to satisfy
itself that their responsibilities have been properly discharged.
Deloitte LLP, independent auditors appointed by the shareholders, have examined the Financial
Statements of the Company in accordance with Canadian generally accepted auditing standards, and
have expressed their opinion upon the completion of their examination in their Report to the
Shareholders. The external auditors have full and free access to the Audit Committee to discuss their
audit and related findings.
“Blair Driscoll”
“Edward Merchand”
Blair Driscoll
Edward Merchand
Chief Executive Officer
Chief Financial Officer
36
FAX Capital — 2021 Annual Report
Deloitte LLP
Bay Adelaide East
8 Adelaide Street West
Suite 200
Toronto ON M5H 0A9
Canada
Tel: 416-601-6150
Fax: 416-601-6590
www.deloitte.ca
Independent Auditor’s Report
To the Shareholders and Board of Directors of FAX Capital Corp.
Opinion
We have audited the financial statements of FAX Capital Corp. (the “Company”), which comprise the
statements of financial position as at December 31, 2021 and 2020, and the statements of comprehensive
income (loss), changes in equity and cash flows for the years then ended, and notes to the financial
statements, including a summary of significant accounting policies (collectively referred to as the “financial
statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial
position of the Company as at December 31, 2021 and 2020, and its financial performance and its cash
flows for the years then ended in accordance with International Financial Reporting Standards (“IFRS”) as
issued by the International Accounting Standards Board.
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards (“Canadian
GAAS”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities
for the Audit of the Financial Statements section of our report. We are independent of the Company in
accordance with the ethical requirements that are relevant to our audit of the financial statements in
Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Key Audit Matter
A key audit matter is a matter that, in our professional judgment, was of most significance in our audit of
the financial statements for the year ended December 31, 2021. This matter was addressed in the context
of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on this matter.
Fair Value – Level 3 Investment — Refer to Notes 2 and 4 to the financial statements
Key Audit Matter Description
The Company’s investment portfolio includes one level 3 investment. As there are no quoted prices or
observable inputs available, valuation of the level 3 investment is inherently subjective and involves the
use of significant management judgment and significant unobservable inputs. The fair value of the Level 3
investment was estimated using a discounted cash flow model which required management to make
significant estimates and assumptions with respect to cash flow forecasts, exit multiples and discount
rates.
While there are several estimates and assumptions that are required to determine the fair value of the
level 3 investment, the estimates and assumptions with the highest degree of subjectivity are future
revenue forecasts, exit multiples and discount rates. This required a high degree of auditor judgment, and
an increased extent of audit effort, including the involvement of fair value specialists.
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FAX Capital — 2021 Annual Report
How the Key Audit Matter Was Addressed in the Audit
Our audit procedures related to future revenue forecasts, exit multiples and discount rates used to
determine the fair value of the level 3 investment included the following, among others:
•
Evaluated management’s ability to accurately forecast future revenues by comparing actual results to
management’s historical forecasts.
•
Evaluated the reasonableness of future revenue forecasts by comparing the forecasts to historical
revenue and internal budgets detailing business strategies and growth plans.
•
With the assistance of fair value specialists,
o
Evaluated the reasonableness of the exit multiples by developing an independent range of
estimates using available market information from third-party sources and recent
transactions, if applicable, and comparing those to the exit multiples selected by
management;
o
Evaluated the reasonableness of the discount rates by testing the underlying source
information and developing a range of independent estimates and comparing those to the
discount rates selected by management.
Other Information
Management is responsible for the other information. The other information comprises:
●
Management’s Discussion and Analysis
●
The information, other than the financial statements and our auditor’s report thereon, in the Annual
Report.
Our opinion on the financial statements does not cover the other information and we do not and will not
express any form of assurance conclusion thereon. In connection with our audit of the financial
statements, our responsibility is to read the other information identified above and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge
obtained in the audit, or otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on
the work we have performed on this other information, we conclude that there is a material misstatement
of this other information, we are required to report that fact in this auditor’s report. We have nothing to
report in this regard.
The Annual Report is expected to be made available to us after the date of the auditor’s report. If, based
on the work we will perform on this other information, we conclude that there is a material misstatement
of this other information, we are required to report that fact to those charged with governance.
Responsibilities of Management and Those Charged with Governance for the Financial
Statements
Management is responsible for the preparation and fair presentation of the financial statements in
accordance with IFRS, and for such internal control as management determines is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or
error.
38
FAX Capital — 2021 Annual Report
In preparing the financial statements, management is responsible for assessing the Company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless management either intends to liquidate the Company or to cease
operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with Canadian GAAS will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of these financial statements.
As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
●
Identify and assess the risks of material misstatement of the financial statements, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting
a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal
control.
●
Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control.
●
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
●
Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the Company to cease to continue as
a going concern.
●
Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and events in
a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
39
FAX Capital — 2021 Annual Report
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the financial statements of the current period and are therefore
the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes
public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Mervyn Ramos.
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
March 29, 2022
40
FAX Capital — 2021 Annual Report
(In Canadian Dollars)
2021
2020
$
$
Assets
Cash and cash equivalents
76,086,935
109,800,255
Accounts and other receivables (Note 3)
408,109
1,426,365
Prepaid expenses
34,049
33,235
Investments, at fair value (Note 4)
151,374,156
98,826,035
Capital assets (Note 5)
11,318
26,582
227,914,567
210,112,472
Liabilities
Accounts payable and accrued liabilities (Note 6)
4,646,239
2,287,480
Due to broker
-
606,366
Income taxes payable
256,505
250,651
Deferred income tax liability (Note 7)
792,748
48,600
5,695,492
3,193,097
Shareholders' equity
Share capital (Note 8)
184,685,839
184,666,952
Founder Warrants (Note 10)
-
4,888,632
Contributed surplus
5,422,847
171,180
Retained earnings
32,110,389
17,192,611
222,219,075
206,919,375
227,914,567
210,112,472
Approved on Behalf of the Board:
Signed: "Blair Driscoll", Director
Signed: "Paul Gibbons", Director
STATEMENTS OF FINANCIAL POSITION
As at December 31
The accompanying notes are an integral part of these financial statements.
41
FAX Capital — 2021 Annual Report
(In Canadian Dollars)
2021
2020
$
$
Revenues
Realized gain on sale of investments
15,502,896
-
Net change in unrealized gain on investments (Note 4)
3,447,440
23,323,512
Dividends
2,261,089
653,879
Capital commitment fees
875,000
-
Interest
783,389
1,888,754
22,869,814
25,866,145
Expenses
Share-based compensation (Note 12)
2,816,474
1,180,592
Compensation (Note 14)
2,290,592
2,170,426
Office, general and administration (Note 14)
870,486
785,120
Professional fees
630,375
374,149
Director fees (Note 14)
210,000
225,833
Brokerage fees and commissions
95,866
211,095
Depreciation
15,264
14,218
Reimbursement of expenses (Note 14)
(100,525)
-
6,828,532
4,961,433
Income before income taxes
16,041,282
20,904,712
Provision for income taxes (Note 7)
1,000,656
1,583,045
Net income and comprehensive income
15,040,626
19,321,667
Earnings per share (Note 13)
Basic
0.35
0.45
Diluted
0.35
0.45
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31
42
FAX Capital — 2021 Annual Report
(In Canadian Dollars)
Subordinate
Multiple
Voting
Voting
Founder
Total
Shares
Shares
Warrants
Contributed
Retained
Shareholders'
(Note 8)
(Note 8)
(Note 10)
Surplus
Earnings
Equity
$
$
$
$
$
$
Balance at January 1, 2020
61,230,274
122,726,486
4,800,044
-
(1,981,840)
186,774,964
Exercise of Founder Warrants
2,404
-
(154)
-
-
2,250
Repurchase and cancellation of shares (Note 9)
(737,915)
-
-
-
103,435
(634,480)
Income tax benefit of share issuance costs
1,121,378
324,325
88,742
-
-
1,534,445
Share based compensation (Note 12 (b))
-
-
-
171,180
-
171,180
Refundable dividend taxes
-
-
-
-
(250,651)
(250,651)
Net income
-
-
-
-
19,321,667
19,321,667
Balance at December 31, 2020
61,616,141
123,050,811
4,888,632
171,180
17,192,611
206,919,375
Balance at January 1, 2021
61,616,141
123,050,811
4,888,632
171,180
17,192,611
206,919,375
Exercise of Founder Warrants
1,327,272
-
(86,622)
-
-
1,240,650
Expire of Founder Warrants
-
-
(4,802,010)
4,802,010
-
-
Repurchase and cancellation of shares (Note 9)
(1,308,385)
-
-
-
(122,848)
(1,431,233)
Share based compensation (Note 12 (b))
-
-
-
449,657
-
449,657
Net income
-
-
-
-
15,040,626
15,040,626
Balance at December 31, 2021
61,635,028
123,050,811
-
5,422,847
32,110,389
222,219,075
Share Capital
STATEMENTS OF CHANGES IN EQUITY
For the years ended December 31, 2021 and 2020
The accompanying notes are an integral part of these financial statements.
43
FAX Capital — 2021 Annual Report
(In Canadian Dollars)
2021
2020
$
$
Operating activities
Net income
15,040,626
19,321,667
Adjustments for non-cash items:
Realized gain on sale of investments
(15,502,896)
-
Net change in unrealized (gain) loss on investments
(3,447,440)
(23,323,512)
Share-based compensation
449,657
171,180
Depreciation of capital assets
15,264
14,218
Refundable dividend taxes
-
(250,651)
Provision for deferred income taxes
744,148
1,583,045
Purchase of investments
(65,178,985)
(75,502,523)
Proceeds from sale of investments
31,581,200
-
Changes in non-cash working capital:
Accounts and other receivables
1,018,256
(798,504)
Prepaid expenses
(814)
80,637
Accounts payable and accrued liabilities
2,358,759
313,103
Increase (decrease) in due to broker
(606,366)
606,366
Income taxes payable
5,854
250,651
(33,522,737)
(77,534,323)
Investing activities
Purchase of capital assets
-
(24,904)
-
(24,904)
Financing activities
Proceeds from exercise of Founder Warrants
1,240,650
2,250
Subordinate Voting Shares purchased for cancellation
(1,431,233)
(634,480)
(190,583)
(632,230)
Net change in cash and cash equivalents
(33,713,320)
(78,191,457)
Cash and cash equivalents, beginning of year
109,800,255
187,991,712
Cash and cash equivalents, end of year
76,086,935
109,800,255
Cash and cash equivalents is comprised of
Cash
76,086,935
9,800,255
Cash equivalents
-
100,000,000
76,086,935
109,800,255
Supplemental Cash Flow Information
Interest paid
-
-
Income taxes paid
250,654
-
STATEMENTS OF CASH FLOWS
For the years ended December 31
The accompanying notes are an integral part of these financial statements.
44
FAX Capital — 2021 Annual Report
(In Canadian Dollars)
Description
Number of securities
Cost
Fair value
$
$
Public company investments
Information Services Corporation
1,074,967
16,316,862
27,185,915
Hamilton Thorne Ltd.
17,649,200
21,853,371
36,357,352
Points.com Inc.
1,032,155
20,065,507
19,930,913
Quisitive Technology Solutions Inc. (i)
21,000,000
27,000,004
24,214,230
BioSyent Inc.
2,121,100
15,348,129
17,520,286
Avante Logixx Inc.
2,000,000
3,500,000
2,980,000
Tecsys Inc.
186,000
7,635,512
9,785,460
111,719,385
137,974,156
Private company investments
2794677 Ontario Corp. (ii)
12,883,819
13,400,000
124,603,204
151,374,156
(i) Includes 16,000,000 common shares purchased under a private placement that are subject to a 12 month hold period from the transaction close
date of March 22, 2021 and 1,666,667 common shares that are subject to a four month hold period from the close date of November 10, 2021.
SCHEDULE OF INVESTMENT PORTFOLIO
As at December 31, 2021
The accompanying notes are an integral part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
(Presented in Canadian Dollars)
45
FAX Capital — 2021 Annual Report
1. Nature of Business
FAX Capital Corp. (the “Company”) was incorporated in Ontario in 1923, until it was continued federally
under the laws of Canada in 1978. The Company is an investment holding company.
The Company’s Subordinate Voting Shares are listed on the Toronto Stock Exchange (“TSX”) under the
symbol FXC. The Company’s Multiple Voting Shares are not listed on any exchange.
The Company is domiciled in the Province of Ontario, and its registered office address is 2 Bloor Street
East, Suite 701, Toronto, Ontario, M4W 1A8.
2. Significant Accounting Policies
Statement of Compliance
These annual financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and
interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”). Significant
accounting estimates, judgments, and assumptions used or exercised by management in preparation of
these financial statements are presented below.
The Company qualifies as an investment entity under IFRS 10, Consolidated Financial Statements.
Basis of Presentation
These financial statements have been prepared using the historical cost convention except for certain
financial instruments which are measured at fair value.
Functional and Presentation Currency
The Company's functional and presentation currency is the Canadian dollar.
Segmented Information
The Company has one operating and geographic segment, which is that of an investment holding
company. All of the Company’s operations, assets, and revenues belong to this segment.
Critical Accounting Judgments, Estimates, and Assumptions
The preparation of the financial statements requires management to make judgments, estimates and
assumptions that affect the reported amounts of assets, liabilities, and contingent liabilities as at the date
of the financial statements, and the reported amounts of revenues and expenses during the reporting
period. Estimates and assumptions are continuously evaluated and are based on management’s
experience and other factors, including expectations of future events that are believed to be reasonable
under the circumstances. Uncertainty about these judgments, estimates, and assumptions could result in
outcomes that could require a material adjustment to the carrying amount of the asset or liability affected
in future periods.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
(Presented in Canadian Dollars)
46
FAX Capital — 2021 Annual Report
2. Significant Accounting Policies (continued)
Critical Accounting Judgments, Estimates, and Assumptions (continued)
Information about significant areas of estimation uncertainty considered by management in preparing
the financial statements are as follows:
Classification and measurement of investments
In classifying and measuring financial instruments held by the Company, the Company is required to
make significant judgements about its business model for managing its financial instruments, and
whether or not the business of the Company is to manage the financial assets with the objective of
realizing cash flows through the sale of the assets for the purpose of classifying certain financial
instruments at fair value through profit or loss (“FVTPL”).
Valuation of investments
Investments are measured at fair value in accordance with IFRS 13, Fair Value Measurement. Publicly
traded securities are valued at the close price on the recognized stock exchange on which the
securities are listed and/or principally traded, provided the close price is within the bid-ask spread.
Securities which are listed on a stock exchange or traded over-the-counter and which are subject to
a hold period or other trading restrictions are valued as described above, with an appropriate
discount as determined by management.
Investments for which reliable quotations are not readily available, or for which there is no closing
bid price, including securities of private issuers are valued at fair value using management’s best
estimates. Several valuation methodologies may be considered in arriving at fair value, including
comparable company transactions, earnings multiples, the price of a recent investment, net assets,
discounted cash flows and industry valuation benchmarks. Unrealized gains and losses on
investments are recognized in the Statements of Comprehensive Income.
Income Taxes
Income taxes relating to uncertain tax positions are recognized based on the expected value of the
tax settlement with the related tax authority. Judgment is required to determine the amount of tax
provision relating to these uncertain tax positions.
Deferred Tax Assets
Deferred tax assets are recognized in respect of tax losses and other temporary differences to the
extent that it is probable that taxable income will be available against which the losses can be
utilized. Judgment is required to determine the amount of deferred tax assets that can be
recognized, based upon the likely timing and level of future taxable income, together with future tax
planning strategies.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
(Presented in Canadian Dollars)
47
FAX Capital — 2021 Annual Report
2. Significant Accounting Policies (continued)
Critical Accounting Judgments, Estimates, and Assumptions (continued)
Founder Warrants
The Company used the Black-Scholes model to calculate the value of Founder Warrants issued as
part of the Company’s Offering. The Black-Scholes model requires six key inputs to determine a value
for a warrant: risk-free interest rate, exercise price, market price at date of issuance, expected yield,
expected life and expected volatility. Certain of the inputs are estimates, which involve considerable
judgment and are or could be affected by significant factors that are out of the Company’s control.
Proceeds from the Offering, net of issuance costs, were allocated between Subordinate Voting
Shares and Founder Warrants issued according to their relative fair value.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash and temporary investments consisting of highly liquid
investments with short-term maturities. Interest income is recorded on an accrual basis in the statements
of comprehensive income.
Capital Assets
Capital assets are carried at cost less accumulated depreciation. Capital assets are comprised of computer
equipment which is depreciable on a straight-line basis over 3 years.
Revenue Recognition
Purchases and sales of investments are recognized on the trade date. Realized gains and losses on disposal
and unrealized gains and losses in the value of investments are reflected in the statements of
comprehensive income (loss). Upon disposal of an investment, previously recognized unrealized gains or
losses are reversed, so as to recognize the full realized gain or loss in the period of disposition. All
transaction costs associated with the purchase and sale of investments are expensed as incurred.
Financial Instruments
The Company’s financial instruments are comprised of cash and cash equivalents, accounts and other
receivables, investments and accounts payable and accrued liabilities.
All financial assets are initially recorded at fair value in the statements of financial position. A financial
asset is derecognized when the rights to receive cash flows from the asset have expired or the Company
has transferred substantially all of the risks and rewards of the asset. The Company assesses at each
reporting date whether there is any objective evidence that a financial asset is impaired. If it is determined
that a financial asset is impaired, an impairment provision is recorded based upon the expected loss.
All other financial assets and financial liabilities, primarily comprised of cash and cash equivalents,
accounts and other receivables, and accounts payable and accrued liabilities, are measured at amortized
cost which approximates fair value. Under the amortized cost method, financial assets and liabilities
reflect the amount required to be received or paid and discounted when appropriate using the effective
interest method.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
(Presented in Canadian Dollars)
48
FAX Capital — 2021 Annual Report
2. Significant Accounting Policies (continued)
Share Capital
The Company’s Multiple Voting Shares and Subordinate Voting Shares are classified as equity in the
financial statements. Incremental costs directly attributable to the issuance of Multiple Voting Shares and
Subordinate Voting Shares are recognized as a deduction from equity.
Earnings (loss) per share
Basic net earnings (loss) per share is calculated based on the weighted average number of common shares
outstanding during the year. Diluted net earnings (loss) per share is determined by adjusting the weighted
average number of common shares outstanding for the effects of all potentially dilutive shares. The
Company’s Multiple Voting Shares and its Subordinate Voting Shares are both classes of common shares
of the Company. Instruments which would be anti-dilutive are not included in the calculation of diluted
earnings (loss) per share.
Share-Based Payments
The Company uses the fair value based method to account for stock options granted to employees. The
fair value of stock options is determined on each grant date. Compensation expense is recognized over
the period that the stock options vest, with a corresponding increase in Contributed surplus. When stock
options are exercised, the proceeds together with the amount recorded in Contributed surplus are added
to Share capital.
The Company recognizes a liability for cash settled awards of Performance Share Units, Restricted Share
Units and Deferred Share Units granted under its long-term incentive plan. Compensation expense is
recognized over the award’s vesting period. The liability is remeasured at fair value at each reporting
period.
The Company records an increase in Contributed surplus for share settled awards of Performance Share
Units, Restricted Share Units and Deferred Share Units granted under its long-term incentive plan.
Compensation expense is based on the fair value of the award on its grant date and is recognized over
the award’s vesting period. When the award vests, the amount recorded in Contributed surplus is added
to Share capital.
Income Taxes
(i) Current income tax:
Current income tax assets and liabilities for the current and prior periods are measured at the amount
expected to be recovered from, or paid to, the taxation authorities. The tax rates and tax laws used
to compute the amount are those that are enacted or substantively enacted by the end of the
reporting period.
Current tax assets and current tax liabilities are only offset if a legally enforceable right exists to set
off the amounts and the intention is to settle on a net basis, or to realize the asset and settle the
liability simultaneously. Current income tax relating to items recognized directly in equity is
recognized in equity and not through profit or loss.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
(Presented in Canadian Dollars)
49
FAX Capital — 2021 Annual Report
2. Significant Accounting Policies (continued)
Income taxes (continued)
(ii) Deferred tax: (continued)
Deferred tax is provided using the liability method on temporary differences at the reporting date
between the tax bases of assets and liabilities and their carrying amounts for financial reporting
purposes. Deferred tax liabilities are recognized for all taxable temporary differences and deferred
tax assets are recognized for all deductible temporary differences, carry-forward of unused tax
credits and unused tax losses, to the extent that it is probable that profit will be available against
which the deductible temporary difference and the carry forward of unused tax credits and unused
tax losses can be utilized.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year
when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been
enacted or substantively enacted at the statements of financial position date. Deferred tax relating
to items recognized directly in equity is also recognized in equity and not in the statements of
comprehensive income.
The carrying amount of deferred tax assets is reviewed at each statement of financial position date
and reduced to the extent that it is no longer probable that sufficient profit will be available to allow
all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed
at each statement of financial position date and are recognized to the extent that it has become
probable that future profit will allow the deferred tax asset to be recovered.
The Company does not record deferred tax assets on deductible temporary differences, the carry-
forward of unused tax credits or unused tax losses to the extent that it considers they cannot be
utilized.
Interest in Other Entity
The Company qualifies as an investment entity under IFRS 10, Consolidated Financial Statements,
accordingly it does not consolidate its subsidiary 2794677 Ontario Corp. As at December 31, 2021, the
Company held 95.9% of the equity interest of 2794677 Ontario Corp. and 100% of the voting rights. This
subsidiary entity held the Company’s investment in Carson, Dunlop & Associates Ltd. (“Carson Dunlop”).
3. Accounts and Other Receivables
Accounts and other receivables consist of the following:
2021
2020
$
$
Dividends
260,262
211,818
Interest
46,141
870,957
Accounts receivable (Note 14 (c))
-
343,590
Due from Fax Investments Inc. (Note 14 (b))
100,525
-
Due from 2794677 Ontario Corp.
1,181
-
408,109
1,426,365
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
(Presented in Canadian Dollars)
50
FAX Capital — 2021 Annual Report
4. Investments
The Company’s investments are financial instruments and have been classified at FVTPL with gains and
losses recorded in net income. Investment transactions are recorded on a trade date basis.
Fair value measurements of the investments are classified based on a three-level hierarchy that reflects
the significance of the inputs used in making the measurements. The three levels of the fair value
hierarchy are described below:
Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for
identical, unrestricted assets or liabilities;
Level 2 – Quoted prices in markets that are not active or financial instruments for which all significant
inputs are observable, either directly or indirectly; and
Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement
and unobservable.
The following table includes the disaggregation of unrealized gain on investments for the years ended
December 31, 2021 and 2020:
Investments consisted of the following as at December 31, 2021:
Transfers between the three levels of the fair value hierarchy are recognized on the date of the event or
change in circumstances that caused the transfer. During the year ended December 31, 2021, the four
month hold period for certain common shares purchased under a private placement on May 7, 2021
ended. These common shares, with a carrying amount of $3,900,000 at December 31, 2021, were
transferred from Level 2 to Level 1 of the fair value hierarchy upon expiry of the four month hold period.
There were no other transfers between Level 1, 2 and 3 during the year ended December 31, 2021.
The fair value of the Company’s private company investment cannot be derived from an active market
and accordingly, was determined using industry accepted valuation techniques and models. Market
observable inputs are used where possible, with unobservable inputs used where necessary. Use of
unobservable inputs can involve significant judgment and may materially affect the reported fair value of
this investment.
2021
2020
$
$
Unrealized gain (loss) on investments - beginning of year
23,323,512
-
Unrealized gain (loss) on investments - end of year
26,770,952
23,323,512
Net change in unrealized gain (loss) on investments
3,447,440
23,323,512
Financial assets
measured at fair value
Cost
Level 1
Level 2
Level 3
Total Fair Value
$
$
$
$
$
Public company investments
111,719,385
117,659,926
20,314,230
-
137,974,156
Private company investments
12,883,819
-
-
13,400,000
13,400,000
124,603,204
117,659,926
20,314,230
13,400,000
151,374,156
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
(Presented in Canadian Dollars)
51
FAX Capital — 2021 Annual Report
4. Investments (continued)
The Company’s investment in Carson Dunlop is held in its 95.9% owned subsidiary, 2794677 Ontario Corp.
Carson Dunlop is a leading provider of proprietary technology-enabled education services and software
for home inspectors across Canada and the United States, as well as a leading provider of home
inspections services in the Greater Toronto Area.
The Company, through its subsidiary 2794677 Ontario Corp., completed the acquisition of an approximate
78% controlling interest in Carson Dunlop on March 23, 2021. The Company invested $11,750,000, plus a
working capital adjustment of $1,633,819, for approximately 78% of Carson Dunlop, representing a total
enterprise value of $15 million. To fund the acquisition, 2794677 Ontario Corp. issued 12,883,819 new
Class A common shares to the Company for proceeds of $12,883,819 and the Company provided 2794677
Ontario Corp. with an inter-company loan of $500,000. On June 28, 2021, 2794677 Ontario Corp. issued
to the Chief Executive Officer of 2794677 Ontario Corp. and his spouse collectively 555,556 new non-
voting Class B common shares for proceeds of $500,000. This resulted in the Company’s ownership
interest in 2794677 Ontario Corp. decreasing from 100% to 95.9%. In July 2021, these funds were used by
2794677 Ontario Corp. to repay the $500,000 inter-company loan to the Company.
In conjunction with the acquisition of Carson Dunlop by 2794677 Ontario Corp., 2794677 Ontario Corp.
and the other shareholders of Carson Dunlop entered into a Shareholders’ Agreement to record their
agreement as to the manner in which Carson Dunlop’s affairs will be conducted. The Shareholders’
Agreement also granted to each shareholder certain rights and obligations with respect to their
ownership, directly and indirectly, of the common shares of Carson Dunlop, including customary liquidity
rights.
At December 31, 2021, the Company estimated the fair value of its investment in Carson Dunlop using a
discounted cash flow analysis for Carson Dunlop’s three business units based on multi-year free cash flow
forecasts with an assumed after-tax discount rate of 25.0% and a 8.8x earnings before interest, taxes,
depreciation and amortization exit multiple (“Exit multiple”). At December 31, 2021 free cash flow
forecasts were based on estimates derived from financial information for Carson Dunlop’s three business
units prepared in the fourth quarter of 2021 by the Company’s management.
At December 31, 2021, the fair value of the Company’s investment in 2794677 Ontario Corp. was
$13,400,000, comprised of its investment of $12,883,819, and a market adjustment of $516,181. The
valuation also considered the payment of a $1,700,000 dividend by Carson Dunlop in April 2021, of which
$1,331,667 was ultimately paid to the Company.
During the year ended December 31, 2021, the reconciliation of private company investments measured
at fair value using unobservable inputs (Level 3) is presented as follows:
2021
$
Beginning balance
-
Purchase of 12,883,819 Class A common shares of 2794677 Ontario Corp.
12,883,819
Change in unrealized gain (loss)
516,181
Ending balance
13,400,000
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
(Presented in Canadian Dollars)
52
FAX Capital — 2021 Annual Report
4. Investments (continued)
The significant unobservable inputs used in the fair value measurement categorized within Level 3 of the
fair value hierarchy together with a quantitative sensitivity analysis as at December 31, 2021 is shown
below:
5. Capital Assets
The following is a continuity schedule of computer equipment:
6. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
Investment
Valuation technique
Sensitivity used
$
$
$
13,400,000
Discounted cash flow
Free cash flow forecasts
+10%/-10%
1,234,000
(1,234,000)
Exit multiple
+10%/-10%
974,000
(974,000)
After-tax discount rate
+10%/-10%
(906,000)
1,002,000
(1) The sensitivity analysis refers to a percentage added or deducted from the input and the effect this has on the fair value while all other variables are held constant.
Effect on fair value
Carson Dunlop (held
in 2794677 Ontario Corp.)
Fair value of level
3 investment
Significant unobservable
inputs used in the
internal valuation model
2021
2020
$
$
Cost
Balance - beginning of year
45,793
20,889
Additions
-
24,904
Balance - end of year
45,793
45,793
Accumulated Amortization
Balance - beginning of year
19,211
4,993
Depreciation
15,264
14,218
Balance - end of year
34,475
19,211
Carrying Value
11,318
26,582
2021
2020
$
$
Accounts payable
29,351
220,008
Accrued liabilities
278,475
158,153
Short-term employee compensation payable
962,185
899,907
Share-based compensation payable (Note 12 (c) & (d))
3,376,228
1,009,412
4,646,239
2,287,480
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
(Presented in Canadian Dollars)
53
FAX Capital — 2021 Annual Report
7. Income Taxes
The Company’s provision for income taxes for the years ended December 31, 2021 and 2020 is
summarized as follows:
The income tax expense is represented as follows:
The components of the Company’s deferred income tax liability are as follows:
As at December 31, 2021, the Company had non-capital losses of approximately $2,787,793 available for
carryforward for tax purposes. The expiry dates of these losses are as follows:
2021
2020
$
$
Income before income taxes
16,041,282
20,904,712
Expected taxes payable at future rates - 26.5%
4,250,940
5,539,749
Income tax effect of the following:
Non-taxable portion of unrealized (gains) losses
(456,786)
(3,090,365)
Non-taxable portion of realized (gains) losses
(2,054,134)
-
Dividends not subject to Part I tax
(599,189)
(173,278)
Recognition of loss carry forwards
-
(743,177)
Adjustments for prior years
(250,651)
-
Other
110,476
50,116
Provision for income taxes
1,000,656
1,583,045
2021
2020
$
$
Current income taxes (Note 11)
256,508
-
Deferred income taxes
744,148
1,583,045
Provision for income taxes
1,000,656
1,583,045
2021
2020
$
$
Unrealized capital gains on investments
3,547,151
3,090,365
Cash settled share-based compensation
(894,700)
(267,494)
Non-capital loss carry forwards
(738,766)
(1,853,604)
Share issuance expenses
(613,778)
(920,667)
Refundable dividend taxes (Note 11)
(507,159)
-
Total deferred income tax liability
792,748
48,600
Expiry Date
Amount
$
December 31, 2040
2,787,793
2,787,793
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
(Presented in Canadian Dollars)
54
FAX Capital — 2021 Annual Report
8. Share Capital
(a) Authorized
(i) An unlimited number of Multiple Voting Shares, which entitle the holder to 10 votes per Multiple
Voting Share on all matters upon which shareholders are entitled to vote. Fax Investments Inc. (“Fax
Investments”) owns all of the issued and outstanding Multiple Voting Shares and as at December 31,
2021, the Multiple Voting Shares held by Fax Investments represent approximately 94.5% of the
voting rights attached to all of the Company’s outstanding voting securities;
(ii) An unlimited number of Subordinate Voting Shares, which entitle the holder one vote per
Subordinate Voting Share on all matters upon which shareholders are entitled to vote;
(iii) The Multiple Voting Shares and the Subordinate Voting Shares rank pari passu, as to the right to
receive dividends and to receive the remaining property and assets of the Company on the
liquidation, dissolution or winding-up of the Company, whether voluntarily or involuntarily, or any
other distribution of assets of the Company among its shareholders for the purposes of winding up
its affairs; and
(iv) On December 17, 2018, the Company entered into a coattail agreement with Computershare Trust
Company of Canada, acting as trustee on behalf of the holders of Subordinate Voting Shares, and
Fax Investments (the “Coattail Agreement”) to ensure that, in the event of a take-over bid, the
holders of Subordinate Voting Shares will be entitled to participate on an equal footing with holders
of Multiple Voting Shares. The Coattail Agreement contains provisions designed to prevent
transactions that otherwise would deprive the holders of Subordinate Voting Shares of rights under
applicable provincial take-over bid legislation to which they would have been entitled if the Multiple
Voting Shares had been Subordinate Voting Shares.
(b) Issued and Outstanding
Number
Amount
Number
Amount
$
$
Issued - Multiple voting shares
Balance - beginning of year
26,971,411
123,050,811
26,971,411
122,726,486
Income tax benefit of share issuance costs
-
-
-
324,325
Balance - end of year
26,971,411
123,050,811
26,971,411
123,050,811
Issued - Subordinate voting shares
Balance - beginning of year
15,866,136
61,616,141
16,059,171
61,230,274
Issued on exercise of Founder Warrants
275,700
1,327,272
500
2,404
Normal Course Issuer Bid Repurchases
(343,154)
(1,308,385)
(193,535)
(737,915)
Income tax benefit of share issuance costs
-
-
-
1,121,378
Balance - end of year
15,798,682
61,635,028
15,866,136
61,616,141
Total
184,685,839
184,666,952
2020
2021
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
(Presented in Canadian Dollars)
55
FAX Capital — 2021 Annual Report
9. Normal Course Issuer Bid
The Company’s current Normal Course Issuer Bid (the “NCIB”) commenced on June 8, 2021 and is effective
until the earlier of June 7, 2022 and the date on which the Company has purchased the maximum number
of Subordinate Voting Shares permitted under the NCIB. Pursuant to the NCIB, the Company may
purchase up to 1,488,480 of its Subordinate Voting Shares, representing 10% of the public float. The price
that the Company will pay for any such Subordinate Voting Shares will be the market price of such shares
on the TSX, or such alternative Canadian trading systems, at the time of acquisition. All Subordinate Voting
Shares acquired under the NCIB are cancelled.
In connection with its NCIB, the Company has entered into an Automatic Securities Repurchase Plan which
provides standard instructions regarding how the Company’s Subordinate Voting Shares are to be
purchased under the NCIB during certain pre-determined trading blackout periods, subject to pre-
established parameters. Outside of these pre-determined trading blackout periods, purchases under the
Company’s NCIB will be completed based upon management’s discretion and in accordance with the TSX
rules.
In the year ended December 31, 2021, there were 343,154 Subordinate Voting Shares (2020 - 193,535)
purchased at a cost of $1,431,233 (2020 - $634,480) under the Company’s current and previous NCIB. In
the current year, $1,308,385 (2020 - $737,915) of the total cost was allocated to Subordinated Voting
Shares and the remainder of $122,848, being the premium paid to purchase the shares above the stated
value was allocated to Retained earnings. In the prior year, the Subordinated Voting Shares were
purchased at a discount to their stated value, which resulted in an allocation of $103,435 to Retained
earnings.
10. Founder Warrants
A summary of the status of the Company’s Founder Warrants and changes during the year is as follows:
Each Founder Warrant entitled the holder to purchase one Subordinate Voting Share at a price of $4.50
per share until November 22, 2021.
Number
Amount
Number
Amount
$
$
Founder Warrants
Balance - beginning of year
15,559,500
4,888,632
15,560,000
4,800,044
Exercised during the year
(275,700)
(86,622)
(500)
(154)
Expired during the year
(15,283,800)
(4,802,010)
-
-
Income tax benefit of share issuance costs
-
-
-
88,742
Balance - end of year
-
-
15,559,500
4,888,632
2020
2021
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
(Presented in Canadian Dollars)
56
FAX Capital — 2021 Annual Report
10. Founder Warrants (continued)
The fair value of the Founder Warrants was estimated at the grant date based on the Black-Scholes pricing
model, using the following assumptions:
The Company’s Founder Warrants expired on November 22, 2021 in accordance with their terms and
were delisted from the TSX. Upon expiry of the Founder Warrants, the balance was reclassified to
Contributed surplus.
11. Refundable Tax on Dividends
Dividends received by the Company from Canadian corporations are subject to a special refundable Part
IV tax of 38⅓% under the Income Tax Act (Canada). The tax is not imposed if the Company owns more
than a 10% interest in the payer, unless the payer was entitled to a refund of tax in respect of the dividend.
When the Company pays dividends to its shareholders, the tax is refundable at a rate of 38⅓% of taxable
dividends paid. Current and deferred tax consequences on Part IV taxes are recognized in the statements
of comprehensive income (loss). During the year ended December 31, 2021, the Company’s refundable
dividend tax on hand account increased by $256,508 to $507,159 (2020 - $250,651).
12. Long-term Incentive Plan
The Company has adopted a long-term incentive plan (the “Plan”) to assist in attracting, retaining and
motivating directors and employees of the Company. The Plan is designed to: (i) encourage share
ownership; (ii) align eligible participants’ interests in the performance of the Company; (iii) encourage the
retention of key employees within the Company; and (iv) attract high qualified employees by remaining
competitive in terms of total compensation arrangements. The Governance, Compensation and
Nominating Committee (the “Committee”) of the Company’s Board of Directors administers the Plan.
The maximum aggregate number of Subordinate Voting Shares that may be issuable pursuant to awards
granted under the Plan to insiders of the Company shall not exceed 10% of the issued and outstanding
Subordinate Voting Shares of the Company. No more than 5% of the issued Subordinate Voting Shares of
the Company may be granted to any one participant, and no more than 2% of the issued Subordinate
Voting Shares of the Company may be granted to any one employee conducting “Investor Relations
Activities” in any twelve-month period. The awards are non-transferable and non-assignable.
Expected dividend yield
Nil
Risk-free interest rate
1.57%
Expected life
2 years
Expected volatility
20%
Share price
$4.17
Exercise price
$4.50
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
(Presented in Canadian Dollars)
57
FAX Capital — 2021 Annual Report
12. Long-term Incentive Plan (continued)
The specific awards that may be granted under the Plan are as follows:
a) Options
Options to purchase Subordinate Voting Shares may be granted to eligible persons at an exercise price
which shall in no event be lower than the Market Price on the grant date. The Market Price means the
volume-weighted average trading price of the Subordinate Voting Shares for the ten trading days
immediately preceding such date as reported on the stock exchange on which the Subordinate Voting
Shares are listed for trading or quoted. Options are subject to time vesting conditions set out at the grant
date. Options vest and become exercisable in approximately equal tranches of 25% of the total award on
the first anniversary of the grant date and each of the next four anniversaries of the grant date and are
exercisable no later than 10 years after the grant date.
The Company did not grant any options during the years ended December 31, 2021 and 2020. The
Company currently does not have any options outstanding.
b) Restricted Share Units
Restricted Share Units (“RSUs”) may be granted as either Discretionary Restricted Share Units
(“Discretionary RSUs”) or as Elective Restricted Share Units (“Elective RSUs”). Discretionary RSUs may be
granted to eligible persons at such time as determined by the Board pursuant to recommendations of the
Committee. In addition, the Board may, on fixed dates and upon certain conditions determined by the
Board, permit an eligible employee to elect to defer receipt of all or a portion of his or her annual incentive
bonus payable by the Company and receive in lieu thereof an award of RSUs, being the Elective RSUs. The
value of each RSU is based on the share price of the Company’s Subordinate Voting Shares. Discretionary
RSUs will vest and be settled no later than December 31 of the calendar year which is no earlier than three
years and no later than five years after the calendar year in which the Discretionary RSU was granted.
Elective RSUs will vest immediately and be settled no later than December 31 of the calendar year which
is three years after the calendar year in which the Elective RSU was granted. Discretionary RSUs are share
settled in Subordinate Voting Shares and Elective RSUs are cash settled. The Committee will determine
whether and to what extent dividend equivalents will be credited to a participant’s account with respect
to awards of RSUs.
During the year ended December 31, 2021, the Company granted 205,054 Discretionary RSUs (2020 -
223,830). The Company recorded a share-based compensation expense of $449,657 related to its
outstanding Discretionary RSUs (2020 - $171,180). As at December 31, 2021, the Company had 428,884
Discretionary RSUs outstanding (2020 - 223,830) and no Elective RSUs outstanding (2020 - nil).
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
(Presented in Canadian Dollars)
58
FAX Capital — 2021 Annual Report
12. Long-term Incentive Plan (continued)
c) Deferred Share Units
Deferred Share Units (“DSUs”) may be granted as either Discretionary Deferred Share Units
(“Discretionary DSUs”) or as Elective Deferred Share Units (“Elective DSUs”). Discretionary DSUs may be
granted to eligible persons at such time as determined by the Board pursuant to recommendations of the
Committee. In addition, the Board may permit an eligible participant to elect to defer receipt of all or a
portion of his or her annual board retainer payable by the Company and receive in lieu thereof an award
of DSUs, being the Elective DSUs. The value of each DSU is based on the share price of the Company’s
Subordinate Voting Shares. Discretionary DSUs vest based on the period determined by the Committee
at the time the award is granted. Elective DSUs vest immediately at the time the award is granted. DSUs
are settled after the time a participant ceases to be a director or employee of the Company for any reason
and by December 31 of the first calendar year that commences after such time. DSUs are cash settled.
The Committee will determine whether and to what extent dividend equivalents will be credited to a
participant’s account with respect to awards of DSUs.
During the year ended December 31, 2021, the Company granted 24,474 Elective DSUs (2020 - 24,946).
The Company recorded a share-based compensation expense of $106,651 related to its outstanding
Elective DSUs (2020 - $88,558. The liability related to the Company’s Elective DSUs was $195,209 at
December 31, 2021 (2020 - $88,558). As at December 31, 2021, the Company had 49,420 Elective DSUs
outstanding (2020 - 24,946) and no Discretionary DSUs outstanding (2020 - nil).
d) Performance Share Units
Performance Share Units (“PSUs”) may be granted to eligible persons at such time as determined by the
Board pursuant to recommendations of the Committee. PSUs are subject to performance and time vesting
conditions. The performance criteria that shall be used to determine the vesting of the PSUs may include
criteria based upon the achievement of Company-wide, divisional or individual goals, or as may otherwise
be determined by the Board. The value of each PSU is based on the share price of the Company’s
Subordinate Voting Shares. PSUs will vest and be settled no later than December 31 of the calendar year
which is three years after the calendar year in which the PSU was granted. The Committee will determine
whether and to what extent dividend equivalents will be credited to a participant’s account with respect
to awards of PSUs. PSUs are cash settled.
During the year ended December 31, 2021, the Company granted 205,714 PSUs (2020 - 362,756). The
Company recorded a share-based compensation expense of $2,260,166 related to its outstanding PSUs
(2020 - $920,854). The liability related to the Company’s PSUs was $3,181,019 at December 31, 2021
(2020 - $920,854). As at December 31, 2021, the Company had 568,470 PSUs outstanding (2020 -
362,756).
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
(Presented in Canadian Dollars)
59
FAX Capital — 2021 Annual Report
13. Earnings per share
Basic and diluted earnings per common share are calculated as follows:
The following potential common shares are anti-dilutive and are therefore excluded from the weighted
average number of common shares for the purpose of diluted earnings per share.
The Company’s Multiple Voting Shares and its Subordinate Voting Shares are both classes of common
shares of the Company. The Company’s Founder Warrants expired on November 22, 2021, in accordance
with their terms, and were delisted from the TSX.
14. Related Party Transactions
The following transactions have occurred with related parties in the normal course of operations.
a) The Company and Federated Capital Corp. (“Federated Capital”), the parent company of Fax
Investments, entered into an agreement (the “Administrative Services Agreement”) on November
21, 2019 whereby the Company is provided access to certain office space and supplies, computers,
communication equipment and administrative personnel provided by Federated Capital. As
consideration for such services (including the use of office space), the Company has agreed to pay
Federated Capital a fee equal to the costs and expenses of Federated Capital in providing such
services and office space, plus 5%. For the year ended December 31, 2021, Federated Capital charged
the Company expenses under the Administrative Services Agreement of $180,275 (2020 - $137,397).
On May 26, 2021, the Company granted the Chief Executive Officer (“CEO”) $300,000 of RSUs in lieu
of the Company paying the CEO short-term cash compensation. Prior to this, Federated Capital paid
the compensation related expenses of the CEO and did not allocate these costs to the Company. In
addition, Federated Capital pays the compensation related expenses of an Executive Vice-President
of the Company and does not allocate these costs to the Company.
2021
2020
Net income available to common shareholders
15,040,626
$
19,321,667
$
Weighted average number of common shares outstanding
- basic
42,758,516
42,996,056
- diluted
43,144,483
43,156,284
Earnings per common share
Basic
0.35
$
0.45
$
Diluted
0.35
$
0.45
$
2021
2020
Founder Warrants
-
15,559,500
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
(Presented in Canadian Dollars)
60
FAX Capital — 2021 Annual Report
14. Related Party Transactions (continued)
b)
Fax Investments has agreed to pay at the end of each fiscal year of the Company, certain specified
operating expenses of the Company exceeding 2.85% of the Company’s average month-end book
value for such fiscal year until December 31, 2024. The Company’s specified operating expenses
were above this threshold in the year ended December 31, 2021. Accordingly, the Company has
recorded a receivable of $100,525 from Fax Investments for the reimbursement of excess operating
expenses in the year ended December 31, 2021 (2020 - $nil).
c)
On March 23, 2021, the Company’s subsidiary, 2794677 Ontario Corp., completed the acquisition of
an approximate 78% controlling interest in Carson Dunlop for cash consideration of $11,750,000,
plus a working capital adjustment of $1,633,819. The acquisition was funded by the Company
acquiring common shares of 2794677 Ontario Corp. for $12,883,819 and an intercompany loan of
$500,000, which was repaid by 2794677 Ontario Corp. in July, 2021.
Carson Dunlop agreed to reimburse the Company for its third-party transaction and due diligence
expenses incurred in this transaction. As a result of this commitment, during the year ended
December 31, 2021, Carson Dunlop reimbursed the Company $343,590 of the third-party
transaction and due diligence expenses.
Key Management Personnel
Key management personnel are defined as those individuals having authority and responsibility for
planning, directing, and controlling the activities of the Company. The Company considers its executive
officers and its directors to be its key management personnel. Prior to the grant of the RSUs to the CEO
on May 26, 2021, Federated Capital paid the CEO’s annual salary of $200,000 and did not allocate this
cost to the Company. In addition, Federated Capital pays an Executive Vice President’s annual base salary
of $100,000 and does not allocate this cost to the Company (refer to Note 14 (a)).
Compensation related expenses for key management personnel for the year ended December 31, 2021
was $1,480,853 (2020 - $668,828).
These expenditures were allocated as follows in the financial statements:
2021
2020
$
$
Compensation (Refer to Note 14 (a))
347,670
330,826
Director fees
210,000
225,833
Share-based compensation
923,183
112,169
1,480,853
668,828
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
(Presented in Canadian Dollars)
61
FAX Capital — 2021 Annual Report
15. Management of Capital
The Company includes the following in its managed capital:
The Company is not subject to externally imposed capital requirements.
16. Financial Instruments
Credit Risk
Credit risk is the risk of loss associated with a counter-party’s inability to fulfil its payment obligations. The
Company's maximum exposure to credit risk was $408,109 as of December 31, 2021 (2020 - $1,426,365),
being the value of its dividend receivable of $260,262 (2020 - $211,818), interest receivable of $46,141
(2020 - $870,957) and receivables from related parties of $101,706 (2020 - $343,590). Management
believes these receivables are a low credit risk.
Liquidity Risk
Liquidity risk is the risk that the Company will not have sufficient cash resources to meet its financial
obligations as they come due. The Company did not generate cash flows from its principal operations and
relied on its cash balance to pay its liabilities. Management ensures it maintains sufficient cash on hand
for continued operations.
There have been no changes to management’s methods for managing liquidity risk since December 31,
2020. The Company has working capital of $71,626,349 as of December 31, 2021 (2020 - $108,066,758)
and in management’s judgment, the Company has sufficient working capital to continue to fund its
operations and to pay its liabilities for the next fiscal year.
2021
2020
$
$
Multiple Voting Shares
123,050,811
123,050,811
Subordinate Voting Shares
61,635,028
61,616,141
Founder Warrants
-
4,888,632
Contributed surplus
5,422,847
171,180
Retained earnings
32,110,389
17,192,611
222,219,075
206,919,375
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
(Presented in Canadian Dollars)
62
FAX Capital — 2021 Annual Report
16. Financial Instruments (continued)
Liquidity Risk (continued)
The following is a maturity analysis of financial liabilities based on their contractual maturities:
The following is a liquidity analysis of the Company's assets:
Market Risk
Market risk is the potential for loss to the Company from changes in the values of its financial instruments
due to changes in equity prices, foreign exchange rates or interest rates.
Less than
1 - 3
4 - 5
1 year
years
years
Total
$
$
$
$
December 31, 2021
Accounts payable and accrued liabilities
1,465,220
3,181,019
-
4,646,239
1,465,220
3,181,019
-
4,646,239
December 31, 2020
Accounts payable and accrued liabilities
1,366,626
920,854
-
2,287,480
Due to broker
606,366
-
-
606,366
1,972,992
920,854
-
2,893,846
Payments due by period
Less than
More than
1 year
1 year
Non-liquid
Total
$
$
$
$
December 31, 2021
Cash and cash equivalents
76,086,935
-
-
76,086,935
Accounts and other receivables
408,109
-
-
408,109
76,495,044
-
-
76,495,044
December 31, 2020
Cash and cash equivalents
109,800,255
-
-
109,800,255
Accounts and other receivables
1,426,365
-
-
1,426,365
111,226,620
-
-
111,226,620
Liquidity by period
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
(Presented in Canadian Dollars)
63
FAX Capital — 2021 Annual Report
28
16. Financial Instruments (continued)
Market Risk (continued)
Equity Price Risk
Equity price risk is the risk that the fair value of, or future cash flows from, the Company’s financial
instruments will significantly fluctuate due to changes in market prices. All securities present a risk of loss
of capital. Any equity and derivative instrument that the Company may hold is susceptible to market price
risk arising from uncertainties about future prices of the instruments. Management moderates this risk
through a careful selection of securities and other financial instruments within the parameters of the
investment strategy. The maximum risk resulting from financial instruments is equivalent to their fair
value.
The most significant exposure for the Company to equity price risk arises from its investment in publicly
and privately traded securities. As at December 31, 2021, for publicly traded securities, had the prices on
the respective stock exchanges for those securities increased or decreased by 10%, with all other variables
held constant, net assets would have increased or decreased, respectively, by approximately $13,797,416
(December 31, 2020 - $9,882,604) or approximately 6.1% (December 31, 2020 - 4.7%) of total assets. In
practice, the actual results may differ. Management is unable to meaningfully quantify any correlation of
the price of its privately owned investment to changes in a benchmark index.
There has been no change in the Company's long-term investment strategy, despite the COVID-19
pandemic.
Foreign Currency Risk
Foreign currency risk is the risk that fluctuations in the rates of exchange on foreign currency would impact
the Company’s future cash flows. The Company has minimal exposure to foreign exchange fluctuations
as it only has an immaterial amount of cash held in a United States (“US”) dollar bank account. The
Company has no other assets or liabilities denominated in US dollars. There have been no changes in the
Company's foreign currency risk management strategies for the year ended December 31, 2021.
Interest Rate Risk
Interest rate risk is the risk that the fair value of future cash flows from a financial instrument will fluctuate
due to changes in market interest rates. The Company’s exposure to interest rate risk relates to its ability
to earn interest income on cash and cash equivalents. The fair value of the Company’s cash and cash
equivalents affected by changes of interest rates is minimal. There have been no changes to
managements’ strategies to mitigate interest rate risk for the year ended December 31, 2021.
17. COVID-19
COVID-19 was declared a pandemic by the World Health Organization in early 2020. At that time, the
Company implemented its business continuity plan, which included moving all employees to work from
home. To date, the Company’s ability to meet its investments objectives has otherwise not been
materially impacted. While some regions of the world have started to roll back the emergency measures
they enacted to combat the spread of COVID-19, the overall impact of the COVID-19 pandemic is still
uncertain and dependent on the progression of the virus and on actions taken by governments, businesses
and individuals, which could vary by country and result in differing outcomes. As a result, it is not possible
to reliably estimate the length and severity of these developments and the impact on the financial results
and condition of the Company, or its portfolio investments, in future periods.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
(Presented in Canadian Dollars)
64
FAX Capital — 2021 Annual Report
29
18. Comparative Financial Statements
The comparative financial statements have been reclassified from statements previously presented to
conform to the presentation of the 2021 financial statements.
19. Approval of Financial Statements
The financial statements were approved by the Board of Directors and authorized for issue on March 29,
2022.
Directors of the Company
John F. Driscoll
Chairman
Blair Driscoll
Chief Executive Officer
Paul Gibbons
Chair of the Audit Committee
Edward Jackson
Chair of the Governance, Compensation
and Nominating Committee
Frank Potter
Lead Independent Director
Auditor
Deloitte LLP
Transfer Agent and Registrars
Computershare Trust Company of Canada, Toronto
Share Listing
The Company’s Subordinate Voting Shares
trade on the Toronto Stock Exchange under
the symbol “FXC”.
Officers of the Company
Blair Driscoll
Chief Executive Officer
Ryan Caughey
General Counsel and Corporate Secretary
Sean Driscoll
Executive Vice-President
Nickolas Lim
Managing Director
Edward Merchand
Chief Financial Officer
Marc Robinson
Managing Director
Head Office
2 Bloor Street East, Suite 701
Toronto, Ontario, Canada M4W 1A8
Telephone: (647) 954-5310
Website: www.faxcapitalcorp.com
Corporate Information
FAX Capital Corp.
2 Bloor Street East,
Suite 701
Toronto, Ontario,
Canada M4W 1A8