As
filed with the Securities and Exchange Commission on January 10,
2018
Registration
No.
333-222008
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 2
FORM S-1/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933
Q BIOMED INC.
(Name
of Issuer in Its Charter)
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Nevada
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(State
or other jurisdiction
of
incorporation)
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2834
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30-0967746
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(Primary
Standard Industrial Classification Code Number)
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(IRS
Employer Identification No.)
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c/o Ortoli Rosenstadt LLP
501 Madison Avenue – 14th Floor
New York, NY 10022
Telephone: 212-588-0022
Fax:
212-826-9307
(Address
including zip code, and telephone number, including area code, of
registrant’s principal executive offices)
Nascent
Group Inc.
1000 N.
Green Valley Parkway, #440-484
Henderson,
NV 89704
(702) 879-8565
(Name,
address, including zip code, and telephone number, including area
code, of agent for service)
_______________________
Copies of communications to:
William S. Rosenstadt, Esq.
Timothy Li Dockery, Esq.
Ortoli Rosenstadt LLP
501 Madison Avenue - 14th
Floor
New York, New York 10022
(212)-588-0022
|
Gregory Sichenzia, Esq.
Jay Yamamoto, Esq.
Sichenzia Ross Ference Kesner LLP
1185 Avenue of the Americas,
37
th
Floor
New York, New York 10036
(212) 930-9700
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_______________________
As soon as practicable after this registration statement becomes
effective.
Approximate
date of commencement of proposed sale to the public
If any
of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box:
☒
If this
Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. ☐
If this
Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
☐
If this
Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated
filer
☐
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Accelerated
filer
☐
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Non-accelerated
filer
☐
(Do not
check if a smaller reporting company)
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Smaller
reporting
company
☒
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Emerging
Growth Company
☐
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If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided to
Section 7(a)(2)(B) of the Securities Act. ☐
CALCULATION OF REGISTRATION FEE
Title of each class of securities to be
registered(1)
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Proposed Maximum Offering Price per
Share
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Proposed
Maximum Aggregate Offering Price
(2)
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Amount
of Registration Fee
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Common Stock,
$0.001 par value per share
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2,250,000
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$
6.00
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$
13,500,000
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$
1,680.75
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Common Stock,
underlying warrants (3)
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2,250,000
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$
4.73
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$
10,642,500
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$
1,325.00
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Common Stock,
underlying placement agent warrants (3)(4)
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135,000
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$
4.73
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$
638,550
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$
79.50
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Total
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4,635,000
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$
24,781,050
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$
3,085.25
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(1)
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The
securities registered hereunder also include the shares of common
stock as may be issued upon exercise of warrants registered
hereby.
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(2)
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Estimated
solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(a) under the
Securities Act, using a bona fide estimate of the maximum offering
price.
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(3)
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Pursuant
to Rule 416 under the Securities Act, there are also being
registered such additional securities as may be issued to prevent
dilution resulting from share splits, share dividends or similar
transactions.
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(4)
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The warrants and the placement agent warrants are exercisable at
110% of the closing price of the registrant’s common stock on
the OTCQB on the date that the registrant first enters into a
securities purchase agreement for this offering. The
registrant has calculated the exercise price for purposes of the
registration fee in accordance with Rule 457(c) of the Securities
Act as $4.73, which is 110% of the closing price of $4.30 for the
registrant’s common stock on the OTCQB on January 5,
2018.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL
THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY
STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF
1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
The information in this prospectus is not complete and may be
changed. These securities may not be resold until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these
securities, and it is not soliciting offers to buy these securities
in any jurisdiction where the offer or sale is not
permitted.
Subject to Completion
Preliminary Prospectus dated January 10, 2018
PROSPECTUS
2,250,000 Shares of Common Stock
2,250,000 Warrants to Purchase Shares of Common Stock
We are
offering 2,250,000 shares of
our common stock and 2,250,000 warrants to purchase a share of our
common stock. Each share of common stock is being sold together
with a
warrant to purchase up
to
one
share of our common
stock
on a best-efforts, any-or-all basis,
at a combined
offering price between $4.00 and $6.00
per share of common
stock and accompanying one warrant as determined by arm's-length
negotiations between the purchaser and us.
The shares and warrants can only be purchased
together in this offering but will be issued separately and will be
immediately separable upon issuance.
Each
warrant is exercisable to purchase one share of common stock for a
period of five years from their date of issuance. Each warrant will
have an initial exercise price per share that is 110% of the
closing price per share on the OTCQB on the date that we first
enter into a securities purchase agreement for this
offering
. This prospectus
also covers the shares of common stock issuable from time to time
upon exercise of the warrants.
We have
not made any arrangements to place funds raised in this offering in
an escrow, trust or similar account. Any investor who purchases
securities in this offering will have no assurance that other
purchasers will invest in this offering. Accordingly, if we file
for bankruptcy protection or a petition for insolvency bankruptcy
is filed by creditors against us, your funds will become part of
the bankruptcy estate and administered according to the bankruptcy
laws.
This offering may be closed without further notice to you. We have
not arranged to place the funds from investors in an escrow, trust
or similar account.
Our
common stock is listed on the OTCQB under the symbol
“QBIO.” On January 5, 2018, the last reported sale
price of our common stock on the OTCQB was $ 4.30.
There
is no established trading market for the warrants, and we do not
expect an active trading market to develop. In addition, we do not
intend to list the warrants on any securities exchange or other
trading market. Without an active trading market, the liquidity of
the warrants will be limited, if not non-existent.
Investing in our securities involves risks. You should review
carefully the risks and uncertainties described under the heading
“
Risk
Factors
” on page 1.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
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100% of Offering
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50% of Offering
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25% of Offering
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Per Share (1)
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Total
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Per Share
(1)
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Total
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Per Share
(1)
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Total
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Public
offering price
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$5.00
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$11,250,000
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$5.00
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$5,625,000
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$5.00
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$2,812,500
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Placement
agents’ fees (2)(3)
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$0.40
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$900,000
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$0.40
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$450,000
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$0.40
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$225,000
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Proceeds
to us, before expenses
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$4.60
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$10,350,000
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$4.60
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$5,175,000
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$4.60
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$2,587,500
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(1
)
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Assuming a public
offering price of $5.00, the midpoint of the price range set forth
above.
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(2
)
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In addition, we
will reimburse certain expenses of the placement agents in
connection with this offering. See “Plan of
Distribution” of this prospectus for more information
regarding the compensation arrangements with the placement
agents.
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(3)
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Does not include
the placement agent warrants
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We have engaged Roth Capital Partners, LLC to act as our lead
placement agent and Brookline Capital Markets LLC to act as co-lead
placement agent in connection with this offering. The placement
agents are “underwriters” within the meaning of
Section 2(a)(11) of the Securities Act of 1933, as amended.
The placement agents may engage one or more sub-placement agents or
selected dealers to assist with this offering. The placement agents
are not purchasing the securities offered by us, nor are they
required to sell any specific number or dollar amount of
securities, but will assist us in this offering on a commercially
reasonable “best efforts” basis. There are no
arrangements to place the funds raised in this offering in an
escrow, trust or similar account. We have agreed to pay the
placement agents a cash fee equal to 8% of the gross proceeds of
this offering and to issue to the placement agents, or their
designees, a warrant to purchase that number of our common stock
equal to 6% of the common stock issued or issuable in the offering
(excluding shares of common stock issuable upon the exercise of any
warrants issued to investors in the Offering). The cash and warrant
fee mentioned above is to be halved for certain investments made by
parties introduced by us. We have also agreed to reimburse the
placement agents for their reasonable out-of-pocket legal and other
expenses up to $50,000. We estimate that the total other expenses
of this offering, excluding the placement agents’ fees, will
be approximately $75,000. Because there is no minimum offering
amount required as a condition to closing in this offering, the
actual public offering amount, placement agents’ fees, and
proceeds to us, if any, are not presently determinable and may be
substantially less than the total maximum offering amounts set
forth above. See “Plan of Distribution” of this
prospectus for more information on this offering and the placement
agents’ arrangements. All costs associated with the
registration will be borne by us.
Delivery of the securities offered hereby is expected to be made on
or about ,
2018, subject to the satisfaction of certain
conditions.
Lead Placement Agent
Roth Capital Partners
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Co-Lead Placement Agent
Brookline Capital Markets
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The date of this prospectus is
, 2018
Table of Contents
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ii
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1
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12
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13
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13
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15
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15
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17
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17
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20
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27
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28
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39
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40
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40
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41
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42
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42
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42
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42
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F-1
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i
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This summary highlights selected information contained elsewhere in
this prospectus. This summary does not contain all the
information that you should consider before investing in the common
stock. Before making an investment decision, you should
carefully read the entire prospectus. In particular, attention
should be directed to the sections entitled “Risk
Factors”, “Business”, “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” and the financial statements and related notes
thereto contained herein.
Business Overview
We are
a biotechnology acceleration and development company focused on
acquiring and in-licensing pre-clinical, clinical-stage and
approved life sciences therapeutic products. Currently, we have a
portfolio of four therapeutic products, including an FDA approved
product, Strontium 89, a radiopharmaceutical for metastatic cancer
bone pain, and three development stage products: QBM-001 for rare
pediatric non-verbal autism spectrum disorder, Uttroside-B for
liver cancer, and MAN 01 for glaucoma. Our Strontium 89 is the only
generic form of Metastron (Strontium-89 Chloride injection)
approved by the FDA. We aim to maximize risk-adjusted returns by
focusing on multiple assets throughout the discovery and
development cycle. We expect to benefit from early positioning in
illiquid and/or less well known privately-held assets, thereby
enabling us to capitalize on valuation growth as these assets move
forward in their development.
(i)
license and acquire
pre-commercial innovative life sciences assets in different stages
of development and therapeutic areas from academia or small private
companies;
(ii)
license and acquire
FDA approved drugs and medical devices with limited current and
commercial activity; and
(iii)
accelerate and
advance our assets to the next value inflection point by providing
strategic capital, business development and financial advice and
experienced sector specific advisors.
In
2018, we plan: (i) to generate revenue from our Strontium 89
product for pain palliation in bone metastases as well as commence
a therapeutic expansion post-marketing phase 4 trial for this
product; and (ii) to commence a phase 2/3 pivotal trial with our
QBM-001 asset to address a non-verbal learning disorder in autistic
children. In 2019, we plan to file investigational new drug
applications, or INDs, with FDA for each of our Uttroside-B and MAN
01 assets for the treatment of liver cancer and glaucoma,
respectively.
Following
is a summary of our product pipeline.
ii
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Strontium 89
Strontium
89 is an FDA approved generic drug for pain palliation in bone
metastases, primarily from breast, prostate and lung cancers. Our
product is the only FDA approved generic version of this
radiopharmaceutical and is reimbursable by Medicare and other
healthcare insurance payors. Strontium 89 is a pure beta emitting
radiopharmaceutical. It is a chemical analog of calcium and for
this reason, localizes in bone. There is a significant
concentration of both calcium and strontium analogs at the site of
active osteoblastic activity. This is the biochemical basis for its
use in treating metastatic bone disease.
Strontium
89 shows prolonged retention in metastatic bone lesions with a
biological half-life of over 50 days, remaining up to 100 days
after injection of the radiopharmaceutical, whereas the half-life
in normal bone tissue is approximately 14 days. Strontium-89 has
been shown to decrease pain in patients with osteoblastic
metastases resulting from prostate cancer. When Strontium-89
Chloride is used, pain palliation occurs in up to 80% of patients
within 2 to 3 weeks after administration and lasts from 3 to 12
months with an average of about 6 months.
In the
United States, of the estimated 450,000 individuals newly diagnosed
with either breast or prostate cancer, one in three will develop
bone metastases, a common cause of pain in cancer patients. These
figures are expected to increase as the potential patient
population ages.
Strontium
89 is a non-opioid drug for the treatment of debilitating
metastatic cancer pain in the bone. We believe there is a
significant opportunity to market this effective drug as
practitioners and caregivers are being encouraged to reexamine
their use of opiates for treating patients in pain. We estimate the
palliation market to be approximately $300 million annually.
Additional therapeutic indications for Strontium 89 are possible,
and we intend to pursue those in 2018, hopefully resulting in entry
into a multi-billion dollar therapeutic area.
QBM 001
Causes
of non-verbal learning disorder have been linked to several
complications that range from a specific mutated gene as with
Fragile X Syndrome and Dravet Syndrome or autoimmunity, where the
body’s immune system is attacking parts of the brain. Trauma,
microbial infections and environmental factors have also been
linked to non-verbal learning disorder. Ongoing research is helping
to further explain the root cause of why children become non-verbal
or minimally verbal.
Children
born into families where there is a genetic history of autism or
epileptic spectrum disorders or that have a sibling that has been
diagnosed with an autistic or epileptic spectrum disorder have a
much higher chance of becoming non-verbal.
More
than 60,000 US children develop Autism Spectrum Disorders
(“ASD”) every year, of whom 20,000 become non-verbal. A
similar number of children with ASD symptoms in Europe develop
pediatric non-verbal disorder each year. No drugs are currently
available to ameliorate this condition. In the United States, of
the estimated 20,000 who become non- or minimally verbal and will
require assisted living for the rest of their life. The lifetime
cost of that care is estimated at $10 million per
person.
iii
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Cognitive
intervention is the only form for treatment that has shown to help
improve speech capability and social interaction; however, it has
not been able to alleviate the lifetime burden of $10 million per
person for cost of care.
This is compounded by an additional
$10 million during the lifespan of the person due to loss in
productivity in addition to severe emotional strain for the child
and the parents.
We are
developing QBM-001 to be administered to high-risk genetically
identified children during the second year of life to regulate
faulty membrane channels that are known to cause migraines and/or
seizures. This drug acts as an allosteric regulator of these faulty
channels in the brain to potentially alleviate the condition and
allow toddlers to actively develop language and speech and avoid
life-long speech and intellectual disability of being
non-verbal.
As
there are no treatment options for these patients, we believe there
is a significant economic opportunity to bring a drug to market in
this indication. The active ingredient in QBM-001 is well known and
has been approved by worldwide regulators for many years. Using a
novel delivery and formulation for the active ingredient, we intend
to advance this drug through the 505(b)(2) pathway in a single
phase 2/3 clinical trial that we intend to commence in
2018.
UTTROSIDE-B
The
liver is the football-sized organ in the upper right area of the
belly. Symptoms of liver cancer are uncommon in the early stages.
Liver cancer treatments vary, but may include removal of part of
the liver, liver transplant, chemotherapy, and in some cases
radiation. Primary liver cancer (hepatocellular carcinoma) tends to
occur in livers damaged by birth defects, alcohol abuse, or chronic
infection with diseases such as hepatitis B and C, hemochromatosis
(a hereditary disease associated with too much iron in the liver),
and cirrhosis. In the United States, the average age at onset of
liver cancer is 63 years. Men are more likely to develop liver
cancer than women, by a ratio of 2 to 1.
The
only currently marketed drug is a tryosine kinase inhibitor
antineoplastic agent, sorafinib. Current sales of sorafinib are
estimated at $1 billion per year.
Uttroside-B
appears to affect phosphorylated JNK (pro survival signaling) and
capcase activity (apoptosis in liver cancer). It is a natural
compound fractionated Saponin derived from the Solarim Nigrum
plant. It is a small molecule that showed in early investigation to
increase the cytotoxicity of a variety of liver cancer cell types
and importantly to be up to ten times more potent than Sorafenib in
pre-clinical studies. This potency motivates us to work with our
partners to synthesize the molecule and move into a clinical
program. We expect to initiate clinical work in late
2018.
MAN 01
We are
developing MAN 01 as a first-in-class therapeutic eye-drop for the
treatment of Primary Open Angle Glaucoma.
MAN 01
targets the Schlemm's canal and its role in regulating interocular
eye pressure, one of the leading causes of glaucoma. No other
glaucoma company is targeting the Schlemm's canal, the main
drainage pathway in the eye. This unique vessel is responsible for
70-90% of the fluid drainage in the eye. MAN 01 is currently in the
lead optimization stage of its pre-clinical testing. We plan to
initiate IND enabling studies is 2018 and file an IND in
2019.
We
believe that a deep pipeline of novel therapeutics can be developed
from this research platform, which would treat a spectrum of
vascular diseases including cystic kidney disease, pediatric
glaucoma and inflammation.
Recently,
a number of significant deals and announcements have been made in
the ophthalmology space. Aerie Pharmaceuticals, Inc. announced
successful efficacy data from its first phase III registration
study, Mercury 1, on Roclatan. Roclatan (once daily) is being
evaluated for its ability of lowering intraocular pressure, or IOP,
in patients with glaucoma or ocular hypertension. The success of
this Aerie trial is an indication of the importance of this market,
and the acute need for novel drugs to treat the over 60 million
sufferers of this disease. In addition, in October 2015, Allergan
plc, a leading global pharmaceutical company, acquired AqueSys,
Inc. a private clinical stage medical device company focused on
developing ocular implants that reduce IOP associated with
glaucoma, in an all-cash transaction for a $300 million upfront
payment and regulatory approval and commercialization milestone
payments related to AqueSys' lead development
programs.
Corporate Information
Our
principal executive offices are located at 501 Madison Avenue,
14
th
Floor, New York, NY 10022, and our telephone number is (212)
588-0022.
iv
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The Offering
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Securities offered
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2,250,000 shares and
2,250,000
warrants.
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Common stock outstanding immediately before the
Offering:
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12,206,409
shares as of January 4, 2018
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Common stock outstanding immediately after the
Offering:
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If we
sell 100% of the shares offered hereby, 14,456,409 shares will be
outstanding and, assuming the purchasers exercise the warrants and
no additional shares are issued prior to completion of their
exercise, 16,706,409
shares will be
outstanding.
If we
sell 50% of the shares offered hereby, 13,331,409
shares
will be outstanding and, assuming the purchasers exercise the
warrants and no additional shares are issued prior to completion of
their exercise,
14,456,409
shares will
be outstanding.
If we
sell 25% of the shares offered hereby,
12,768,909
s
hares will be
outstanding and, assuming the purchasers exercise the warrants and
no additional shares are issued prior to completion of their
exercise,
13,331,409
shares will be outstanding.
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Leak-out agreement:
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Until the earlier of
(i) ,
2018 and (ii) the fifth consecutive trading day during which the
VWAP (as defined in the warrants) for each such trading day during
such period is equal to or exceeds
$ per share,
each investor either alone or together with its affiliates, in this
offering will be limited to selling no more
than % of the daily trading
volume of the common stock on such trading day, including shares of
common stock or shares of common stock underlying any convertible
securities (including any shares of common stock acquirable upon
exercise of purchased warrants).
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Use of Proceeds:
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The
proceeds that we receive in this offering depends on the public
offering price and the number of shares that we sell hereunder.
Assuming a
public offering price of
$
5.00
per
share
(
the midpoint of the
price range set forth on the cover of this preliminary
prospectus
) and a
fter estimated
placement agents
’ fees and estimated
offering expenses payable by us, we will receive net proceeds
of:
●
$
10,255,000
if we sell 100% of the shares;
●
$
5,050,000
if we sell 50% of the shares; and
●
$
2,462,500
if we sell 25% of the shares.
We
intend to use the proceeds from the sale of the shares for, in our
current order of importance, (i) general corporate purposes, (ii)
initiating commercial production and sales of Strontium89 Chloride
(“SR89”), an FDA approved generic drug for the
treatment of pain associated with metastatic bone cancer, (iii)
progressing the pre-IND work on, and IND submission of, QBM001 for
the treatment of young children with a rare autistic spectrum
disorder causing them to lose the ability to speak, (iv) protocol
design and regulatory submission for a post marketing Phase IV
clinical trial to expand the therapeutic indication for SR89, and
(v) IND enabling studies for both Uttroside-B (Liver cancer drug)
and MAN01 for the treatment of open angle glaucoma.
If all
of the warrants are exercised as issued in a 100% offering, we will
receive additional gross proceeds of $
12,375,000, and we
will receive gross proceeds of $
742,500
if
the placements agents’ warrants are exercised assuming an
offering price of $5.00 per share (the midpoint of the price range
set forth on the cover of this preliminary prospectus). We intend
to use any such proceeds for general corporate and working capital
or other purposes that our Board of Directors deems to be in our
best interest. As of the date of this prospectus, we cannot
specify with certainty the particular uses for the net proceeds we
may receive upon exercise of the warrants. Accordingly, we
will retain broad discretion over the use of these proceeds, if
any.
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Quotation of common stock:
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Our
common stock is listed for quotation on the OTCQB market under the
symbol “QBIO.”
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Dividend policy:
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We
currently intend to retain future earnings, if any, to fund the
development and growth of our business. Therefore, we do not
currently anticipate paying cash dividends on our common
stock.
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Risk factors:
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An
investment in our company is highly speculative and involves a
significant degree of risk. See “Risk Factors” and
other information included in this prospectus for a discussion of
factors you should carefully consider before deciding to invest in
shares of our common stock.
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OTCQB Ticker
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QBIO
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v
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Investing
in our securities involves a high degree of risk. You should
carefully consider and evaluate all of the information included and
incorporated by reference or deemed to be incorporated by reference
in this prospectus. Our business, results of operations or
financial condition could be adversely affected by any of these
risks or by additional risks and uncertainties not currently known
to us or that we currently consider immaterial.
Risks Related to our Company
If we do not obtain additional financing, our business may be at
risk or execution of our business plan may be delayed.
As of
the date hereof, we have raised our operating
funds through contacts, high net-worth individuals and
strategic investors situated in the United States and Cayman
Islands. We have not generated any revenue from operations since
inception. We have limited assets upon which to commence our
business operations and to rely otherwise. At August 31,
2017, we had cash and cash equivalents of approximately $2.5
million. As we have a monthly burn rate of approximately $500,000,
we anticipate that we will have to raise additional funds within
twelve months or curtail or discontinue operations if we do not
receive net proceeds of approximately $5,000,000 in this offering,
which would mean that we would have to sell at least 44.4% of the
shares offered hereby at the assumed offering price of
$5.00
(
the
midpoint of the price range set forth on the cover of this
preliminary prospectus
) and not taking
into account the placement agents’ commission and offering
expenses
. Additional funding will be needed to implement our
business plan that includes various expenses such as fulfilling our
obligations under licensing agreements, legal, operational set-up,
general and administrative, marketing, employee salaries and other
related start-up expenses. Obtaining additional funding will be
subject to a number of factors, including general market
conditions, investor acceptance of our business plan and results
from our business operations. These factors may impact the timing,
amount, terms or conditions of additional financing available to
us. If we are unable to raise sufficient funds, we will be forced
to scale back or cease our operations.
Our independent registered public accountant has issued a going
concern opinion after auditing our financial statements; our
ability to continue depends on our ability to raise additional
capital and our operations could be curtailed if we are unable to
obtain required additional funding when needed.
We will
be required to expend substantial amounts of working capital in
order to acquire and market our proposed products and establish the
necessary relationships to implement our business plan. We were
incorporated on November 22, 2013. Our operations to date were
funded entirely by capital raised from our private offering of
securities. We will continue to require additional financing to
execute our business strategy. We completely depend on
external sources of financing for the foreseeable future. Failure
to raise additional funds in the future will adversely affect our
business operations and may require us to suspend our operations,
which in turn may result in a loss to the purchasers of our common
stock. We entirely depend on our ability to attract and receive
additional funding from either the sale of securities or the
issuance of debt securities. Needed funds might never be available
to us on acceptable terms or at all. The inability to obtain
sufficient funding of our operations in the future could restrict
our ability to grow and reduce our ability to continue to conduct
business operations. The report of our independent registered
public accounting firm on our financial statements, included
herein, raised substantial doubt about our ability to continue as a
going concern. Our ability to continue as a going concern depends
on our ability to raise additional capital. If we are unable to
obtain necessary financing, we will likely be required to curtail
our development plans which could cause us to become dormant. Any
additional equity financing may involve substantial dilution to our
then existing stockholders.
Our business relies on intellectual property owned by third
parties, and this reliance exposes us to the termination of the
right to use that intellectual property and may result in
inadvertent infringement of patents and proprietary rights of
others.
Currently,
we have four assets. Our business depends on:
●
our ability to
continuously use the technology related to an eye drop treatment
for glaucoma, our Mannin platform, that we have licensed from
Mannin Research Inc.,
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our ability to
continuously use our intellectual property relating to generic
Strontium Chloride-89, our BioNucleonics platform, that we have
licensed from Bio-Nucleonics, Inc.,
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our ability to
continuously use our intellectual property relating to a rare
pediatric condition (nonverbal disorder), our ASDERA platform, that
we have licensed from ASDERA LLC and
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our ability to
continuously use our intellectual property relating to a chemical
compound derived from the plant
Solanum nigrum Linn, also known as
Black Nightshade or Makoi, that we seek to use to create
a
chemotherapeutic agent against liver cancer, our
u
ttroside p
latform,
and that we have licensed from
the Rajiv Gandhi Centre for
Biotechnology, an autonomous research institute under the
Government of India, known as RGCB, and the Oklahoma Medical
Research Foundation, or the OMRF.
1
If the
licenses were to terminate, we would lose the ability to conduct
our business pursuant to our plan of operations. Our
ability to pursue our business plan would then depend on finding
alternative platforms to license. We may not be able to
find an attractive platform on a timely and cost effective basis,
and even if we did, such platform might be inferior to the ones we
currently have a license to use and may not be attractive to
potential customers.
Many
entities, including some of our competitors, have or may obtain
patents and other intellectual property rights that cover or affect
products or services related to those assets that we
license. If a court determines that one or more aspect
of the licensed platform infringes on intellectual property owned
by others, we may be required to cease using that platform, to
obtain licenses from the owners of the intellectual property or to
redesign the platform in such a way as to avoid infringing the
intellectual property rights. If a third party holds intellectual
property rights, it may not allow us to use its intellectual
property at any price, which could materially adversely affect our
competitive position.
The
Mannin platform, BioNucleonics platform, the ASDERA platform
and the Uttroside platform may potentially infringe other
intellectual property rights. U.S. patent applications are
generally confidential until the Patent and Trademark Office issues
a patent. Therefore, we cannot evaluate the extent to which the
licensed platform may infringe claims contained in pending patent
applications. Further, without lengthy litigation, it is often not
possible to determine definitively whether a claim of infringement
is valid. We may not be in a position to protect the
intellectual property that we license as we are not the owners of
that intellectual property and do not currently have the financial
resources to engage in lengthy litigation.
Failure to maintain the license for, or to acquire, the
intellectual property underlying any license or sublicense on which
our plan of operations is based may force us to change our plan of
operations.
We have
to meet certain conditions to maintain the licenses for the
intellectual property underlying the Mannin platform, the
BioNucleonics platform, the ASDERA platform and the Uttroside
platform and to acquire such intellectual property. Such conditions
include payments of cash and shares of common stock, obtaining
certain governmental approvals, initiating sales of products based
on the intellectual property and other matters. We might not
have the resources to meet these conditions and as a result may
lose the licenses to the intellectual property that is vital to our
business.
We lack an operating history and have not generated any revenues to
date. Future operations might never result in revenues. If we
cannot generate sufficient revenues to operate profitably, we may
have to cease operations.
As we
were incorporated on November 22, 2013 and more recently changed
business direction, we do not have sufficient operating history
upon which an evaluation of our future success or failure can be
made. Our ability to achieve and maintain profitability and
positive cash flow depends upon our ability to manufacture a
product and to earn profit by attracting enough customers who will
buy our product or services. We might never generate
revenues or, if we generate revenues, achieve profitability.
Failure to generate revenues and profit will eventually cause us to
suspend, curtail or cease operations.
We may be exposed to potential risks and significant expenses
resulting from the requirements under section 404 of the
Sarbanes-Oxley Act of 2002.
We are
required, pursuant to Section 404 of the Sarbanes-Oxley Act of
2002, to include in our annual report our assessment of the
effectiveness of our internal control over financial reporting. We
expect to incur significant continuing costs, including accounting
fees and staffing costs, in order to maintain compliance with the
internal control requirements of the Sarbanes-Oxley Act of 2002.
Our management concluded that our internal controls and procedures
were not effective to detect the inappropriate application of US
GAAP for our most recent fiscal year. As we develop our business,
hire employees and consultants and seek to protect our intellectual
property rights, our current design for internal control over
financial reporting must be strengthened to enable management to
determine that our internal controls are effective for any period,
or on an ongoing basis. Accordingly, as we develop our
business, such development and growth will necessitate changes to
our internal control systems, processes and information systems,
all of which will require additional costs and
expenses.
In the
future, if we fail to complete the annual Section 404 evaluation in
a timely manner, we could be subject to regulatory scrutiny and a
loss of public confidence in our internal controls. In addition,
any failure to implement required new or improved controls, or
difficulties encountered in their implementation, could harm our
operating results or cause us to fail to meet our reporting
obligations.
Limited oversight of our management may lead to corporate
conflicts.
We
have only two directors who are also officers. Accordingly, we
cannot establish board committees comprised of independent members
to oversee functions like compensation or audit issues. In
addition, since we only have two directors, they have significant
control over all corporate issues.
Because we are not subject to compliance with rules requiring the
adoption of certain corporate governance measures, our shareholders
have limited protections against interested director transactions,
conflicts of interest and similar matters. The Sarbanes-Oxley
Act of 2002, as well as rules enacted by the SEC, the New York
Stock Exchange and the Nasdaq Stock Market, requires the
implementation of various measures relating to corporate
governance. These measures are designed to enhance the integrity of
corporate management and the securities markets and apply to
securities which are listed on the New York Stock Exchanges or the
Nasdaq Stock Market. Because we are not presently required to
comply with many of the corporate governance provisions, we have
not yet adopted these measures and, currently, would not be able to
comply with such corporate governance provisions. We do not have an
audit or compensation committee comprised of independent directors.
Our two directors perform these functions and are not independent
directors. Thus, there is a potential conflict in that our
directors are also engaged in management and participate in
decisions concerning management compensation and audit issues that
may affect management performance.
Until we have a larger board of directors that would include some
independent members, if ever, there will be limited oversight of
our directors’ decisions and activities and little ability
for minority shareholders to challenge or reverse those activities
and decisions, even if they are not in the best interests of
minority shareholders.
Additionally, these two directors beneficially own approximately
37% of our common stock. Although it is possible for them to be
outvoted by the remaining shareholders at a general or special
meeting if the two directors voted together, the size of their
shareholdings and the absence of any other person beneficially
owning more than 10% of our common stock would make this a
difficult undertaking.
2
Because the results of preclinical studies and early clinical
trials are not necessarily predictive of future results, any
product candidate we advance into clinical trials may not have
favorable results in later clinical trials, if any, or receive
regulatory approval.
Pharmaceutical
development has inherent risk. We will be required to demonstrate
through well-controlled clinical trials for our product candidates
for our Mannin platform, the ASDERA platform and the Uttroside
platform and any additional uses based on the BioNucleonics
platform that our product candidates are effective with a favorable
benefit-risk profile for use in their target indications before we
can seek regulatory approvals for their commercial sale. Success in
early clinical trials does not mean that later clinical trials will
be successful as product candidates in later-stage clinical trials
may fail to demonstrate sufficient safety or efficacy despite
having progressed through initial clinical testing. We also may
need to conduct additional clinical trials that are not currently
anticipated. Companies frequently suffer significant setbacks in
advanced clinical trials, even after earlier clinical trials have
shown promising results. In addition, only a small percentage of
drugs under development result in the submission of a New Drug
Application or Biologics License Application, known as BLA, to the
U.S. Food and Drug Administration and even fewer are approved for
commercialization.
Any product candidates we advance into clinical development are
subject to extensive regulation, which can be costly and time
consuming, cause unanticipated delays or prevent the receipt of the
required approvals to commercialize our product
candidates.
The
clinical development, manufacturing, labeling, storage,
record-keeping, advertising, promotion, import, export, marketing
and distribution of our product candidates are subject to extensive
regulation by the FDA in the United States and by comparable health
authorities in foreign markets. In the United States, we are not
permitted to market our product candidates until we receive
approval of a BLA from the FDA. The process of obtaining BLA
approval is expensive, often takes many years and can vary
substantially based upon the type, complexity and novelty of the
products involved. In addition to the significant clinical testing
requirements, our ability to obtain marketing approval for these
products depends on obtaining the final results of required
non-clinical testing, including characterization of the
manufactured components of our product candidates and validation of
our manufacturing processes. The FDA may determine that our product
manufacturing processes, testing procedures or facilities are
insufficient to justify approval. Approval policies or regulations
may change and the FDA has substantial discretion in the
pharmaceutical approval process, including the ability to delay,
limit or deny approval of a product candidate for many reasons.
Despite the time and expense invested in clinical development of
product candidates, regulatory approval is never
guaranteed.
The FDA
or another regulatory agency can delay, limit or deny approval of a
product candidate for many reasons, including, but not limited
to:
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the FDA
or comparable foreign regulatory authorities may disagree with the
design or implementation of our clinical trials;
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we may
be unable to demonstrate to the satisfaction of the FDA that a
product candidate is safe and effective for any
indication;
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the FDA
may not accept clinical data from trials which are conducted by
individual investigators or in countries where the standard of care
is potentially different from the United States;
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T the
results of clinical trials may not meet the level of statistical
significance required by the FDA for approval;
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we may
be unable to demonstrate that a product candidate’s clinical
and other benefits outweigh its safety risks;
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the FDA
may disagree with our interpretation of data from preclinical
studies or clinical trials;
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the FDA
may fail to approve our manufacturing processes or facilities or
those of third-party manufacturers with which we or our
collaborators contract for clinical and commercial supplies;
or
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the
approval policies or regulations of the FDA may significantly
change in a manner rendering our clinical data insufficient for
approval.
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With
respect to foreign markets, approval procedures vary among
countries and, in addition to the aforementioned risks, can involve
additional product testing, administrative review periods and
agreements with pricing authorities. In addition, recent events
raising questions about the safety of certain marketed
pharmaceuticals may result in increased cautiousness by the FDA and
comparable foreign regulatory authorities in reviewing new
pharmaceuticals based on safety, efficacy or other regulatory
considerations and may result in significant delays in obtaining
regulatory approvals. Any delay in obtaining, or inability to
obtain, applicable regulatory approvals would prevent us from
commercializing our product candidates.
3
Any product candidate we manufacture or advance into clinical
trials may cause unacceptable adverse events or have other
properties that may delay or prevent their regulatory approval or
commercialization or limit their commercial potential.
Unacceptable
adverse events caused by any of our product candidates that we
manufacture or advance into clinical trials could cause us or
regulatory authorities to interrupt, delay or halt production or
clinical trials and could result in the denial of regulatory
approval by the FDA or other regulatory authorities for any or all
targeted indications and markets. This, in turn, could prevent us
from commercializing the affected product candidate and generating
revenues from its sale.
Except
for our Strontium Chloride 89, known as SR89, product candidate, we
have not yet completed testing of any of our product candidates for
the treatment of the indications for which we intend to seek
product approval in humans, and we currently do not know the extent
of adverse events, if any, that will be observed in patients who
receive any of our product candidates. If any of our product
candidates cause unacceptable adverse events in clinical trials, we
may not be able to obtain regulatory approval or commercialize such
product or, if such product candidate is approved for marketing,
future adverse events could cause us to withdraw such product from
the market.
Delays in the commencement of our clinical trials could result in
increased costs and delay our ability to pursue regulatory
approval.
The
commencement of clinical trials can be delayed for a variety of
reasons, including delays in:
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obtaining
regulatory clearance to commence a clinical trial;
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identifying,
recruiting and training suitable clinical
investigators;
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reaching
agreement on acceptable terms with prospective clinical research
organizations, or CROs, and trial sites, the terms of which can be
subject to extensive negotiation, may be subject to modification
from time to time and may vary significantly among different CROs
and trial sites;
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obtaining
sufficient quantities of a product candidate for use in clinical
trials;
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obtaining
Investigator Review Board, or IRB, or ethics committee approval to
conduct a clinical trial at a prospective site;
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identifying,
recruiting and enrolling patients to participate in a clinical
trial; and
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retaining
patients who have initiated a clinical trial but may withdraw due
to adverse events from the therapy, insufficient efficacy, fatigue
with the clinical trial process or personal issues.
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Any
delays in the commencement of our clinical trials will delay our
ability to pursue regulatory approval for our product candidates.
In addition, many of the factors that cause, or lead to, a delay in
the commencement of clinical trials may also ultimately lead to the
denial of regulatory approval of a product candidate.
Suspensions or delays in the completion of clinical testing could
result in increased costs to us and delay or prevent our ability to
complete development of that product or generate product
revenues.
Once a
clinical trial has begun, patient recruitment and enrollment may be
slower than we anticipate. Clinical trials may also be delayed as a
result of ambiguous or negative interim results or difficulties in
obtaining sufficient quantities of product manufactured in
accordance with regulatory requirements and on a timely basis.
Further, a clinical trial may be modified, suspended or terminated
by us, an IRB, an ethics committee or a data safety monitoring
committee overseeing the clinical trial, any clinical trial site
with respect to that site, or the FDA or other regulatory
authorities due to a number of factors, including:
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failure
to conduct the clinical trial in accordance with regulatory
requirements or our clinical protocols;
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inspection
of the clinical trial operations or clinical trial sites by the FDA
or other regulatory authorities resulting in the imposition of a
clinical hold;
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stopping
rules contained in the protocol;
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unforeseen
safety issues or any determination that the clinical trial presents
unacceptable health risks; and
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lack of
adequate funding to continue the clinical trial.
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Changes
in regulatory requirements and guidance also may occur, and we may
need to amend clinical trial protocols to reflect these changes.
Amendments may require us to resubmit our clinical trial protocols
to IRBs for re-examination, which may impact the costs, timing and
the likelihood of a successful completion of a clinical trial. If
we experience delays in the completion of, or if we must suspend or
terminate, any clinical trial of any product candidate, our ability
to obtain regulatory approval for that product candidate will be
delayed and the commercial prospects, if any, for the product
candidate may suffer as a result. In addition, any of these factors
may also ultimately lead to the denial of regulatory approval of a
product candidate.
4
Our product candidates (if approved) or any other product
candidates that we may develop and market may be later withdrawn
from the market or subject to promotional limitations.
We may
not be able to obtain the labeling claims necessary or desirable
for the promotion of our product candidates if approved. We may
also be required to undertake post-marketing clinical trials. If
the results of such post-marketing studies are not satisfactory or
if adverse events or other safety issues arise after approval, the
FDA or a comparable regulatory agency in another country may
withdraw marketing authorization or may condition continued
marketing on commitments from us that may be expensive and/or time
consuming to complete. In addition, if we or others identify
adverse side effects after any of our products are on the market,
or if manufacturing problems occur, regulatory approval may be
withdrawn and reformulation of our products, additional clinical
trials, changes in labeling of our products and additional
marketing applications may be required. Any reformulation or
labeling changes may limit the marketability of our products if
approved.
Our dependence on third party suppliers or our inability to
successfully produce any product could adversely impact our
business.
We rely
on third parties to supply us with component and materials required
for the development and manufacture of our product candidates. If
they fail to provide the required components or we are unable to
find a partner to manufacture the necessary products, there would
be a significant interruption of our supply, which would materially
adversely affect clinical development and potential
commercialization of the product. In the event that the FDA or such
other agencies determine that we or any third-party suppliers have
not complied with cGMP, our clinical trials could be terminated or
subjected to a clinical hold until such time as we or any third
party are able to obtain appropriate replacement material.
Furthermore, if any contract manufacturers who supply us cannot
successfully manufacture material that conforms to our
specifications and with FDA regulatory requirements, we will not be
able to secure and/or maintain FDA approval for our product
candidates. We, and any third-party suppliers are and will be
required to maintain compliance with cGMPs and will be subject to
inspections by the FDA or comparable agencies in other
jurisdictions to confirm such compliance.
We do
and will also rely on our partners and manufacturers to purchase
from third-party suppliers the materials necessary to produce our
product candidates for our anticipated clinical trials. We do not
have any control over the process or timing of the acquisition of
raw materials by our manufacturers. Moreover, we currently do not
have any agreements for the commercial production of these raw
materials. Any significant delay in the supply of a product
candidate or the raw material components thereof for an ongoing
clinical trial could considerably delay completion of our clinical
trials, product testing and potential regulatory approval of our
product candidates.
We may
not have the resources or capacity to commercially manufacture our
product candidates, and we will likely continue to be dependent
upon third party manufacturers. Our current inability, or our
dependence on third parties, to manufacture and supply us with
clinical trial materials and any approved products may adversely
affect our ability to develop and commercialize our product
candidates on a timely basis or at all.
We intend to contract with third parties either directly or through
our licensors for the manufacture of our product candidates.
This reliance on third parties increases the risk that we will not
have sufficient quantities of our product candidates or that such
supply will not be available to us at an acceptable cost, which
could delay, prevent or impair our commercialization
efforts.
We do
not have any manufacturing facilities. We expect to use third-party
manufacturers for the manufacture of our product candidates and
have entered into contracts with manufacturers through the licensor
of our radio-pharmaceutical product, SR89. Even with such contracts
in place, reliance on third-party manufacturers entails additional
risks, including:
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reliance
on the third party for regulatory compliance and quality
assurance;
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the
possible breach of the manufacturing agreement by the third
party;
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the
possible termination or nonrenewal of the agreement by the third
party at a time that is costly or inconvenient for us;
and
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reliance
on the third party for regulatory compliance, quality assurance,
and safety and pharmacovigilance reporting.
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Third-party
manufacturers may not be able to comply with current good
manufacturing practices, or cGMP, regulations or similar regulatory
requirements outside the United States. Our failure, or the failure
of our third-party manufacturers, to comply with applicable
regulations could result in sanctions being imposed on us,
including fines, injunctions, civil penalties, delays, suspension
or withdrawal of approvals, license revocation, seizures or recalls
of product candidates or medicines, operating restrictions and
criminal prosecutions, any of which could significantly and
adversely affect supplies of our medicines and harm our business
and results of operations.
Any
product that we may produce may compete with other product
candidates and products for access to manufacturing facilities.
There are a limited number of manufacturers that operate under cGMP
regulations and that might be capable of manufacturing for
us.
5
Any
performance failure on the part of future manufacturers could
result in a decrease or end to revenue. If any a contract
manufacturer cannot perform as agreed, we may be required to
replace that manufacturer. We may incur added costs and delays in
identifying and qualifying any such replacement.
Our
anticipated future dependence upon others for the manufacture of
our product candidates may adversely affect our future profit
margins and our ability to commercialize any medicines that receive
marketing approval on a timely and competitive basis.
We will likely rely on third parties to conduct our clinical
trials. If these third parties do not meet our deadlines or
otherwise conduct the trials as required, our clinical development
programs could be delayed or unsuccessful and we may not be able to
obtain regulatory approval for or commercialize our product
candidates when expected or at all.
We do
not have the ability to conduct all aspects of our preclinical
testing or clinical trials ourselves. We intend to use and do use
Mannin, BioNucleonics, ASDERA, RGCB, OMRF and CROs to conduct
our planned clinical trials and will and do rely upon such CROs, as
well as medical institutions, clinical investigators and
consultants, to conduct our trials in accordance with our clinical
protocols. Our CROs, investigators and other third parties will and
do play a significant role in the conduct of these trials and the
subsequent collection and analysis of data from the clinical
trials.
There
is no guarantee that any CROs, investigators and other third
parties upon which we rely for administration and conduct of our
clinical trials will devote adequate time and resources to such
trials or perform as contractually required. If any of these third
parties fail to meet expected deadlines, fail to adhere to our
clinical protocols or otherwise perform in a substandard manner,
our clinical trials may be extended, delayed or terminated. If any
of our clinical trial sites terminate for any reason, we may
experience the loss of follow-up information on patients enrolled
in our ongoing clinical trials unless we are able to transfer the
care of those patients to another qualified clinical trial site. In
addition, principal investigators for our clinical trials may serve
as scientific advisors or consultants to us from time to time and
receive cash or equity compensation in connection with such
services. If these relationships and any related compensation
result in perceived or actual conflicts of interest, the integrity
of the data generated at the applicable clinical trial site may be
jeopardized.
If our competitors develop treatments for the target indications of
our product candidates that are approved more quickly, marketed
more successfully or demonstrated to be more effective than our
product candidates, our commercial opportunity will be reduced or
eliminated.
We
operate in highly competitive segments of the biotechnology and
biopharmaceutical markets. We face competition from many different
sources, including commercial pharmaceutical and biotechnology
enterprises, academic institutions, government agencies, and
private and public research institutions. Our product candidates,
if successfully manufactured and/or developed and approved, will
compete with established therapies, as well as new treatments that
may be introduced by our competitors. Many of our competitors have
significantly greater financial, product development, manufacturing
and marketing resources than us. Large pharmaceutical companies
have extensive experience in clinical testing and obtaining
regulatory approval for drugs. In addition, many universities and
private and public research institutes are active in cancer
research, some in direct competition with us. We also may compete
with these organizations to recruit management, scientists and
clinical development personnel. Smaller or early-stage companies
may also prove to be significant competitors, particularly through
collaborative arrangements with large and established companies.
New developments, including the development of other biological and
pharmaceutical technologies and methods of treating disease, occur
in the pharmaceutical and life sciences industries at a rapid pace.
Developments by competitors may render our product candidates
obsolete or noncompetitive. We will also face competition from
these third parties in recruiting and retaining qualified
personnel, establishing clinical trial sites and patient
registration for clinical trials and in identifying and
in-licensing new product candidates.
If competitors introduce their own generic equivalent of our SR89
product candidate, our revenues and gross margin from such products
could decline rapidly.
Revenues
and gross margin derived from generic pharmaceutical products often
follow a pattern based on regulatory and competitive factors that
we believe are unique to the generic pharmaceutical industry. As
the patent(s) for a brand name product or the statutory marketing
exclusivity period (if any) expires, the first generic manufacturer
to receive regulatory approval for a generic equivalent of the
product often is able to capture a substantial share of the market.
However, as other generic manufacturers receive regulatory
approvals for their own generic versions, that market share, and
the price of that product, will typically decline depending on
several factors, including the number of competitors, the price of
the branded product and the pricing strategy of the new
competitors. The number of our competitors producing a generic
version equivalent to our SR89 product candidate could increase to
such an extent that we may stop marketing our product for which we
previously obtained approval, which would have a material adverse
impact on our revenues, if we ever achieve revenues, and gross
margin.
If we
are unable to establish sales and marketing capabilities or fail to
enter into agreements with third parties to market, distribute and
sell any products we may successfully develop, we may not be able
to effectively market and sell any such products and generate
product revenue.
We do
not currently have the infrastructure for the sales, marketing and
distribution of any of our product candidates, and must build this
infrastructure or make arrangements with third parties to perform
these functions in order to commercialize any products that we may
successfully develop. The establishment and development of a sales
force, either by us or jointly with a partner, or the establishment
of a contract sales force to market any products we may develop
will be expensive and time-consuming and could delay any product
launch. If we, or our partners, are unable to establish sales and
marketing capability or any other non-technical capabilities
necessary to commercialize any products we may successfully
develop, we will need to contract with third parties to market and
sell such products. We may not be able to establish arrangements
with third parties on acceptable terms, or at all.
We may expend our limited resources to pursue a particular product
candidate or indication and fail to capitalize on product
candidates or indications for which there may be a greater
likelihood of success.
Because
we have limited financial and managerial resources, we will focus
on a limited number of research programs and product candidates for
specific indications. As a result, we may forego or delay pursuit
of opportunities with other product candidates for other
indications for which there may be a greater likelihood of success
or may prove to have greater commercial potential. Notwithstanding
our investment to date and anticipated future expenditures on MAN
01 (Mannin), Uttroside-B (OMRF), QBM001 (Asdera) and the
BioNucleonics IP, we have not yet developed, and may never
successfully develop, any marketed treatments using these products
other than the SR89 product candidate for which there is FDA
approval. Research programs to identify new product candidates or
pursue alternative indications for current product candidates
require substantial technical, financial and human resources.
Although we intend to, and do, support certain
investigator-sponsored clinical trials of MAN 01, Uttroside-B,
QBM001 evaluating various indications, as well as other uses of
SR89, these activities may initially show promise in identifying
potential product candidates or indications, yet fail to yield
product candidates or indications for further clinical
development.
6
We depend upon the services of our key management personnel,
and the loss of their services would likely result in disruptions
of our operations and have a material adverse effect on our
business.
Our
management and operations are dependent on the services of our
management team, namely Mr. Denis Corin, our Chief Executive
Officer and Chairman, and Mr. William Rosenstadt, our Chief Legal
Officer and a Director. We do not have employment or
non-compete agreements with or maintain key-man life insurance in
respect of either of these individuals. Because of their
knowledge of the industry and our operations and their experience
with us, we believe that our future results depend upon their
efforts, and the loss of the services of either of these
individuals for any reason could result in a disruption of our
operations which will likely have a material adverse effect on our
business.
Other than our Chief Executive Officer, we currently do not have
full-time employees, but we retain the services of independent
contractors/consultants on a contract-employment basis. Our ability
to manage growth effectively will require us to continue to
implement and improve our management systems and to recruit and
train new employees. We might not be able to successfully attract
and retain skilled and experienced personnel.
If we fail to attract and retain key management and clinical
development personnel, we may be unable to successfully develop or
commercialize our product candidates.
We will
need to expand and effectively manage our managerial, operational,
financial and other resources in order to successfully pursue our
clinical development and commercialization efforts. As a company
with a limited number of personnel, we highly depend on the
development, regulatory, commercial and financial expertise of the
members of our senior management and advisors, in particular Denis
Corin, our chairman and chief executive officer. The loss of this
individual or the services of any of our other senior management
could delay or prevent the further development and potential
commercialization of our product candidates and, if we are not
successful in finding suitable replacements, could harm our
business. Our success also depends on our continued ability to
attract, retain and motivate highly qualified management and
scientific personnel and we may not be able to do so in the future
due to the intense competition for qualified personnel among
biotechnology and pharmaceutical companies, as well as universities
and research organizations. If we are not able to attract and
retain the necessary personnel, we may experience significant
impediments to our ability to implement our business
strategy.
Applicable regulatory
requirements, including those contained in and issued under the
Sarbanes-Oxley Act of 2002, may make it difficult for us to retain
or attract qualified officers and directors, which could adversely
affect the management of our business and our ability to retain
listing of our common stock.
We may
be unable to attract and retain those qualified officers, directors
and members of board committees required to provide for effective
management because of the rules and regulations that govern
publicly-held companies, including, but not limited to,
certifications by principal executive officers. The enactment of
the Sarbanes-Oxley Act has resulted in the issuance of a series of
related rules and regulations and the strengthening of existing
rules and regulations by the SEC, as well as the adoption of new
and more stringent rules by the stock exchanges. The perceived
increased personal risk associated with these changes may deter
qualified individuals from accepting roles as directors and
executive officers.
Further, some of these changes heighten the requirements for board
or committee membership, particularly with respect to an
individual’s independence from our business and level of
experience in finance and accounting matters. We may have
difficulty attracting and retaining directors with the requisite
qualifications. If we are unable to attract and retain qualified
officers and directors, the management of our business and our
ability to obtain or retain listing of our shares of common stock
on any stock exchange could be adversely
affected.
We may be exposed to potential risks and
significant expenses resulting from the requirements under
section 404 of the Sarbanes-Oxley Act of 2002.
We are
required, pursuant to Section 404 of the Sarbanes-Oxley Act of
2002, to include in our annual report our assessment of the
effectiveness of our internal control over financial reporting. We
expect to incur significant continuing costs, including accounting
fees and staffing costs, in order to maintain compliance with the
internal control requirements of the Sarbanes-Oxley Act of 2002.
Our management concluded that our internal controls and procedures
were not effective to detect the inappropriate application of US
GAAP for our most recent fiscal year. As we develop our business,
hire employees and consultants and seek to protect our intellectual
property rights, our current design for internal control over
financial reporting must be strengthened to enable management to
determine that our internal controls are effective for any period,
or on an ongoing basis. Accordingly, as we develop our
business, such development and growth will necessitate changes to
our internal control systems, processes and information systems,
all of which will require additional costs and expenses.
In the future, if we fail to complete the annual Section 404
evaluation in a timely manner, we could be subject to regulatory
scrutiny and a loss of public confidence in our internal controls.
In addition, any failure to implement required new or improved
controls, or difficulties encountered in their implementation,
could harm our operating results or cause us to fail to meet our
reporting obligations.
Because of the small size of our company, we do
not have separate Chairman, Chief Executive Officer and Chief
Financial Officer positions, which may expose us to potential
risks, including our failure to produce reliable financial reports
and prevent and/or detect fraud.
We
have not adopted a formal policy to separate or combine the
positions of Chairman and Chief Executive Officer, both of which
are currently held by Denis Corin who is also our acting principal
financial officer. In addition, our two employees also
comprise our Board of Directors. As such, there is no
division of labor between our management and of our Board of
Directors. This structure exposes us to a number of risks,
including a failure to maintain adequate internal controls, our
failure to produce reliable financial reports and our failure to
prevent and/or detect financial fraud. Any such failures
would adversely affect our financial condition and overall business
operations.
We are required, pursuant to Section 404 of the Sarbanes-Oxley Act
of 2002, to include in our annual report our assessment of the
effectiveness of our internal control over financial reporting. We
expect to incur significant continuing costs, including accounting
fees and staffing costs, in order to maintain compliance with the
internal control requirements of the Sarbanes-Oxley Act of 2002.
Our management concluded that our internal controls and procedures
were not effective to detect the inappropriate application of US
GAAP for our most recent fiscal year. As we develop our business,
hire employees and consultants and seek to protect our intellectual
property rights, our current design for internal control over
financial reporting must be strengthened to enable management to
determine that our internal controls are effective for any period,
or on an ongoing basis. Accordingly, as we develop our
business, such development and growth will necessitate changes to
our internal control systems, processes and information systems,
all of which will require additional costs and expenses. Among
other outcomes, a downturn in general economic conditions
could:
•
increase the cost
of raising, or decrease our ability to raise, additional funds; as
we do not anticipate generating sufficient revenue in the next
twelve months to cover our operating costs, we may need to raise
additional funding to implement our business if we do not raise
sufficient funds in this offering. A recession or other negative
economic factors could make this more difficult or prohibitive;
or
•
interfere
with services provided by third parties; we use third parties for
research purposes and intend to use third parties for the
production and distribution of our generic SR89 product candidate,
and a general recession or other economic conditions could
jeopardize the ability of any third parties to fulfill their
obligations to us;
In
the future, if we fail to complete the annual Section 404
evaluation in a timely manner, we could be subject to regulatory
scrutiny and a loss of public confidence in our internal controls.
In addition, any failure to implement required new or improved
controls, or difficulties encountered in their implementation,
could harm our operating results or cause us to fail to meet our
reporting obligations.
Risks Related to our Industry
We are subject to general economic conditions outside of our
control.
Projects
for the acquisition and development of our products are subject to
many factors, which are outside our control. These
factors include general economic conditions in North America and
worldwide (such as recession, inflation, unemployment, and interest
rates), shortages of labor and materials and price of materials and
competitive products and the regulation by federal and state
governmental authorities. If any or several of these factors
develop in a way that is adverse to our interest, we will not be in
a position to reverse them, and we may not be able to survive such
a development.
If any product candidate that we successfully develop does not
achieve broad market acceptance among physicians, patients,
healthcare payors and the medical community, the revenues that it
generates from their sales will be limited.
Even if
we successfully produce product candidates, they may not gain
market acceptance among physicians, patients, healthcare payors and
the medical community. Coverage and reimbursement of our product
candidates by third-party payors, including government payors,
generally is also necessary for commercial success. The degree of
market acceptance of any approved products will depend on a number
of factors, including:
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the
efficacy and safety as demonstrated in clinical
trials;
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the
clinical indications for which the product is
approved;
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acceptance
by physicians, major operators of hospitals and clinics and
patients of the product as a safe and effective
treatment;
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acceptance
of the product by the target population;
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the
potential and perceived advantages of product candidates over
alternative treatments;
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the
safety of product candidates seen in a broader patient group,
including its use outside the approved indications;
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the
cost of treatment in relation to alternative
treatments;
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the
availability of adequate reimbursement and pricing by third parties
and government authorities;
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relative
convenience and ease of administration;
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the
prevalence and severity of adverse events;
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the
effectiveness of our sales and marketing efforts; and
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unfavorable
publicity relating to the product.
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If any
product candidate is approved but does not achieve an adequate
level of acceptance by physicians, hospitals, healthcare payors and
patients, we may not generate sufficient revenue from these
products and may not become or remain profitable.
7
We may incur substantial product liability or indemnification
claims relating to the clinical testing and/or use of our product
candidates.
We face
an inherent risk of product liability exposure related to the
testing of our product candidates in human clinical trials, as well
as related to the manufacture and consumption of product candidates
that we successfully commercialize. Claims could be brought against
us if use or misuse of one of our product candidates causes, or
merely appears to have caused, personal injury or death. While the
manufacturer of our SR89 product maintains a $5 Million product
liability policy, and the holder of the ANDA (BioNucleonics) are
responsible for having their own coverage, we intend to obtain
supplemental coverage, but do not currently have our own product
liability insurance. When we initiate clinical trials, we intend to
obtain the relevant coverage. As a result, such coverage may not be
sufficient to cover claims that may be made against us and we may
be unable to maintain such insurance. Any claims against us,
regardless of their merit, could severely harm our financial
condition, strain our management and other resources or destroy the
prospects for commercialization of the product which is the subject
of any such claim. We are unable to predict if we will be able to
obtain or maintain product liability insurance for any products
that may be approved for marketing. Additionally, we have entered
into various agreements where we indemnify third parties for
certain claims relating to our product candidates. These
indemnification obligations may require us to pay significant sums
of money for claims that are covered by these
indemnifications.
Healthcare reform and restrictions on reimbursements may limit our
financial returns.
Our
ability or the ability of our collaborators to commercialize any of
our product candidates that we successfully develop may depend, in
part, on the extent to which government health administration
authorities, private health insurers and other organizations will
reimburse consumers for the cost of these products. These third
parties are increasingly challenging both the need for and the
price of new drug products. Significant uncertainty exists as to
the reimbursement status of newly approved therapeutics. Adequate
third-party reimbursement may not be available for our product
candidates to enable us or our collaborators to maintain price
levels sufficient to realize an appropriate return on their and our
investments in research and product development.
Our success depends upon
intellectual property, proprietary technologies and regulatory
market exclusivity periods, and the intellectual property
protection for our product candidates depends significantly on
third parties.
Our
success depends, in large part, on obtaining and maintaining patent
protection and trade secret protection for our product candidates
and their formulations and uses, as well as successfully defending
these patents against third-party challenges. The parties from
which we license our intellectual property are responsible for
prosecuting and maintaining patent protection relating to the
intellectual property to which we have a license from that party.
If any of these parties fails to appropriately prosecute and
maintain patent protection for the intellectual property, our
ability to develop and commercialize the respective product
candidate may be adversely affected and we may not be able to
prevent competitors from making, using and selling competing
products. This failure to properly protect the intellectual
property rights could have a material adverse effect on our
financial condition and results of operations.
The
patent application process is subject to numerous risks and
uncertainties, and we or our partners might not be successful in
protecting our product candidates by obtaining and defending
patents. These risks and uncertainties include the
following:
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patent
applications may not result in any patents being
issued;
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patents
that may be issued or in-licensed may be challenged, invalidated,
modified, revoked, circumvented, found to be unenforceable, or
otherwise may not provide any competitive advantage;
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our
competitors, many of which have substantially greater resources
than we or our partners and many of which have made significant
investments in competing technologies, may seek, or may already
have obtained, patents that will limit, interfere with, or
eliminate our ability to make, use and sell our potential
products;
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there
may be significant pressure on the U.S. government and other
international governmental bodies to limit the scope of patent
protection both inside and outside the United States for disease
treatments that prove successful as a matter of public policy
regarding worldwide health concerns; and
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countries
other than the United States may have patent laws less favorable to
patentees than those upheld by U.S. courts, allowing foreign
competitors a better opportunity to create, develop, and market
competing products.
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In
addition to patents, we and our partners also rely on trade secrets
and proprietary know-how. Although we have taken steps to protect
our trade secrets and unpatented know-how, including entering into
confidentiality agreements with third parties, and confidential
information and inventions agreements with employees, consultants
and advisors, third parties may still obtain this information or
come upon this same or similar information
independently.
8
We also
intend to rely on our ability to obtain and maintain a regulatory
period of market exclusivity for any of our biologic product
candidates that are successfully developed and approved for
commercialization. Although this period in the United States is
currently 12 years from the date of marketing approval, there is a
risk that the U.S. Congress could amend laws to significantly
shorten this exclusivity period, as proposed by President Obama.
Once any regulatory period of exclusivity expires, depending on the
status of our patent coverage and the nature of the product, we may
not be able to prevent others from marketing products that are
biosimilar to or interchangeable with our products, which would
materially adversely affect us.
In
addition, U.S. patent laws may change which could prevent or limit
us from filing patent applications or patent claims to protect our
products and/or technologies or limit the exclusivity periods that
are available to patent holders. For example, on September 16,
2011, the Leahy-Smith America Invents Act, or the America Invents
Act, was signed into law, and includes a number of significant
changes to U.S. patent law. These include changes to transition
from a “first-to-invent” system to a
“first-to-file” system and to the way issued patents
are challenged. These changes may favor larger and more established
companies that have more resources to devote to patent application
filing and prosecution. The U.S. Patent and Trademark Office
implemented the America Invents Act on March 16, 2013, and it
remains to be seen how the judicial system and the U.S. Patent and
Trademark Office will interpret and enforce these new laws.
Accordingly, it is not clear what impact, if any, the America
Invents Act will ultimately have on the cost of prosecuting our
patent applications, our ability to obtain patents based on our
discoveries and our ability to enforce or defend our issued
patents.
If we or our partners are sued for infringing intellectual property
rights of third parties, it will be costly and time consuming, and
an unfavorable outcome in that litigation would have a material
adverse effect on our business.
Our
success also depends on our ability and the ability of any of our
current or future collaborators to develop, manufacture, market and
sell our product candidates without infringing the proprietary
rights of third parties. Numerous U.S. and foreign issued patents
and pending patent applications, which are owned by third parties,
exist in the fields in which we are developing products, some of
which may be directed at claims that overlap with the subject
matter of our intellectual property. Because patent applications
can take many years to issue, there may be currently pending
applications, unknown to us, which may later result in issued
patents that our product candidates or proprietary technologies may
infringe. Similarly, there may be issued patents relevant to our
product candidates of which we are not aware.
There
is a substantial amount of litigation involving patent and other
intellectual property rights in the biotechnology and
biopharmaceutical industries generally. If a third party claims
that we or any of our licensors, suppliers or collaborators
infringe the third party’s intellectual property rights, we
may have to:
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obtain
licenses, which may not be available on commercially reasonable
terms, if at all;
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abandon
an infringing product candidate or redesign our products or
processes to avoid infringement;
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pay
substantial damages, including the possibility of treble damages
and attorneys’ fees, if a court decides that the product or
proprietary technology at issue infringes on or violates the third
party’s rights;
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pay
substantial royalties, fees and/or grant cross licenses to our
technology; and/or
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defend
litigation or administrative proceedings which may be costly
whether we win or lose, and which could result in a substantial
diversion of our financial and management resources.
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We may be involved in lawsuits to protect or enforce our patents or
the patents of our licensors, which could be expensive, time
consuming and unsuccessful.
Competitors
may infringe our patents or the patents of our licensors. To
counter infringement or unauthorized use, we may be required to
file infringement claims, which can be expensive and
time-consuming. An adverse result in any litigation or defense
proceedings could put one or more of our patents at risk of being
invalidated, found to be unenforceable, or interpreted narrowly and
could put our patent applications at risk of not issuing.
Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation, there
is a risk that some of our confidential information could be
compromised by disclosure during this type of
litigation.
We may be subject to claims that our consultants or independent
contractors have wrongfully used or disclosed alleged trade secrets
of their other clients or former employers to us.
As is
common in the biotechnology and pharmaceutical industry, we engage
the services of consultants to assist us in the development of our
product candidates. Many of these consultants were previously
employed at, or may have previously been or are currently providing
consulting services to, other biotechnology or pharmaceutical
companies, including our competitors or potential competitors. We
may become subject to claims that we or these consultants have
inadvertently or otherwise used or disclosed trade secrets or other
proprietary information of their former employers or their former
or current customers. Litigation may be necessary to defend against
these claims. Even if we are successful in defending against these
claims, litigation could result in substantial costs and be a
distraction to management.
9
Risks Related to our Securities and the Offering
You will experience immediate and substantial dilution as a result
of this offering and may experience additional dilution in the
future.
The initial combined public offering price per share and
related
warrant
will be
substantially higher than the net tangible book value (deficit) per
common share immediately prior to the offering. Based upon the
assumed issuance and sale of
2,250,000
share
s by us in this offering at an assumed initial
combined public offering price of $5.00
per s
hare
(
the
midpoint of the price range set forth on the cover of this
preliminary prospectus
)
and assuming no value is attributed to the
warrant
s and that such
warrant
s are categorized and accounted
for as equity, you will incur immediate dilution of
$4.292
in the net
tangible book value per share. In the event that you exercise
your
warrant
s, you will
experience additional dilution to the extent that the exercise
price of the
warrant
s is higher
than the tangible book value (deficit) per common share. If
outstanding options and warrants to purchase our common shares are
exercised, investors will experience additional
dilution.
We might not sell all of the shares that we are
offering.
The
shares are being offered on a best-efforts, any or all basis.
Accordingly, we might not sell all of the shares that we are
offering. If we sell less than the full amount, we might not
receive sufficient funds to apply to the uses set forth herein in
the Section entitled “Use of Proceeds” or even to cover
our expenses in conducting this offering. As there is no minimum
amount required for a sale of shares, any investment that you make
could be the sole funds that we receive in this
offering.
We are filing an application to
register the shares being offered under this prospectus in
California on the basis of a limited offering
qualification.
We will file an application to register the shares being offered
under this prospectus in California on the basis of a limited
offering qualification, where offers/sales could only be made to
proposed issuees based on their meeting certain suitability
standards as described in the offering document and that the issuer
did not have to demonstrate compliance with some or all of the
merit regulations of the Department of Corporations as found in
Title 10, California Code of Regulations, Rule 260.140 et seq. If
our application is approved, the exemptions for secondary trading
available under Corporations Code §25104(h) will be withheld,
but there may be other exemptions to cover private sales by the
bona fide owner for his own account without advertising and without
being effected by or through a broker dealer in a public
offering.
Investors will have no rights as a shareholder with respect to
their warrants until they exercise their warrants and acquire our
common shares.
Until you acquire our common shares upon exercise of your
warrant
s, you will have no rights with
respect to the common shares underlying such
warrant
s. Upon exercise of your
warrant
s, you will be entitled to
exercise the rights of a holder of common shares only as to matters
for which the record date occurs after the exercise
date.
The
warrant
s do not confer any
rights of common share ownership on their holders, such as voting
rights or the right to receive dividends, but rather merely
represent the right to acquire common shares at a fixed price for a
limited period of time. Specifically, commencing on the date of
issuance, holders of the
warrant
s may exercise their right to acquire common
shares and pay an exercise price
equal to 110% of
the closing price per share on the OTCQB on the date that we first
enter into a securities purchase agreement for this offering
until
five years from the date of issuance, after which date
any unexercised
warrant
s will
expire and have no further value. Moreover, following this
offering, the market value of the
warrant
s is uncertain and there can be no assurance that
the market price of the common shares will ever equal or exceed the
exercise price of the
warrant
s,
and consequently, whether it will ever be profitable for holders of
the
warrant
s to exercise
the
warrant
s.
Our shares of common stock are subject to the “penny
stock” rules of the securities and exchange commission and
the trading market in our securities will be limited, which will
make transactions in our stock cumbersome and may reduce the value
of an investment in our stock.
The
U.S. Securities and Exchange Commission has adopted rules that
regulate broker-dealer practices in connection with transactions in
"penny stocks.” Penny stocks generally are equity
securities with a price of less than $5 (other than securities
registered on certain national securities exchanges or quoted on
the NASDAQ system, provided that current price and volume
information with respect to transactions in such securities is
provided by the exchange or system). Penny stock rules
require a broker-dealer, prior to a transaction in a penny stock
not otherwise exempt from those rules, to deliver a standardized
risk disclosure document prepared by the SEC, which specifies
information about penny stocks and the nature and significance of
risks of the penny stock market. A broker-dealer must also
provide the customer with bid and offer quotations for the penny
stock, the compensation of the broker-dealer, and sales person in
the transaction, and monthly account statements indicating the
market value of each penny stock held in the customer's
account. In addition, the penny stock rules require that,
prior to a transaction in a penny stock not otherwise exempt from
those rules, the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the
purchaser and receive the purchaser's written agreement to the
transaction. These disclosure requirements may have the
effect of reducing the trading activity in the secondary market for
stock that becomes subject to those penny stock rules. If a
trading market for our common stock develops, our common stock will
probably become subject to the penny stock rules, and shareholders
may have difficulty in selling their shares.
Any additional financing may dilute existing shareholders and
decrease the market price for shares of our common
stock.
If we
raise additional capital, our existing shareholders may incur
substantial and immediate dilution. We estimate that we will need
approximately $20,000,000 in additional funds over the next 2
years to complete our business plan. The most likely source of
future funds available to us is through the sale of additional
shares of common stock. Such sales might occur below market price
and below the price of which existing shareholders purchased their
shares.
10
Our Articles of Incorporation provide indemnification for officers,
directors and employees.
Our
governing instruments provide that officers, directors, employees
and other agents and their affiliates shall only be liable to our
Company for losses, judgments, liabilities and expenses that result
from the negligence, misconduct, fraud or other breach of fiduciary
obligations. Thus certain alleged errors or omissions might not be
actionable by us. The governing instruments also provide that,
under the broadest circumstances allowed under law, we must
indemnify our officers, directors, employees and other agents and
their affiliates for losses, judgments, liabilities, expenses and
amounts paid in settlement of any claims sustained by them in
connection with our Company, including liabilities under applicable
securities laws.
The market price of our common stock may be volatile and may
fluctuate in a way that is disproportionate to our operating
performance.
Our
shares of common stock trading on the OTCQB will fluctuate
significantly. There is a volatility associated with Bulletin Board
securities in general and the value of your investment could
decline due to the impact of any of the following factors upon the
market price of our common stock:
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sales
or potential sales of substantial amounts of our common
stock;
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delay
or failure in initiating or completing pre-clinical or clinical
trials or unsatisfactory results of these trials;
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announcements
about us or about our competitors, including clinical trial
results, regulatory approvals or new product
introductions;
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developments
concerning our licensors, product manufacturers or our ability to
produce MAN 01;
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developments
concerning our licensors, product manufacturers or our ability to
produce SR89;
|
|
|
|
|
|
|
|
●
|
|
litigation
and other developments relating to our patents or other proprietary
rights or those of our competitors;
|
|
|
|
|
|
|
|
●
|
|
conditions
in the pharmaceutical or biotechnology industries;
|
|
|
|
|
|
|
|
●
|
|
governmental
regulation and legislation;
|
|
|
|
|
|
|
|
●
|
|
variations
in our anticipated or actual operating results;
|
|
|
|
|
|
|
|
●
|
|
change
in securities analysts’ estimates of our performance, or our
failure to meet analysts’ expectations;
|
|
|
|
|
|
|
|
●
|
|
change
in general economic trends; and
|
|
|
|
|
|
|
|
●
|
|
investor
perception of our industry or our prospects.
|
|
|
Many of
these factors are beyond our control. The stock markets in general,
and the market for pharmaceutical and biotechnological companies in
particular, have historically experienced extreme price and volume
fluctuations. These fluctuations often have been unrelated or
disproportionate to the operating performance of these companies.
These broad market and industry factors could reduce the market
price of our common stock, regardless of our actual operating
performance.
Sales of a substantial number of shares of our common stock, or the
perception that such sales may occur, may adversely impact the
price of our common stock.
A large
number of our shares may be sold without restriction in public
markets. These include:
●
approximately
6,660,000 of our outstanding shares of common stock recorded by our
transfer agent as of November 30, 2107 as unrestricted and freely
tradable;
●
shares of our
common stock that are, or are eligible to be, unrestricted and free
trading pursuant to Rule 144 or other exemptions from registration
under the Securities Act that have not yet been recorded by our
transfer agent as such; and
A large
portion of the shares that are freely tradable, were issued at a
price that is significantly below the closing price of $4.30 as of
January 5, 2018. If the holders of our free trading shares wanted
to make a profit on their investment (or if they wish to sell for a
loss), there might not be enough purchasers to maintain the market
price of our common stock on the date of such sales. Any such
sales, or the fear of such sales, could substantially decrease the
market price of our common stock and the value of your
investment.
11
We have not paid dividends to date and do not intend to pay any
dividends in the near future.
We have
never paid dividends on our common stock and presently intend to
retain any future earnings to finance the operations of our
business. You may never receive any dividends on our
shares.
The exercise of warrants and options or future sales of our common
stock may further dilute the shares of common stock you receive in
this offering.
As of
the date hereof, we have outstanding vested and unvested options
and warrants exercisable into 3,533,995 shares of common stock. The
issuance of any shares of common stock pursuant to exercise of such
options and warrants or the conversion of such notes would dilute
your percentage ownership of our Company, and the issuance of any
shares of common stock pursuant to exercise of such options and
warrants or the conversion of such notes at a per share price below
the offering price of shares being acquired in this offering which
would dilute the net tangible value per share for such
investor.
Our
Board of Directors is authorized to sell additional shares of
common stock, or securities convertible into shares of common
stock, if in their discretion they determine that such action would
be beneficial to us. Approximately 95% of our authorized shares of
common stock and 100% of our shares of preferred stock are
available for issuance. Any such issuance would dilute the
ownership interest of persons acquiring common stock in this
offering, and any such issuance at a share price lower than then
net tangible book value per share at the time an investor purchased
its shares would dilute the net tangible value per share for such
investor.
S
PECIAL NOTE
REGARDING FORWARD-LOOKING STATEMENTS
We have
made statements under the captions “Prospectus
Summary”, “Risk Factors”, “Use of
Proceeds”, “Management’s Discussion and Analysis
of Financial Condition and Results of Operation”,
“Business” and elsewhere in this prospectus that are
forward-looking statements. You can identify these statements by
forward-looking words such as “may”,
“will”, “expect”, “anticipate”,
“believe”, “estimate” and similar
terminology. Forward-looking statements address, among other
things:
·
implementing and
developing our clinical programs and other aspects of our business
plans;
·
financing goals and
plans; and
·
our expectations of
when regulatory approvals will be received or other actions will be
taken by parties other than us.
We
believe it is important to communicate our expectations to our
investors. However, there may be events in the future that we are
not able to accurately predict or which we do not fully control
that will cause actual results to differ materially from those
expressed or implied by our forward-looking statements. These
include the factors listed under “Risk Factors” and
elsewhere in this prospectus.
Although
we believe that our expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results,
levels of activity, performance, or achievements. Our
forward-looking statements are made as of the date of this
prospectus, and we assume no duty to update them or to explain why
actual results may differ.
12
After deducting the estimated placement discount and offering
expenses payable by us, we expect to receive net proceeds of
approximately $
10,255,000
from this offering if all of the shares in this offering are sold
and approximately $2,462,500
if only 25% of the shares in this offering are sold assuming a
$5.00 per share offering price
(the midpoint of the price range set forth on the cover of this
preliminary prospectus).
|
|
|
|
Gross
proceeds
|
$
11,250,000
|
$
5,625,000
|
$
2,812,500
|
Placement agents' fees (
8
% of gross proceeds)
|
$
900,000
|
$
450,000
|
$
225,000
|
Miscellaneous
underwriting fees expenses
|
$
75,000
|
$
75,000
|
$
75,000
|
Other
offering expenses
|
$
50,000
|
$
50,000
|
$
50,000
|
Net
proceeds
|
$
10,255,000
|
$
5,050,000
|
$
2,462,500
|
We set
out below our current intended use of the net proceeds that we may
receive from this offering. As our needs may change depending on
opportunities presented to us and risks that face, we will retain
broad discretion over the actual use of these proceeds and such
intended uses may materially differ from the actual
uses.
Description of Use
|
|
|
|
General,
Administrative and Professional Expenses
|
$
2,650,000
|
$
1,370,000
|
$
732,500
|
Marketing
and IR
|
$
1,400,000
|
$
450,000
|
$
150,000
|
R&D
Man01
|
$
1,550,000
|
$
700,000
|
$
200,000
|
R&D
SR89
|
$
555,000
|
$
450,000
|
$
300,000
|
R&D
SR89 Phase 4 Clinical
|
$
1,500,000
|
$
1,200,000
|
$
500,000
|
R&D
QBM01
|
$
2,250,000
|
$
700,000
|
$
500,000
|
R&D
Uttroside-B
|
$
350,000
|
$
180,000
|
$
80,000
|
Total
|
$
10,255,000
|
$
5,050,000
|
$
2,462,500
|
Assuming
a warrant exercise price of $4.73 (which is 110% of the closing
price of our common shares on the OTCQB on January 5, 2018), we
will receive additional gross proceeds of
$10,642,500
if all of the
warrants that are part of the shares are exercised and gross
proceeds of $638,550
if all of the
placement agent warrants are exercised if all of the shares in this
offering are sold assuming a $5.00 per share offering price
(the midpoint of the price range set forth on the cover of this
preliminary prospectus)
. We intend to use any such
proceeds for general corporate and working capital or other
purposes that our Board of Directors deems to be in our best
interest. As of the date of this prospectus, we cannot
specify with certainty the particular uses for the net proceeds we
may receive upon exercise of the warrants. Accordingly, we
will retain broad discretion over the use of these proceeds, if
any.
Historical net tangible book value per share is determined by
dividing our total tangible assets less total liabilities by the
actual number of shares of common stock outstanding. Before giving
effect to this offering, our net tangible book value as of August
31, 2017 was approximately $10,000, or $0.001 per share of common
stock, based on shares of common stock outstanding on
January
4, 2018
.
At an assumed offering price of $5.00
per
share
(
the midpoint of the
price range set forth on the cover of this preliminary
prospectus
), less estimated placement agents' fees and
estimated offering expenses payable by us, our pro forma as
adjusted net tangible book value as of August 31,
2017:
(i)
would have been
$
10,235,000
, or $
0.708
per
share, after giving effect to the sale of 100% of the
share
s in this
offering,
(ii)
would have been
$5,060,000
, or $
0.380
per share, after giving effect to the sale of 50%
of the
share
s in this offering
and
(iii)
would have been
$2,472,500
, or $0
.194
per
share, after giving effect to the sale of 25% of the
share
s in this
offering.
This represents, respectively, (i) an immediate increase in our
historical net tangible book value of $
0.707
per
share to existing stockholders and an immediate dilution of
$4.292
per share to new investors if we sell 100% of the shares in this
offering, (ii) an immediate increase in our historical net tangible
book value of $
0.379
per share to existing stockholders and an immediate dilution
of $4.620
per
share to new investors if we sell 50% of the shares in this
offering, and (iii) an immediate increase in our historical net
tangible book value of $
0.193
per
share to existing stockholders and an immediate dilution of
$4.806
per
share to new investors if we sell 25% of the shares in this
offering. Dilution per share represents the difference between the
amount per share paid by purchasers of shares of our common stock
in this offering and the net tangible book value per share of our
common stock immediately afterwards, after giving effect to the
sales set out above at the assumed offering and after deducting
estimated placement agents' fees and estimated offering expenses
payable by us at such percentages.
13
The following table illustrates this dilution, assuming no value is
attributed to the
warrant
s sold
in the offering, on a per share basis:
|
|
|
|
Assumed public
offering price per share
|
$
5.00
|
$
5.00
|
$
5.00
|
Net tangible book
value (deficit) per share before the offering
|
$
0.001
|
$
0.001
|
$
0.001
|
Impact on net
tangible book value per share of this offering
|
$
0.707
|
$
0.379
|
$
0.193
|
|
|
|
|
Pro forma net
tangible book value per share after this offering
|
$
0.708
|
$
0.380
|
$
0.194
|
|
|
|
|
Dilution in net
tangible book value per share to new investors
|
$
4.292
|
$
4.620
|
$
4.806
|
If we sell 100% of the
share
s
in this offering, each $0.10 increase (decrease) in the assumed
public offering price of $
5.00
per
share
would increase (decrease) our pro forma as
adjusted net tangible book value as of August 31, 2017 by
$207,000
(after the placement agents’ fees), or
$0.143
per share, and the dilution (benefit) per share to
new investors by $0.143
per
share.
If we sell 50% of the
share
s in
this offering, each $0.10 increase (decrease) in the assumed public
offering price of $5.00
per
share
would increase (decrease) our pro forma as
adjusted net tangible book value as of August 31, 2017 by
$103,500
(after the
placement agents
’ fees), or
$0.010
per share, and the dilution (benefit) per share to
new investors by $
0.010
per
share.
If we sell 25% of the
share
s in
this offering, each $0.10 increase (decrease) in the assumed public
offering price of $5.00
per
share
would increase (decrease) our pro forma as
adjusted net tangible book value as of August 31, 2017 by
$51,750
(after the
placement agents
’
fees)
, or $0.004
per share, and the dilution (benefit) per share to
new investors by $0.004
per
share.
The information discussed above is illustrative only and will
adjust based on the actual public offering price, the actual number
of securities sold in this offering, and other terms of this
offering determined at pricing.
The following tables summarizes, on a pro forma basis as of January
4, 2018, the differences between the number of shares of common
stock owned by existing stockholders and the number of shares of
common stock to be owned by new public investors, the aggregate
cash consideration paid to us and the average price per share paid
by our existing stockholders and to be paid by new public investors
purchasing shares of common stock in this offering at an assumed
public offering price of $5.00
per share (
the
midpoint of the price range set forth on the cover of this
preliminary prospectus
)
, calculated before deduction of estimated
placement agents' fees and estimated offering expenses payable by
us.
For 100% of the
s
hare
s in the
Offering:
|
|
|
|
|
|
|
|
|
|
Existing
stockholders
|
12,206,409
|
84.4
%
|
$
14,841,876.73
|
56.883
%
|
$
1.22
|
New public
investors
|
2,250,000
|
15.6
%
|
$
11,250,000.00
|
43.117
%
|
$
5.00
|
|
|
Total
|
14,456,409
|
100
%
|
$
26,091,876.73
|
100
%
|
$
1.80
|
|
|
|
|
|
|
For 50% of the
Share
s in the
Offering:
|
|
|
|
|
|
|
|
|
|
Existing
stockholders
|
12,206,409
|
91.56
%
|
$
14,841,876.73
|
72.520
%
|
$
1.22
|
New public
investors
|
1,125,000
|
8.44
%
|
$
5,625,000.00
|
27.480
%
|
$
5.00
|
|
|
Total
|
13,331,409
|
100
%
|
20,466,876.73
|
100
%
|
$
1.50
|
|
|
|
|
|
|
14
For 25% of the
Share
s in the
Offering:
|
|
|
|
|
|
|
|
|
|
Existing
stockholders
|
12,206,409
|
95.59
%
|
$
14,841,876.73
|
84.069
%
|
$
1.22
|
New public
investors
|
562,500
|
4.41
%
|
$
2,812,500.00
|
15.931
%
|
$
5.00
|
|
|
|
Total
|
12,768,909
|
100
%
|
$
17,654,376.73
|
100
%
|
$
1.38
|
|
|
|
|
|
|
The information also assumes no exercise of any outstanding stock
options or warrants or conversion of outstanding convertible notes.
As of
January 4, 2018
, there
were
450,000
options outstanding at a weighted average exercise price of
$4.00
. To the extent that any of these options are
exercised, there will be further dilution to new investors. If all
of these options had been exercised as of
January 4,
2018
:
●
net tangible book value per share after this
offering would have been $0.807
and total dilution per share to new investors
would have been
$
4.193 f
or
100% of the
share
s in the
offering,
●
net tangible book value per share after this
offering would have been $0.
498
and
total dilution
per share to new investors would
have been $4.502
for 50% of
the
share
s in the offering
and
●
net tangible book value per share after this
offering would have been $0.323
and total dilution
per share to new investors would
have been $4.677
for 25% of the
share
s in the offering.
As of
January 4, 201
8 there
were 3,083,995 warrants outstanding at a weighted average exercise
price of $
3.67
. To the extent that any of these warrants would
be exercised at a price less than the offering price, there would
be further dilution to new investors. If all of these warrants had
been exercised as of
January 4, 2018
:
●
net tangible book value per share after this
offering would have been $1.229
and total
dilution
per share to new investors would
have been $
3.771
for 100% of the
share
s in the
offering,
●
net tangible book value per share after this
offering would have been $0.998
and total dilution
per share to new investors would have been
$4.002
for 50% of the
share
s in the offering and
●
net tangible book value per share after this
offering would have been $.870
and total dilution
per share to new investors would
have been $
4.130
for
25% of the
share
s in the
offering.
D
ETERMINATION OF OFFERING
PRICE
The public offering price set forth on the cover page of this
prospectus has been determined based upon arm’s-length
negotiations between the purchasers and us.
The offering
price of our common stock does not necessarily bear any
relationship to our book value, assets, past operating results,
financial condition or any other established criteria of value. Our
common stock might trade at market prices below the offering price
as prices for common stock in any public market will be determined
in the marketplace and may be influenced by many factors, including
depth and liquidity.
Roth Capital Partners, LLC has agreed to act as lead placement
agent and Brookline Capital Markets LLC has agreed to act as
co-lead placement agent in connection with this offering, subject
to the terms and conditions of a Placement Agency Agreement. The
placement agents are not purchasing or selling any of the
share
s offered by this prospectus, nor
are they required to arrange the purchase or sale of any specific
number or dollar amount of the
share
s, but have agreed to use their commercially
reasonable “best efforts” to arrange for the sale of
all of the
share
s offered
hereby. We may not sell the entire amount of
share
s offered pursuant to this
prospectus. Purchasers in this offering shall rely solely on this
prospectus in connection with the purchase of securities in this
offering. The placement agents may engage sub-placement agents or
selected dealers to assist in the placement of the
share
s offered
hereby.
We will enter into securities purchase agreements directly with
investors.
15
Placement Agents’ Fees and Expenses
We have agreed to pay the placement agents a maximum aggregate cash
placement fee equal to 8% of the gross proceeds from the sale of
the
share
s in this offering. As
there is no set amount of
share
s that must be sold in this offering, we set out
in the table below the per
share
and total cash placement agents’ fees (where
applicable) we will pay to the placement agents in connection with
the sale of the 100%, 50% and 25% of the
share
s offered pursuant to this
prospectus:
|
100% of Offering
|
50% of Offering
|
25% of Offering
|
|
Per Share (1)
|
Total
|
Per Share
(1)
|
Total
|
Per Share
(1)
|
Total
|
Public
offering price
|
$5.00
|
$11,250,000
|
$5.00
|
$5,625,000
|
$5.00
|
$2,812,500
|
Placement
agents’ fees (2)(3)
|
$0.40
|
$900,000
|
$0.40
|
$450,000
|
$0.40
|
$225,000
|
Proceeds
to us, before expenses
|
$4.60
|
$10,350,000
|
$4.60
|
$5,175,000
|
$4.60
|
$2,587,500
|
In
addition to the cash placement fee, we have agreed to issue to the
placement agents a warrant to purchase that number of our common
stock equal to 6% of the common stock issued or issuable in the
offering (excluding shares of common stock issuable upon the
exercise of any warrants issued to investors in the Offering) at an
exercise price of $ per share, which represents the exercise price
of the warrants sold in the public offering. The placement agent
warrants will have substantially the same terms as the warrants
being sold to the investors in this offering. Pursuant to FINRA
Rule 5110(g), the placement agent warrants and any shares issued
upon exercise of the placement agent warrants shall not be sold,
transferred, assigned, pledged, or hypothecated, or be the subject
of any hedging, short sale, derivative, put or call transaction
that would result in the effective economic disposition of the
securities by any person for a period of 180 days immediately
following the date of effectiveness or commencement of sales of
this offering, except the transfer of any security: (i) by
operation of law or by reason of our reorganization; (ii) to any
FINRA member firm participating in the offering and the officers or
partners thereof, if all securities so transferred remain subject
to the lock-up restriction set forth above for the remainder of the
time period; (iii) if the aggregate amount of our securities held
by the placement agent or related persons do not exceed 1% of the
securities being offered; (iv) that is beneficially owned on a
pro-rata basis by all equity owners of an investment fund, provided
that no participating member manages or otherwise directs
investments by the fund and the participating members in the
aggregate do not own more than 10% of the equity in the fund; or
(v) the exercise or conversion of any security, if all securities
remain subject to the lock-up restriction set forth above for the
remainder of the time period.
We have agreed to reimburse the placement agents for certain of
their out-of-pocket legal expenses and other reasonable
out-of-pocket expenses up to an aggregate of $50,000, subject to
FINRA Rule 5110(f)(2)(D)(i). Out-of-pocket and legal expenses
exceeding $50,000 shall require our prior approval, which shall not
be unreasonably withheld.
We estimate the total offering
expenses of this offering that will be payable by us, excluding the
placement agents’ fee, will be approximately $125,000, which
includes legal, accounting and printing costs, various other fees
and reimbursement of the placements agent’s
expenses.
Pursuant to our Engagement Letter with Roth Capital Partners, LLC,
dated November 14, 2017 (the “Engagement Letter”), for
a period of 120 days (the “Engagement Period”), we
granted Roth Capital Partners, LLC the right to serve as our
exclusive placement agent or sole book running manager with respect
to any offering of our equity or equity-linked securities. In
addition, we have agreed to give the Roth Capital Partners, LLC a
twelve-month right of first refusal to act as our lead underwriter
or placement agent for any further capital raising transactions
undertaken by us during the Engagement Period and for a period of
twelve months thereafter.
If the offering hereunder is not consummated, the placement agents
shall be entitled to the foregoing cash placement fee to the extent
that capital is provided by investors that the placement agents
introduced to us, or conducted discussions on our behalf, in any
offering of securities by us or our affiliates within twelve
months.
Our obligation to issue and sell the
share
s offered hereby to the purchasers is subject to
the conditions set forth in the
securities purchase
agreements,
which may be waived by us at our discretion. A purchaser’s
obligation to purchase the
share
s offered hereby is subject to the conditions set
forth in the securities purchase agreement as well, which may also
be waived.
At the closing, The Depository Trust Company will credit the shares
of common stock to the respective accounts of the investors. We
will mail the
warrant
s directly
to the investors at the respective addresses set forth in
their
securities purchase
agreement with
us or provided to us.
Leak-out Agreements
Pursuant
to the
securities purchase
agreements, each
investor has agreed that until the earlier of (i)
, 2018 and (ii) the fifth consecutive
trading day during which the VWAP (as defined in the warrants) for
each such trading day during such period is equal to or exceeds $
per share, such investor, either
alone or together with its affiliates, in this offering will limit
its selling to no more
than % of the daily
trading volume of the common stock on such trading day, including
shares of common stock or shares of common stock underlying any
convertible securities (including any shares of common stock
acquirable upon exercise of purchased pre-funded warrants or common
warrants).
Lock-up Agreements
Our
officers and directors and their respective affiliates have agreed
with the representative to be subject to a lock-up period of 90
days following the date of this prospectus. During the applicable
lock-up period, such persons may not offer for sale, contract to
sell, sell, distribute, grant any option, right or warrant to
purchase, pledge, hypothecate or otherwise dispose of, directly or
indirectly, any shares of our common stock or any securities
convertible into, or exercisable or exchangeable for, shares of our
common stock. Certain limited transfers are permitted during the
lock-up period if the transferee agrees to these lock-up
restrictions. The lock-up period is subject to an additional
extension to accommodate for our reports of financial results or
material news releases. The placement agent may, in its sole
discretion and without notice, waive the terms of any of these
lock-up agreements. In the securities purchase agreement, we have
agreed to a limitation on the issuance and sale of our securities
for 90 days following the closing of this offering, subject to
certain exceptions.
Other Relationships
From time to time, the placement agents and their affiliates have
provided, and may in the future provide, various investment
banking, financial advisory and other services to us and our
affiliates for which services they have received, and may in the
future receive, customary fees. In the course of their businesses,
the placement agents and their affiliates may actively trade our
securities or loans for their own account or for the accounts of
customers, and, accordingly, the placement agents and their
affiliates may at any time hold long or short positions in such
securities or loans. Except for services provided in connection
with this offering, and except as set forth in this paragraph, the
placement agents have not provided any investment banking or other
financial services during the 180-day period preceding the date of
this prospectus supplement and we do not expect to retain the
placement agent to perform any investment banking or other
financial services for at least 90 days after the date of this
prospectus supplement.
The co-lead placement agent,
Brookline Capital Markets LLC, in this offering served as our
placement agent in a private placement we consummated in August
2017 pursuant to which it received compensation, including warrants
to purchase shares of our common stock.
Indemnification
We have agreed to indemnify the placement agents against
liabilities under the Securities Act of 1933, as amended. We have
also agreed to contribute to payments the placement agents may be
required to make in respect of such liabilities.
Electronic Distribution
This prospectus may be made available in electronic format on
websites or through other online services maintained by the
placement agents, or by an affiliate. Other than this prospectus in
electronic format, the information on the placement agents’
website and any information contained in any other website
maintained by the placement agents is not part of this prospectus
or the registration statement of which this prospectus forms a
part, has not been approved and/or endorsed by us or the placement
agents, and should not be relied upon by investors.
The foregoing does not purport to be a complete statement of the
terms and conditions of the placement agents’ agreements
and
securities purchase
agreements. A copy of the placement agents’ agreements and
the form of
securities purchase
agreement with the investors are included as exhibits to the
registration statement of which this prospectus forms a part. See
“Where You Can Find More Information”.
16
Regulation M Restrictions
The placement agents will be deemed to be underwriters within the
meaning of Section2(a)(11) of the Securities Act, and any
commissions received by them and any profit realized on the resale
of the
share
s sold by them
while acting as a principal may be deemed to be underwriting
discounts or commissions under the Securities Act. As an
underwriter, the placement agents would be required to comply with
the requirements of the Securities Act and the Exchange Act,
including, without limitation, Rule 10b-5 and Regulation M under
the Exchange Act. These rules and regulations may limit the timing
of purchases and sales of shares of common stock and warrants by
the placement agents acting as a principal. Under these rules and
regulations, the placement agents:
●
must not engage in
any stabilization activity in connection with our securities;
and
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●
must not bid for or
purchase any of our securities or attempt to induce any person to
purchase any of our securities, other than as permitted under the
Exchange Act, until it has completed its participation in the
distribution.
|
Other
From time to time, the placement agents and their respective
affiliates have provided, and may in the future provide, various
investment banking, financial advisory and other services to us and
our affiliates for which services they have received, and may in
the future receive, customary fees. In the course of their
businesses, the placement agents and its affiliates may actively
trade our securities or loans for their own account or for the
accounts of customers, and, accordingly, the placement agents and
its affiliates may at any time hold long or short positions in such
securities or loans.
California
No securities shall be sold pursuant to this prospectus to
residents of the State of California unless such residents have
either of (i) a minimum of $65,000 gross income and net worth of
$250,000, or (ii) a minimum net worth of $500,000. In either
instance, an investor who is resident of the State of California
shall not invest more than ten (10%) of their net worth in this
offering. Net worth shall be determined exclusive of home, home
furnishings and automobiles. Assets included in the computation of
net worth may be valued at fair market value.
D
ESCRIPTION OF SECURITIES
We are
authorized by our articles of incorporation to issue an aggregate
of 250,000,000 shares of common stock, par value $0.001 per share,
of which 12,206,409 were outstanding as of January 4, 2018, and
100,000,000 shares of preferred stock of which none were
outstanding as of January 4, 2018.
This
prospectus contains only a summary of the securities that we are
offering. The following summary of the terms of our common stock,
preferred stock, and warrants may not be complete and is subject
to, and qualified in its entirety by reference to, the terms and
provisions of our amended and restated articles of incorporation,
our amended and restated bylaws and the warrants. You should refer
to, and read this summary together with, our amended and restated
articles of incorporation, amended and restated bylaws and the
warrants to review all of the terms of our common stock, preferred
stock and warrants that may be important to you.
Common Stock
Holders
of our common stock are entitled to one vote for each share held of
record on each matter submitted to a vote of stockholders. Except
as otherwise required by Nevada law, and subject to the rights of
the holders of preferred stock, if any, all stockholder action is
taken by the vote of a majority of the outstanding shares of common
stock voting as a single class present at a meeting of stockholders
at which a quorum consisting of one-half of the outstanding shares
of common stock is present in person or proxy.
Subject
to the prior rights of any class or series of preferred stock which
may from time to time be outstanding, if any, holders of our common
stock are entitled to receive ratably, dividends when, as, and if
declared by our board of directors out of funds legally available
for that purpose and, upon our liquidation, dissolution, or winding
up, are entitled to share ratably in all assets remaining after
payment of liabilities and payment of accrued dividends and
liquidation preferences on the preferred stock.
Anti-Takeover Provisions
The
provisions of Nevada law and our bylaws may have the effect of
delaying, deferring or preventing another party from acquiring
control of the company. These provisions may discourage and prevent
coercive takeover practices and inadequate takeover
bids.
Nevada
Law
Nevada
law contains a provision governing “acquisition of
controlling interest.” This law provides generally that any
person or entity that acquires 20% or more of the outstanding
voting shares of a publicly-held Nevada corporation in the
secondary public or private market may be denied voting rights with
respect to the acquired shares, unless a majority of the
disinterested shareholders of the corporation elects to restore
such voting rights in whole or in part. The control share
acquisition act provides that a person or entity acquires
“control shares” whenever it acquires shares that, but
for the operation of the control share acquisition act, would bring
its voting power within any of the following three ranges: 20 to
33-1/3%; 33-1/3 to 50%; or more than 50%.
17
A
“control share acquisition” is generally defined as the
direct or indirect acquisition of either ownership or voting power
associated with issued and outstanding control shares. The
shareholders or Board of Directors of a corporation may elect to
exempt the stock of the corporation from the provisions of the
control share acquisition act through adoption of a provision to
that effect in the articles of incorporation or bylaws of the
corporation. Our articles of incorporation and bylaws do not exempt
our common stock from the control share acquisition
act.
The
control share acquisition act is applicable only to shares of
“Issuing Corporations” as defined by the Nevada law. An
Issuing Corporation is a Nevada corporation which (i) has 200 or
more shareholders, with at least 100 of such shareholders being
both shareholders of record and residents of Nevada, and (ii) does
business in Nevada directly or through an affiliated
corporation.
At this
time, we do not believe we have 100 shareholders of record resident
of Nevada and we do not conduct business in Nevada directly.
Therefore, the provisions of the control share acquisition act are
believed not to apply to acquisitions of our shares and will not
until such time as these requirements have been met. At such time
as they may apply, the provisions of the control share acquisition
act may discourage companies or persons interested in acquiring a
significant interest in or control of us, regardless of whether
such acquisition may be in the interest of our
shareholders.
The
Nevada “Combination with Interested Stockholders
Statute” may also have an effect of delaying or making it
more difficult to effect a change in control of us. This statute
prevents an “interested stockholder” and a resident
domestic Nevada corporation from entering into a
“combination,” unless certain conditions are met. The
statute defines “combination” to include any merger or
consolidation with an “interested stockholder,” or any
sale, lease, exchange, mortgage, pledge, transfer or other
disposition, in one transaction or a series of transactions with an
“interested stockholder” having (i) an aggregate market
value equal to 5% or more of the aggregate market value of the
assets of the corporation, (ii) an aggregate market value equal to
5% or more of the aggregate market value of all outstanding shares
of the corporation, or (iii) representing 10% or more of the
earning power or net income of the corporation.
An
“interested stockholder” means the beneficial owner of
10% or more of the voting shares of a resident domestic
corporation, or an affiliate or associate thereof. A corporation
affected by the statute may not engage in a
“combination” within three years after the interested
stockholder acquires its shares unless the combination or purchase
is approved by the Board of Directors before the interested
stockholder acquired such shares. If approval is not obtained, then
after the expiration of the three-year period, the business
combination may be consummated with the approval of the Board of
Directors or a majority of the voting power held by disinterested
stockholders, or if the consideration to be paid by the interested
stockholder is at least equal to the highest of (i) the highest
price per share paid by the interested stockholder within the three
years immediately preceding the date of the announcement of the
combination or in the transaction in which he became an interested
stockholder, whichever is higher, (ii) the market value per common
share on the date of announcement of the combination or the date
the interested stockholder acquired the shares, whichever is
higher, or (iii) if higher for the holders of preferred stock, the
highest liquidation value of the preferred stock.
Articles of
Incorporation and Bylaws
Our
articles of incorporation are silent as to cumulative voting rights
in the election of our directors. Nevada law requires the existence
of cumulative voting rights to be provided for by a corporation's
articles of incorporation. In the event that a few
stockholders end up owning a significant portion of our issued and
outstanding common stock, the lack of cumulative voting would make
it more difficult for other stockholders to replace our Board of
Directors or for a third party to obtain control of us by replacing
our Board of Directors. Our articles of incorporation and bylaws do
not contain any explicit provisions that would have an effect of
delaying, deferring or preventing a change in control of
us.
Warrants
Duration and Exercise Price.
The
warrant
s offered hereby
will entitle the holders thereof to purchase up to an aggregate
of
2,250,000
shares of our common stock at an initial exercise price per share
that is
equal to 110% of the
closing price per share on the OTCQB on the date that we first
enter in a securities purchase agreement for this offering, subject
to adjustment as described below, and will expire five years after
the date they are issued. The
warrant
s will be issued separately from the common stock
included in the
share
s and may
be transferred separately immediately thereafter. All
warrant
s will have the same expiration
date
.
Anti-Dilution Protection.
The exercise price of the
warrant
s is subject to appropriate
adjustment in the event of stock dividends, stock splits,
reorganizations or similar events affecting our common
stock.
Cashless Exercise.
If, at
the time a holder exercises a
warrant
, there is no effective registration statement
registering, or the prospectus contained therein is not available
for an issuance of the shares underlying the
warrant
to the holder, then in lieu of making
the cash payment otherwise contemplated to be made to us upon such
exercise in payment of the aggregate exercise price, the holder may
elect instead to receive upon such exercise (either in whole or in
part) the net number of shares of common stock determined according
to a formula set forth in the
warrant
.
18
Fundamental Transactions
. If,
at any time while the
warrant
s
are outstanding, (A) the Company, directly or indirectly, in
one or more related transactions, (i) consolidates or merges
with or into (whether or not the Company is the surviving
corporation) another person, or (ii) sells, assigns,
transfers, conveys or otherwise disposes of all or substantially
all of the properties or assets of the Company to any other person,
or (iii) makes, or allows any other person to make a purchase,
tender or exchange offer that is accepted by the holders of more
than 50% of the outstanding shares of common stock (not including
any shares of common stock held by the person(s) making or party
to, or affiliated with any of the persons making or party to, such
purchase, tender or exchange offer); or (iv) consummates a
stock or share purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with any other person whereby
such other person acquires more than 50% of the outstanding shares
of common stock (not including any shares of common stock held by
the person(s) making or party to, or affiliated with any of the
persons making or party to, such stock purchase agreement or other
business combination), or (v) reorganizes, recapitalizes or
reclassifies its common stock, (B) the Company, directly or
indirectly, through one or more related transactions, allows any
person or group to be or become the “beneficial owner”
(as defined in Rule 13d-3 under the Securities Exchange Act),
directly or indirectly, of more than 50% of the aggregate voting
power represented by issued and outstanding common stock, or
(C) the Company, directly or indirectly, through one or more
related transactions, issues or enters into any other instrument or
transaction structured in a manner to circumvent, or that
circumvents, the intent of this definition, in which case this
definition shall be construed and implemented in a manner to
correct this definition or any portion of this definition which may
be defective or inconsistent with the intended treatment of such
instrument or transaction (each, a “Fundamental
Transaction”), then each holder shall have the right
thereafter to receive, upon exercise of a
warrant
, the same amount and kind of
securities, cash or property as such holder would have been
entitled to receive upon the occurrence of such Fundamental
Transaction if the holder had been, immediately prior to such
Fundamental Transaction, the holder of the number of shares of
common stock then issuable upon exercise of the
warrant
. Any successor to us,
surviving entity or the corporation purchasing or otherwise
acquiring such assets shall assume the obligation to deliver to the
holder such alternate consideration, and the other obligations,
under the
warrant
.
Notwithstanding the preceding paragraph, in the event of any
Fundamental Transaction, the holders of the
warrant
s will be entitled to receive,
in lieu of our shares and at the holders’ option, cash in an
amount equal to the Black Scholes Value (as defined in the form
of
warrant
) of the remaining
unexercised portion of the
warrant
on the date of the
transaction.
Transferability.
The
warrant
s may be transferred at the option of the
warrant
holder upon surrender of
the
warrant
s with the
appropriate instruments of transfer.
Exchange Listing.
We do
not plan on making an application to list the
warrant
s on any national securities
exchange or other nationally recognized trading
system.
Exercisability.
The
warrant
s will be exercisable, at the
option of each holder, in whole or in part, by delivering to us a
duly executed exercise notice accompanied by payment in full for
the number of shares of our common stock purchased upon such
exercise (except in the case of a cashless exercise as discussed
above). A holder (together with its affiliates) may not exercise
any portion of the warrant to the extent that the holder would
beneficially own more than 4.99% (or at the election of the holder,
9.99%) of our outstanding common stock after exercise. The holder
may increase or decrease this beneficial ownership limitation to
any other percentage of our common stock outstanding immediately
after the exercise not in excess of 9.99%, upon notice to us,
provided that, in the case of an increase, such increase shall not
be effective for 61 following the written notice to
us.
Waivers and Amendments.
Subject to certain exceptions, the terms of
a
warrant
may be amended or
waived only with the written consent of the
holder.
Preferred Stock
Our
articles of incorporation authorize us to issue 100,000,000 shares
of preferred stock. We have neither issued any preferred stock nor
designated the terms of any class of preferred stock. The
designation of the terms of any class of preferred stock are to be
determined solely by our board of directors. As a result, without
the need for any vote by our shareholders, we could issue a class
of securities that we would be preferential in voting,
distribution, liquidation or other rights to the securities that
you may purchase in this offering.
Transfer Agent and Registrar
The
transfer agent and registrar for our common stock
is V Stock Transfer, LLC, 18 Lafayette
Place, Woodmere, NY 11598, Phone: (212)
828-8436.
Listing
The
shares of our common stock are quoted on the OTCQB under the symbol
QBIO. On January 5, 2018, the last reported sale price per share
for our common stock on the OTCQB as reported was
$4.30.
19
We are
a biotechnology acceleration and development company focused on
acquiring and in-licensing pre-clinical, clinical-stage and
approved life sciences therapeutic products. Currently, we have a
portfolio of four therapeutic products, including an FDA approved
product, Strontium 89, a radiopharmaceutical for metastatic cancer
bone pain, and three development stage products: QBM-001 for rare
pediatric non-verbal autism spectrum disorder, Uttroside-B for
liver cancer, and MAN 01 for glaucoma. We aim to maximize
risk-adjusted returns by focusing on multiple assets throughout the
discovery and development cycle. We expect to benefit from early
positioning in illiquid and/or less well known privately-held
assets, thereby enabling us to capitalize on valuation growth as
these assets move forward in their development.
Our
mission is to:
(i)
license and acquire
pre-commercial innovative life sciences assets in different stages
of development and therapeutic areas from academia or small private
companies;
(ii)
license and acquire
FDA approved drugs and medical devices with limited current and
commercial activity; and
(iii)
accelerate and
advance our assets to the next value inflection point by providing:
strategic capital, business development and financial advice and
experienced sector specific advisors.
In
2018, we plan: (i) to generate revenue from our Strontium 89
product for pain palliation in bone metastases as well as commence
a therapeutic expansion post-marketing phase 4 trial for this
product; and (ii) to commence a phase 2/3 pivotal trial with our
QBM-001 asset to address a non-verbal learning disorder in autistic
children. In 2019, we intend to file investigational new drug
applications, or INDs, with FDA for each of our Uttroside-B and MAN
01 assets for the treatment of liver cancer and glaucoma,
respectively.
Following
is a summary of our product pipeline.
Our Strategy
Our
goal is to become a leading biotechnology acceleration and
development company with a diversified portfolio of therapeutic
products commercially available and in development. To achieve this
goal, we are executing on the following strategy:
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●
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|
Strategically collaborate or in- and out-license select
programs.
We seek
to collaborate or in- and out-license certain potentially
therapeutic candidate products to biotechnology or pharmaceutical
companies for preclinical and clinical development and
commercialization.
|
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●
|
|
Highly leverage external talent and resources.
We plan
to maintain and further build our team which is skilled in
evaluating technologies for development and product development
towards commercialization. By partnering with industry specific
experts, we are able to identify undervalued assets that we can
fund and assist in enhancing inherent value. We plan to continue to
rely on the extensive experience of our management team to execute
on our objectives.
|
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●
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|
Evaluate commercialization and monetization strategies on a
product-by-product basis in order to maximize the value of our
product candidates or future potential products.
As we
move our drug candidates through development toward regulatory
approval, we will evaluate several options for each drug
candidate’s commercialization or monetization strategy. These
options include building our own internal sales force; entering
into a joint marketing partnership with another pharmaceutical or
biotechnology company, whereby we jointly sell and market the
product; and out-licensing any product that we develop by ourselves
or jointly with another party, whereby another pharmaceutical or
biotechnology company sells and markets such product and pays us a
royalty on sales. Our decision will be made separately for each
product and will be based on a number of factors including capital
necessary to execute on each option, size of the market to be
addressed and terms of potential offers from other pharmaceutical
and biotechnology companies. It is too early for us to know which
of these options we will pursue for our drug candidates, assuming
their successful development.
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●
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Acquire commercially or near-commercially ready products and build
out the current market for such.
In
addition to acquiring pre-clinical products, in assembling a
diversified portfolio of healthcare assets, we plan on acquiring
assets that are either FDA approved or are reasonably expected to
be FDA approved within 12 months of our acquiring them. We
anticipate hiring a contract sales organization to assume the bulk
of the sales and distribution efforts related to any such
product.
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20
General Information
We were
incorporated in the State of Nevada on November 22, 2013 under the
name ISMO Technology Solutions and attempted to establish a base of
operation in the information technology sector and provide IT
hardware, software and support solutions to businesses and
households. However, we did not pursue our business plan to any
great extent due to the deteriorating health of the major
shareholder and CEO, Mr. Enrique Navas.
On
August 5, 2015, we recorded a stock split effectuated in the form a
stock dividend. The stock dividend was paid at a rate of 1.5
“new” shares for every one issued and outstanding share
held. All common share amounts and per share amounts as referred
throughout this prospectus have been adjusted to reflect the stock
split.
On
April 21, 2015, we issued 2,500,000 shares of our common stock to
Mr. Denis Corin pursuant to a consulting agreement and Mr. Corin
also agreed to join the Board of Directors. On July 15, 2016, we
issued to Mr. Corin five-year warrants to purchase 150,000 shares
of common stock at a price of $1.45 per share.
On June
1, 2015, our shareholders elected Mr. William Rosenstadt to the
Board of Directors and appointed him as Chief Legal
Officer. In exchange for such services for a one-year
term, we agreed to pay Mr. Rosenstadt 375,000 shares of our common
stock. We engaged the law firm at which Mr. Rosenstadt is a partner
to provide us with legal services. We have paid for these services
through the issuance to such law firm of 500,000 shares of our
common stock on June 1, 2015, five-year warrants to purchase
250,000 shares of common stock at a price of $4.15 per share on
January 15, 2016 and five-year warrants to purchase 50,000 shares
of common stock at a price of $1.45 per share on July 16, 2016. On
July 15, 2016, we issued Mr. Rosenstadt five-year warrants to
purchase 150,000 shares of common stock at a price of $1.45 per
share for his services as a director.
Also on
June 1, 2015, our Board of Directors determined it was in the best
interest of the Company to establish a base of operations in the
biomedical industry. As a result, the Board of Directors
approved a change in the Company’s name from “ISMO Tech
Solutions, Inc.” to “Q BioMed Inc.” Q
BioMed Inc. established its business as a biomedical acceleration
and development company focused on licensing, acquiring and
providing strategic resources to life sciences and healthcare
companies.
On July
23, 2015, our founder and CEO, Mr. Enrique Navas, resigned from his
position a director of our company and any positions that he held
as an officer of the Company. This resignation did not result
from any dispute or disagreement with us, our independent
accountants, our counsel or our operations, policies and practices.
Mr. Navas agreed to return 3,750,000 shares of common stock owned
by him to the treasury.
On
October 27, 2015, we filed a Certificate of Amendment to our
Articles of Incorporation with the Secretary of State of Nevada to
increase the number of shares of common stock that we are
authorized to issue from 100,000,000 shares to 250,000,000
shares. The Certificate of Amendment affected no provisions of
our Articles of Incorporation other than the number of common stock
that were are authorized to issue, and we are still authorized to
issue 100,000,000 shares of preferred stock.
Our Drug Discovery Approach
We aim
to acquire or license and have assembled a pipeline of multiple
therapeutics in development stages ranging from early pre-clinical
to commercial ready. Our model seeks to diversify risk by
broadening the therapeutic areas we work in as well as providing
multiple catalysts as we advance assets through the clinical and
regulatory process.
Our
mission is to:
(i)
license and acquire
pre-commercial innovative life sciences assets in different stages
of development and therapeutic areas from academia or small private
companies;
(ii)
license and acquire
FDA approved drugs and medical devices with limited current and
commercial activity;
(iii)
accelerate and
advance our assets to the next value inflection point by providing:
(A) strategic capital, (B) business development and financial
advice and (C) experienced sector specific advisors.
Our Research and Development Activities
In the
fiscal years ended November 30, 2016 and 2015, we have incurred
approximately $1.3 million and $598,000, respectively, on research
and development activities, including the issuance of 50,000 and
200,000 shares of common stock issued to Bio-Nucleonics Inc. and
Mannin Research Inc. in the corresponding year, valued at
approximately $160,000 and $548,000, respectively. In the nine
months ended August 31, 2017, we have incurred approximately
$
2.3
million
on research and development activities, including
the issuance of 125,000 shares of common stock issued to ASDERA,
valued at approximately $487,500.
21
Mannin Intellectual Property
On
October 29, 2015, we entered into a Patent and Technology License
and Purchase Option Agreement with Mannin whereby we were granted a
worldwide, exclusive license on, and option to acquire, certain
Mannin intellectual property, or IP, within the four-year
term.
The
Mannin IP is initially focused on developing a first-in-class eye
drop treatment for glaucoma. The technology platform may be
expanded in scope beyond ophthalmological uses and may include
cystic kidney disease and others. The initial cost to acquire the
exclusive license from Mannin was $50,000 and the issuance of
200,000 shares of our common stock, valued at $548,000, subject to
an 18-month restriction from trading and subsequent leak-out
conditions. Upon Mannin completing a successful phase 1 proof of
concept trial in glaucoma, we will be obligated to issue an
additional 1,000,000 shares of our common stock to Mannin, also
subject to leak-out conditions. We believe this milestone could
occur in the first half of 2019.
Pursuant
to the exclusive license from Mannin, we may purchase the Mannin IP
within the next four years in exchange for: (i) investing a minimum
of $4,000,000 into the development of the Mannin IP and (ii)
possibly issuing Mannin additional shares of our common stock based
on meeting pre-determined valuation and market conditions.
During the year ended November 30, 2016, we incurred approximately
$1.1 million in research and development expenses to fund the costs
of development of the eye drop treatment for glaucoma pursuant to
the exclusive license, of which an aggregate of $654,000 was
already paid as of November 30, 2016. Through November 30,
2016, we funded an aggregate of $704,000 to Mannin under the
exclusive license.
In the
event that: (i) we do not exercise the option to purchase the
Mannin IP; (ii) we fail to invest the $4,000,000 within four years
from the date of the exclusive license; or (iii) we fail to make a
diligent, good faith and commercially reasonable effort to progress
the Mannin IP, all Mannin IP shall revert back to Mannin and we
shall be granted the right to collect twice the monies invested
through that date of reversion by way of a royalty along with other
consideration which may be perpetual.
MAN 01 – New Vascular Therapeutics including Primary Open
Angle Glaucoma
Mannin
is utilizing a proprietary research platform technology to address
the need for a new class of drugs to treat various vascular
diseases. Our lead indication is for a first-in-class therapeutic
eye-drop for the treatment of Primary Open Angle
Glaucoma.
We are
developing a first-in-class drug targeting the Schlemm's canal and
its role in regulating interocular eye pressure, one of the leading
causes of glaucoma. No other glaucoma company is targeting the
Schlemm's canal, the main drainage pathway in the eye. This unique
vessel is responsible for 70-90% of the fluid drainage in the eye.
The MAN 01 drug is currently in the lead optimization stage of its
pre-clinical testing. We aim to initiate IND enabling studies is
2018 and file an IND in 2019.
We
believe that a deep pipeline of novel therapeutics can be developed
from this research platform, which would treat a spectrum of
vascular diseases including Cystic Kidney Disease, Pediatric
Glaucoma and Inflammation.
Recently,
a number of significant deals and announcements have been made in
the ophthalmology space. Aerie Pharmaceuticals, Inc. announced
successful efficacy data from its first phase III registration
study, Mercury 1, on Roclatan. Roclatan (once daily) is being
evaluated for its ability of lowering intraocular pressure, or IOP,
in patients with glaucoma or ocular hypertension. The success of
this Aerie trial is an indication of the importance of this market,
and the acute need for novel drugs to treat the over 60 million
sufferers of this disease. In addition, in October 2015, Allergan
plc, a leading global pharmaceutical company, acquired AqueSys,
Inc. a private clinical stage medical device company focused on
developing ocular implants that reduce IOP associated with
glaucoma, in an all-cash transaction for a $300 million upfront
payment and regulatory approval and commercialization milestone
payments related to AqueSys' lead development
programs.
BioNucleonics Intellectual Property
On May
30, 2016, we entered into a Patent and Technology License and
Purchase Option Agreement with BNI, which agreement was amended on
September 6, 2016, whereby we were granted a worldwide, exclusive
license on certain BNI intellectual property and the option to
acquire the BNI IP within three years of the BNI.
The BNI
IP consists of generic Strontium Chloride SR89 (Generic
Metastron®) and all of BNI’s intellectual property
relating to it. Currently, SR89 is a radiopharmaceutical
therapeutic for cancer bone pain therapy. We plan on exploring
options to broaden the technology platform in scope to uses beyond
metastatic cancer bone pain. In exchange for the consideration, we
agreed, upon reaching various milestones, to issue to BNI an
aggregate of 110,000 shares of common stock that are subject to
restriction from trading until commercialization of the product
(which we anticipate will occur in March 2018) and subsequent
leak-out conditions, and provide funding to BNI for an aggregate of
$850,000 in cash, of which we had paid $351,700 as of August 31,
2017. Once we have funded up to $850,000 in cash, we may
exercise the option to acquire the BNI IP at no additional
charge. In September 2016, we issued 50,000 shares of
common stock, with a fair value of $160,500, to BNI pursuant to the
exclusive license from BNI.
22
We were
obligated to provide further funding to BNI up to a total of
$163,500 to settle certain long-term debt on behalf of
BioNucleonics. To this end, we had provided an aggregate of
approximately $77,000 through August 25, 2017 to BNI to help fully
settle its obligations, which we recognized as research and
development expenses in the accompanying Statements of
Operations.
In the
event that: (i) we do not exercise the option to purchase the BNI
IP; (ii) we fail to invest the $850,000 within three years from the
date of the exclusive license; or (iii) we fail to make a diligent,
good faith and commercially reasonable effort to progress the BNI
IP, all BNI IP shall revert back to BNI and we shall be granted the
right to collect twenty percent of the monies invested through that
date of reversion by way of a royalty until such time that the
aggregate of royalties paid exceeds twice the aggregate of all
total cash investment paid by Q Bio along with other consideration
which may be perpetual.
Generic Strontium89 Chloride SR89 Injection USP
Strontium89
is an FDA approved drug for pain palliation in bone metastases,
primarily from breast, prostate and lung cancers. It is Medicare
and Healthcare insurance reimbursable. Strontium-89 is a pure beta
emitting radiopharmaceutical. It is a chemical analog of calcium
and for this reason, localizes in bone. There is a significant
concentration of both calcium and strontium analogs at the site of
active osteoblastic activity. This is the biochemical basis for its
use in treating metastatic bone disease.
Strontium
89 shows prolonged retention in metastatic bone lesions with a
biological half-life of over 50 days, remaining up to 100 days
after injection of the radiopharmaceutical, whereas the half-life
in normal bone tissue is approximately 14 days. Strontium-89 has
been shown to decrease pain in patients with osteoblastic
metastases resulting from prostate cancer. When Strontium-89
Chloride is used, pain palliation occurs in up to 80% of patients
within 2 to 3 weeks after administration and lasts from 3 to 12
months with an average of about 6 months.
In the
United States, of the estimated 450,000 individuals newly diagnosed
with either breast or prostate cancer, one in three will develop
bone metastases, a common cause of pain in cancer patients. These
figures are expected to increase as the potential patient
population ages.
Strontium
89 is a non-opioid drug for the treatment of debilitating
metastatic cancer pain in the bone. We believe there is a
significant opportunity to market this effective drug as
practitioners and caregivers are being encouraged to reexamine
their use of opiates for treating patients in pain. We estimate the
palliation market to be approximately $300 million annually.
Additional therapeutic indications for Strontium 89 are possible,
and we intend to pursue those in 2018, hopefully resulting in entry
into a multi-billion dollar therapeutic area.
ASDERA Intellectual Property
On
April 21, 2017, we entered into a License Agreement on Patent &
Know-How Technology with ASDERA whereby we were granted a
worldwide, exclusive, license on certain ASDERA intellectual
property.
Among
the more than 60,000 US children who develop autism spectrum
disorders, or ASD, every year, approximately 20,000 become
nonverbal and will have to rely on assisted living for the rest of
their lives. The ASDERA IP is intended to treat the rare pediatric
condition (nonverbal disorder) during the second year of life, when
children learn to speak. Many of the children who miss this
treatment window will become non-verbal for all of their lives.
Currently, there is no treatment for this nonverbal disorder. The
ASDERA IP is not intended to treat other aspects of ASD or to be
used beyond the estimated treatment window. The ASDERA IP consists
of patent-rights and know-how relating to a product candidate named
ASD-002 (now identified as QBM001).
The
initial cost to acquire the exclusive license from ASDERA was
$50,000 and the issuance of 125,000 shares of our unregistered
common stock subject to a leak-out conditions after the Rule 144
period has ended. In addition to royalties based upon net sales of
the product candidate, if any, we are required to make additional
payments upon the following milestones:
●
the filing of an
investigational new drug application, or IND, with the US Food and
Drug Administration;
●
successful interim
results of Phase II/III clinical trial of the product
candidate;
●
FDA acceptance of a
new drug application;
●
FDA approval of the
product candidate; and
●
achieving certain
worldwide net sales.
Subject
to the terms of the Agreement, we will be in control of the
development and commercialization of the product candidate and are
responsible for the costs of such development and
commercialization. We have undertaken a good-faith commitment
to (i) initiate a Phase II/III clinical trial at the earlier of the
two-year anniversary of the Agreement or one year from the
FDA’s approval of the IND and (ii) to make our first
commercial sale by the fifth-anniversary of the Agreement.
Failure to show a good-faith effort to meet those goals would mean
that the ASDERA IP would revert to ASDERA. Upon such
reversion, ASDERA would be obligated to pay us royalties on any
sales of products derived from the ASDERA IP until such time that
ASDERA has paid us twice the sum that we had provided ASDERA prior
to the reversion.
23
QBM-001 - Addressing Rare Pediatric Non-verbal Spectrum
Disorder
Causes
of non-verbal learning disorder have been linked to several
complications that range from a specific mutated gene as with
Fragile X Syndrome and Dravet Syndrome or autoimmunity, where the
body’s immune system is attacking parts of the brain. Trauma,
microbial infections and environmental factors have also been
linked to non-verbal learning disorder. Ongoing research is helping
to further explain the root cause of why children become non-verbal
or minimally verbal.
Children
born into families where there is a genetic history of autism or
epileptic spectrum disorders or that have a sibling that has been
diagnosed with an autistic or epileptic spectrum disorder have a
much higher chance of becoming non-verbal.
More
than 60,000 US children develop Autism Spectrum Disorders
(“ASD”) every year, of whom 20,000 become non-verbal. A
similar number of children with ASD symptoms in Europe develop
pediatric non-verbal disorder each year. No drugs are currently
available to ameliorate this condition. In the United States, of
the estimated 20,000 who become non- or minimally verbal and will
require assisted living for the rest of their life. The lifetime
cost of that care is estimated at $10 million per
person.
Cognitive
intervention is the only form for treatment that has shown to help
improve speech capability and social interaction, however, it has
not been able to alleviate the lifetime burden of $10 million per
person for cost of care.
This is compounded by an additional
$10 million during the lifespan of the person due to loss in
productivity in addition to severe emotional strain for the child
and the parents.
QBM-001
is proposed to be given to high-risk genetically identified
children during the second year of life to regulate faulty membrane
channels that are known to cause migraines and/or seizures. This
drug acts as an allosteric regulator of these faulty channels in
the brain to potentially alleviate the condition and allow toddlers
to actively develop language and speech and avoid life-long speech
and intellectual disability of being non-verbal
As
there are no treatment option for these patients, we believe there
is a significant economic opportunity to bring a drug to market in
this indication. The active ingredient in our compound is well
known and has been approved by worldwide regulators for many years.
Using a novel delivery and formulation for the active ingredient,
we intend to advance this drug through the 505(b)2 pathway in a
single phase 2/3 clinical trial expected to commence in
2018.
RGCB and OMRF Intellectual Property
On June
15, 2017, we entered into a Technology License Agreement RGCB and
OMRF whereby they granted us a worldwide, exclusive, license on
intellectual property related to Uttroside-B. Uttroside-B is
a chemical compound derived from the plant
Solanum nigrum Linn, also known as
Black Nightshade or Makoi. We seek to use the Uttroside-B IP
to create a
chemotherapeutic agent against liver
cancer.
The
initial cost to acquire the exclusive license for Uttroside is
$10,000. In addition to royalties based upon net sales of the
product candidate, if any, we are required to make additional
payments upon the following milestones:
●
the completion of
certain preclinical studies;
●
the filing of an
investigational new drug application with the US Food and Drug
Administration or the filing of the equivalent application with an
equivalent governmental agency;
●
successful
completion of each of Phase I, Phase II and Phase III clinical
trials;
●
FDA approval of the
product candidate;
●
approval by the
foreign equivalent of the FDA of the product
candidate;
●
achieving certain
worldwide net sales; and
●
a change of control
of our Company.
Subject
to the terms of the exclusive license for Uttroside, we will be in
control of the development and commercialization of the product
candidate and are responsible for the costs of such development and
commercialization. We have undertaken a good-faith commitment
to (i) fund the pre-clinical trials and (ii) to initiate a Phase II
clinical trial within six years of the date of the Agreement.
Failure to show a good-faith effort to meet those goals would mean
that the exclusive license for Uttroside would revert to the
licensors.
24
UTTROSIDE-B - A Novel Chemotherapeutic for Liver
Cancer
The
liver is the football-sized organ in the upper right area of the
belly. Symptoms of liver cancer are uncommon in the early stages.
Liver cancer treatments vary, but may include removal of part of
the liver, liver transplant, chemotherapy, and in some cases
radiation. Primary liver cancer (hepatocellular carcinoma) tends to
occur in livers damaged by birth defects, alcohol abuse, or chronic
infection with diseases such as hepatitis B and C, hemochromatosis
(a hereditary disease associated with too much iron in the liver),
and cirrhosis. In the United States, the average age at onset of
liver cancer is 63 years. Men are more likely to develop liver
cancer than women, by a ratio of 2 to 1.
The
only currently marketed drug is a tryosine kinase inhibitor
antineoplastic agent, sorafinib. Current sales of sorafinib are
estimated at $1 billion per year.
Uttroside-B
appears to affect phosphorylated JNK (pro survival signaling) and
capcase activity (apoptosis in liver cancer). It is a natural
compound fractionated Saponin derived from the Solarim Nigrum
plant. It is a small molecule that showed in early investigation to
increase the cytotoxicity of a variety of liver cancer cell types
and importantly to be up to ten times more potent than Sorafenib in
pre-clinical studies. This potency motivates us to work with our
partners to synthesize the molecule and move into a clinical
program. We plan to initiate clinical work in late
2018.
Patents and Intellectual Property Rights
If
products we acquired do not have adequate intellectual protection,
we will take the necessary steps to protect our proprietary
therapeutic product candidate assets and associated technologies
that are important to our business consisting of seeking and
maintaining domestic and international patents. These may cover our
products and compositions, their methods of use and processes for
their manufacture and any other inventions that may be commercially
important to the development of our business. We also rely on trade
secrets to protect aspects of our business. Our competitive
position depends on our ability to obtain patents on our
technologies and our potential products, to defend our patents, to
protect our trade secrets and to operate without infringing valid
and enforceable patents or trade secrets of others. We seek
licenses from others as appropriate to enhance or maintain our
competitive position.
We hold
a license to all intellectual property related to each of (i) MAN
01, the drug candidate for the treatment of Primary Open Angle
Glaucoma, (ii) ASD-002 (QBM001), the drug candidate related to a
nonverbal disorder associated with autism, (iii) SR89, our generic
Strontium 89 Chloride product candidate for metastatic cancer bone
pain therapy, and (iv) the
Uttroside
platform. A U.S.
patent was filed in 2015 as it related to MAN 01, and we plan to
file international patent applications as required.
We do
not hold, and have not applied for, any patents.
Competition
We
operate in highly competitive segments of the biotechnology and
biopharmaceutical markets. We face competition from many different
sources, including commercial pharmaceutical and biotechnology
enterprises, academic institutions, government agencies, and
private and public research institutions. Our product candidates,
if successfully developed and approved, will compete with
established therapies, as well as new treatments that may be
introduced by our competitors. Many of our competitors have
significantly greater financial, product development, manufacturing
and marketing resources than us. Large pharmaceutical companies
have extensive experience in clinical testing and obtaining
regulatory approval for drugs. In addition, many universities and
private and public research institutes are active in the fields in
which we research, some in direct competition with us. We also may
compete with these organizations to recruit management, scientists
and clinical development personnel. Smaller or early-stage
companies may also prove to be significant competitors,
particularly through collaborative arrangements with large and
established companies. New developments, including the development
of other biological and pharmaceutical technologies and methods of
treating disease, occur in the pharmaceutical and life sciences
industries at a rapid pace. Developments by competitors may render
our product candidates obsolete or noncompetitive. We will also
face competition from these third parties in recruiting and
retaining qualified personnel, establishing clinical trial sites
and patient registration for clinical trials and in identifying and
in-licensing new product candidates.
Our
generic SR89 product candidate will compete directly with
Metastron® which is produced by a subsidiary of General
Electric Company, a company with a market capitalization of over
$150 billion. Metastron is currently the sole SR89 product for the
treatment of cancer related bone pain, and we may not be able to
penetrate this market sufficiently. General Electric Company may
choose to significantly reduce the cost of Metastron, and we may
face further price competition if other companies choose to produce
a generic SR89 product. Such price competition may cause us to
reduce our price and in turn, decrease any revenues we may
generate.
25
Government Regulation
The
clinical development, manufacturing, labeling, storage,
record-keeping, advertising, promotion, import, export, marketing
and distribution of our product candidates are subject to extensive
regulation by the FDA in the United States and by comparable health
authorities in foreign markets. In the United States, we are not
permitted to market our product candidates until we receive
approval of a BLA from the FDA. The process of obtaining BLA
approval is expensive, often takes many years and can vary
substantially based upon the type, complexity and novelty of the
products involved. In addition to the significant clinical testing
requirements, our ability to obtain marketing approval for these
products depends on obtaining the final results of required
non-clinical testing, including characterization of the
manufactured components of our product candidates and validation of
our manufacturing processes. The FDA may determine that our product
manufacturing processes, testing procedures or facilities (or those
of third parties upon which we rely) are insufficient to justify
approval. Approval policies or regulations may change and the FDA
has substantial discretion in the pharmaceutical approval process,
including the ability to delay, limit or deny approval of a product
candidate for many reasons. Despite the time and expense invested
in clinical development of product candidates, regulatory approval
is never guaranteed.
The FDA
or another regulatory agency can delay, limit or deny approval of a
product candidate for many reasons, including, but not limited
to:
|
●
|
|
the FDA
or comparable foreign regulatory authorities may disagree with the
design or implementation of our clinical trials;
|
|
●
|
|
we may
be unable to demonstrate to the satisfaction of the FDA that a
product candidate is safe and effective for any
indication;
|
|
●
|
|
the FDA
may not accept clinical data from trials which are conducted by
individual investigators or in countries where the standard of care
is potentially different from the United States;
|
|
●
|
|
the
results of clinical trials may not meet the level of statistical
significance required by the FDA for approval;
|
|
●
|
|
we may
be unable to demonstrate that a product candidate’s clinical
and other benefits outweigh its safety risks;
|
|
●
|
|
the FDA
may disagree with our interpretation of data from preclinical
studies or clinical trials;
|
|
●
|
|
the FDA
may fail to approve our manufacturing processes or facilities or
those of third-party manufacturers with which we or our
collaborators contract for clinical and commercial supplies;
or
|
|
●
|
|
the
approval policies or regulations of the FDA may significantly
change in a manner rendering our clinical data insufficient for
approval.
|
With
respect to foreign markets, approval procedures vary among
countries and, in addition to the aforementioned risks, can involve
additional product testing, administrative review periods and
agreements with pricing authorities. In addition, recent events
raising questions about the safety of certain marketed
pharmaceuticals may result in increased cautiousness by the FDA and
comparable foreign regulatory authorities in reviewing new
pharmaceuticals based on safety, efficacy or other regulatory
considerations and may result in significant delays in obtaining
regulatory approvals. Any delay in obtaining, or inability to
obtain, applicable regulatory approvals would prevent us from
commercializing our product candidates.
Costs and Effects of Compliance with Environmental
Laws
Federal,
state, and international environmental laws may impose certain
costs and restrictions on our business. We do not believe that we
have yet spent or lost money due to these laws and
regulations.
Product Liability and Insurance
We face
an inherent risk of product liability exposure related to the
testing of our product candidates in human clinical trials and the
eventual sale and use of any product candidates, and claims could
be brought against us if use or misuse of one of our product
candidates causes, or merely appears to have caused, personal
injury or death. While we have and intend to maintain product
liability insurance relating to our clinical trials, our coverage
may not be sufficient to cover claims that may be made against us
and we may be unable to maintain such insurance. Any claims against
us, regardless of their merit, could severely harm our financial
condition, strain our management and other resources or destroy the
prospects for commercialization of the product which is the subject
of any such claim. We are unable to predict if we will be able to
obtain or maintain product liability insurance for any products
that may be approved for marketing. Additionally, we have entered
into various agreements where we indemnify third parties for
certain claims relating to our product candidates. These
indemnification obligations may require us to pay significant sums
of money for claims that are covered by these indemnifications. We
currently do not maintain product liability insurance.
Employees
As of
December 1, 2017, we had 2 employees and 6 management
consultants.
Properties
We do
not own any properties. We have leased office space in the Cayman
Islands.
Legal Proceedings
We are
not a party to any material pending legal proceeding, arbitration
or governmental investigation, and to the best of our knowledge, no
such proceedings have been initiated against us.
26
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our
common stock is listed on the Over the Counter QB, or OTCQB, under
the symbol “QBIO”. The market for our common stock is
limited, volatile and sporadic. The following table sets forth, for
the periods indicated, the high and low bid prices of our common
stock on the OTCQB as reported by Google Finance. The following
quotations reflect inter-dealer prices, without retail mark-up,
markdown, or commissions, and may not reflect actual transactions.
Those fiscal quarters during which there were no sales of our
common stock have been labeled as “n/a”.
|
|
|
Fiscal
Year 2017
|
|
|
November 30,
2017
|
$
5.90
|
$
3.48
|
August 31,
2017
|
$
4.09
|
$
3.92
|
May 31,
2017
|
$
7.90
|
$
3.35
|
February 28,
2017
|
$
12.61
|
$
3.20
|
Fiscal
Year 2016
|
|
|
November 30,
2016
|
$
6.00
|
$
2.39
|
August 31,
2016
|
$
4.14
|
$
1.26
|
May 31,
2016
|
$
4.10
|
$
2.00
|
February 29,
2016
|
$
4.69
|
$
2.35
|
|
|
|
Fiscal
Year 2015
|
|
|
November 30,
2015
|
$
3.56
|
$
1.95
|
August 31,
2015
|
$
4.40
|
$
1.30
|
May 31,
2015
|
$
n/a
|
$
n/a
|
February 28,
2015
|
$
n/a
|
$
n/a
|
The
last reported sales price for our shares on the OTCQB as of January
5, 2018 was $4.30 per share. As of November 30, 2017, we had
approximately 94 shareholders of record at our Transfer
Agent.
Dividend Policy
We have
never declared or paid any cash dividends on our common
stock. For the foreseeable future, we intend to retain any
earnings to finance the development and expansion of our business
and do not anticipate paying any cash dividends on our common
stock. Any future determination to pay dividends will be at the
discretion of the Board of Directors and will depend upon then
existing conditions, including our financial condition and results
of operations, capital requirements, contractual restrictions,
business prospects and other factors that the board of directors
considers relevant.
Securities Authorized For Issuance under Compensation
Plans
None.
Stock Incentive Plan
None.
Warrants and Convertible Securities
As of
December 1, 2017, we had granted warrants exercisable into
shares of common stock, granted options (not all of which had
vested) exercisable into shares of common stock. The issuance of
any shares of common stock pursuant to exercise of such options and
warrants could be at per share price below the offering price of
shares being acquired in this offering.
Recent Sales of Unregistered Securities
None.
27
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Q
BioMed Inc. was incorporated in the State of Nevada on November 22,
2013 and is a biomedical acceleration and development
company focused on licensing, acquiring and providing
strategic resources to life sciences and healthcare companies. We
intend to mitigate risk by acquiring multiple assets over time and
across a broad spectrum of healthcare related products, companies
and sectors. We intend to develop these assets to
provide returns via organic growth, revenue production,
out-licensing, sale or spin out.
Recent Developments
Acquisition of BNI license right
On
September 6, 2016, we entered into the Patent and Technology
License and Purchase Option Agreement with BioNucleonics Inc.
whereby we were granted a worldwide, exclusive, perpetual, license
on, and option to, acquire all of BNI’s assets related to an
FDA approved generic drug for the treatment of pain associated with
metastatic bone cancer, Strontium Chloride, within the three-year
term of the exclusive license.
This
licensed radiopharmaceutical agent is indicated for the treatment
of bone pain associated with metastatic cancer. SR89 provides long
lasting relief for patients suffering from bone pain due to
metastatic cancer, typically caused by advanced-stage breast,
prostate or lung cancer. The drug is preferentially absorbed in
bone metastases, it has been proven to provide a long-term effect
resulting in non-narcotic cancer pain relief and enhanced quality
of life.
In
exchange for the consideration, we agreed to, upon reaching various
milestones, issue to BNI an aggregate of 110,000 shares of common
stock that are subject to restriction from trading until
commercialization of the product (approximately 12 months) and
subsequent leak-out conditions and provide funding to BNI for an
aggregate of $850,000 in cash, of which we had paid $20,000 as of
November 30, 2016. Once we have funded up to $850,000 in
cash, we may exercise its option to acquire the BNI IP at no
additional charge. In September 2016, we issued 50,000
shares of common stock, with a fair value of $160,500, to BNI
pursuant to the exclusive license.
In the
event that: (i) we do not exercise the option to purchase the BNI
IP; (ii) we fail to make the aggregate cash payment within three
years from the date of the exclusive license; or (iii) we fail to
make a diligent, good faith and commercially reasonable effort to
progress the BNI IP, all BNI IP shall revert to BNI and we shall be
granted the right to collect twice the monies invested through that
date of reversion by way of a royalty along with other
consideration which may be perpetual.
Acquisition of ASDERA license right
On
April 21, 2017, we entered into a License Agreement on Patent &
Know-How Technology with ASDERA whereby ASDERA granted us the
exclusive license on the ASDERA IP.
Among
the more than 60,000 US children who develop autism spectrum
disorders, or ASD, every year, approximately 20,000 become
nonverbal and will have to rely on assisted living for the rest of
their lives. The ASDERA IP is intended to treat the rare
pediatric condition (nonverbal disorder) during the second year of
life, when children learn to speak.
The
initial cost to acquire the exclusive license from ASDERA was
$50,000 and the issuance of 125,000 shares of our unregistered
common stock subject to a leak-out conditions after the Rule 144
period has ended. In addition to royalties based upon net sales of
the product candidate, if any, we are required to make additional
payments upon the following milestones:
●
the filing of an
investigational new drug application, or IND, with the US Food and
Drug Administration;
●
successful interim
results of Phase II/III clinical trial of the product
candidate;
●
FDA acceptance of a
new drug application;
●
FDA approval of the
product candidate; and
●
achieving certain
worldwide net sales.
Subject
to the terms of the Agreement, we will be in control of the
development and commercialization of the product candidate and are
responsible for the costs of such development and
commercialization. We have undertaken a good-faith commitment
to (i) initiate a Phase II/III clinical trial at the earlier of the
two-year anniversary of the Agreement or one year from the
FDA’s approval of the IND and (ii) to make our first
commercial sale by the fifth-anniversary of the Agreement.
Failure to show a good-faith effort to meet those goals would mean
that the ASDERA IP would revert to ASDERA. Upon such
reversion, ASDERA would be obligated to pay us royalties on any
sales of products derived from the ASDERA IP until such time that
ASDERA has paid us twice the sum that we had provided ASDERA prior
to the reversion.
28
Acquisition of Uttroside license right
On June
15, 2017, we entered into a Technology License Agreement with RGCB
and OMRF whereby they granted us the exclusive license for
Uttroside on intellectual property related to Uttroside-B.
Uttroside-B is a chemical compound that w
e seek to use to create
a
chemotherapeutic agent against liver
cancer.
The
initial cost to acquire the Uttroside exclusive license is $10,000.
In addition to royalties based upon net sales of the product
candidate, if any, we are required to make additional payments upon
the following milestones:
●
the completion of
certain preclinical studies;
●
the filing of an
investigational new drug application with the US Food and Drug
Administration or the filing of the equivalent application with an
equivalent governmental agency;
●
successful
completion of each of Phase I, Phase II and Phase III clinical
trials;
●
FDA approval of the
product candidate;
●
approval by the
foreign equivalent of the FDA of the product
candidate;
●
achieving certain
worldwide net sales; and
●
a change of control
of our Company.
Subject
to the terms of the Uttroside exclusive license, we will be in
control of the development and commercialization of the product
candidate and are responsible for the costs of such development and
commercialization. We have undertaken a good-faith commitment
to (i) fund the pre-clinical trials and (ii) to initiate a Phase II
clinical trial within six years of the date of the Agreement.
Failure to show a good-faith effort to meet those goals would mean
that the Uttroside exclusive license would revert to the
licensors.
Mannin License Update
Additionally,
Mannin Research Inc. our technology partner company focused on drug
candidate MAN 01 for treatment of Primary Open Angle Glaucoma
(POAG), has initiated pre-clinical lead candidate optimization of a
small molecule for topical application. Lead candidate selection is
progressing on-time and on-budget. The topical application in the
form of an easy to administer eye drop is a key differentiator for
Mannin and aims to solve the compliance problems and invasive
procedures currently available to patients suffering from
glaucoma.
Mannin
is continuing its focus on research and discovery on the biology of
Tie2/TEK signaling and its relationship with Schlemm’s Canal
function and regulation of intra-ocular pressure. Additional data
sets and IP have been developed around this novel mechanism of
action. Mannin is evaluating strategic partnerships
opportunities to grow its intellectual property portfolio within
the Tie2/TEK signaling market, and is seeking complementary
technologies to strengthen its product pipeline. We are pleased
with the progress Mannin research teams have achieved over the past
three months. Recent work in the lab underscores the essential role
of the Mannin platform in the development of the anterior chamber
of the eye – which contain the structures needed to maintain
safe levels of intraocular pressure.
In
February 2017, Mannin Research, was accepted into Johnson &
Johnson Innovation, JLABS @ Toronto. JLABS @ Toronto is a 40,000
square-foot life science innovation center. The labs provide a
flexible environment for start-up companies pursuing new
technologies and research platforms to advance medical care.
Through a "no strings attached" model, Johnson & Johnson
Innovation does not take an equity stake in the companies occupying
JLABS and the companies are free to develop products - either on
their own, or by initiating a separate external partnership with
Johnson & Johnson Innovation or any other company.
Mannin
will utilize JLABS @ Toronto as complementary lab space to conduct
commercial research and development as it relates to its MAN 01
program for Glaucoma and to the greater Tie2 platform technology.
As a resident, Mannin will have access to the development and
commercialization expertise provided by JLABS @
Toronto.
On
November 14, 2017 Mannin received funding for a proof of concept
study of a new biologic therapeutic for glaucoma. The R&D
funding from the National Research Council of Canada Industrial
Research Assistance Program (NRC IRAP) will be used to initiate
work on a Tie2-activating biologic for the treatment of
glaucoma
29
Financial Overview
Critical Accounting Policies and Estimates
Our
management's discussion and analysis of our financial condition and
results of operations is based on our audited financial statements,
which have been prepared in accordance with United States generally
accepted accounting principles, or U.S. GAAP. The preparation of
the financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements, as well as the reported
revenue generated and expenses incurred during the reporting
periods. Our estimates are based on our historical experience and
on various other factors that we believe are reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that
are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or
conditions and any such differences may be material. We believe
that the accounting policies discussed below are critical to
understanding our historical and future performance, as these
policies relate to the more significant areas involving
management's judgments and estimates.
Fair value of financial instruments
Fair
value estimates discussed herein are based upon certain market
assumptions and pertinent information available to management as of
November 30, 2016 and 2015. The respective carrying value of
certain on-balance-sheet financial instruments approximated their
fair values. These financial instruments include cash and accounts
payable. Fair values were assumed to approximate carrying values
for cash and accounts payable because they are short term in
nature.
FASB
Accounting Standards Codification (ASC) 820 “
Fair Value Measurements and
Disclosures
” (ASC 820) defines fair value as the
exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date.
ASC 820 also establishes a fair value hierarchy that distinguishes
between (1) market participant assumptions developed based on
market data obtained from independent sources (observable inputs)
and (2) an entity’s own assumptions about market participant
assumptions developed based on the best information available in
the circumstances (unobservable inputs). The fair value hierarchy
consists of three broad levels, which gives the highest priority to
unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1) and the lowest priority to unobservable
inputs (Level 3). The three levels of the fair value hierarchy are
described below:
●
Level 1
: The preferred inputs to
valuation efforts are “quoted prices in active markets for
identical assets or liabilities,” with the caveat that the
reporting entity must have access to that market. Information
at this level is based on direct observations of transactions
involving the same assets and liabilities, not assumptions, and
thus offers superior reliability. However, relatively few items,
especially physical assets, actually trade in active
markets.
●
Level 2
: FASB acknowledged that active
markets for identical assets and liabilities are relatively
uncommon and, even when they do exist, they may be too thin to
provide reliable information. To deal with this shortage of direct
data, the board provided a second level of inputs that can be
applied in three situations.
●
Level 3
: If inputs from levels 1 and 2
are not available, FASB acknowledges that fair value measures of
many assets and liabilities are less precise. The board describes
Level 3 inputs as “unobservable,” and limits their use
by saying they “shall be used to measure fair value to the
extent that observable inputs are not available.” This
category allows “for situations in which there is little, if
any, market activity for the asset or liability at the measurement
date”. Earlier in the standard, FASB explains that
“observable inputs” are gathered from sources other
than the reporting company and that they are expected to reflect
assumptions made by market participants.
Fair
value measurements discussed herein are based upon certain market
assumptions and pertinent information available to management as of
and during the years ended November 30, 2016 and 2015. The
respective carrying value of cash and accounts payable approximated
their fair values as they are short term in nature.
As of
November 30, 2016, the estimated aggregate fair value of all
outstanding convertible notes payable is approximately $3.3
million. The fair value estimate is based on the estimated option
value of the conversion terms, since the strike price of each note
series is deep in-the-money at November 30, 2016. The estimated
fair value represents a Level 3 measurement.
Embedded Conversion Features
We
evaluate embedded conversion features within convertible debt to
determine whether the embedded conversion feature(s) should be
bifurcated from the host instrument and accounted for as a
derivative at fair value with changes in fair value recorded in the
Statement of Operations. If the conversion feature does not
require recognition of a bifurcated derivative, the convertible
debt instrument is evaluated for consideration of any beneficial
conversion feature (“BCF”) requiring separate
recognition. When we record a BCF, the intrinsic value of the BCF
is recorded as a debt discount against the face amount of the
respective debt instrument (offset to additional paid-in capital)
and amortized to interest expense over the life of the
debt.
30
Derivative Financial Instruments
We do
not use derivative instruments to hedge exposures to cash flow,
market, or foreign currency risks. We evaluate all of our financial
instruments, including issued stock purchase warrants, to determine
if such instruments are derivatives or contain features that
qualify as embedded derivatives. For derivative financial
instruments that are accounted for as liabilities, the derivative
instrument is initially recorded at its fair value and is then
re-valued at each reporting date, with changes in the fair value
reported in the Statement of Operations. Depending on the features
of the derivative financial instrument, we use either the
Black-Scholes option-pricing model or a binomial model to value the
derivative instruments at inception and subsequent valuation
dates. The classification of derivative instruments,
including whether such instruments should be recorded as
liabilities or as equity, is re-assessed at the end of each
reporting period.
Stock Based Compensation Issued to Nonemployees
Common
stock issued to non-employees for acquiring goods or providing
services is recognized at fair value when the goods are obtained or
over the service period. If the award contains performance
conditions, the measurement date of the award is the earlier of the
date at which a commitment for performance by the non-employee is
reached or the date at which performance is reached. A performance
commitment is reached when performance by the non-employee is
probable because of sufficiently large disincentives for
nonperformance.
Research and Development
We
expense the cost of research and development as
incurred. Research and development expenses comprise
costs incurred in funding research and development activities,
license fees, and other external costs. Nonrefundable advance
payments for goods and services that will be used in future
research and development activities are expensed when the activity
is performed or when the goods have been received, rather than when
payment is made, in accordance with ASC 730,
Research and Development
.
Income Taxes
Deferred
tax assets and liabilities are computed based upon the difference
between the financial statement and income tax basis of assets and
liabilities using the enacted marginal tax rate applicable when the
related asset or liability is expected to be realized or
settled. Deferred income tax expenses or benefits are based
on the changes in the asset or liability each period. If
available evidence suggests that it is more likely than not that
some portion or all of the deferred tax assets will not be
realized, a valuation allowance is required to reduce the deferred
tax assets to the amount that is more likely than not to be
realized. Future changes in such valuation allowance are
included in the provision for deferred income taxes in the period
of change.
Deferred
income taxes may arise from temporary differences resulting from
income and expense items reported for financial accounting and tax
purposes in different periods. Deferred taxes are classified
as current or non-current, depending on the classification of
assets and liabilities to which they relate. Deferred taxes
arising from temporary differences that are not related to an asset
or liability are classified as current or non-current depending on
the periods in which the temporary differences are expected to
reverse.
We
apply a more-likely-than-not recognition threshold for all tax
uncertainties, which only allows the recognition of those tax
benefits that have a greater than fifty percent likelihood of being
sustained upon examination by the taxing authorities. As of
November 30, 2016, we reviewed our tax positions and determined
there were no outstanding, or retroactive tax positions with less
than a 50% likelihood of being sustained upon examination by the
taxing authorities, therefore this standard has not had a material
effect on us.
Our
policy for recording interest and penalties associated with audits
is to record such expense as a component of income tax expense.
There were no amounts accrued for penalties or interest during the
years ended November 30, 2016. Management is currently unaware of
any issues under review that could result in significant payments,
accruals or material deviations from its position.
31
Recent accounting pronouncements
In
August 2014, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”) No. 2014-15,
Disclosure of Uncertainties about an
Entity’s Ability to Continue as a Going
Concern
that will require management to evaluate
whether there are conditions and events that raise substantial
doubt about our ability to continue as a going concern within one
year after the financial statements are issued on both an interim
and annual basis. Management will be required to provide certain
footnote disclosures if it concludes that substantial doubt exists
or when its plans alleviate substantial doubt about our ability to
continue as a going concern. We adopted ASU No.
2014-15 in the fourth quarter of 2016, and its adoption did not
have a material impact on our financial statements.
In
March 2016, the FASB issued ASU No. 2016-06,
Derivatives and Hedging (Topic 815):
Contingent Put and Call Options in Debt Instruments
. This
new standard simplifies the embedded derivative analysis for debt
instruments containing contingent call or put options by removing
the requirement to assess whether a contingent event is related to
interest rates or credit risks. This new standard will be effective
for us on January 1, 2017. The adoption of this standard is not
expected to have a material impact on our financial position,
results of operations, or cash flows.
In
August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows (Topic 230):
Classification of Certain Cash Receipts and Cash Payments
.
This new standard clarifies certain aspects of the statement of
cash flows, including the classification of debt prepayment or debt
extinguishment costs or other debt instruments with coupon interest
rates that are insignificant in relation to the effective interest
rate of the borrowing, contingent consideration payments made after
a business combination, proceeds from the settlement of insurance
claims, proceeds from the settlement of corporate-owned life
insurance policies, distributions received from equity method
investees and beneficial interests in securitization transactions.
This new standard also clarifies that an entity should determine
each separately identifiable source of use within the cash receipts
and payments on the basis of the nature of the underlying cash
flows. In situations in which cash receipts and payments have
aspects of more than one class of cash flows and cannot be
separated by source or use, the appropriate classification should
depend on the activity that is likely to be the predominant source
or use of cash flows for the item. This new standard will be
effective for us on January 1, 2018. We are currently
evaluating the impact of this new standard and does not expect it
to have a material impact on our consolidated financial
statements.
In
January 2017, the FASB issued ASU No. 2017-01,
Business Combinations (Topic 805): Clarifying
the Definition of a Business
. This new standard clarifies
the definition of a business and provides a screen to determine
when an integrated set of assets and activities is not a business.
The screen requires that when substantially all of the fair value
of the gross assets acquired (or disposed of) is concentrated in a
single identifiable asset or a group of similar identifiable
assets, the set is not a business. This new standard will be
effective for us on January 1, 2018, but may be adopted early.
Adoption is prospectively applied to any business development
transaction. The adoption of this standard is not expected to
have a material impact on our financial position, results of
operations, or cash flows.
In July
2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic
260); Distinguishing Liabilities from Equity (Topic 480);
Derivatives and Hedging (Topic 815). Part I of this Update
addresses the complexity of accounting for certain financial
instruments with down-round features. The amendments in Part I of
this update change the classification analysis of certain
equity-lined financial instruments (or embedded features) with
down-round features. When determining whether certain financial
instruments should be classified as liability or equity
instruments, a down-round feature no longer precludes equity
classification when assessing whether the instrument is indexed to
an entity’s own stock. The amendments also clarify existing
disclosure requirements for equity-classified instruments. For
public business entities, the amendments in Part I for this update
are effective for fiscal years and interim periods with those
fiscal years, beginning after December 15, 2018. For all other
entities, the amendments in Part I of this Update are effective for
fiscal years beginning after December 15, 2019, and interim periods
within fiscal years beginning after December 15, 2020. Early
adoption is permitted for all entities, including adoption in an
interim period. If an entity early adopts the amendments in an
interim period, any adjustments should be reflected as of the
beginning of the fiscal year that includes the interim period. The
Company is evaluating the impact of the revised guidance and
believes that this will have a significant impact on its
consolidated financial statements.
32
Unaudited Results of Operations for the Three Months Ended August
31, 2017 and 2016:
Q BioMed Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
|
|
For the three months ended
August 31,
|
|
|
|
2017
|
|
|
2016
|
|
Operating expenses:
|
|
|
|
|
|
|
General
and administrative expenses
|
|
$
|
3,038,018
|
|
|
$
|
1,150,964
|
|
Research and
development expenses
|
|
|
697,966
|
|
|
|
443,222
|
|
Total
operating expenses
|
|
|
3,735,984
|
|
|
|
1,594,186
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(202,160
|
)
|
|
|
(114,847
|
)
|
Interest
income
|
|
|
15
|
|
|
|
-
|
|
Loss on
conversion of debt
|
|
|
-
|
|
|
|
(29,032
|
)
|
Loss on
extinguishment of debt
|
|
|
(76,251
|
)
|
|
|
-
|
|
Loss on
issuance of convertible notes
|
|
|
-
|
|
|
|
(28,000
|
)
|
Change
in fair value of embedded conversion option
|
|
|
32,983
|
|
|
|
50,000
|
|
Change
in fair value of warrant liability
|
|
|
-
|
|
|
|
-
|
|
Total
other expenses
|
|
|
(245,413
|
)
|
|
|
(121,879
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,981,397
|
)
|
|
$
|
(1,716,065
|
)
|
Operating expenses
We
incur various costs and expenses in the execution of our business.
The increase in operating expenses was mainly due to more
professional fees incurred in connection with the license
agreements with Mannin, BNI and Asdera as well as the issuance and
conversion of convertible notes.
Other expenses
During
the three months ended August 31, 2017, other expenses included
approximately $202,000 in interest expense, a gain of $33,000 for
the change in fair value of embedded conversion options,
approximately $76,000 in loss on the extinguishment of debt. During
the three months ended August 31, 2016, other expenses included
approximately $115,000 in interest expense, a gain of $50,000 for
the change in fair value of embedded conversion options, $28,000 in
loss on the issuance of convertible debt, and $29,000 in loss on
conversion of debt.
The
increase in other expenses were mainly due to the loss in
extinguishment of debt and less gain in change in fair value of
embedded conversion option.
Net loss
In the
three months ended August 31, 2017 and 2016, we incurred net losses
of approximately $4 million and $1.7 million, respectively. Our
management expects to continue to incur net losses for the
foreseeable future, due to our need to continue to establish a
broader pipeline of assets, expenditure on R&D and implement
other aspects of our business plan.
33
Unaudited Results of Operations for the nine months ended August
31, 2017 and 2016:
|
|
For the nine months ended August 31,
|
|
|
|
2017
|
|
|
2016
|
|
Operating expenses:
|
|
|
|
|
|
|
General
and administrative expenses
|
|
$
|
6,122,565
|
|
|
$
|
3,637,868
|
|
Research and
development expenses
|
|
|
2,296,324
|
|
|
|
663,500
|
|
Total
operating expenses
|
|
|
8,418,889
|
|
|
|
4,301,368
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(635,267
|
)
|
|
|
(304,596
|
)
|
Interest
income
|
|
|
123
|
|
|
|
-
|
|
Loss on
conversion of debt
|
|
|
(365,373
|
)
|
|
|
(89,210
|
)
|
Loss on
extinguishment of debt
|
|
|
(76,251
|
)
|
|
|
-
|
|
Loss on
issuance of convertible notes
|
|
|
-
|
|
|
|
(481,000
|
)
|
Change
in fair value of embedded conversion option
|
|
|
(812,017
|
)
|
|
|
362,000
|
|
Change
in fair value of warrant liability
|
|
|
(59,870
|
)
|
|
|
-
|
|
Total
other expenses
|
|
|
(1,948,655
|
)
|
|
|
(512,806
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(10,367,544
|
)
|
|
$
|
(4,814,174
|
)
|
|
|
|
|
|
|
|
|
|
Operating expenses
We incur various costs and expenses in the execution of our
business. The increase in operating expenses was mainly due to more
professional fees incurred in connection with the license
agreements with Mannin, BNI and Asdera as well as the issuance and
conversion of convertible notes.
Other expenses
During the nine months ended August 31, 2017, other expenses
included approximately $635,000 in interest expense, $812,000 for
the change in fair value of embedded conversion options,
approximately $60,000 for the change in fair value of warrant
liability, $76,000 in loss on extinguishment of debt, and
approximately $365,000 in loss on conversion of debt. During
the nine months ended August 31, 2016, other expenses included
approximately $305,000 in interest expense, a gain of $362,000 for
the change in fair value of embedded conversion options, $481,000
in loss on the issuance of convertible debt, and approximately
$89,000 in loss on conversion of debt.
The increase in other expenses were mainly due to interest expense
and the change in fair value of embedded conversion
option.
Net loss
In the nine months ended August 31, 2017 and 2016, we incurred net
losses of approximately $10.4 million and $4.8 million,
respectively. Our management expects to continue to incur net
losses for the foreseeable future, due to our need to continue to
establish a base of operations and implement other aspects of our
business plan.
34
Results of Operation for the Fiscal Years Ended November 30, 2016
and 2015
|
|
|
|
|
|
|
|
|
For the years ended November 30,
|
|
|
|
2016
|
|
|
2015
|
|
Operating expenses:
|
|
|
|
|
|
|
General
and administrative expenses
|
|
$
|
5,032,257
|
|
|
$
|
354,138
|
|
Research and
development expenses
|
|
|
1,314,250
|
|
|
|
598,000
|
|
Total
operating expenses
|
|
|
6,346,507
|
|
|
|
952,138
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
480,285
|
|
|
|
14,511
|
|
Gain on
extinguishment of convertible note
|
|
|
(134,085
|
)
|
|
|
-
|
|
Loss on
conversion of debt
|
|
|
85,123
|
|
|
|
20,968
|
|
Loss on
issuance of convertible notes
|
|
|
481,000
|
|
|
|
-
|
|
Change
in fair value of embedded conversion option
|
|
|
(121,000
|
)
|
|
|
99,000
|
|
Change
in fair value of warrant liability
|
|
|
(7,587
|
)
|
|
|
-
|
|
Loss on
modification of Private Placement Units
|
|
|
41,268
|
|
|
|
-
|
|
Total
other expenses
|
|
|
825,004
|
|
|
|
134,479
|
|
|
|
|
|
|
|
|
|
|
Net Loss:
|
|
$
|
(7,171,511
|
)
|
|
$
|
(1,086,617
|
)
|
Revenues
Q
BioMed Inc. was incorporated, in the State of Nevada on November
22, 2013, focusing on licensing, acquiring and providing strategic
resources to life sciences and healthcare companies. Revenue
will only be possible when we have acquired licenses for
commercially ready assets that can be sold. During the years
ended November 30, 2016 and 2015, we did not generate any
revenues.
Operating expenses
We
incur various costs and expenses in the execution of our business.
During the year ended November 30, 2016, we incurred approximately
$6.3 million in total expenses, including approximately $5 million
in general and administrative expenses and approximately $1.3
million in research and development expenses. During the year
ended November 30, 2015, we incurred approximately $1 million in
total expenses, including approximately $0.4 million in general and
administrative expenses and $0.6 million in research and
development expenses. The increase in general and
administrative expenses was mainly due to an increase in business
development and marketing activities in fiscal year 2016 as
compared to the prior year. The increase in research and
development was mainly due to the investment to BNI and Mannin,
pursuant to the agreements, in fiscal 2016.
Other (income) expenses
Our
total other expenses increased to $825,000 during the year ended
November 30, 2016 from $134,000 during the prior year, primarily as
the result of increases in interest expense, losses on the issuance
of convertible notes, and losses on the conversion of debt,
partially offset by gains on extinguishments of convertible notes
and the change in fair value of bifurcated conversion options of
certain convertible notes.
During
the year ended November 30, 2016, interest expense increased to
$480,000 from $15,000 in the prior year, resulting from the
increase in debt year-over-year. We raised $2,645,000 in debt
during the year ended November 30, 2016. Interest expense in the
year ended November 30, 2016 is comprised of approximately $414,000
accretion of debt discount and approximately $66,000 of accrued
interest expense based on the coupon interest rate of the
debt.
During
the year ended November 30, 2016, we recognized losses upon the
issuance of convertible notes of $481,000 and had no such losses in
the prior year. In connection with the issuance of our Series A, B,
C Notes, and the original issuance of our Series D Notes, during
the year ended November 30, 2016, the embedded conversion feature
in each note was separately measured at fair value. The initial
recognition resulted in an aggregate debt discount of approximately
$750,000, and an aggregate loss of $481,000, which represented
the excess of the fair value of the embedded conversion at initial
issuance of $1.2 million over the aggregate principal amount of
convertible debt issued.
35
During
the year ended November 30, 2016, losses on conversion of debt
increased to approximately $85,000 from approximately $21,000 in
the prior year. The recognized losses result for the conversion of
notes where the conversion option has been bifurcated for
accounting purposes. As a result, conversions are recognized as an
extinguishment of the bifurcated conversion option and of the loan
host, which results in a gain or loss based on the difference
between the carrying value of the conversion option and loan host
compared to the fair value of the common stock issued to convert
the note.
During
the year ended November 30, 2016, we recognized a gain of
approximately $134,000 resulting from a modification of outstanding
Series D convertible notes that was recognized as an
extinguishment. No such gain was recognized in the prior
year.
During
the year ended November 30, 2016, we recognized a gain of $121,000
for the aggregate decrease in fair value of conversion options
embedded in convertible notes. We recognized a loss of $99,000 in
the year ended November 30, 2015 for the aggregate increase in fair
value of conversion options. In connection with the issuance of our
Series A, B, C Notes, and the original issuance of our Series D
Notes, in the years ended November 30, 2016 and 2016, the embedded
conversion feature in each note was separately measured at fair
value with subsequent changes in fair value recognized in current
operations. We use a binomial valuation model, with fourteen
steps of the binomial tree, to estimate the fair value of the
embedded conversion options.
Net loss
In the
years ended November 30, 2016 and 2015, we incurred net losses of
approximately $7.2 million and $1.1 million, respectively. Our
management expects to continue to incur net losses for the
foreseeable future, due to our need to continue to open a new head
office, improve our website and implement other aspects of our
business plan.
Liquidity and Capital Resources
We have
not yet established an ongoing source of revenues sufficient to
cover our operating costs and allow us to continue as a going
concern. We had a working capital deficit of approximately $1.8
million as of November 30, 2016 and of approximately $10,000
in working capital as of August 31, 2017. We prepared the
accompanying financial statements assuming that we will continue as
a going concern, which contemplates the realization of assets and
liquidation of liabilities in the normal course of business. We had
a net loss of approximately $7.2 million and $1.1 million during
the years ended November 30, 2016 and 2015, respectively, and a net
loss of approximately $10.4 million for the nine months ended
August 31, 2017. We had net cash used in operating activities
of approximately $1.5 million and $91,000 during years ended
November 30, 2016 and 2015, respectively, and had net cash used in
operating activities of approximately $3.9 million for the nine
months ended August 31, 2017. These matters, among
others, raise substantial doubts about our ability to continue as a
going concern.
Our
ability to continue as a going concern depends on the ability to
obtain adequate capital to fund operating losses until we generate
adequate cash flows from operations to fund its operating costs and
obligations. If we are unable to obtain adequate capital, we could
be forced to cease operations.
We
depend upon our ability, and will continue to attempt, to secure
equity and/or debt financing. We might not be successful, and
without sufficient financing it would be unlikely for us to
continue as a going concern. The accompanying financial
statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts, or
amounts and classification of liabilities that might result from
this uncertainty.
Cash Flows
The
following table sets forth the significant sources and uses of cash
for the periods addressed in this report:
|
For the years ended November 30,
|
|
For the nine months ended August 31,
|
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in):
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
$
|
(1,545,259
|
)
|
|
$
|
(91,392
|
)
|
|
$
|
(3,923,455
|
)
|
|
$
|
(868,497
|
)
|
Financing
activities
|
|
|
2,882,575
|
|
|
|
210,151
|
|
|
|
4,953,900
|
|
|
|
875,075
|
|
Net
increase (decrease) in cash
|
|
$
|
1,337,316
|
|
|
$
|
118,759
|
|
|
|
1,030,445
|
|
|
|
6,578
|
|
36
Net
cash used in operating activities was approximately $1.5 million
for the year ended November 30, 2016 as compared to approximately
$91,000 for the year ended November 30, 2015. T
he increase in net cash used in
operating activities results from the net loss of approximately
$7.2 million for the year ended November 30, 2016, partially offset
by aggregate non-cash expenses of approximately $5
million. The net cash used in operating activities for
the year ended November 30, 2015 results primarily from to the net
loss of approximately $1.1 million, partially offset by a non-cash
expense of $905,000.
Net cash used in operating activities was approximately $4 million
for the nine months ended August 31, 2017 as compared to
approximately $869,000 for the nine months ended August 31,
2016. The increase in net cash used in operating
activities relates to the net loss of approximately $10.4 million
for the nine months ended August 31, 2017, partially offset by
aggregate non-cash expenses of approximately $6.4
million. The net cash used in operating activities for
the nine months ended August 31, 2016 relates to the net loss of
approximately $4.8 million for the nine months ended August 31,
2016, partially offset by aggregate non-cash expenses of
approximately $3.5 million.
Net cash provided by financing activities was approximately $2.9
million for the year ended November 30, 2016, resulting mainly from
proceeds received from the issuance of convertible notes payable
and note payable and issuance of common stock and warrants through
the private placement.
Net cash provided by
financing activities was approximately $210,000 for the year ended
November 30, 2015, resulting from proceeds received from the
issuance of convertible notes payable.
Net cash provided by financing activities was approximately $5
million for the nine months ended August 31, 2017, resulting mainly
from proceeds received from the issuance of convertible notes
payable and private placement. Net cash provided by
financing activities was $875,000 for the nine months ended August
31, 2016, resulting mainly from proceeds received from the issuance
of convertible notes payable.
Obligations and Commitments
License Agreements
Mannin
Pursuant to the license agreement with Mannin as disclosed in our
Annual Form 10-K, filed with the SEC on February 28, 2017, during
the three and nine months ended August 31, 2017, we incurred
approximately $525,000 and $1.4 million, respectively, in research
and development expenses to fund the costs of development of the
eye drop treatment for glaucoma pursuant to the Patent and
Technology License and Purchase Option Agreement. Through
August 31, 2017, we have funded an aggregate of $2.15 million to
Mannin under the exclusive license.
Bio-Nucleonics
On September 6, 2016, we entered into the Patent and Technology
License and Purchase Option Agreement with Bio-Nucleonics Inc.
whereby we were granted a worldwide, exclusive, perpetual, license
on, and option to, acquire certain BNI intellectual property within
the three-year term of the exclusive license.
During the three and nine months ended August 31, 2017, we incurred
approximately $144,000 and $352,500, respectively, in research and
development expenses pursuant to the exclusive license with
BNI. As of August 31, 2017, we had paid approximately
$351,700 to BNI out of the $850,000 cash funding requirement. We
are not obligated to provide further funding to BNI until BNI
satisfies all of its pre-existing obligations totaling
$163,500. To this end, we had provided an aggregate of
approximately $59,000 through August 31, 2017 to BNI to help settle
its obligations, which we recognized as research and development
expenses in the accompanying Statements of Operations.
Asdera
On April 21, 2017, we entered into a License Agreement on Patent
& Know-How Technology with Asdera LLC whereby we were granted a
worldwide, exclusive, license on certain Asdera intellectual
property. The initial cost to acquire the Asdera License is $50,000
and the issuance of 125,000 shares of our common stock, with a fair
value of $487,500, of which we had fully paid and issued as of
August 31, 2017. In addition to royalties based upon net sales of
the product candidate, if any, we are required to make certain
additional payments upon the following milestones:
●
the filing of an
investigational new drug application with the US Food and Drug
Administration;
●
successful interim
results of Phase II/III clinical trial of the product
candidate;
●
FDA acceptance of a
new drug application;
●
FDA approval of the
product candidate; and
●
achieving certain
worldwide net sales.
Subject to the terms of the Agreement, we will be in control of the
development and commercialization of the product candidate and are
responsible for the costs of such development and
commercialization. We have undertaken a good-faith commitment
to (i) initiate a Phase II/III clinical trial at the earlier of the
two-year anniversary of the agreement or one year from the
FDA’s approval of the IND and (ii) to make the first
commercial sale by the fifth-anniversary of the agreement.
Failure to show a good-faith effort to meet those goals would mean
that the Asdera IP would revert to Asdera. Upon such
reversion, Asdera would be obligated to pay us royalties on any
sales of products derived from the Asdera IP until such time that
Asdera has paid us twice the sum that we had provided Asdera prior
to the reversion.
37
OMRF
OMRF License Agreement
On June 15, 2017, we entered into a Technology License Agreement
with the Rajiv Gandhi Centre for Biotechnology, an autonomous
research institute under the Government of India, and the Oklahoma
Medical Research Foundation, (“OMRF” and together with
RGCB, the “Licensors”), whereby the OMRF and RGCB
granted us a worldwide, exclusive, license on intellectual property
related to Uttroside-B (the “Uttroside-B IP”).
Uttroside-B is a chemical compound derived from the
plant
Solanum nigrum Linn,
also known as Black Nightshade or Makoi. We seek to use the
Uttroside-B IP to create a
chemotherapeutic agent against liver
cancer.
The initial cost to acquire the
OMRF
License Agreement is $10,000. In addition to
royalties based upon net sales of the product candidate, if any, we
are required to make additional payments upon the following
milestones:
●
the completion of
certain preclinical studies (the “Pre-Clinical
Trials”);
●
the filing of an
investigational new drug application (the “IND”) with
the US Food and Drug Administration (“FDA”) or the
filing of the equivalent of an IND with the foreign equivalent of
the FDA;
●
successful
completion of each of Phase I, Phase II and Phase III clinical
trials;
●
FDA approval of the
product candidate;
●
approval by the
foreign equivalent of the FDA of the product
candidate;
●
achieving certain
worldwide net sales; and
●
a change of control
of QBIO.
Subject
to the terms of the Agreement, we will be in control of the
development and commercialization of the product candidate and are
responsible for the costs of such development and
commercialization. We have undertaken a good-faith commitment
to (i) fund the Pre-Clinical Trials and (ii) to initiate a Phase II
clinical trial within six years of the date of the Agreement.
Failure to show a good-faith effort to meet those goals would mean
that the
OMRF
License Agreement would revert to the OMRF and RGCB.
Milestones
No
milestones have been reached to date on these license
agreements.
Legal
We are
not currently involved in any legal matters arising in the normal
course of business. From time to time, we could become
involved in disputes and various litigation matters that arise in
the normal course of business. These may include disputes and
lawsuits related to intellectual property, licensing, contract law
and employee relations matters. Periodically, we review the
status of significant matters, if any exist, and assesses its
potential financial exposure. If the potential loss from any claim
or legal claim is considered probable and the amount can be
estimated, we accrue a liability for the estimated loss.
Legal proceedings are subject to uncertainties, and the outcomes
are difficult to predict. Because of such uncertainties,
accruals are based on the best information available at the
time. As additional information becomes available, we
reassess the potential liability related to pending claims and
litigation.
Finder’s Agreement
In
October 2016, we entered into two agreements to engage two
financial advisors to assist us in our search for potential
investors, vendors or partners to engage in a license, merger,
joint venture or other business arrangement.
As a
compensation for their efforts, we agreed to pay the financial
advisors a fee equal to 7% and 8% in cash, and to pay one of the
financial advisors an additional fee equal to 7% in warrants of all
consideration received by us. We have not incurred any
finders’ fees pursuant to the agreements
to-date.
Related Party Transactions
We entered into consulting agreements with certain management
personnel and stockholders for consulting and legal
services. Consulting and legal expenses resulting from
such agreements were approximately $102,500 and $104,000 for the
three months ended August 31, 2017 and 2016, respectively, and were
approximately $322,500 and $207,875 for the nine months ended
August 31, 2017 and 2016, respectively, included within general and
administrative expenses in the accompanying Condensed Consolidated
Statements of Operations.
Off-Balance Sheet Arrangements
We do
not have any off-balance sheet arrangements.
38
Directors and Executive
Officers
Our
directors and executive officers and their respective ages as of
the date of this prospectus are as follows:
Name
|
|
Age
|
|
Position with the Company
|
Denis
Corin
|
|
45
|
|
Chief
Executive Officer, President, Chairman, Director
|
William
Rosenstadt
|
|
49
|
|
Chief
Legal Officer, Director
|
The
following describes the business experience of each of our
directors and executive officers, including other directorships
held in reporting companies:
Denis Corin
Mr.
Corin is a management consultant. He has worked for large
pharmaceutical (Novartis) and diagnostic instrumentation companies
(Beckman Coulter) in their sales organizations responsible for
sales in multi-product disciplines including pharmaceuticals and
diagnostics and diagnostic automation equipment. After Novartis and
Beckman Coulter, he served as Director of Investor Relations at MIV
Therapeutics Inc, a company specializing in next generation drug
delivery and drug eluting cardiovascular stents. Mr. Corin
served as an executive and on the board of directors of TapImmune
Inc. from July 2009 to May 2012. Mr. Corin is an executive director
of Soloro Metals Corp, a private mining exploration company and NPX
Metals, a private mining exploration company. He holds a
Bachelor’s degree in Economics and Marketing, from the
University of Natal, South Africa. Mr. Corin dedicates over 40
hours per week fulfilling his duties to us.
William S. Rosenstadt
From
2006 to the present, Mr. William S. Rosenstadt, has been a Founding
Partner at the law firm of Ortoli Rosenstadt LLP, a successor to
Sanders Ortoli Vaughn-Flam Rosenstadt LLP. Mr. Rosenstadt has been
a practicing international corporate and securities attorney since
1996, representing issuers, bankers and high-net worth individuals.
Mr. Rosenstadt received his B.A. from Syracuse University in 1990
and a J.D. from the Benjamin N. Cardozo School of Law in 1995. Mr.
Rosenstadt dedicates approximately 15 hours per week to fulfilling
his duties to us.
Term of Office
Our
directors are appointed for a one-year term to hold office until
the next annual general meeting of our stockholders or until they
resign or are removed from the board in accordance with our bylaws.
Our officers are appointed by our Board of Directors and hold
office until they resign or are removed from office by the Board of
Directors.
Management Consultants
In
addition to our executive officers, we have assembled a team of
consultants to assist in the managerial, financial and scientific
development of our company. These consultants include:
David Laskow-Pooley
Mr.
Laskow-Pooley has 30 years of experience in all aspects of the
discovery, development and commercialization of pharmaceutical
products, diagnostics and devices. He is an industry veteran and
has a distinguished career working for numerous pharmaceutical and
life sciences companies. He has held director, executive officer
and general management posts in both small and major multinational
companies including GSK, Abbott, Amersham plc, Life technologies,
OSI, Bilcare and Surface Therapeutics.
Christopher Manuele
Mr.
Manuele has 35 years of comprehensive US and International
expertise in nuclear medicine and medical isotope production. A
long-time veteran of Amersham Health and GE Healthcare, he has
launched core products; expanded products internationally; led the
design, construction and FDA-approval of two brand new U.S.
manufacturing facilities; and held responsibility for several
full-GMP radiopharmaceutical manufacturing sites across the US and
Europe. Before his retirement in 2008, Mr. Manuele served as
General Manager – Global Nuclear Medicine Supply Chain for GE
Healthcare, and General Manager – Oncura, GE’s global
I-125 brachytherapy seeds business.
Ari Jatwes
Mr. Ari
Jatwes is an analyst and a banker, with over twenty years of
experience. He began his career in a large accounting firm,
progressing to a reputable investment bank, where he gained his
experience in mergers and acquisitions. Over the last decade Mr.
Jatwes interest and focus has been in the biotech and pharma
sector, which included trading biotech stocks from start up to late
stage biotech companies, advising management and raising capital
for their needs. He has played a role in several successful
contracts and transactions in the healthcare space – with
emphasis on the life sciences and immunotherapy. Mr. Jatwes holds
two Master degrees and a Bachelor Degree from the University of
South Africa and the University of Natal.
Robert Derham
Robert
Derham has focused the majority of his career working with rare
diseases and orphan products. For the past seven years he has
focused on driving corporate change within medium and large
pharmaceutical companies to transition their corporate strategy to
an orphan drug development approach. In addition to driving
corporate change, he conducted business development for companies
looking for partnering, licensing or acquisition opportunities in
the orphan drug space. Prior to that, he worked for Mondobiotech,
Novartis, Syngenta Biopharma and Alexis Biopharma, always focused
on orphan indications and corporate development. Robert is also the
founder of CheckOrphan, a comprehensive media and information
source for all news, videos, clinical trials, research, treatments
and more about rare diseases and orphan products. He also has
degrees in medical immunology and biochemistry and thoroughly
enjoys diving into the science and research of the rare diseases,
with which he is working.
Amy Ripka
Dr. Amy
Ripka is Executive Director of Medicinal Chemistry at WuXi AppTec.
She started her career at Bristol Myers Squibb and over 17 years
has worked in various capacities in medicinal chemistry with many
small companies, including EnVivo (FORUM) Pharmaceuticals as Head
of Chemistry, Infinity, Daiamed, HydraBiosciences and FoldRx. Her
current responsibilities include strategic planning in medicinal
chemistry, early library drug design utilizing multiple in silico
methods, hit optimization and overall screening architectures to
advance early stage compounds through Phase I-II clinical
development. Dr. Ripka’s therapeutic specialties include
Neuroscience, Oncology, Thrombosis and Anti-Infective Disease
areas. She has led multiple early stage programs resulting in four
clinical candidates, two of which are marketed drugs. Her career
has spanned big pharma, biotech and CROs where she has made
significant contributions to each of these. Dr. Ripka, was elected
by her peers to Chair the prestigious Medicinal Chemistry Gordon
Research Conference and is currently serving a second elected term
as the Industrial Councilor for the MEDI Division of the American
Chemical Society. Dr. Ripka, received her Ph.D. in Chemistry from
the University of Wisconsin-Madison with a double concentration in
organic and medicinal chemistry, and did her post-doctoral studies
with Nobel Laureate K. Barry Sharpless from The Scripps Research
Institute. Dr. Ripka will advise Mannin’s scientific
development and growth.
Dr. Rick Panicucci
Dr.
Rick Panicucci is the Vice President of Pharmaceutical Development
at WuXi AppTec. He is responsible for providing scientific
leadership in the areas of Developability, Formulation Development
and GMP Manufacturing. Dr. Panicucci plays an important role in the
early stages of drug discovery for various companies. His
responsibilities include solid state chemistry and formulation
development of all small molecule therapeutics in early
development, and developing novel drug delivery technologies for
small molecules and large molecules including siRNA. Prior to WuXi
he held the position of Global Head of Chemical and Pharmaceutical
Profiling (CPP) at Novartis from 2004 to 2015, where he led the
development and implementation of innovative dosage form designs
and continuous manufacturing paradigms. He has also held positions
as the Director of Formulation Development at Vertex
Pharmaceuticals and Senior Scientist at Biogen. Dr. Panicucci
received his Ph.D. in Physical Organic Chemistry at the University
of Toronto, and has two post-doctoral fellowships at University of
California at Santa Barbara and the Ontario Cancer Institute. Dr.
Panicucci will advise our technology partner, Mannin Research
Inc.’s development both scientifically and
commercially.
Significant Employees
None.
Audit Committee
We do
not currently have an audit committee.
Compensation Committee
We do
not currently have compensation committee.
Involvement in Certain Legal Proceedings
None of
our directors, executive officers or control persons has been
involved in any of the following events during the past five years:
(i) any bankruptcy petition filed by or against any business of
which such person was a general partner or executive officer either
at the time of the bankruptcy or within two years prior to that
time; (ii) any conviction in a criminal proceeding or being subject
to a pending criminal proceeding (excluding traffic violations and
other minor offences); (iii) being subject to any order, judgment
or decree, not subsequently reversed, suspended or vacated, of any
court of competent jurisdiction, permanently or temporarily
enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities or banking
activities; or (iv) being found by a court of competent
jurisdiction (in a civil action), the SEC or the Commodity Futures
Trading Commission to have violated a federal or state securities
or commodities law, and the judgment has not been reversed,
suspended or vacated.
Code of Ethics
We have
not adopted a code of corporate conduct.
Compliance with Section 16(a) of the Exchange Act
Section
16(a) of the Exchange Act requires our directors and officers, and
the persons who beneficially own more than 10% of our common stock,
to file reports of ownership and changes in ownership with the
SEC. Copies of all filed reports are required to be furnished
to us pursuant to Rule 16a-3 promulgated under the Exchange
Act. Based solely on the reports received by us and on the
representations of the reporting persons, we believe that these
persons have complied with all applicable filing requirements
during the year ended November 30, 2017.
39
T
RANSACTIONS WITH RELATED
PERSONS
In
January 2016, we issued a five-year warrant to a director and Chief
Legal Officer of the Company to purchase 250,000 shares of common
stock at a price of $4.15 per share, valued at $795,000 based on
management’s estimate using the Black-Scholes
option-valuation model, to the director for services and settlement
of $30,000 in accounts payable. The warrant is fully
vested and is also exercisable on a cashless basis. On July 15,
2016, we issued this same person and our CEO, each, 150,000
five-year warrants to purchase 150,000 shares of our Common share
at $1.45 per share.
On June
5, 2017, we issued warrants to purchase up to 350,000 shares of our
common stock to each of Denis Corin, our President and Chief
Executive Officer, and William Rosenstadt, our Chief Legal Officer.
The warrants were issued as a bonus for their business development
services to the Company over the last 12 months. The warrants are
exercisable for five years at a per share price of $4.00. The
warrants may not be exercised within the first six months of their
issuance.
On June
5, 2017, we issued options to purchase up to 150,000 shares of our
common stock to each of Denis Corin, our President and Chief
Executive Officer, and William Rosenstadt, our Chief Legal Officer.
50,000 of the options were issued as compensation for their
continue services on our board of directors through June 1, 2018
and 100,000 of the options were issued as compensation as officers
through June 1, 2018. 37,500 of the options vest on September 1,
2017, 37,500 of the options vest on December 1, 2017, 37,500 of the
options vest on March 1, 2018 and 37,500 of the options vest on
June 1, 2018. The options are exercisable for five years at a per
share price of $4.00. The options may not be exercised within the
first six months of vesting.
Our
directors do not receive any stated salary for their services as
directors or members of committees of the board of directors, but
by resolution of the board, a fixed fee may be allowed for
attendance at each meeting. Directors may also serve the Company in
other capacities as an officer, agent or otherwise, and may receive
compensation for their services in such other capacity. No such
fees have been paid to any director since
incorporation. Reasonable travel expenses are
reimbursed.
Summary Compensation Table
The
following table sets forth information concerning all cash
compensation awarded to, earned by or paid to all individuals
serving as the Company’s principal executive officers during
the last two completed fiscal years ended November 30, 2016 and
2017, respectively and all non-cash compensation awarded to those
same individuals in those time periods.
Name
and
Principal
Position
|
Year
|
|
|
|
|
Non-
Equity
Incentive
Plan
Compen-
sation
($)
|
Non-
qualified
Deferred
Compen-
sation
Earnings
($)
|
All
Other
Compen
-sation
($)
(1)
|
|
|
|
|
|
|
|
|
|
|
|
Denis Corin
(2)
|
2016
|
-
|
-
|
-
|
$
195,000
|
-
|
-
|
$
63,655
|
$
258,655
|
Chief Executive
Officer
|
2017
|
-
|
-
|
$
-
|
1,545,000
|
-
|
-
|
$
175,000
|
$
1,720,000
|
|
|
|
|
|
|
|
|
|
William Rosenstadt
(3)
|
2016
|
-
|
-
|
-
|
$
1,055,000
|
-
|
-
|
$
112,147
|
$
1,167,147
|
Chief Legal
Officer
|
2017
|
-
|
-
|
$
-
|
1,545,000
|
-
|
-
|
$
280,248
|
$
1,825,248
|
|
|
|
|
|
|
|
|
|
(1)
The amounts
represent fees paid or accrued by us to the executive officers
during the past year pursuant to various employment and consulting
services agreements, as between us and the executive officers,
which are described below. Our executive officers are also
reimbursed for any out-of-pocket expenses incurred in connection
with corporate duties. We presently have no pension, health,
annuity, insurance, profit sharing or similar benefit
plans.
(2)
Mr. Denis Corin was
appointed as Chief Executive Officer and Director on April 21,
2015.
(3)
Mr. William
Rosenstadt was appointed as Chief Legal Officer and Director on
June 5, 2015.
(4)
Represents the
aggregate grant date fair value of warrants to purchase 50,000
common stock issued on July 15, 2016 to Mr. Corin and warrants to
purchase 250,000 and 200,000 common stock issued on January 4, 2016
and July 15, 2016 to Mr. Rosenstadt, respectively, in accordance
with FASB ASC.
(5)
Represents the
aggregate grant date fair value of warrants to purchase 350,000
common stock issued on June 5, 2017 and options to purchase 150,000
common stock issued on June 5, 2017 to each Mr. Corin and Mr.
Rosenstadt, respectively, in accordance with FASB ASC. 50,000 of
the option to purchase common stock issued on June 5, 2017 to each
of Mr. Corin and Mr. Rosenstadt was compensation for their
continued services on our board of directors through June 1,
2018.
40
Except
for 50,000 of the options to purchase common stock issued on June
5, 2017 to each Mr. Corin and Mr. Rosenstadt as compensation for
their continued services on our board of directors through June 1,
2018, we have not paid any compensation to our directors for their
services as directors in the fiscal year ended November 30,
2016. As set out above, we have paid compensation to our
directors for their services as executive officers.
Compensation Agreements
On June 5, 2017, our subsidiary entered into an Executive Services
Agreement with Denis Corin to provide services as our President and
Chief Executive Officer. In exchange for the services, Mr. Corin
receives $15,000 per month and received options granted on June 5,
2017 to acquire 100,000 shares of our common stock at $4.00 per
share, of which option 25,00 options vest
on each of
September 1, 2017, December 1, 2017, March 1, 2018 and June 1,
2018
. The
agreement has a term of two years and may be terminated by either
party with 90 days’ notice. If we terminate the Executive
Services Agreement without cause, we will owe the monthly fee for
each remaining month during the term of the
agreement.
Outstanding Equity Awards at Year End
Table
The
following table sets forth information as of November 30, 2016
relating to outstanding equity awards for each Named Executive
Officer:
Name
|
Number
of
Securities
Underlying
Unexercised
Options
(exercisable)
|
Number
of
Securities
Underlying
Unexercised
Options
(unexercisable)
|
Number
of
Securities
Underlying
Unexercised
Unearned
Options
|
|
Option
Expiration
Date
|
Denis
Corin
|
150,000
|
-
|
-
|
$
1.45
|
July 15,
2021
|
|
350,000
|
-
|
-
|
4.00
|
June 9,
2022
|
|
-
|
75,000
|
75,000
|
4.00
|
June 9, 2022
|
|
|
|
|
|
|
William
Rosenstadt
|
200,000
|
-
|
-
|
$
1.45
|
July 15,
2021
|
|
250,000
|
-
|
-
|
4.15
|
January 1,
2021
|
|
350,000
|
-
|
-
|
4.00
|
June 9,
2022
|
|
|
75,000
|
75,000
|
4.00
|
June 9,
2022
|
|
|
|
|
|
|
We did not award stock in our fiscal year ended November 30, 2017,
and as of November 30, 2017, there were no plans or arrangements
for the issuance of stock awards.
B
ENEFICIAL OWNERSHIP OF PRINCIPAL
STOCKHOLDERS, OFFICERS AND DIRECTORS
Security Ownership of Certain Beneficial Owners and
Management
The
following table sets forth, as of January 4, 2018, certain
information regarding the ownership of our common stock by (i) each
person known by us to be the beneficial owner of more than 5% of
our outstanding shares of common stock, (ii) each of our directors,
(iii) our Principal Executive Officer and (iv) all of our executive
officers and directors as a group. Unless otherwise indicated, the
address of each person shown is c/o Ortoli Rosenstadt LLP, 501
Madison Avenue 14
th
Floor, New
York, New York 10022. Beneficial ownership, for purposes of this
table, includes warrants and options to purchase common stock that
are either currently exercisable or will be exercisable within 60
days of the date of this annual report.
Name
and Address of Beneficial Owner
|
Amount
and Nature of
Beneficial
Owner (1)
|
|
Directors
and Officers:
|
|
|
Denis Corin
(3)
|
3,000,000
|
23.6
%
|
William Rosenstadt
(4)
|
1,335,049
|
10.3
%
|
|
|
|
Directors and
Officers as a Group (3)(4)
|
4,335,049
|
32.1
%
|
|
|
|
Major
Stockholders:
|
|
|
Ari Jatwes
(5)
|
860,000
|
7.0
%
|
Alan
Lindsay
|
1,136,000
|
9.3
%
|
|
|
|
|
(1
|
)
|
Under Rule 13d-3, a
beneficial owner of a security includes any person who, directly or
indirectly, through any contract, arrangement, understanding,
relationship, or otherwise has or shares: (1) voting power, which
includes the power to vote, or to direct the voting of shares; and
(ii) investment power, which includes the power to dispose or
direct the disposition of shares. Certain shares may be deemed to
be beneficially owned by more than one person (if, for example,
persons share the power to vote or the power to dispose of the
shares. In addition, shares are deemed to be beneficially
owned by a person if the person has the right to acquire the shares
(for example, upon the exercise of an option) within 60 days of the
date as of which the information is provided. In computing the
percentage ownership of any person, the amount of shares
outstanding is deemed to include the amount of shares beneficially
owned by such person (and only such person) by reason of these
acquisition rights. As a result, the percentage of outstanding
shares of any person as shown in this table does not necessarily
reflect the person's actual ownership or voting power with respect
to the number of shares of common stock actually outstanding as of
January 4, 2018.
|
|
(2
|
)
|
This
percentage is based upon 12,206,409 shares of common stock
outstanding as of January 4, 2018 and any warrants exercisable by
such person within 60 days of the date as of which the information
is provided.
|
|
(3
|
)
|
Includes
150,000 five-year warrants exercisable at $1.45 which expire on
July 15, 2021 for director fees through June 1, 2017 and 350,000
five-year warrants exercisable at $4.00 which expire on June 5,
2022 for officer fees through June 1, 2018, all of which are
exercisable within 60 days of the date as of which the information
is provided. This amount excludes those options that have been
granted but that have not vested and do not vest within the next 60
days.
|
|
(4
|
)
|
Includes
250,000 five-year warrants exercisable at $4.15 which expire on
January 1, 2021 which were issued to the law firm at Mr. Rosenstadt
is a partner, 50,000 five-year warrants exercisable at $1.45 which
expire on July 15, 2021 which were issued to the law firm at Mr.
Rosenstadt is a partner, 150,000 five-year warrants exercisable at
$1.45 which expire on July 15, 2021 for director fees through June
1, 2017 and 350,000 five-year warrants exercisable at $4.00 which
expire on June 5, 2022 for officer fees through June 1, 2018.
An aggregate of 800,000 warrants are exercisable within 60 days of
the date as of which the information is provided. On November 22,
2017, the collective 300,000 warrants issued to Mr.
Rosenstadt’s law firm were assigned to Mr. Rosenstadt
personally. This amount excludes those options that have been
granted but that have not vested and do not vest within the next 60
days.
|
|
(5
|
)
|
Includes
85,000 five-year warrants exercisable at $4.00 which expire on June
5, 2022. This amount excludes those options that have been granted
but that have not vested and do not vest within the next 60
days.
|
There
are no arrangements or understanding among the parties set out
above or their respective associates or affiliates concerning
election of directors or any other matters which may require
shareholder approval.
Changes in Control
We are
unaware of any contract, or other arrangement or provision, the
operation of which may at a subsequent date result in a change of
control of our Company.
41
The
legality and validity of the securities offered from time to time
under this prospectus will be passed upon by Ortoli Rosenstadt LLP.
William Rosenstadt, our Chief Legal Officer and one of our
directors, is a partner of Ortoli Rosenstadt LLP.
Sichenzia Ross Ference Kesner LLP is representing
the placement agents in this offering.
Our
financial statements as of and for the years ended November 30,
2016 and 2015
have been
included in the registration statement in reliance upon the report
of Marcum LLP, independent registered public accounting firm, and
upon the authority of said firm as experts in accounting and
auditing.
W
HERE YOU CAN FIND
ADDITIONAL INFORMATION
We are
a reporting company and file annual, quarterly and current reports,
proxy statements and other information with the SEC. We have filed
with the SEC a registration statement, as amended, on Form S-1
under the Securities Act with respect to the securities we are
offering under this prospectus. This prospectus does not contain
all of the information set forth in the registration statement and
the exhibits to the registration statement. For further information
with respect to us and the securities we are offering under this
prospectus, we refer you to the registration statement and the
exhibits and schedules filed as a part of the registration
statement. You may read and copy the registration statement, as
well as our reports, proxy statements and other information, at the
SEC’s Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549. You can request copies of these documents
by writing to the SEC and paying a fee for the copying cost. Please
call the SEC at 1-800-SEC-0330 for more information about the
operation of the Public Reference Room. The SEC maintains an
internet site that contains reports, proxy and information
statements, and other information regarding issuers that file
electronically with the SEC, where our SEC filings are also
available. The address of the SEC’s web site is
http://www.sec.gov.
D
ISCLOSURE OF COMMISSION
POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Our
by-laws require us to indemnify any of our officers or directors,
and certain other persons, under certain circumstances against all
expenses and liabilities incurred or suffered by such persons
because of a lawsuit or similar proceeding to which the person is
made a party by reason of a his being a director or officer of the
Company or our subsidiaries, unless that indemnification is
prohibited by law. We may also purchase and maintain insurance for
the benefit of any officer which may cover claims for which we
could not indemnify a director or officer. We have been advised
that in the opinion of the Securities and Exchange Commission,
indemnification of our officers, directors and controlling persons
under these provisions, or otherwise, is against public policy and
is unenforceable.
Insofar
as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the “Securities Act”), may be
permitted to directors, officers or persons controlling us pursuant
to the foregoing provisions, or otherwise, we have been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the
Securities Act, and is therefore unenforceable.
42
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
|
|
Page No.
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
|
|
|
|
|
Financial
Statements:
|
|
|
|
|
Balance
Sheets as of November 30, 2016 and
2015
|
|
|
F-3
|
|
Statements
of Operations for the years ended November 30, 2016 and
2015
|
|
|
F-4
|
|
Statements
of Changes in Shareholders' Equity (Deficit) for the years ended
November 30, 2016 and 2015
|
|
|
F-5
|
|
Statements
of Cash Flows for the years ended November 30, 2016 and
2015
|
|
|
F-6
|
|
Notes
to Financial Statements
|
|
|
F-7
|
|
Unaudited Condensed Financial Statements:
|
|
|
|
|
|
Condensed
Balance Sheets as of August 31, 2017 (Unaudited) and November 30,
2016
|
F-19
|
|
Unaudited
Condensed Statements of Operations – For the Three Months and
Nine Months Ended August 31, 2017 and 2016
|
F-20
|
|
Unaudited
Condensed Statements of Cash Flows – For the Nine Months
Ended August 31, 2017 and 2016
|
F-21
|
|
Notes
to Unaudited Condensed Financial Statements
|
F-22
|
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors and Shareholders
of Q
BioMed Inc.
We have
audited the accompanying balance sheets of Q BioMed Inc. (the
“Company”) as of November 30, 2016 and 2015, and the
related statements of operations
,
changes in stockholders’
equity (deficit) and cash flows for the years then
ended. These financial statements are the responsibility
of the Company’s management. Our responsibility is to express
an opinion on these financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration
of internal control over financial reporting as a basis for
designing 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 over
financial reporting. Accordingly, we express no such opinion.
An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Q BioMed Inc.,
as of November 30, 2016 and 2015, and the results of its operations
and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As
discussed in Note 2 to the financial statements, the Company has
suffered losses from operations and has negative working
capital. These matters raise substantial doubt about the
Company’s ability to continue as a going
concern. Management’s plans concerning these
matters are also discussed in Note 2 to the financial
statements. The accompanying financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/
Marcum LLP
Marcum
LLP
New
York, NY
February
28, 2017
F-2
Q BIOMED INC.
Balance Sheets
|
|
|
|
|
ASSETS
|
|
|
Current
assets:
|
|
|
Cash
|
$
1,468,724
|
$
131,408
|
Total current
assets
|
1,468,724
|
131,408
|
Total
Assets
|
$
1,468,724
|
$
131,408
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY DEFICIT
|
|
|
Current
Liabilities:
|
|
|
Accounts payable
and accrued expenses
|
$
497,936
|
$
58,802
|
Accrued expenses -
related party
|
70,502
|
30,000
|
Accrued interest
payable
|
48,813
|
2,511
|
Convertible notes
payable (See Note 5)
|
2,394,849
|
-
|
Note
payable
|
100,152
|
-
|
Warrant
liability
|
168,070
|
-
|
Total current
liabilities
|
3,280,322
|
91,313
|
|
|
|
Long-term
Liabilities:
|
|
|
Convertible notes
payable (See Note 5)
|
231,517
|
296,000
|
Total long term
liabilities
|
231,517
|
296,000
|
Total
Liabilities
|
3,511,839
|
387,313
|
|
|
|
Commitments
and Contingencies (Note 6)
|
|
|
|
|
|
Stockholders'
Equity Deficit:
|
|
|
Preferred stock,
$0.001 par value; 100,000,000 shares authorized; no shares issued
and outstanding as of November 30, 2016 and 2015
|
-
|
-
|
Common stock,
$0.001 par value; 250,000,000 shares authorized; 9,231,560 and
8,597,131 shares issued and outstanding as of November 30, 2016 and
2015, respectively
|
9,231
|
8,597
|
Additional paid-in
capital
|
6,249,357
|
865,690
|
Accumulated
deficit
|
(8,301,703
)
|
(1,130,192
)
|
Total
Stockholders' Equity Deficit
|
(2,043,115
)
|
(255,905
)
|
Total
Liabilities and Stockholders' Equity Deficit
|
$
1,468,724
|
$
131,408
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
F-3
Q BIOMED INC.
Statements of Operations
|
For
the years ended November 30,
|
|
|
|
Operating
expenses:
|
|
|
General and
administrative expenses
|
$
5,032,257
|
$
354,138
|
Research and
development expenses
|
1,314,250
|
598,000
|
Total operating
expenses
|
6,346,507
|
952,138
|
|
|
|
Other
(income) expense:
|
|
|
Interest
expense
|
480,285
|
14,511
|
Gain on
extinguishment of convertible note
|
(134,085
)
|
-
|
Loss on conversion
of debt
|
85,123
|
20,968
|
Loss on issuance of
convertible notes
|
481,000
|
-
|
Change in fair
value of embedded conversion option
|
(121,000
)
|
99,000
|
Change in fair
value of warrant liability
|
(7,587
)
|
-
|
Loss on
modification of Private Placement Units
|
41,268
|
-
|
Total other
expenses
|
825,004
|
134,479
|
|
|
|
Net
Loss:
|
$
(7,171,511
)
|
$
(1,086,617
)
|
|
|
|
Net
loss per share - basic and diluted
|
$
(0.81
)
|
$
(0.12
)
|
|
|
|
Weighted
average shares outstanding, basic and diluted
|
8,861,212
|
9,067,839
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
F-4
Q BIOMED INC.
Statement of Changes in Shareholders’ Equity
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
Additional
Paid in Capital
|
|
|
Balance
as of November 30, 2014
|
-
|
$
-
|
8,125,000
|
$
8,125
|
$
46,750
|
$
(43,425
)
|
$
11,450
|
Issuance of common
stock and warrants for services
|
-
|
-
|
631,000
|
631
|
197,887
|
(375
)
|
198,143
|
Issuance of common
stock for acquired in-process research and development
|
-
|
-
|
200,000
|
200
|
547,800
|
-
|
548,000
|
Issuance of common
stock for services to related parties
|
-
|
-
|
3,375,000
|
3,375
|
25,650
|
(2,025
)
|
27,000
|
Acquisition and
retirement of common stock
|
-
|
-
|
(3,750,000
)
|
(3,750
)
|
1,500
|
2,250
|
-
|
Issuance of common
stock upon conversion of convertible notes payable
|
-
|
-
|
16,131
|
16
|
46,103
|
-
|
46,119
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(1,086,617
)
|
(1,086,617
)
|
Balance
as of November 30, 2015
|
-
|
-
|
8,597,131
|
8,597
|
865,690
|
(1,130,192
)
|
(255,905
)
|
Issuance of common
stock and warrants for services
|
-
|
-
|
341,543
|
342
|
3,300,772
|
-
|
3,301,114
|
Issuance of common
stock for acquired in-process research and development
|
-
|
-
|
50,000
|
50
|
160,450
|
-
|
160,500
|
Issuance of common
stock and warrants in connection with Private Placement, net of
warrant liabilities
|
-
|
-
|
102,256
|
102
|
80,578
|
-
|
80,680
|
Modification of
Private Placement Units
|
|
|
7,502
|
7
|
22,499
|
|
22,506
|
Issuance of
warrants for services to related party
|
-
|
-
|
-
|
-
|
830,000
|
-
|
830,000
|
Issuance of
warrants to settle accounts payable to related party:
|
-
|
-
|
-
|
-
|
30,000
|
-
|
30,000
|
Issuance of common
stock upon conversion of convertible notes payable
|
-
|
-
|
118,128
|
118
|
380,768
|
-
|
380,886
|
Beneficial
conversion feature in connection with issuance of convertible
notes
|
-
|
-
|
-
|
-
|
526,400
|
-
|
526,400
|
Issuance of common
stock in connection with OID Note
|
-
|
-
|
15,000
|
15
|
52,200
|
-
|
52,215
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(7,171,511
)
|
(7,171,511
)
|
Balance
as of November 30, 2016
|
-
|
$
-
|
9,231,560
|
$
9,231
|
$
6,249,357
|
$
(8,301,703
)
|
$
(2,043,115
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
F-5
Q BIOMED INC.
Statement of Cash Flows
|
For
the years ended November 30,
|
|
|
|
Cash flows from
operating activities:
|
|
|
Net
loss
|
$
(7,171,511
)
|
$
(1,086,617
)
|
Adjustments to
reconcile net loss to net cash used in operating
activities
|
|
|
Issuance of common
stock and warrants for services
|
4,131,114
|
198,143
|
Issuance of common
stock for acquired in-process research and development
|
160,500
|
548,000
|
Issuance of common
stock for services to related parties
|
-
|
27,000
|
Change in fair
value of embedded conversion option
|
(121,000
)
|
99,000
|
Change in fair
value of warrant liability
|
(7,587
)
|
-
|
Loss on
modification of Private Placement Units
|
41,268
|
-
|
Accretion of debt
discount
|
413,894
|
12,000
|
Gain on
extinguishment of convertible note
|
(134,085
)
|
-
|
Loss on conversion
of debt
|
85,123
|
20,968
|
Loss on issuance of
convertible debt
|
481,000
|
-
|
Changes in
operating assets and liabilities:
|
|
|
Accounts payable
and accrued expenses
|
439,134
|
90,114
|
Accrued expenses -
related party
|
70,502
|
-
|
Accrued interest
payable:
|
66,389
|
-
|
Net
cash used in operating activities
|
(1,545,259
)
|
(91,392
)
|
|
|
|
Cash flows from
financing activities:
|
|
|
Proceeds received
from issuance of convertible notes
|
2,495,000
|
210,151
|
Proceeds received
from issuance of common stock and warrants
|
237,575
|
-
|
Proceeds received
from issuance of note payable
|
150,000
|
-
|
Net
cash provided by financing activities
|
2,882,575
|
210,151
|
|
|
|
Net
increase in cash
|
1,337,316
|
118,759
|
|
|
|
Cash
at beginning of period
|
131,408
|
12,649
|
Cash
at end of period
|
$
1,468,724
|
$
131,408
|
|
|
|
Non-cash
financing activities:
|
|
|
Issuance of common
stock upon conversion of convertible notes payable
|
$
295,764
|
$
25,000
|
Issuance of
warrants to settle accounts payable to related party
|
$
30,000
|
$
-
|
Modification of
Series D convertible note recognized as extinguishment
|
$
294,085
|
$
-
|
|
|
|
Cash paid for
interest
|
$
-
|
$
-
|
Cash paid for
income taxes
|
$
-
|
$
-
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
F-6
Q BIOMED INC.
Notes to Financial Statements
Note 1 - Organization of the Company and Description of the
Business
Q
BioMed Inc. (“Q BioMed” or “the Company”),
incorporated in the State of Nevada on November 22, 2013, is a
biomedical acceleration and development company focused on
licensing, acquiring and providing strategic resources to life
sciences and healthcare companies. Q BioMed intends to mitigate
risk by acquiring multiple assets over time and across a broad
spectrum of healthcare related products, companies and
sectors. The Company intends to develop these assets to
provide returns via organic growth, revenue production,
out-licensing, sale or spinoff new public companies.
Note 2 - Basis of Presentation and Going Concern
The
accompanying financial statements are presented in U.S. dollars and
have been prepared in accordance with accounting principles
generally accepted in the United States of America (“US
GAAP”) and pursuant to the accounting and disclosure rules
and regulations of the U.S. Securities and Exchange Commission (the
“SEC”).
The
Company currently operates in one business segment focusing on
licensing, acquiring and providing strategic resources to life
sciences and healthcare companies. The Company is not organized by
market and is managed and operated as one business. A single
management team reports to the chief operating decision maker, the
Chief Executive Officer, who comprehensively manages the entire
business. The Company does not currently operate any separate lines
of business or separate business entities.
Going Concern
The
Company had a working capital deficit of approximately $1.8 million
as of November 30, 2016. The accompanying financial statements are
prepared assuming the Company will continue as a going concern,
which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. The Company had a net
loss of approximately $7.2 million and $1.1 million during the
years ended November 30, 2016 and 2015, respectively, and had net
cash used in operating activities of approximately $1.5 million and
$91,000 during years ended November 30, 2016 and 2015,
respectively.
The
ability of the Company to continue as a going concern depends on
the Company obtaining adequate capital to fund operating losses
until it generates adequate cash flows from operations to fund its
operating costs and obligations. If the Company is unable to obtain
adequate capital, it could be forced to cease
operations.
The
Company depends upon its ability, and will continue to attempt, to
secure equity and/or debt financing. The Company might not be
successful, and without sufficient financing it would be unlikely
for the Company to continue as a going concern. Management has
determined that there is substantial doubt about the Company's
ability to continue as a going concern within one year after the
financial statements are issued. The accompanying financial
statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts, or
amounts and classification of liabilities that might result from
this uncertainty.
Note 3 – Summary of Significant Accounting
Policies
Use of estimates
The
preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during
the reporting period. Actual results may differ from those
estimates, and such differences may be material to the financial
statements. The more significant estimates and assumptions by
management include among others: the valuation allowance of
deferred tax assets resulting from net operating losses, the
valuation of warrants on the Company’s stock and the
valuation of embedded conversion options within the Company’s
convertible notes payable.
Concentration of Credit Risk
Financial
instruments that potentially subject the Company to concentration
of credit risk consist of cash accounts in a financial institution
which, at times may exceed the Federal depository insurance
coverage ("FDIC") of $250,000. At November 30, 2016, the
Company had a cash balance on deposit that exceeded the balance
insured by the FDIC limit by approximately $1.2 million with one
bank and was exposed to credit risk for amounts held in excess of
the FDIC limit. The Company does not anticipate nonperformance by
these institutions. The Company had not experienced losses on
these accounts and management believes the Company is not exposed
to significant risks on such accounts.
F-7
Fair value of financial instruments
Fair
value is defined as the price that would be received for sale of an
asset or paid for transfer of a liability, in an orderly
transaction between market participants at the measurement
date. U.S. GAAP establishes a three-tier fair value
hierarchy, which prioritizes the inputs used in measuring fair
value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1 measurements) and the lowest priority to
unobservable inputs (Level 3 measurements). These tiers
include:
●
Level 1
: The preferred inputs to
valuation efforts are “quoted prices in active markets for
identical assets or liabilities,” with the caveat that the
reporting entity must have access to that market. Information at
this level is based on direct observations of transactions
involving the same assets and liabilities, not assumptions, and
thus offers superior reliability. However, relatively few items,
especially physical assets, actually trade in active
markets.
●
Level 2
: FASB acknowledged that active
markets for identical assets and liabilities are relatively
uncommon and, even when they do exist, they may be too thin to
provide reliable information. To deal with this shortage of direct
data, the board provided a second level of inputs that can be
applied in three situations.
●
Level 3:
defined as unobservable inputs
in which little or no market data exists, therefore requiring an
entity to develop its own assumptions, such as valuations derived
from valuation techniques in which one or more significant inputs
or significant value drivers are unobservable.
Fair
value measurements discussed herein are based upon certain market
assumptions and pertinent information available to management as of
and during the years ended November 30, 2016 and 2015. The
respective carrying value of cash and accounts payable approximated
their fair values as they are short term in nature.
As of
November 30, 2016, the estimated aggregate fair value of all
outstanding convertible notes payable is approximately $3.3
million. The fair value estimate is based on the estimated option
value of the conversion terms, since the strike price of each note
series is deep in-the-money at November 30, 2016. The estimated
fair value represents a Level 3 measurement.
Embedded
Conversion
Features
The Company evaluates embedded conversion
features within convertible debt to determine whether the embedded
conversion feature(s) should be bifurcated from the host instrument
and accounted for as a derivative at fair value with changes in
fair value recorded in the Statement of
Operations. If the conversion feature does not require
recognition of a bifurcated derivative, the convertible
debt instrument is evaluated for consideration of any
beneficial conversion feature (“BCF”) requiring
separate recognition. When the Company records a BCF, the intrinsic
value of the BCF is recorded as a debt discount against the
face amount of the respective debt instrument (offset to additional
paid-in capital) and amortized to interest expense over the
life of the debt.
Derivative Financial Instruments
The
Company does not use derivative instruments to hedge exposures to
cash flow, market, or foreign currency risks. The Company
evaluates all of its financial instruments, including
issued stock purchase warrants, to determine if such
instruments are derivatives or contain features that qualify
as embedded derivatives. For derivative financial instruments
that are accounted for as liabilities, the derivative
instrument is initially recorded at its fair value and is then
re-valued at each reporting date, with changes in the fair
value reported in the Statement of Operations. Depending on
the features of the derivative financial instrument, the Company
uses either the Black-Scholes option-pricing model or a
binomial model to value the derivative instruments at
inception and subsequent valuation dates. The classification
of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is re-assessed at
the end of each reporting period.
Stock Based Compensation Issued to Nonemployees
Common
stock issued to non-employees for acquiring goods or providing
services is recognized at fair value when the goods are obtained or
over the service period. If the award contains performance
conditions, the measurement date of the award is the earlier of the
date at which a commitment for performance by the non-employee is
reached or the date at which performance is reached. A performance
commitment is reached when performance by the non-employee is
probable because of sufficiently large disincentives for
nonperformance.
F-8
General and administrative expenses
The
significant components of general and administrative expenses
consist of interest expense, bank fees, printing, filing fees,
other office expenses, and business license and permit
fees.
Research and development
The
Company expenses the cost of research and development as
incurred. Research and development expenses include
costs incurred in funding research and development activities,
license fees, and other external costs. Nonrefundable advance
payments for goods and services that will be used in future
research and development activities are expensed when the activity
is performed or when the goods have been received, rather than when
payment is made.
Income Taxes
Deferred
tax assets and liabilities are computed based upon the difference
between the financial statement and income tax basis of assets and
liabilities using the enacted marginal tax rate applicable when the
related asset or liability is expected to be realized or
settled. Deferred income tax expenses or benefits are based
on the changes in the asset or liability each period. If
available evidence suggests that it is more likely than not that
some portion or all of the deferred tax assets will not be
realized, a valuation allowance is required to reduce the deferred
tax assets to the amount that is more likely than not to be
realized. Future changes in such valuation allowance are
included in the provision for deferred income taxes in the period
of change.
Deferred
income taxes may arise from temporary differences resulting from
income and expense items reported for financial accounting and tax
purposes in different periods. Deferred taxes are classified
as current or non-current, depending on the classification of
assets and liabilities to which they relate. Deferred taxes
arising from temporary differences that are not related to an asset
or liability are classified as current or non-current depending on
the periods in which the temporary differences are expected to
reverse.
The
Company applies a more-likely-than-not recognition threshold for
all tax uncertainties, which only allows the recognition of
those tax benefits that have a greater than fifty percent
likelihood of being sustained upon examination by the taxing
authorities. As of November 30, 2016, the Company reviewed its tax
positions and determined there were no outstanding, or retroactive
tax positions with less than a 50% likelihood of being sustained
upon examination by the taxing authorities, therefore this standard
has not had a material effect on the Company.
The
Company’s policy for recording interest and penalties
associated with audits is to record such expense as a component of
income tax expense. There were no amounts accrued for penalties or
interest during the years ended November 30, 2016. Management is
currently unaware of any issues under review that could result in
significant payments, accruals or material deviations from its
position.
Recent accounting pronouncements
In
August 2014, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”) No. 2014-15,
Disclosure of Uncertainties about an
Entity’s Ability to Continue as a Going Concern
that
will require management to evaluate whether there are conditions
and events that raise substantial doubt about the Company’s
ability to continue as a going concern within one year after the
financial statements are issued on both an interim and annual
basis. Management will be required to provide certain footnote
disclosures if it concludes that substantial doubt exists or when
its plans alleviate substantial doubt about the Company’s
ability to continue as a going concern. The
Company adopted ASU No. 2014-15 in the fourth quarter of 2016,
and its adoption did not have a material impact on the
Company’s financial statements.
In
March 2016, the FASB issued ASU No. 2016-06,
Derivatives and Hedging (Topic 815):
Contingent Put and Call Options in Debt Instruments
. This
new standard simplifies the embedded derivative analysis for debt
instruments containing contingent call or put options by removing
the requirement to assess whether a contingent event is related to
interest rates or credit risks. This new standard will be effective
for the Company on January 1, 2017. The adoption of this standard
is not expected to have a material impact on the Company's
financial position, results of operations, or cash
flows.
In
August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows (Topic 230):
Classification of Certain Cash Receipts and Cash Payments
.
This new standard clarifies certain aspects of the statement of
cash flows, including the classification of debt prepayment or debt
extinguishment costs or other debt instruments with coupon interest
rates that are insignificant in relation to the effective interest
rate of the borrowing, contingent consideration payments made after
a business combination, proceeds from the settlement of insurance
claims, proceeds from the settlement of corporate-owned life
insurance policies, distributions received from equity method
investees and beneficial interests in securitization transactions.
This new standard also clarifies that an entity should determine
each separately identifiable source of use within the cash receipts
and payments on the basis of the nature of the underlying cash
flows. In situations in which cash receipts and payments have
aspects of more than one class of cash flows and cannot be
separated by source or use, the appropriate classification should
depend on the activity that is likely to be the predominant source
or use of cash flows for the item. This new standard will be
effective for the Company on January 1, 2018. The Company is
currently evaluating the impact of the new standard on its
consolidated financial statements.
In
January 2017, the FASB issued ASU No. 2017-01,
Business Combinations (Topic 805): Clarifying
the Definition of a Business
. This new standard clarifies
the definition of a business and provides a screen to determine
when an integrated set of assets and activities is not a business.
The screen requires that when substantially all of the fair value
of the gross assets acquired (or disposed of) is concentrated in a
single identifiable asset or a group of similar identifiable
assets, the set is not a business. This new standard will be
effective for the Company on January 1, 2018, but may be adopted
early. Adoption is prospectively applied to any business
development transaction. The adoption of this standard is not
expected to have a material impact on the Company's financial
position, results of operations, or cash flows.
F-9
Note 4 – Loss per share
Basic
net loss per share was calculated by dividing net loss by the
weighted-average common shares outstanding during the
period. Diluted net loss per share was calculated by
dividing net loss by the weighted-average common shares outstanding
during the period using the treasury stock method or the two-class
method, whichever is more dilutive. The table below
summarizes potentially dilutive securities that were not
considered in the computation of diluted net loss per share because
they would be anti-dilutive.
Potentially
dilutive securities
|
|
|
Warrants (Note
10)
|
1,047,500
|
100,000
|
Convertible debt
(Note 5)
|
1,067,105
|
106,920
|
|
|
|
Note 5 – Convertible Notes
|
|
|
Series
A Notes:
|
|
|
Principal value of
10%, convertible at $2.00 and $1.92 at November 30, 2016 and
November 30, 2015, respectively.
|
$
12,500
|
$
50,000
|
Fair value of
bifurcated embedded conversion option of Series A
Notes
|
12,000
|
64,000
|
Debt
discount
|
(2,194
)
|
(28,832
)
|
Carrying value of
Series A Notes
|
22,306
|
85,168
|
|
|
|
Series
B Notes:
|
|
|
Principal value of
10%, convertible at $2.00 and $1.92 at November 30, 2016 and
November 30, 2015, respectively.
|
55,000
|
50,000
|
Fair value of
bifurcated embedded conversion option of Series B
Notes
|
55,000
|
64,000
|
Debt
discount
|
(19,229
)
|
(34,744
)
|
Carrying value of
Series B Notes
|
90,771
|
79,256
|
|
|
|
Series
C Notes:
|
|
|
Principal value of
10%, convertible at $1.55 at November 30, 2016 and November 30,
2015.
|
576,383
|
85,000
|
Fair value of
bifurcated embedded conversion option of Series C
Notes
|
838,000
|
101,000
|
Long-term
Liabilities:
|
(250,969
)
|
(54,424
)
|
Carrying value of
Series C Notes
|
1,163,414
|
131,576
|
|
|
|
Series
D Notes:
|
|
|
Principal value of
10%, convertible at $1.85 at November 30, 2016.
|
160,000
|
-
|
Debt
discount
|
(140,961
)
|
-
|
Carrying value of
Series D Notes
|
19,039
|
-
|
|
|
|
Series
E Notes:
|
|
|
Principal value of
10%, convertible at $2.50 at November 30, 2016.
|
180,000
|
-
|
Debt
discount
|
(124,164
)
|
-
|
Carrying value of
Series E Notes
|
55,836
|
-
|
|
|
|
Secured
Convertible Debenture:
|
|
|
Principal value of
5%, convertible at $2.98 at November 30, 2016.
|
1,500,000
|
-
|
Fair value of
bifurcated contingent put option of Secured Convertible
Debenture
|
72,000
|
-
|
Debt
discount
|
(297,000
)
|
-
|
Carrying value of
Secured Convertible Debenture Note
|
1,275,000
|
-
|
Total
short-term carrying value of convertible notes
|
$
2,394,849
|
$
-
|
Total
long-term carrying value of convertible notes
|
$
231,517
|
$
296,000
|
|
|
|
During
the year ended November 30, 2016, the Company recognized interest
expense of approximately $414,000 resulting from amortization of
the debt discount for Series A, B, C, D and E Notes. All long
term notes are due in fiscal year 2018.
Series A Notes
The
Series A convertible notes payable (the “Series A
Notes”) are due and payable 18 months after issuance and bear
interest at 10% per annum. At the election of the
holder, outstanding principal and accrued but unpaid interest under
the Series A Notes is convertible into shares of the
Company’s common stock at any time prior to maturity at a
conversion price per share equal to the higher of:
(i) forty percent (40%) discount to the average closing price
for the ten (10) consecutive trading days immediately preceding the
notice of conversion or (ii) $1.25 per share. At maturity,
any remaining outstanding principal and accrued but unpaid
interest outstanding under the Series A Notes
will automatically convert into shares of the Company’s
common stock under the same terms.
F-10
Series B Notes
The
Series B convertible notes payable (the “Series B
Notes”) have the same terms as the Series A
Notes. During the year ended November 30, 2016, the
Company issued an additional of $105,000 in principal of Series B
notes to third party investors.
Series C Notes
The
Series C convertible notes payable (the “Series C
Notes”) are due and payable 18 months after issuance and bear
interest at 10% per annum. At the election of the
holder, outstanding principal and accrued but unpaid interest under
the Series C Notes is convertible into shares of the
Company’s common stock at a conversion price per share equal
to the lesser of a 40% discount to the average closing price for
the 10 consecutive trading days immediately preceding the notice of
conversion or $1.55, but in no event shall the conversion price be
lower than $1.25 per share. If the average VWAP, as
defined in the agreement, for the ten trading days immediately
preceding the maturity date $5.00 or more, any
remaining outstanding principal and accrued but unpaid
interest outstanding under the Series C Notes
will automatically convert into shares of the Company’s
common stock under the same terms.
The
terms of the Series C Notes also provided that up until maturity
date, the Company cannot enter into any additional, or modify any
existing, agreements with any existing or future investors that are
more favorable to such investor in relation to the Series D Note
holders, unless, the Series C Note holders are provided with such
rights and benefits (“Most Favored Nations
Clause”).
During
the year ended November 30, 2016, the Company issued an additional
of $550,000 in principal of Series C notes to third party
investors.
Series D Notes
The
Series D convertible notes payable (the “Series D
Notes”) are due and payable 18 months after issuance and bear
interest at 10% per annum. At the election of the
holder, outstanding principal and accrued but unpaid interest under
the Series D Notes is convertible into shares of the
Company’s common stock at a fixed conversion price per share
equal to $1.85. The Series D Notes automatically convert
upon maturity at $1.85 per share if the ten trading days VWAP
immediately preceding maturity is $5.00 or
greater. Additionally, if the Company’s common
shares are up-listed to a senior exchange such as the AMEX or
NASDAQ, all monies due under the Series D Notes will automatically
convert at $1.85 per share. During the year ended November
30, 2016, the Company issued $160,000 in principal of Series D
notes to third party investors.
The
terms of the Series D Notes also included the Most Favored Nations
Clause. The Most Favored Nations Clause was viewed as providing the
Series D Note holder with down-round price protection. As
such, the embedded conversion option in the Series D Note was
separately measured at fair value upon issuance, with subsequent
changes in fair value recognized in current earnings.
On
September 30, 2016, the Company amended the Most Favored Nations
Clause of the Series D Notes to restrict the Company from taking
dilutive action without the Series D note holders’ consent,
effectively removing the down-round price protection. The amendment
of the Series D Notes was recognized as an extinguishment of the
originally issued Series D Notes, resulting in a gain on
extinguishment of approximately $134,000.
At the
amendment date, the conversion price of the amended Series D Notes
was below the quoted market price of the Company’s common
stock. As such, the Company recognized a beneficial conversion
feature equal to the intrinsic value of the conversion price on the
amendment date, resulting in a discount to the amended Series D
Notes of $160,000 with a corresponding credit to additional paid-in
capital.
The resulting debt
discount is presented net of the related
convertible note
balance in the accompanying
Balance Sheets and is amortized to interest expense over the
note’s term.
Series E Notes
The
Series E convertible notes payable (the “Series E
Notes”) are due and payable 18 months after issuance and bear
interest at 10% per annum. At the election of the
holder, outstanding principal and accrued but unpaid interest under
the Series E Notes is convertible into shares of the
Company’s common stock at a fixed conversion price per share
equal to $2.50. The Series E Notes automatically convert
upon maturity at $2.50 per share if the ten trading days VWAP
immediately preceding maturity is $5.00 or
greater. Additionally, if the Company’s common
shares are up-listed to a senior exchange such as the AMEX or
NASDAQ, all monies due under the Series E Notes will automatically
convert at $2.50 per share. During the year ended November
30, 2016, the Company issued $180,000 in principal of Series E
Notes to third party investors.
At the
issuance date, the conversion price of the Series E Notes was below
the quoted market price of the Company’s common stock. As
such, the Company recognized a beneficial conversion feature equal
to the intrinsic value of the conversion price on the amendment
date, resulting in a discount to the Series E Notes of
approximately $141,000 with a corresponding credit to additional
paid-in capital.
The
resulting debt discount is presented net of the related
convertible note
balance in
the accompanying Balance Sheets and is amortized to interest
expense over the note’s term.
F-11
Embedded Conversion Options
In
connection with the issuance of the Series A, B, C and the original
issuance of the Series D Notes during the year ended November 30,
2016, the Company recognized a debt discount of approximately
$750,000, and a loss on issuance of $481,000, which represents
the excess of the fair value of the embedded conversion at initial
issuance of $1.2 million over the principal amount of convertible
debt issued. The embedded conversion feature is
separately measured at fair value, with changes in fair value
recognized in current operations. Management used a
binomial valuation model, with fourteen steps of the binomial
tree, to estimate the fair value of the embedded conversion option
at issuance of the Series A, B, C and the original issuance of the
Series D Notes issued during the year ended November 30, 2016, with
the following key inputs:
|
|
|
|
|
|
Embedded derivatives at inception
|
|
|
|
|
|
|
For the years ended November 30,
|
|
|
|
|
|
2016
|
|
|
|
2015
|
|
Stock
price
|
|
$
|
2.60 -
$3.26
|
|
|
$
|
2.02 -
$4.30
|
|
Terms
(years)
|
|
|
1.5
|
|
|
|
1.25 -
1.5
|
|
Volatility
|
|
|
116.77
|
%
|
|
|
108.40%
- 162.89
|
%
|
Risk-free
rate
|
|
|
0.51% -
0.76
|
%
|
|
|
0.66% -
0.85
|
%
|
Dividend
yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded derivatives at period end
|
|
|
|
|
|
|
|
|
|
|
As of November 30,
|
|
|
|
|
|
2016
|
|
|
|
2015
|
|
Stock
price
|
|
$
|
3.43
|
|
|
$
|
3.55
|
|
Term
(years)
|
|
|
0.25 -
1.05
|
|
|
|
1.26 -
1.49
|
|
Volatility
|
|
|
156.74%
- 163.49
|
%
|
|
|
108.4%
- 121.62
|
%
|
Risk-free
rate
|
|
|
0.48% -
0.80
|
%
|
|
|
0.94
|
%
|
Dividend
yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
November 30, 2016, the embedded conversion options have an
aggregate fair value of approximately $977,000 and are presented on
a combined basis with the related loan host in the Company’s
Balance Sheets. The table below presents changes in fair
value for the embedded conversion options, which is a Level 3 fair
value measurement:
Rollforward of Level 3 Fair Value Measurement for the Year Ended
November 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 30, 2015
|
|
Issuance
|
|
Net unrealized gain/(loss)
|
|
Settlements
|
|
Balance at November 30, 2016
|
|
|
$
|
229,000
|
|
|
|
1,303,000
|
|
|
|
(121,000
|
)
|
|
|
(434,000
|
)
|
|
$
|
977,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversions of debt
The
following conversions of the convertible notes occurred during the
year ended November 30, 2016:
|
|
|
Series A
conversions
|
$
37,500
|
22,148
|
Series B
conversions
|
100,000
|
51,111
|
Series C
conversions
|
58,617
|
44,869
|
Total
|
$
196,117
|
118,128
|
|
|
|
As the
embedded conversion option in each note Series had been separately
measured at fair value, the conversion of each note was recognized
as an extinguishment of debt. The Company recognized a loss
on conversion of debt of approximately $85,000 as the difference
between the fair value of common stock issued to the holders of
approximately $381,000 and the aggregate net carrying value of the
convertible notes, including the bifurcated conversion options, of
approximately $296,000.
F-12
Events of default
The
Company will be in default of the Series A,B,C D and E Notes, and
all amounts outstanding will become immediately due and payable
upon: (i) maturity, (ii) any bankruptcy, insolvency,
reorganization, cessation of operation, or liquidation events,
(iii) if any money judgment, writ or similar process filed against
the Company for more than $150,000 remains unvacated, unbonded or
unstayed for a period of twenty (20) days, (iv) the Company fails
to maintain the listing of the common stock on at least one of the
OTC markets or the equivalent replacement exchange, (v) the
Company’s failure to maintain any material intellectual
property rights, personal, real property or other assets that are
necessary to conduct its business, (vi) the restatement of any
financial statements filed with the U.S. Securities and Exchange
Commission (“SEC”) for any period from two years prior
to the notes issuance date and until the notes are no longer
outstanding, if the restatement would have constituted a material
adverse effect of the rights of the holders of the notes, (vii) the
Company effectuates a reverse stock split of its common stock
without twenty (20) days prior written notice to the notes’
holders, (viii) in the event that the Company replaces its transfer
agent but fails to provide, prior to the effective date, a fully
executed irrevocable transfer agent instructions signed by the
successor transfer agent and the Company, (ix) in the
event that the Company depletes the share reserve and fails to
increase the number of shares within three (3) business days, (x)
if the Company fails to remain current in its filings with the SEC
for more than 30 days after the filing deadline, (xi) after 12
months following the date the Company no longer deems itself a
shell company as reflected in a ’34 Act filing, the Lenders
are unable to convert the notes into free trading shares, and (xii)
upon fundamental change of management.
The
Company is currently not in default for any convertible notes
issued.
Secured Convertible Debentures
On
November 29, 2016, the Company entered into a securities purchase
agreement with an accredited investor to place Convertible
Debentures (the “Debentures”) with a one-year term in
the aggregate principal amount of up to $4,000,000. The initial
closing occurred on November 30, 2016 when the Company issued a
Debenture for $1,500,000. The second closing is scheduled for
within three days of the date on which the Company registers for
resale all of the shares of common stock into which the Debentures
may be converted (the “Conversion Shares”). The
Debentures bear interest at the rate of 5% per annum. In
addition, the Company must pay to an affiliate of the holder a fee
equal to 5% of the amount of the Debenture at each
closing.
The
Debenture may be converted at any time on or prior to maturity at
the lower of $4.00 or 93% of the average of the four lowest daily
VWAP of the Company’s common stock during the ten consecutive
trading days immediately preceding the conversion date, provided
that as long as the Company is not in default under the Debenture,
the conversion price may never be less than $2.00. The
Company may not convert any portion of the Debenture if such
conversion would result in the holder beneficially owning more than
4.99% of the Company’s then issued common stock, provided
that such limitation may be waived by the holder.
Any
time after the six-month anniversary of the issuance of the
Debenture, if the daily VWAP of the Company’s common stock is
less than $2.00 for a period of twenty consecutive trading days
(the “Triggering Date”) and only for so long as such
conditions exist after a Triggering Date, the Company shall make
monthly payments beginning on the last calendar day of the month
when the Triggering Date occurred. Each monthly payment shall
be in an amount equal to the sum of (i) the principal amount
outstanding as of the Triggering Date divided by the number of such
monthly payments until maturity, (ii) a redemption premium of 20%
in respect of such principal amount being paid (up to a maximum of
$300,000 in redemption premium) and (iii) accrued and unpaid
interest as of each payment date. The Company may, no more
than twice, obtain a thirty-day deferral of a monthly payment due
as a result of a Triggering Date through the payment of a deferral
fee in the amount equal to 10% of the total amount of such monthly
payment. Each deferral payment may be paid by the issuance of
such number of shares as is equal to the applicable deferral
payment divided by a price per share equal to 93% of the average of
the four lowest daily VWAP of the Company’s common stock
during the ten consecutive Trading Days immediately preceding the
due date in respect of such monthly payment begin deferred,
provided that such shares issued will be immediately freely
tradable shares in the hands of the holder.
The
Company also executed a Registration Rights Agreement pursuant to
which it is required to file a registration statement for the
resale of the shares of common stock into which the Debenture may
be converted within 30 days of the initial closing. The Company is
required to use its best efforts to cause such registration
statement to be declared effective within 90 days of the initial
closing.
The
Company also entered into a Security Agreement to secure payment
and performance of its obligations under the Debenture and related
agreements pursuant to which the Company granted the investor a
security interest in all of its assets. The security interest
granted pursuant to the Security Agreement terminates on (i) the
effectiveness of the Registration Statement if the Company’s
common stock closing price is greater than $2.00 for the twenty
consecutive trading days prior to effectiveness or (ii) any time
after the effectiveness of the registration statement that the
Company’s common stock closing price is greater than $2.00
for the twenty consecutive trading days.
F-13
Upon
issuance of the Debentures, the Company recognized a debt discount
of approximately $297,000, resulting from the recognition of a
beneficial conversion feature of $225,000 and a bifurcated embedded
derivative of $72,000. The beneficial conversion feature was
recognized as the intrinsic value of the conversion
option on issuance of the Debentures. The monthly
payment provision within the Debentures is a contingent put option
that is required to be separately measured at fair value, with
subsequent changes in fair value recognized in the Statement of
Operations. The Company estimated the fair value of the monthly
payment provision, as of November 30, 2016, using probability
analysis of the occurrence of a Triggering Date applied to the
discounted maximum redemption premium for any given payment. The
probability analysis utilized an expected volatility for the
Company's common stock of 139% and a risk free rate of 0.80%. The
maximum redemption was discounted at 22%, the calculated effective
rate of the Debenture before measurement of the
contingent put option. The fair value estimate is a Level 3
measurement.
Note 6 – Note Payable
On
November 10, 2016, the Company issued a promissory note with a
principal amount of $150,000 and issued 15,000 restricted shares of
the Company’s common stock for cash proceeds of $150,000 (the
“OID Note”). The OID Note does not pay interest
and matures on November 3, 2017. The OID Note is not
convertible.
The
fair value of the 15,000 common stock issued with the OID Note of
approximately $52,000 was recognized as a debt discount, which will
be amortized to interest expense over the term of the OID
Note.
Note 7 – Commitments and Contingencies
Advisory Agreements
The
Company entered into customary consulting arrangements with various
counterparties to provide consulting services, business development
and investor relations services, pursuant to which the Company
agreed to issue shares of common stock as services are
received. The Company expects to issue an aggregate of
approximately 198,000 shares of common stock subsequent to November
30, 2016 through the end term of arrangements, June
2017.
License Agreement
Mannin
On October 29, 2015, the Company entered into a Patent and
Technology License and Purchase Option Agreement (“Exclusive
License”) with a vendor whereby the Company was granted a
worldwide, exclusive, license on, and option to, acquire certain
intellectual property (“Mannin IP”) which initially
focused on developing a first-in-class eye drop treatment for
glaucoma within the four-year term of the Exclusive
License. The technology platform may be expanded in
scope beyond ophthalmological uses and may include cystic kidney
disease and others.
Pursuant to the Executive License,
the Company has an option to purchase the
Mannin
IP within the next four
years upon: (i) investing a minimum of $4,000,000 into the
development of the intellectual property and (ii) possibly issuing
additional shares of the Company’s common stock based on
meeting pre-determined valuation and market conditions. The
purchase price for the IP is $30,000,000 less the amount of cash
paid by the Company for development and the value of the common
stock issued to the vendor.
During
the year ended November 30, 2016, the Company incurred
approximately $1.1 million in research and development expenses to
fund the costs of development of the eye drop treatment for
glaucoma pursuant to the Exclusive License, of which an aggregate
of $654,000 was already paid as of November 30, 2016. Through
November 30, 2016, the Company has funded an aggregate of $704,000
to Mannin under the Exclusive License.
In the
event that: (i) the Company does not exercise the option to
purchase the
Mannin
IP; (ii) the Company fails to invest the $4,000,000 within four
years from the date of the Exclusive License; or (iii) the Company
fails to make a diligent, good faith and commercially reasonable
effort to progress the
Mannin
IP, all
Mannin
IP shall revert to the
vendor and the Company will be granted the right to collect twice
the monies invested through that date of reversion by way of a
royalty along with other consideration which may be
perpetual.
F-14
Bio-Nucleonics
On
September 6, 2016, the Company entered into the Patent and
Technology License and Purchase Option Agreement (the “BNI
Exclusive License”). with Bio-Nucleonics Inc.
(“BNI”) whereby the Company was granted a worldwide,
exclusive, perpetual, license on, and option to, acquire certain
BNI intellectual property (“BNI IP”) within the
three-year term of the BNI Exclusive License.
In
exchange for the consideration, the Company agreed to, upon
reaching various milestones, issue to BNI an aggregate of 110,000
shares of common stock that are subject to restriction from trading
until commercialization of the product (approximately 12 months)
and subsequent leak-out conditions, and provide funding to BNI for
an aggregate of $850,000 in cash, of which the Company had paid
$20,000 as of November 30, 2016. Once the Company has
funded up to $850,000 in cash, the Company may exercise its option
to acquire the BNI IP at no additional charge. In
September 2016, the Company issued 50,000 shares of common stock,
with a fair value of $160,500, to BNI pursuant to the BNI Exclusive
License.
In the
event that: (i) the Company does not exercise the option to
purchase the BNI IP; (ii) the Company fails to make the aggregate
cash payment within three years from the date of the Exclusive
License; or (iii) the Company fails to make a diligent, good faith
and commercially reasonable effort to progress the BNI IP, all BNI
IP shall revert to BNI and the Company shall be granted the right
to collect twice the monies invested through that date of reversion
by way of a royalty along with other consideration which may be
perpetual.
Legal
The
Company is not currently involved in any legal matters arising in
the normal course of business. From time to time, the Company
could become involved in disputes and various litigation matters
that arise in the normal course of business. These may
include disputes and lawsuits related to intellectual property,
licensing, contract law and employee relations matters.
Periodically, the Company reviews the status of significant
matters, if any exist, and assesses its potential financial
exposure. If the potential loss from any claim or legal claim is
considered probable and the amount can be estimated, the Company
accrues a liability for the estimated loss. Legal proceedings
are subject to uncertainties, and the outcomes are difficult to
predict. Because of such uncertainties, accruals are based on
the best information available at the time. As additional
information becomes available, the Company reassesses the potential
liability related to pending claims and litigation.
Finder’s Agreement
In
October 2016, the Company entered into two agreements to engage two
financial advisors to assist the Company in its search for
potential investors, vendors or partners to engage in a license,
merger, joint venture or other business arrangement. As a
compensation for their efforts, the Company agreed to pay the
financial advisors a fee equal to 7% and 8% in cash, and to pay one
of the financial advisors an additional fee equal to 7% in warrants
of all consideration received by the Company. The
Company has not incurred any finders’ fees pursuant to the
agreements to-date.
Note 8 - Related Party Transactions
The
Company entered into consulting agreements with certain management
personnel and stockholders for consulting and legal
services. Consulting and legal expenses resulting from
such agreements were approximately $300,000 and $58,000 for the
year ended November 30, 2016 and 2015, respectively, and were
included within general and administrative expenses in the
accompanying Statements of Operations.
Note 9 - Stockholders’ Equity (Deficit)
As of
November 30, 2016, the Company is authorized to issue up to
250,000,000 shares of its $0.001 par value common stock and up to
100,000,000 shares of its $0.001 par value preferred
stock.
Issued for services
2015
activity
During
the year ended November 30, 2015, the Company issued an aggregate
of 831,000 shares of the Company’s common stock to three
vendors, valued at approximately $569,000 based on the estimated
fair market value of the stock on the date of grant, of which
$548,000 was recognized within research and development expenses
and approximately $21,000 was recognized within general and
administrative expenses in the accompanying Statements of
Operations.
Also in
September 2015, the Company issued a warrant to purchase an
aggregate of 100,000 shares of common stock with an exercise price
of $2.18 per share to a vendor in exchange for services performed.
The warrant has a five-year term, may be exercised on a cashless
basis and vests in increments of 25,000 shares per 90-day period
following the grant date.
In
addition, the Company issued an aggregate of 3,375,000 shares of
the Company’s common stock to related parties in connection
with the aforementioned agreements in Note 6, valued at
approximately $27,000 based on the estimated fair market value of
the stock on the date of grant and was recognized within general
and administrative expenses in the accompanying Statement of
Operations.
F-15
2016
activity
During
the year ended November 30, 2016, the Company issued an aggregate
of 341,543 shares of common stock, valued at approximately $1.6
million, and five-year warrants to purchase 175,000 shares of
common stock at exercise prices ranging from of $1.45 to $3.00 per
share for advisory services. The warrants vest 25% per quarter over
the next year and were valued at $377,500 using inputs described in
Note 9. The Company recognized the value of the warrants
over the vesting period.
In
addition, the Company issued fully-vested five-year warrants to a
stockholder, a director and Chief Legal Officer of the Company to
purchase an aggregate of 375,000 shares of common stock at strike
prices ranging from $1.45 to $4.15 per share. The
warrants were valued at $957,500 using inputs described in Note
9. The warrants were issued for services and settlement
of a $30,000 in accounts payable.
In July
2016, the Company issued five-year warrants to purchase an
aggregate of 300,000 shares of the Company’s common stock at
$1.45 to two members of the Company’s Board of Director for
their compensation for their board services. The warrants vest 25%
per quarter starting on grant date and were valued at $390,000
using inputs described in Note 9. The Company recognized
the value of the warrants over the vesting
period.
The
Company recognized general and administrative expenses of
approximately $4.1 million, as a result of these transactions
during the year ended November 30, 2016.
The
estimated unrecognized stock-based compensation associated with
these agreements is approximately $399,000 and will be recognized
over the next 0.2 year.
Private Placement
In May
2016, the Company entered into a subscription agreement with an
investor in connection with the Company’s private placement
(“May Private Placement”), generating gross proceeds of
$50,000 by selling 20,000 units (each, Unit A”) at a price
per Unit A of $2.50, with each Unit A consisting of two shares of
common stock and a two-year warrant to purchase two shares of the
Company’s common stock at an exercise price of $3.50 per
share.
The
subscription agreement requires the Company to issue the May
Private Placement investor additional common shares if the Company
were to issue common stock or issue securities convertible or
exercisable into shares of common stock at a price below $2.50 per
share within 90 days from the closing of the May Private
Placement. The additional shares are calculated as the
difference between the common stock that would have been issued in
the May Private Placement using the new price per unit less shares
of common stock already issued pursuant to the May Private
Placement.
In
August 2016, the Company consummated another private placement, for
gross proceeds of approximately $10,000 by selling 6,500 units at a
purchase price of $1.55 per unit. As a result, the
Company issued the May Private Placement investor an additional
12,258 shares of common stock according to the
agreement.
In
September 2016, the Company entered into a subscription agreement
(the “Subscription Agreement”) with certain investors
in connection with the Company’s private placement
(“September Private Placement”), generating gross
proceeds of $112,500 by selling 37,498 units (each, “Unit
B”) at a price per Unit B of $3.00, with each Unit B
consisting of two shares of common stock and a two-year warrant to
purchase two shares of the Company’s common stock at an
exercise price of $5.00 per share.
In
November 2016, the Company entered into additional Subscription
Agreements with certain investors, generating gross proceeds of
$65,000 by selling 26,000 units (each, “Unit C”) at a
price per Unit C of $2.50, with each Unit C consisting of two
shares of common stock and a two-year warrant to purchase two
shares of the Company’s common stock at an exercise price of
$4.00 per share.
The
Subscription Agreement requires the Company to issue the investor
additional units if the Company were to issue common stock or issue
securities convertible or exercisable into shares of common stock
at a price below a specified price per share within 90 days from
the closing of the private placement. The additional
units are calculated as the difference between the common stock
that would have been issued using the new price per unit less
shares of common stock already issued pursuant to the private
placement.
Pursuant
to the Subscription Agreement, the Company issued an additional of
7,502 units to the September Private Placement investors or no
additional consideration. In addition, the Company also
modified the exercise price of the warrants issued in the Unit B to
$4.00 per share, which in effect, made the Unit B equivalent to
Unit C (together as “Private Placement Unit”).
The Company recorded approximately $41,000 as loss in connection
with the issuance of additional units and modification of the
warrants in the accompanying Statements of Operations, resulted
from the value of the additional shares issued of approximately
$23,000 and the change in warrant liability of approximately
$19,000.
F-16
Note 10 - Warrants
Freestanding
warrants are classified and measured in accordance with ASC 480,
Distinguishing Liabilities from
Equity,
and ASC 815-40,
Derivatives and Hedging: Contracts in Own
Equity
. Under this guidance, the warrants issued as part of
the Private Placement Units were classified as liabilities because
the exercise price may be adjusted downward, in certain
circumstances, for a ninety-day period following their initial
issuance. The warrants will cease being liability classified
at the conclusion of the ninetieth day from issuance. Warrant
liabilities are measured at fair value, with changes in fair
value recognized each reporting period in the Statement of
Operations. All other warrants are equity
classified.
The
following represents a summary of all outstanding warrants to
purchase the Company’s common stock at November 30, 2016 and
changes during the period then ended:
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Remaining Contractual
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
|
Intrinsic Value
|
|
|
Life (years)
|
|
Outstanding
at November 30, 2015
|
|
|
100,000
|
|
|
$
|
2.18
|
|
|
$
|
1.37
|
|
|
|
4.80
|
|
Issued
|
|
|
984,998
|
|
|
|
2.67
|
|
|
|
1.05
|
|
|
|
3.97
|
|
Expired
|
|
|
(37,498
|
)
|
|
|
5.00
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at November 30, 2016
|
|
|
1,047,500
|
|
|
$
|
2.54
|
|
|
$
|
1.11
|
|
|
|
4.10
|
|
Exercisable
at November 30, 2016
|
|
|
797,500
|
|
|
$
|
2.83
|
|
|
$
|
0.88
|
|
|
|
3.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of all outstanding warrants was calculated with the following
key inputs:
|
|
For the year ended
November 30, 2016
|
|
Stock
price
|
|
$
|
1.60 -
$4.15
|
|
Term
(years)
|
|
|
2 -
5
|
|
Volatility
|
|
|
101.13%
- 138.69
|
%
|
Risk-free
rate
|
|
|
0.76% -
1.83
|
%
|
Dividend
yield
|
|
|
0.00
|
%
|
|
|
|
|
|
The
warrant liability is a Level 3 fair value measurement, recognized
on a recurring basis. Both observable and unobservable inputs may
be used to determine the fair value of positions that the Company
has classified within the Level 3 category. As a result, the
unrealized gains and losses for liabilities within the Level 3
category may include changes in fair value that were attributable
to both observable inputs (e.g., changes in market interest rates)
and unobservable inputs (e.g., probabilities of the occurrence of
an early termination event).
Fair
value of warrant liability at November 30, 2015
|
$
-
|
Issuance of new
warrant liability
|
156,895
|
Change in fair
value of warrant liability
|
(7,587
)
|
Modification of
warrant liability
|
18,762
|
Fair
value of warrant liability at November 30, 2016
|
$
168,070
|
|
|
Note 11 - Income Taxes
At
November 30, 2016, the Company has a net operating loss
(“NOL”) carryforward for Federal and state income tax
purposes totaling approximately $2.3 million available to reduce
future taxable income which, if not utilized, will begin to expire
in the year 2033. The NOL carry forward is subject to review and
possible adjustment by the Internal Revenue Service and state tax
authorities. Under the Internal Revenue Code (“IRC”)
Sections 382 and 383, annual use of the Company’s net
operating loss carryforwards to offset taxable income may be
limited based on cumulative changes in ownership. The Company has
not completed an analysis to determine whether any such limitations
have been triggered as of November 30, 2016. The amount of the
annual limitation, if any, will be determined based on the value of
the Company immediately prior to the ownership change. Subsequent
ownership changes may further affect the limitation in future
years.
The
Company has evaluated the positive and negative evidence bearing
upon the realizability of its deferred tax assets. Based on the
Company’s history of operating losses since inception, the
Company has concluded that it is more likely than not that the
benefit of its deferred tax assets will not be realized.
Accordingly, the Company has provided a full valuation allowance
for deferred tax assets as of November 30, 2016 and 2015. The
valuation allowance increased by approximately $2.48 million and
$369,000 for the fiscal years ended November 30, 2016 and
2015.
F-17
The tax
effects of the temporary differences and carry forwards that give
rise to deferred tax assets consist of the following:
|
|
|
|
|
Deferred tax
assets:
|
|
|
Net-operating loss
carryforward
|
$
885,120
|
$
66,000
|
Stock-based
compensation
|
1,685,262
|
87,000
|
License
agreement
|
293,433
|
231,000
|
Total Deferred Tax
Assets
|
2,863,815
|
384,000
|
Valuation
allowance
|
(2,863,815
)
|
(384,000
)
|
Deferred Tax Asset,
Net of Allowance
|
$
-
|
$
-
|
|
|
|
|
|
|
A
reconciliation of the statutory income tax rates and the
Company’s effective tax rate is as follows:
|
|
For the year ended November 30,
|
|
|
|
2016
|
|
|
2015
|
|
Statutory
Federal Income Tax Rate
|
|
|
(34.0
|
)%
|
|
|
(34.0
|
)%
|
State
and Local Taxes, Net of Federal Tax Benefit
|
|
|
(4.7
|
)%
|
|
|
(4.7
|
)%
|
Loss on
conversion of debt
|
|
|
0.5
|
%
|
|
|
0.0
|
%
|
Gain/
loss on extinguishment of convertible note
|
|
|
(0.7
|
)%
|
|
|
0.0
|
%
|
Change
in fair value of embedded conversion option and related accretion
of interest expense
|
|
|
1.6
|
%
|
|
|
4.0
|
%
|
Change
in fair value of warrant liability
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Loss on
modification of Private Placement Units
|
|
|
0.2
|
%
|
|
|
0.0
|
%
|
Loss on
issuance of convertible debt
|
|
|
2.6
|
%
|
|
|
0.0
|
%
|
Other
|
|
|
0.0
|
%
|
|
|
0.7
|
%
|
Change
in Valuation Allowance
|
|
|
34.5
|
%
|
|
|
34.0
|
%
|
|
|
|
|
|
|
|
|
|
Income
Taxes Provision (Benefit)
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
The
Company's major tax jurisdictions are the United States and New
York. All of the Company's tax years will remain open starting 2013
for examination by the Federal and state tax authorities from the
date of utilization of the net operating loss. The Company does not
have any tax audits pending.
Note 12 - Subsequent Events
Issuance of shares for services
In
December 2016, the Company issued an aggregate of 22,000 shares of
the Company common stock to two vendors for advisory
services.
Conversion of debt
Subsequent
to November 30, 2016,
upon
the lender’s request, the Company converted an aggregate of
$25,000 and $576,383 in Series B and Series C Notes outstanding
principal into an aggregate of 12,928 and 407,484 shares of the
Company’s common stock, respectively.
Exercise of warrant
In
January 2017, the Company issued 20,000 shares of the
Company’s common stock upon receiving the notice to exercise
warrant at an exercise price of $3.50 included in Unit A sold in
the May Private Placement, for an aggregate purchase price of
$70,000.
Formation of Cayman Islands Subsidiary
On
December 7, 2016, the Company formed its wholly-owned subsidiary in
Cayman Islands, “Q BioMed Cayman SEZC”.
F-18
Q BIOMED INC.
Condensed Consolidated Balance Sheets as of August 31, 2017 and
November 30, 2016
|
|
|
|
|
|
ASSETS
|
|
|
Current
assets:
|
|
|
Cash
|
$
2,499,169
|
$
1,468,724
|
Prepaid
expenses
|
5,000
|
-
|
Total current
assets
|
2,504,169
|
1,468,724
|
Total
Assets
|
$
2,504,169
|
$
1,468,724
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY DEFICIT
|
|
|
Current
liabilities:
|
|
|
Accounts payable
and accrued expenses
|
$
382,055
|
$
497,936
|
Accrued expenses -
related party
|
17,500
|
70,502
|
Accrued interest
payable
|
33,299
|
48,813
|
Convertible notes
payable (See Note 5)
|
1,922,474
|
2,394,849
|
Note
payable
|
138,856
|
100,152
|
Warrant
liability
|
-
|
168,070
|
Total current
liabilities
|
2,494,184
|
3,280,322
|
|
|
|
Long-term
liabilities:
|
|
|
Convertible notes
payable (See Note 5)
|
-
|
231,517
|
Total long term
liabilities
|
-
|
231,517
|
Total
Liabilities
|
2,494,184
|
3,511,839
|
|
|
|
Commitments
and Contingencies (Note 6)
|
|
|
|
|
|
Stockholders'
Equity Deficit:
|
|
|
Preferred stock,
$0.001 par value; 100,000,000 shares authorized; no shares issued
and outstanding as of August 31, 2017 and November 30,
2016
|
-
|
-
|
Common stock,
$0.001 par value; 250,000,000 shares authorized; 11,496,169 and
9,231,560 shares issued and outstanding as of August 31, 2017 and
November 30, 2016, respectively
|
11,496
|
9,231
|
Additional paid-in
capital
|
18,667,736
|
6,249,357
|
Accumulated
deficit
|
(18,669,247
)
|
(8,301,703
)
|
Total
Stockholders' Equity Deficit
|
9,985
|
(2,043,115
)
|
Total
Liabilities and Stockholders' Equity Deficit
|
$
2,504,169
|
$
1,468,724
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements
|
F-19
Q BioMed Inc.
Condensed Consolidated Statements of Operations for
the
Three Months and Nine Months Ended August 31, 2017
(Unaudited)
|
For the three months ended August 31,
|
For the nine months ended August 31,
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
General
and administrative expenses
|
$
3,038,018
|
$
1,150,964
|
$
6,122,565
|
$
3,637,868
|
Research
and development expenses
|
697,966
|
443,222
|
2,296,324
|
663,500
|
Total
operating expenses
|
3,735,984
|
1,594,186
|
8,418,889
|
4,301,368
|
|
|
|
|
|
Other income (expenses):
|
|
|
|
|
Interest
expense
|
(202,160
)
|
(114,847
)
|
(635,267
)
|
(304,596
)
|
Interest
income
|
15
|
-
|
123
|
-
|
Loss
on conversion of debt
|
-
|
(29,032
)
|
(365,373
)
|
(89,210
)
|
Loss
on extinguishment of debt
|
(76,251
)
|
-
|
(76,251
)
|
-
|
Loss
on issuance of convertible notes
|
-
|
(28,000
)
|
-
|
(481,000
)
|
Change
in fair value of embedded conversion option
|
32,983
|
50,000
|
(812,017
)
|
362,000
|
Change
in fair value of warrant liability
|
-
|
-
|
(59,870
)
|
-
|
Total
other expenses
|
(245,413
)
|
(121,879
)
|
(1,948,655
)
|
(512,806
)
|
|
|
|
|
|
Net loss
|
$
(3,981,397
)
|
$
(1,716,065
)
|
$
(10,367,544
)
|
$
(4,814,174
)
|
|
|
|
|
|
Net loss per share - basic and diluted
|
$
(0.37
)
|
$
(0.19
)
|
$
(1.03
)
|
$
(0.55
)
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
10,816,282
|
8,909,414
|
10,074,766
|
8,784,373
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
F-20
Q BIOMED INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
For
the nine months ended August 31,
|
|
|
|
Cash
flows from operating activities:
|
|
|
Net
loss
|
$
(10,367,544
)
|
$
(4,814,174
)
|
Adjustments to
reconcile net loss to net cash used in operating
activities
|
|
|
Issuance of common
stock, warrants and options for services
|
4,181,693
|
3,039,277
|
Issuance of common
stock for acquired in-process research and development
|
487,500
|
-
|
Change in fair
value of embedded conversion option
|
812,017
|
(362,000
)
|
Change in fair
value of warrant liability
|
59,870
|
-
|
Accretion of debt
discount
|
525,864
|
261,672
|
Loss on conversion
of debt
|
365,373
|
89,210
|
Loss on
extinguishment of debt
|
76,251
|
-
|
Loss on issuance of
convertible debt
|
-
|
481,000
|
Changes in
operating assets and liabilities:
|
|
|
Prepaid
expenses
|
(5,000
)
|
(10,000
)
|
Accounts payable
and accrued expenses
|
(115,881
)
|
363,593
|
Accrued expenses -
related party
|
(53,002
)
|
40,000
|
Accrued interest
payable
|
109,404
|
42,925
|
Net
cash used in operating activities
|
(3,923,455
)
|
(868,497
)
|
|
|
|
Cash
flows from financing activities:
|
|
|
Proceeds received
from issuance of convertible notes
|
2,500,000
|
815,000
|
Proceeds received
from exercise of warrants
|
70,000
|
-
|
Proceeds received
for issuance of common stock and warrants , net of offering
costs
|
2,383,900
|
60,075
|
Net
cash provided by financing activities
|
4,953,900
|
875,075
|
|
|
|
Net
increase in cash
|
1,030,445
|
6,578
|
|
|
|
Cash
at beginning of period
|
1,468,724
|
131,408
|
Cash
at end of period
|
$
2,499,169
|
$
137,986
|
|
|
|
Non-cash
financing activities:
|
|
|
Issuance of common
stock upon conversion of convertible notes payable
|
$
3,540,838
|
$
244,897
|
Issuance of common
stock and warrants in exchange for extinguishment of convertible
notes payable
|
$
442,149
|
$
-
|
Issuance of
warrants to settle accounts payable to related party
|
$
-
|
$
30,000
|
Reclassification of
warrant liability to equity
|
$
227,940
|
$
-
|
|
|
|
Cash paid for
interest
|
$
-
|
$
-
|
Cash paid for
income taxes
|
$
-
|
$
-
|
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
F-21
Q BIOMED INC.
Notes to Unaudited Condensed Financial Statements
Note 1 - Organization of the Company and Description of the
Business
Q BioMed Inc. (“Q BioMed” or “the
Company”), incorporated in the State of Nevada on November
22, 2013, is a biomedical acceleration and development company
focused on licensing, acquiring and providing strategic resources
to life sciences and healthcare companies. Q BioMed intends to
mitigate risk by acquiring multiple assets over time and across a
broad spectrum of healthcare related products, companies and
sectors. The Company intends to develop these assets to
provide returns via organic growth, revenue production,
out-licensing, sale or spinoff new public companies.
On December 7, 2016, the Company formed its wholly-owned subsidiary
in Cayman Islands, “Q BioMed Cayman SEZC” (the
“Subsidiary”). The accompanying condensed consolidated
financial statements include the accounts of the Company’s
wholly-owned subsidiary. All intercompany balances and
transactions have been eliminated in consolidation.
Note 2 - Basis of Presentation
The accompanying interim period unaudited condensed consolidated
financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of
America (“U.S. GAAP”) and applicable rules and
regulations of the Securities and Exchange Commission ("SEC")
regarding interim financial reporting. The Condensed Consolidated
Balance Sheet as of August 31, 2017, the Condensed Consolidated
Statements of Operations for the three and nine months ended August
31, 2017 and 2016, and the Condensed Consolidated Statements of
Cash Flows for the nine months ended August 31, 2017 and 2016, are
unaudited, but include all adjustments, consisting only of normal
recurring adjustments, which the Company considers necessary for a
fair presentation of its financial position, operating results and
cash flows for the periods presented. The Condensed Consolidated
Balance Sheet at November 30, 2016 has been derived from audited
financial statements included in the Company's Form 10-K, most
recently filed with the SEC on February 28, 2017. The results for
the three and nine months ended August 31, 2017 and 2016 are not
necessarily indicative of the results expected for the full fiscal
year or any other period.
The accompanying interim period unaudited condensed consolidated
financial statements and related financial information included in
this Quarterly Report on Form 10-Q should be read in conjunction
with the audited financial statements and notes thereto included in
the Company’s Form 10-K.
The Company currently operates in one business segment focusing on
licensing, acquiring and providing strategic resources to life
sciences and healthcare companies. The Company is not organized by
market and is managed and operated as one business. A single
management team reports to the chief operating decision maker, the
Chief Executive Officer, who comprehensively manages the entire
business. The Company does not currently operate any separate lines
of business.
Going Concern
The accompanying condensed consolidated financial statements are
prepared assuming the Company will continue as a going concern,
which contemplates the realization of assets and liquidation of
liabilities in the normal course of business.
The Company is pre-revenue, had approximately $2.5 million in cash
as of August 31, 2017. The ability of the Company to continue
as a going concern depends on the Company obtaining adequate
capital to fund operating losses until it generates adequate cash
flows from operations to fund its operating costs and obligations.
If the Company is unable to obtain adequate capital, it could be
forced to cease operations.
The Company depends upon its ability, and will continue to attempt,
to secure equity and/or debt financing. The Company might not
be successful, and without sufficient financing it would be
unlikely for the Company to continue as a going concern. The
Company cannot be certain that additional funding will be available
on acceptable terms, or at all. Management has determined that
there is substantial doubt about the Company's ability to continue
as a going concern within one year after the condensed consolidated
financial statements are issued.
The accompanying condensed consolidated financial statements do not
include any adjustments relating to the recoverability and
classification of recorded asset amounts, or amounts and
classification of liabilities that might result from this
uncertainty.
F-22
Note 3 – Summary of Significant Accounting
Policies
The Company’s significant accounting policies are disclosed
in the audited financial statements for the year ended November 30,
2016 included in the Company’s Form 10-K. Since the date of
such financial statements, there have been no changes to the
Company’s significant accounting policies.
Fair value of financial instruments
Fair value measurements discussed herein are based upon certain
market assumptions and pertinent information available to
management as of August 31, 2017 and November 30, 2016. The
respective carrying value of cash and accounts payable approximated
their fair values as they are short term in nature.
As of August 31, 2017, the estimated aggregate fair value of
all outstanding convertible notes payable is approximately
$2.3 million. The fair value estimate is based on the estimated
option value of the conversion terms, since the strike price of
each note series is in-the-money at August 31, 2017. The estimated
fair value represents a Level 3 measurement.
Recent accounting pronouncements
In March 2016, the FASB issued ASU No. 2016-06, Derivatives and
Hedging (Topic 815): Contingent Put and Call Options in Debt
Instruments. This new standard simplifies the embedded derivative
analysis for debt instruments containing contingent call or put
options by removing the requirement to assess whether a contingent
event is related to interest rates or credit risks. This new
standard will be effective for the Company on January 1, 2017. The
Company adopted the provisions. Adoption did not have a material
impact on the Company's financial position, results of operations,
or cash flows.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash
Flows (Topic 230): Classification of Certain Cash Receipts and Cash
Payments. This new standard clarifies certain aspects of the
statement of cash flows, including the classification of debt
prepayment or debt extinguishment costs or other debt instruments
with coupon interest rates that are insignificant in relation to
the effective interest rate of the borrowing, contingent
consideration payments made after a business combination, proceeds
from the settlement of insurance claims, proceeds from the
settlement of corporate-owned life insurance policies,
distributions received from equity method investees and beneficial
interests in securitization transactions. This new standard also
clarifies that an entity should determine each separately
identifiable source of use within the cash receipts and payments on
the basis of the nature of the underlying cash flows. In situations
in which cash receipts and payments have aspects of more than one
class of cash flows and cannot be separated by source or use, the
appropriate classification should depend on the activity that is
likely to be the predominant source or use of cash flows for the
item. This new standard will be effective for the Company on
January 1, 2018. The Company is currently evaluating the impact of
the new standard on its condensed consolidated financial
statements.
In January 2017, the FASB issued an ASU 2017-01, Business
Combinations (Topic 805) Clarifying the Definition of a Business.
The amendments in this Update is to clarify the definition of a
business with the objective of adding guidance to assist entities
with evaluating whether transactions should be accounted for as
acquisitions (or disposals) of assets or businesses. The definition
of a business affects many areas of accounting including
acquisitions, disposals, goodwill, and consolidation. The guidance
is effective for annual periods beginning after December 15, 2017,
including interim periods within those periods. The Update may be
adopted early. The Company adopted the provisions of ASC 2017-01
effective December 1, 2016. Adoption did not have a material impact
on the Company's financial position, results of operations, or cash
flows.
In July 2017, the FASB issued ASU 2017-11, Earnings Per Share
(Topic 260), Distinguishing Liabilities from Equity (Topic 480),
Derivatives and Hedging (Topic 815). The amendments in Part I of
this Update change the classification analysis of certain
equity-linked financial instruments (or embedded features) with
down round features. When determining whether certain financial
instruments should be classified as liabilities or equity
instruments, a down round feature no longer precludes equity
classification when assessing whether the instrument is indexed to
an entity’s own stock. The amendments also clarify existing
disclosure requirements for equity-classified instruments. As a
result, a freestanding equity-linked financial instrument (or
embedded conversion option) no longer would be accounted for as a
derivative liability at fair value as a result of the existence of
a down round feature. For freestanding equity classified financial
instruments, the amendments require entities that present earnings
per share (EPS) in accordance with Topic 260 to recognize the
effect of the down round feature when it is triggered. That effect
is treated as a dividend and as a reduction of income available to
common shareholders in basic EPS. Convertible instruments with
embedded conversion options that have down round features are now
subject to the specialized guidance for contingent beneficial
conversion features (in Subtopic 470-20, Debt—Debt with
Conversion and Other Options), including related EPS guidance (in
Topic 260). The amendments in Part II of this Update recharacterize
the indefinite deferral of certain provisions of Topic 480 that now
are presented as pending content in the Codification, to a scope
exception. Those amendments do not have an accounting effect. For
public business entities, the amendments in Part I of this Update
are effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2018. Early adoption is
permitted for all entities, including adoption in an interim
period. If an entity early adopts the amendments in an interim
period, any adjustments should be reflected as of the beginning of
the fiscal year that includes that interim period. Management is
currently assessing the impact the adoption of ASU 2017-11 will
have on the Company’s Condensed Consolidated Financial
Statements.
F-23
Note 4 – Loss per share
Basic net loss per share was calculated by dividing net loss by the
weighted-average common shares outstanding during the
period. Diluted net loss per share was calculated by
dividing net loss by the weighted-average common shares outstanding
during the period using the treasury stock method or the two-class
method, whichever is more dilutive. The table below
summarizes potentially dilutive securities that were not
considered in the computation of diluted net loss per share because
they would be anti-dilutive.
Potentially
dilutive securities
|
|
|
Warrants (Note
10)
|
3,033,995
|
976,500
|
Convertible debt
(Note 5)
|
567,407
|
506,757
|
Note 5 – Convertible Notes
|
|
|
Series
A Notes:
|
|
|
Principal value of
10%, convertible at $2.00 at November 30, 2016.
|
$
-
|
$
12,500
|
Fair value of
bifurcated embedded conversion option of Series A
Notes
|
-
|
12,000
|
Debt
discount
|
-
|
(2,194
)
|
Carrying value of
Series A Notes
|
-
|
22,306
|
|
|
|
Series
B Notes:
|
|
|
Principal value of
10%, convertible at $2.00 at November 30, 2016.
|
-
|
55,000
|
Fair value of
bifurcated embedded conversion option of Series B
Notes
|
-
|
55,000
|
Debt
discount
|
-
|
(19,229
)
|
Carrying value of
Series B Notes
|
-
|
90,771
|
|
|
|
Series
C Notes:
|
|
|
Principal value of
10%, convertible at $1.55 at November 30, 2016.
|
-
|
576,383
|
Fair value of
bifurcated embedded conversion option of Series C
Notes
|
-
|
838,000
|
Debt
discount
|
-
|
(250,969
)
|
Carrying value of
Series C Notes
|
-
|
1,163,414
|
|
|
|
Series
D Notes:
|
|
|
Principal value of
10%, convertible at $1.85 at November 30, 2016.
|
-
|
160,000
|
Debt
discount
|
-
|
(140,961
)
|
Carrying value of
Series D Notes
|
-
|
19,039
|
|
|
|
Series
E Notes:
|
|
|
Principal value of
10%, convertible at $2.50 at August 31, 2017 and November 30,
2016.
|
30,000
|
180,000
|
Debt
discount
|
(4,062
)
|
(124,164
)
|
Carrying value of
Series E Notes
|
25,938
|
55,836
|
|
|
|
Convertible
Debenture:
|
|
|
Principal value of
5%, convertible at $3.60 and $2.98 at August 31, 2017 and November
30, 2016, respectively.
|
2,000,000
|
1,500,000
|
Fair value of
bifurcated contingent put option of Secured Convertible
Debenture
|
2,000
|
72,000
|
Debt
discount
|
(105,464
)
|
(297,000
)
|
Carrying value of
Secured Convertible Debenture Note
|
1,896,536
|
1,275,000
|
Total
short-term carrying value of convertible notes
|
$
1,922,474
|
$
2,394,849
|
Total
long-term carrying value of convertible notes
|
$
-
|
$
231,517
|
|
|
|
F-24
Series A Notes
The Series A convertible notes payable (the “Series A
Notes”) are due and payable 18 months after issuance and bear
interest at 10% per annum. At the election of the
holder, outstanding principal and accrued but unpaid interest under
the Series A Notes is convertible into shares of the
Company’s common stock at any time prior to maturity at a
conversion price per share equal to the higher of:
(i) forty percent (40%) discount to the average closing price
for the ten (10) consecutive trading days immediately preceding the
notice of conversion or (ii) $1.25 per share. At maturity,
any remaining outstanding principal and accrued but unpaid
interest outstanding under the Series A Notes
will automatically convert into shares of the Company’s
common stock under the same terms. As of August 31, 2017, the
Company has no Series A Notes outstanding.
Series B Notes
The Series B convertible notes payable (the “Series B
Notes”) have the same terms as the Series A Notes. As of
August 31, 2017, the Company has no Series B Notes
outstanding.
Series C Notes
The Series C convertible notes payable (the “Series C
Notes”) are due and payable 18 months after issuance and bear
interest at 10% per annum. At the election of the
holder, outstanding principal and accrued but unpaid interest under
the Series C Notes is convertible into shares of the
Company’s common stock at a conversion price per share equal
to the lesser of a 40% discount to the average closing price for
the 10 consecutive trading days immediately preceding the notice of
conversion or $1.55, but in no event shall the conversion price be
lower than $1.25 per share. If the average VWAP, as
defined in the agreement, for the ten trading days immediately
preceding the maturity date $5.00 or more, any
remaining outstanding principal and accrued but unpaid
interest outstanding under the Series C Notes
will automatically convert into shares of the Company’s
common stock under the same terms.
The terms of the Series C Notes also provided that up until
maturity date, the Company cannot enter into any additional, or
modify any existing, agreements with any existing or future
investors that are more favorable to such investor in relation to
the Series D Note holders, unless, the Series C Note holders are
provided with such rights and benefits (“Most Favored Nations
Clause”). As of August 31, 2017, the Company has no Series C
Notes outstanding.
Series D Notes
The Series D convertible notes payable (the “Series D
Notes”) are due and payable 18 months after issuance and bear
interest at 10% per annum. At the election of the
holder, outstanding principal and accrued but unpaid interest under
the Series D Notes is convertible into shares of the
Company’s common stock at a fixed conversion price per share
equal to $1.85. The Series D Notes automatically convert
upon maturity at $1.85 per share if the ten trading days VWAP
immediately preceding maturity is $5.00 or
greater. Additionally, if the Company’s common
shares are up-listed to a senior exchange such as the AMEX or
NASDAQ, all monies due under the Series D Notes will automatically
convert at $1.85 per share.
The terms of the Series D Notes also included the Most Favored
Nations Clause. The Most Favored Nations Clause was viewed as
providing the Series D Note holder with down-round price
protection. As such, the embedded conversion option in the
Series D Note was separately measured at fair value upon issuance,
with subsequent changes in fair value recognized in current
earnings.
On September 30, 2016, the Company amended the Most Favored Nations
Clause of the Series D Notes to restrict the Company from taking
dilutive action without the Series D note holders’ consent,
effectively removing the down-round price protection.
At the amendment date, the conversion price of the amended Series D
Notes was below the quoted market price of the Company’s
common stock. As such, the Company recognized a beneficial
conversion feature equal to the intrinsic value of the conversion
price on the amendment date, resulting in a discount to the amended
Series D Notes of $160,000 with a corresponding credit to
additional paid-in capital. The resulting debt discount is
presented net of the related convertible note balance in the
accompanying Condensed Consolidated Balance Sheets and is amortized
to interest expense over the note’s term. As of August 31,
2017, the Company has no Series D Notes outstanding.
Series E Notes
The Series E convertible notes payable (the “Series E
Notes”) are due and payable 18 months after issuance and bear
interest at 10% per annum. At the election of the
holder, outstanding principal and accrued but unpaid interest under
the Series E Notes is convertible into shares of the
Company’s common stock at a fixed conversion price per share
equal to $2.50. The Series E Notes automatically convert
upon maturity at $2.50 per share if the ten trading days VWAP
immediately preceding maturity is $5.00 or
greater. Additionally, if the Company’s common
shares are up-listed to a senior exchange such as the AMEX or
NASDAQ, all monies due under the Series E Notes will automatically
convert at $2.50 per share.
At the issuance date, the conversion price of the Series E Notes
was below the quoted market price of the Company’s common
stock. As such, the Company recognized a beneficial conversion
feature equal to the intrinsic value of the conversion price on the
amendment date, resulting in a discount to the Series E Notes of
approximately $141,000 with a corresponding credit to additional
paid-in capital. The resulting debt discount is presented net of
the related convertible note balance in the accompanying Condensed
Consolidated Balance Sheets and is amortized to interest expense
over the note’s term.
F-25
Secured Convertible Debentures
On November 29, 2016, the Company entered into a securities
purchase agreement with an accredited investor to place Convertible
Debentures (the “Debentures”), which was later amended
on March 7, 2017, with a one-year term in the aggregate principal
amount of up to $4,000,000. On October 3, 2017, the Company amended
the Debentures to extend the maturity date from November 30, 2017
to November 30, 2018 (see Note 11). The initial closing
occurred on November 30, 2016 when the Company issued a Debenture
for $1,500,000 (“Initial Debenture Note”). The
second closing of $1 million was on March 10, 2017
(“Second Debenture Note”), when the registration
statement to register for resale all of the shares of common stock
into which the Debentures may be converted (the “Conversion
Shares”) was filed with the SEC. The remaining balance
of $1.5 million was received on April 6, 2017 (“Third
Debenture Note”), the date the registration statement was
declared effective by the SEC. The Debentures bear interest
at the rate of 5% per annum. In addition, the Company must
pay to an affiliate of the holder a fee equal to 5% of the amount
of the Debenture at each closing.
The Debenture may be converted at any time on or prior to maturity
at the lower of $4.00 or 93% of the average of the four lowest
daily VWAP of the Company’s common stock during the ten
consecutive trading days immediately preceding the conversion date,
provided that as long as the Company is not in default under the
Debenture, the conversion price may never be less than $2.00.
The Company may not convert any portion of the Debenture if such
conversion would result in the holder beneficially owning more than
4.99% of the Company’s then issued common stock, provided
that such limitation may be waived by the holder.
Any time after the six-month anniversary of the issuance of the
Debenture, if the daily VWAP of the Company’s common stock is
less than $2.00 for a period of twenty consecutive trading days
(the “Triggering Date”) and only for so long as such
conditions exist after a Triggering Date, the Company shall make
monthly payments beginning on the last calendar day of the month
when the Triggering Date occurred. Each monthly payment shall
be in an amount equal to the sum of (i) the principal amount
outstanding as of the Triggering Date divided by the number of such
monthly payments until maturity, (ii) a redemption premium of 20%
in respect of such principal amount being paid (up to a maximum of
$300,000 in redemption premium) and (iii) accrued and unpaid
interest as of each payment date. The Company may, no more
than twice, obtain a thirty-day deferral of a monthly payment due
as a result of a Triggering Date through the payment of a deferral
fee in the amount equal to 10% of the total amount of such monthly
payment. Each deferral payment may be paid by the issuance of
such number of shares as is equal to the applicable deferral
payment divided by a price per share equal to 93% of the average of
the four lowest daily VWAP of the Company’s common stock
during the ten consecutive Trading Days immediately preceding the
due date in respect of such monthly payment begin deferred,
provided that such shares issued will be immediately freely
tradable shares in the hands of the holder.
The Company also entered into a Security Agreement to secure
payment and performance of its obligations under the Debenture and
related agreements pursuant to which the Company granted the
investor a security interest in all of its assets. The
security interest granted pursuant to the Security Agreement
terminated on the effectiveness of the Registration Statement on
April 6, 2017.
Upon issuance of the Second and Third Debenture Notes, the Company
recognized a debt discount of $731,000, resulting from the
recognition of a beneficial conversion feature of $645,000 and a
bifurcated embedded derivative of $86,000. The beneficial
conversion feature was recognized as the intrinsic value of
the conversion option on issuance of the Debentures.
The monthly payment provision within the Debentures is a
contingent put option that is required to be separately measured at
fair value, with subsequent changes in fair value recognized in the
Condensed Consolidated Statement of Operations during the nine
months ended August 31, 2017. The Company estimated the fair value
of the monthly payment provision, as of August 31, 2017 and
November 30, 2016, using probability analysis of
the occurrence of a Triggering Date applied to the discounted
maximum redemption premium for any given payment. The probability
analysis utilized the following inputs:
Volatility
|
|
|
101.58%
- 146.26
|
%
|
Risk-free
rate
|
|
|
0.53% -
1.08
|
%
|
The maximum redemption was discounted at 20%, the calculated
effective rate of the Debenture before measurement of the
contingent put option. The fair value estimate is a Level 3
measurement.
F-26
Embedded Conversion Options
The embedded conversion feature is separately measured at fair
value, with changes in fair value recognized in current
operations. Management used a binomial valuation
model, with fourteen steps of the binomial tree, to estimate the
fair value of the embedded conversion option at issuance of the
Series A, B, C and D Notes with the following key
inputs:
|
|
|
|
|
Embedded derivatives at inception and upon conversion
|
|
|
|
|
|
For the nine months ended August 31,
|
|
|
2017
|
|
2016
|
|
Stock
price
|
|
$
|
4.93 -
$7.05
|
|
|
$
|
2.60 -
$3.26
|
|
Terms
(years)
|
|
|
0.11 -
0.85
|
|
|
|
1.5
|
|
Volatility
|
|
|
144.26%
- 157.35
|
%
|
|
|
116.77
|
%
|
Risk-free
rate
|
|
|
0.53% -
0.76
|
%
|
|
|
0.51% -
0.76
|
%
|
Dividend
yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded derivatives at period end
|
|
|
|
|
|
|
|
|
|
August 31, 2017
|
|
November 30, 2016
|
|
Stock
price
|
|
|
-
|
|
|
$
|
3.43
|
|
Term
(years)
|
|
|
-
|
|
|
|
0.25 -
1.05
|
|
Volatility
|
|
|
-
|
|
|
|
156.74%
- 163.49
|
%
|
Risk-free
rate
|
|
|
-
|
|
|
|
0.48% -
0.80
|
%
|
Dividend
yield
|
|
|
-
|
|
|
|
0.00
|
%
|
During the three months ended August 31, 2017 and 2016, the Company
recognized interest expense of approximately $171,000 and $97,000,
respectively, resulting from amortization of the debt discount for
the outstanding convertible notes. During the nine months
ended August 31, 2017 and 2016, the Company recognized interest
expense of approximately $526,000 and $262,000, respectively,
resulting from amortization of the debt discount for the
outstanding convertible notes.
As of August 31, 2017, the embedded conversion options have an
aggregate fair value of $2,000 and are presented on a combined
basis with the related loan host in the Company’s Condensed
Consolidated Balance Sheets. The table below presents
changes in fair value for the embedded conversion options, which is
a Level 3 fair value measurement:
Rollforward of Level 3 Fair Value Measurement for the Nine Months
Ended August 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 30, 2016
|
|
Issuance
|
|
Net unrealized gain/(loss)
|
|
Conversion
|
|
Balance at August 31, 2017
|
|
|
$
|
977,000
|
|
|
|
86,000
|
|
|
|
812,017
|
|
|
|
(1,873,017
|
)
|
|
$
|
2,000
|
|
Conversions of debt
The following conversions of the convertible notes occurred during
the nine months ended August 31, 2017:
|
|
|
Series A
conversions
|
12,500
|
5,936
|
Series B
conversions
|
55,000
|
27,995
|
Series C
conversions
|
576,383
|
407,484
|
Series D
conversions
|
160,000
|
91,782
|
Series E
conversions
|
150,000
|
63,255
|
Secured Debenture
conversions
|
2,000,000
|
461,203
|
Total
|
$
2,953,883
|
1,057,655
|
|
|
|
As the embedded conversion option in each note series had been
separately measured at fair value, the conversion of each note was
recognized as an extinguishment of debt. The Company
recognized a loss on conversion of debt of approximately $365,000
as the difference between the fair value of common stock issued to
the holders of approximately $2.7 million and the aggregate net
carrying value of the convertible notes, including the bifurcated
conversion options, of approximately $2.3 million.
F-27
Extinguishment of debt
On August 1, 2017, the holder of the Debentures retired an
aggregate of $250,000 each in principal of the Second and Third
Debenture Notes along with its accrued interest, for a total amount
of approximately $0.5 million, to reinvest and purchase an
aggregate of 162,000 Units in the August Private Placement (see
Note 9). As the embedded conversion option in the Debentures
had been separately measured at fair value, the cancellation of
debt was recognized as an extinguishment of debt. The Company
recognized a loss on extinguishment of debt of approximately
$76,000 as the difference between the fair value of Units issued to
the holders of approximately $0.5 million and the aggregate net
carrying value of the convertible notes, including the bifurcated
conversion options, of approximately $442,000.
Events of default
The Company will be in default of the Series E Notes, and all
amounts outstanding will become immediately due and payable upon:
(i) maturity, (ii) any bankruptcy, insolvency, reorganization,
cessation of operation, or liquidation events, (iii) if any money
judgment, writ or similar process filed against the Company for
more than $150,000 remains unvacated, unbonded or unstayed for a
period of twenty (20) days, (iv) the Company fails to maintain the
listing of the common stock on at least one of the OTC markets or
the equivalent replacement exchange, (v) the Company’s
failure to maintain any material intellectual property rights,
personal, real property or other assets that are necessary to
conduct its business, (vi) the restatement of any financial
statements filed with the U.S. Securities and Exchange Commission
(“SEC”) for any period from two years prior to the
notes issuance date and until the notes are no longer outstanding,
if the restatement would have constituted a material adverse effect
of the rights of the holders of the notes, (vii) the Company
effectuates a reverse stock split of its common stock without
twenty (20) days prior written notice to the notes’ holders,
(viii) in the event that the Company replaces its transfer agent
but fails to provide, prior to the effective date, a fully executed
irrevocable transfer agent instructions signed by the successor
transfer agent and the Company, (ix) in the event that
the Company depletes the share reserve and fails to increase the
number of shares within three (3) business days, (x) if the Company
fails to remain current in its filings with the SEC for more than
30 days after the filing deadline, (xi) after 12 months following
the date the Company no longer deems itself a shell company as
reflected in a ’34 Act filing, the Lenders are unable to
convert the notes into free trading shares, and (xii) upon
fundamental change of management.
The Company is currently not in default for any convertible notes
issued.
Note 6 – Note Payable
As of August 31, 2017 and November 30, 2017, the Company had an
outstanding promissory note of $150,000 (“OID
Note”). The OID Note does not pay interest and matures
on November 3, 2017.
At the issuance date, the $150,000 OID Note was issued together
with 15,000 restricted shares of the Company’s common stock
for cash proceeds of $150,000. As such, the Company recognized a
beneficial conversion feature, resulting in a discount to the OID
Note of approximately $52,000 with a corresponding credit to
additional paid-in capital. The resulting debt discount is
presented net of the related convertible note balance in the
accompanying Condensed Consolidated Balance Sheets and is amortized
to interest expense over the note’s term.
Note 7 – Commitments and Contingencies
Lease Agreement
In December 2016, the Subsidiary entered into a lease agreement for
its office space located in Cayman Islands for $30,000 per
annum. The initial term of the agreement ends in December
2019 and can be renewed for another three years.
Rent expenses was classified within general and administrative
expenses and was approximately $7,500 and $18,000 for the three and
nine months ended August 31, 2017.
F-28
License Agreement
Mannin
On October 29, 2015, the Company entered into a Patent and
Technology License and Purchase Option Agreement (“Exclusive
License”) with a vendor whereby the Company was granted a
worldwide, exclusive, license on, and option to, acquire certain
intellectual property (“Mannin IP”) which initially
focused on developing a first-in-class eye drop treatment for
glaucoma within the four-year term of the Exclusive
License.
During the three and nine months ended August 31, 2017, the Company
incurred approximately $525,000 and $1.4 million, respectively, in
research and development expenses to fund the costs of development
of the eye drop treatment for glaucoma pursuant to the Exclusive
License. Through August 31, 2017, the Company had funded an
aggregate of $2.15 million to Mannin under the Exclusive
License.
Bio-Nucleonics
On September 6, 2016, the Company entered into the Patent and
Technology License and Purchase Option Agreement (the “BNI
Exclusive License”) with Bio-Nucleonics Inc.
(“BNI”) whereby the Company was granted a worldwide,
exclusive, perpetual, license on, and option to, acquire certain
BNI intellectual property (“BNI IP”) within the
three-year term of the BNI Exclusive License.
During the three and nine months ended August 31, 2017, the Company
incurred approximately $144,000 and $352,500, respectively, in
research and development expenses pursuant to the BNI Exclusive
License. As of August 31, 2017, the Company had paid
approximately $351,700 to BNI out of the $850,000 cash funding
requirement.
Asdera
On April 21, 2017, the Company entered into a License Agreement on
Patent & Know-How Technology (“Asdera License”)
with Asdera LLC (“Asdera”) whereby the Company was
granted a worldwide, exclusive, license on certain Asdera
intellectual property (“Asdera IP”). The initial cost
to acquire the Asdera License is $50,000 and the issuance of
125,000 shares of the Company’s common stock, with a fair
value of $487,500, of which the Company had fully paid and issued
as of August 31, 2017, and recorded in research and development
expenses in the accompanying Condensed Consolidated Statements of
Operations. In addition to royalties based upon net sales of the
product candidate, if any, the Company is required to make certain
additional payments upon the following milestones:
●
the
filing of an investigational new drug application (the
“IND”) with the US Food and Drug Administration
(“FDA”);
|
●
successful interim results of Phase II/III clinical trial of the
product candidate;
|
●
FDA
acceptance of a new drug application;
|
●
FDA approval of the product candidate; and
|
●
achieving certain worldwide net sales.
|
Subject to the terms of the Agreement, the Company will be in
control of the development and commercialization of the product
candidate and are responsible for the costs of such development and
commercialization. The Company has undertaken a good-faith
commitment to (i) initiate a Phase II/III clinical trial at the
earlier of the two-year anniversary of the agreement or one year
from the FDA’s approval of the IND and (ii) to make the first
commercial sale by the fifth-anniversary of the agreement.
Failure to show a good-faith effort to meet those goals would mean
that the Asdera IP would revert to Asdera. Upon such
reversion, Asdera would be obligated to pay the Company royalties
on any sales of products derived from the Asdera IP until such time
that Asdera has paid the Company twice the sum that the Company had
provided Asdera prior to the reversion.
OMRF
OMRF License Agreement
On June 15, 2017, the Company entered into a Technology License
Agreement (“OMRF License Agreement”) with the Rajiv
Gandhi Centre for Biotechnology, an autonomous research institute
under the Government of India (“RGCB”), and the
Oklahoma Medical Research Foundation (“OMRF” and
together with RGCB, the “Licensors”), whereby the
Licensors granted the Company a worldwide, exclusive, license on
intellectual property related to Uttroside-B (the
“Uttroside-B IP”). Uttroside-B is a chemical
compound derived from the plant
Solanum nigrum Linn,
also known as Black Nightshade or Makoi. The Company seeks to
use the Uttroside-B IP to create a
chemotherapeutic agent against liver
cancer.
F-29
The initial cost to acquire the OMRF License Agreement is $10,000,
which will be payable upon reaching certain agreed
conditions. The Company is expecting to pay this initial cost
in the next quarter. In addition to royalties based upon net sales
of the product candidate, if any, the Company is required to make
additional payments upon the following milestones:
●
the
completion of certain preclinical studies (the “Pre-Clinical
Trials”);
|
●
the
filing of an investigational new drug application (the
“IND”) with the US Food and Drug Administration
(“FDA”) or the filing of the equivalent of an IND with
the foreign equivalent of the FDA;
|
●
successful completion of each of Phase I, Phase II and Phase III
clinical trials;
|
●
FDA
approval of the product candidate;
|
●
approval by the foreign equivalent of the FDA of the product
candidate;
|
●
achieving certain worldwide net sales; and
|
●
a
change of control of QBIO.
|
Subject to the terms of the Agreement, the Company will be in
control of the development and commercialization of the product
candidate and are responsible for the costs of such development and
commercialization. The Company has undertaken a good-faith
commitment to (i) fund the Pre-Clinical Trials and (ii) to initiate
a Phase II clinical trial within six years of the date of the
Agreement. Failure to show a good-faith effort to meet those
goals would mean that the RGCB License Agreement would revert to
the Licensors.
Milestones
No milestones have been reached to date on these license
agreements.
Note 8 - Related Party Transactions
The Company entered into consulting agreements with certain
management personnel and stockholders for consulting and legal
services. Consulting and legal expenses associated with
related parties were incurred as follow, and were included
within general and administrative expenses in the accompanying
Condensed Consolidated Statements of Operations.
|
For
the three months ended August 31,
|
For
the nine months ended August 31,
|
|
|
|
|
|
Related
parties
|
$
102,500
|
$
104,632
|
$
322,500
|
$
207,875
|
Note 9 - Stockholders’ Equity Deficit
As of August 31, 2017, the Company is authorized to issue up to
250,000,000 shares of its $0.001 par value common stock and up to
100,000,000 shares of its $0.001 par value preferred
stock.
Private Placement
On August 1, 2017, the Company closed its private placement
(“August Private Placement”), selling an aggregate of
953,249 units (“Units”) at a price of $3.20 per Unit,
for an aggregate cash proceeds of approximately $2.4 million, net
of offering costs, and the retirement of $0.5 million in principal
and accrued interest of the
Debentures.
A Unit consists of one
common stock and one warrant exercisable for five years from the
date of issuance into a share of the Company’s common stock
at an exercise price of $4.50.
In connection with the August Private Placement, the Company issued
an aggregate of 39,246 warrants to the placement agents as
consideration. These warrants have the same terms with the
warrants issued in the August Private Placement.
In January 2017, the Company issued 20,000 shares of the
Company’s common stock upon receiving the notice to exercise
the warrants at an exercise price of $3.50 included in Unit A sold
in the private placement held in May 2017, for an aggregate
purchase price of $70,000.
Issuance of Shares for Services
The Company entered into customary consulting arrangements with
various counterparties to provide consulting services, business
development and investor relations
services.
During the
nine months ended August 31, 2017, the Company issued an aggregate
of 108,705 shares of the Company common stock to various vendors
for investor relation and introductory services, valued at
approximately $0.5 million based on the estimated fair market value
of the stock on the date of grant and was recognized within general
and administrative expenses in the accompanying Condensed
Consolidated Statements of Operations for the three and nine months
ended August 31, 2017.
Note 10 – Warrants and Options
Warrant Liability
As of November 30, 2016, the Company had outstanding warrants
issued as part of the private placement units initially classified
as liabilities because the exercise price may be adjusted downward,
in certain circumstances, for a ninety-day period following their
initial issuance. Warrant liabilities are measured at fair
value, with changes in fair value recognized each reporting period
in the Statement of Operations. The warrants ceased being
liability classified at the conclusion of the ninetieth day from
issuance. As a result, an aggregate of approximately $228,000
in warrant liability was reclassified to equity during the nine
months ended August 31, 2017. All other warrants are equity
classified.
The warrant liability is a Level 3 fair value measurement,
recognized on a recurring basis. Both observable and unobservable
inputs may be used to determine the fair value of positions that
the Company has classified within the Level 3 category. As a
result, the unrealized gains and losses for liabilities within the
Level 3 category may include changes in fair value that were
attributable to both observable inputs (e.g., changes in market
interest rates) and unobservable inputs (e.g., probabilities of the
occurrence of an early termination event).
Fair
value of warrant liability at November 30, 2016
|
$
168,070
|
Issuance of new
warrant liability
|
-
|
Change in fair
value of warrant liability
|
59,870
|
Reclassification of
warrant liability to equity
|
(227,940
)
|
Fair
value of warrant liability at August 31, 2017
|
$
-
|
Summary of warrants
The following represents a summary of all outstanding warrants to
purchase the Company’s common stock, including warrants
issued to vendors for services and warrants issued as part of the
units sold in the private placements, at August 31, 2017 and
changes during the period then ended:
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Remaining Contractual
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
|
Intrinsic Value
|
|
|
Life (years)
|
|
Outstanding at
November 30, 2016
|
|
|
1,047,500
|
|
|
$
|
2.54
|
|
|
$
|
1,158,000
|
|
|
|
4.10
|
|
Issued
|
|
|
2,006,495
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(20,000
|
)
|
|
|
3.50
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at
August 31, 2017
|
|
|
3,033,995
|
|
|
$
|
3.66
|
|
|
$
|
1,659,285
|
|
|
|
4.29
|
|
Exercisable at
August 31, 2017
|
|
|
2,245,995
|
|
|
$
|
3.54
|
|
|
$
|
1,617,235
|
|
|
|
4.19
|
|
Fair value of all outstanding warrants was calculated with the
following key inputs:
|
|
For the nine months ended August 31, 2017
|
|
Stock
price
|
|
$
|
3.50 -
$7.87
|
|
Term
(years)
|
|
|
1.75
– 5.0
|
|
Volatility
|
|
|
129.81%
- 142.93
|
%
|
Risk-free
rate
|
|
|
1.17% -
1.74
|
%
|
Dividend
yield
|
|
|
0.00
|
%
|
F-30
Options issued for services
The following represents a summary of all outstanding options to
purchase the Company’s common stock at August 31, 2017 and
changes during the period then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
Weighted Average
|
|
|
|
Remaining Contractual
|
|
|
Options
|
|
Exercise Price
|
|
Intrinsic Value
|
|
Life (years)
|
|
Outstanding at
November 30, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Issued
|
|
|
450,000
|
|
|
|
4.00
|
|
|
|
26,100
|
|
|
|
4.76
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at
August 31, 2017
|
|
|
450,000
|
|
|
$
|
4.00
|
|
|
$
|
26,100
|
|
|
|
4.76
|
|
Exercisable at
August 31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based Compensation
The Company recognized general and administrative expenses of
approximately $4.2 million and $3.0 million, as a result of the
shares, outstanding warrants and options issued to consultants and
employees during the nine months ended August 31, 2017 and 2016,
respectively.
As of August 31, 2017, the estimated unrecognized stock-based
compensation associated with these agreements is approximately $3.5
million and will be recognized over the next 0.32
year.
Note 11 – Subsequent Events
Research Agreement #1
On September 1, 2017, the Company entered into the research
agreement (“Research Agreement #1) with OMRF to have OMRF
perform the research program for a maximum period of six
months. The Company agreed to pay OMRF a total cost of
approximately $100,000 for the performance of the research
program.
Conversion of debt
On October 16, 2017, the Company received the conversion notice
from the holder of the Debentures to convert an aggregate of
$500,000 in principal of the Second Debenture Note, along with its
accrued interest, into an aggregate of 142,662 shares of the
Company’s common stock. The Company has not issued
these shares yet.
Issuance of securities
On October 3, 2017, the Company amended the Debentures to extend
the maturity date from November 30, 2017 to November 30, 2018, and
issued 25,641 restricted shares of its common stock to the holder
of the Debentures as consideration.
In September 2017, the Company issued warrants to purchase up to
50,000 shares of the Company’s common stock to two vendors
for services. The warrants are exercisable for three years at a per
share price of $4.00.
Subsequent to August 31, 2017, the Company issued an aggregate of
31,000 shares of its common stock to its vendors for
services.
On November 2, 2017, the Company issued 46,875 shares of its common
stock in full settlement of $150,000 in principal and interest due
to CMGT as a result of promissory notes issued by it in November
2016.
On November 22, 2017, the Company issued 166,592 shares of its
common stock to Yorkville Advisors in exchange for conversion of
promissory notes totaling $551,771.
On November 29, 2017, the Company issued 270,270 shares of its
common stock to Yorkville Advisors in exchange for conversion of
promissory notes totaling $1,000,000.
F-31
2,250,000 Shares of Common Stock
2,250,000 Warrants to Purchase 2,250,000 Shares of Common
Stock
Lead Placement Agent
Roth Capital Partners
|
Co-Lead Placement Agent
Brookline Capital Markets
|
, 2018
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13.
|
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
|
The
table below itemizes the expenses payable by the registrant in
connection with the registration and issuance of the securities
being registered hereunder, other than placement agents' fees. All
amounts except the Securities and Exchange Commission registration
fee are estimated.
Securities and
Exchange Commission Registration Fee
|
$
3,085
|
Legal Fees and
Expenses
|
$
25,000
|
Placement
agents’ Fees and Expenses
|
$
50,000
|
Accountants’
Fees and Expenses
|
$
50,000
|
Total
|
$
128,085
|
ITEM 14.
|
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
|
Our
officers and directors are indemnified under Nevada law. Our
Amended and Restated Articles of Incorporation and our Bylaws are
silent as to director and officer indemnification other than to
allow such indemnification to the greatest extent permitted by
Nevada law.
Nevada
Revised Statute. The registrant is a Nevada
corporation.
Section
78.138 of the Nevada Revised Statutes provides that a director or
officer will not be personally liable to the corporation and its
stockholders unless it is proven that (i) the director's or
officer's acts or omissions constituted a breach of his fiduciary
duties, and (ii) such breach involved intentional misconduct, fraud
or a knowing violation of the law. The provisions of the Nevada
Revised Statutes with respect to limiting personal liability for
directors and officers are self-executing and, to the extent the
provisions of our Amended and Restated Articles of Incorporation
and By-laws would be deemed to be inconsistent therewith, the
provisions of the Nevada Revised Statutes will
control.
Section 78.7502
of the Nevada Revised Statutes permits a corporation to indemnify a
present or former director, officer, employee or agent of the
corporation, or of another entity or enterprise for which such
person is or was serving in such capacity at the request of the
corporation, who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or
proceeding, except an action by or in the right of the corporation,
against expenses, including attorneys’ fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred in
connection therewith, arising by reason of such person’s
service in such capacity if such person (i) is not liable
pursuant to Section 78.138 of the Nevada Revised Statutes, or
(ii) acted in good faith and in a manner which he or she
reasonably believed to be in or not opposed to the best interests
of the corporation and, with respect to a criminal action or
proceeding, had no reasonable cause to believe his or her conduct
was unlawful. In the case of actions brought by or in the right of
the corporation, however, no indemnification may be made for any
claim, issue or matter as to which such person has been adjudged by
a court of competent jurisdiction, after exhaustion of all appeals
therefrom, to be liable to the corporation or for amounts paid in
settlement to the corporation, unless and only to the extent that
the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that in view of
all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses as the court
deems proper.
Section 78.751
of the Nevada Revised Statutes permits any discretionary
indemnification under Section 78.7502 of the Nevada Revised
Statutes, unless ordered by a court or advanced to a director or
officer by the corporation in accordance with the Nevada Revised
Statutes, to be made by a corporation only as authorized in each
specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the
circumstances. Such determination must be made (1) by the
stockholders, (2) by the board of directors by majority vote
of a quorum consisting of directors who were not parties to the
action, suit or proceeding, (3) if a majority vote of a quorum
consisting of directors who were not parties to the action, suit or
proceeding so orders, by independent legal counsel in a written
opinion, or (4) if a quorum consisting of directors who were
not parties to the action, suit or proceeding cannot be obtained,
by independent legal counsel in a written opinion.
II-1
ITEM 15.
|
SALES OF UNREGISTERED SECURITIES IN PAST THREE
YEARS.
|
On
April 21, 2015, we issued 2,500,000 shares of our common stock to a
director for prepaid services valued at $20,000, pursuant to an
Advisory Agreement. This sale of stock did not involve any
public offering, general advertising or solicitation. At the
time of the issuance, the purchaser had fair access to and was in
possession of all available material information about our
company. Additionally, the purchaser represented his intent
to acquire securities for his own account and not with a view to
further distribute the shares. The shares bear a restrictive
transfer legend.
On June
1, 2015, we elected Mr. William Rosenstadt to our board and
appointed him as Chief Legal Officer. In exchange for such services
for a one-year term, the Company agreed to pay Mr. Rosenstadt
375,000 shares of our common stock. In June 2015, we also engaged
the law firm at which Mr. Rosenstadt is a partner to provide us
with legal services. We are paying for these services for the first
six months through the issuance to such law firm of 500,000 shares
of our common stock.
On June
1, 2015, we entered into an advisory agreement with a business
analyst. In exchange for services, we issued 250,000 restricted
shares of common stock.
On July
15, 2016, we issued to two of our executive officer five-year
warrants to purchase 150,000 shares of common stock at a price of
$1.45 per share.
From
October 30, 2015 through December 19, 2015, we sold $240,000 in
convertible promissory notes to 8 purchasers for a total of
$240,000 (collectively, the “Notes”). The Notes: (i)
have terms of eighteen-months; (ii) an interest rate of 10%; (iii)
are convertible at any time into shares of our common stock at a
40% discount to the average closing price for the previous ten
days, but in no event lower than $1.25; and (iv) can be converted
by the Company when upon the listing of the Company’s
securities on a senior exchange, such as the NASDAQ.
On
November 12 and December 15, 2015, respectively, we issued
convertible promissory notes to two institutional investors for a
total of $385,000 (“Institutional Notes”). Those notes:
(i) have terms of eighteen-months; (ii) an interest rate
of 10%; (iii) are convertible at any time into shares of our common
stock at a 40% discount to the average closing price for the
previous ten days, but not higher than $1.55; (iv) can be called by
the lender of such Note if the average volume weighted average
price for the ten (10) Trading Days immediately preceding the
respective maturity date is less than $1.25 per share; and (v) can
be converted by the Company if the Company’s common stock is
above $5.00 on the respective maturity date or upon the listing on
a senior exchange, such as the NASDAQ.
In
November 2015, we issued 6,000 shares of our common stock to a
vendor for web development services.
|
Between
November 30, 2015 and March 11, 2016, we issued an aggregate of
106,000 shares of our common stocks to three vendors and committed
to issue an additional of 76,000 shares of our common stocks
pursuant to the consulting agreements that we entered
into.
On
January 8, 2016, we entered into a stock purchase agreement with
CMGT, whereby the purchaser had the right to purchase up to
$415,000 of our common stock on the same terms as the Institutional
Notes for a period ending on June 8, 2016. To date, CMGT has
purchased $35,000 under this structure.
In
January 2016, we issued five-year warrants to purchase 250,000
shares of common stock at a price of $4.15 per share in connection
with legal services provided to us.
On
April 30, 2016, we issued an aggregate of 68,450 common shares to
four vendors for introductory, professional relations services,
media and investor relations services
On May
16, 2016, we issued 20,000 units, with each unit consists of a
share of common stock and a warrant to purchase a share of common
stock at $3.50 in exchange for $50,000.
On June
6, 2016, we issued an aggregate of 31,700 common shares to two
vendors for introductory services professional relations
services.
In June
2016, we issued an aggregate of 38,710 common shares upon receipt
of conversion notices from Series C holders.
In July
2016, we issued five-year warrants to purchase 50,000 shares of
common stock at a price of $1.45 per in connection with legal
services provided to us.
II-2
In
August 2016, we issued an aggregate of 53,000 common shares to two
vendors for introductory, and media and investor relations
services.
On
August 9, 2016, we issued 16,300 common shares upon receipt of
conversion notices from Series B holders.
On
August 10, 2016, we issued (i) 6,500 units, with each unit
consisting of a share of common stock and a warrant to purchase a
share of common stock at $3.50 for aggregate consideration of
approximately $10,000, and (ii) 12,258 common shares to an investor
to compensate for the difference in purchase prices pursuant to an
anti-dilution right.
On
September 7, 2016, we issued 50,000 common shares to BNI pursuant
to the Patent and Technology License and Purchase Option
Agreement.
In
September and October 2016, we issued (i) 37,500 units, with each
unit consisting of a share of common stock and a warrant to
purchase a share of common stock at $5.00 for aggregate
consideration of approximately $112,500.
In
November 2016,
we
issued 16,414 common shares upon receipt of conversion notices from
a Series A holder.
In
November 2016, we issued an aggregate of 82,391 common shares to
three vendors for introductory, and media and investor relations
services.
I
n
November 2016, we issued (i) 26,000 units, with each unit
consisting of a share of common stock and a warrant to purchase a
share of common stock at $4.00 for aggregate consideration of
$65,000, and (ii)
7,502 units
to an investor to compensate for the
difference in purchase prices pursuant to an anti-dilution
right.
On
November 10, 2016, we issued 15,000 common shares in connection
with the OID Note.
On
November 29, 2016, we issued Convertible Notes with a maturity date
of one year after the issuance thereof in the aggregate principal
amount of up to $4,000,000. The Debenture may be converted at any
time on or prior to maturity at the lower of $4.00 or 93% of the
average of the four lowest daily VWAPs during the 10 consecutive
trading days immediately preceding the conversion date, provided
that as long as we are not in default under the Debenture, the
conversion price may never be less than $2.00.
In
December 2016, we issued an aggregate of 22,000 common shares to
two vendors for introductory, and media and investor relations
services.
In
December 2016 and January 2017,
we issued an aggregate of 12,928 and
407,484 common shares upon receipt of conversion notices from the
Series B and Series C Note holders.
In
January 2017, we issued 20,000 common shares upon receiving the
notice to exercise warrant at an exercise price of $3.50 included
in unit sold in the May Private Placement, for an aggregate
purchase price of $70,000.
On June
5, 2017, we issued warrants to purchase up to 350,000 shares of our
common stock to each of Denis Corin, our President and Chief
Executive Officer, and William Rosenstadt, our Chief Legal Officer.
The warrants were issued as a bonus for their business development
services to the Company over the last 12 months. The warrants are
exercisable for five years at a per share price of $4.00. The
warrants may not be exercised within the first six months of their
issuance.
On June
5, 2017, we issued warrants to purchase up to 150,000 shares of our
common stock to each of Ari Jatwes and David Laskow Pooley as a
bonus for their business development services to the Company over
the last 12 months. The warrants are exercisable for five years at
a per share price of $4.00. The warrants may not be exercised
within the first six months of their issuance.
On June
5, 2017, we issued options to purchase up to 150,000 shares of our
common stock to each of Denis Corin, our President and Chief
Executive Officer, and William Rosenstadt, our Chief Legal Officer.
50,000 of the options were issued as compensation for their
continued services on our board of directors through June 1, 2018
and 100,000 of the options were issued as compensation as officers
through June 1, 2018. 37,500 of the options vest on September 1,
2017, 37,500 of the options vest on December 1, 2017, 37,500 of the
options vest on March 1, 2018 and 37,500 of the options vest on
June 1, 2018. The options are exercisable for five years at a per
share price of $4.00. The options may not be exercised within the
first six months of vesting.
On June
5, 2017, we issued warrants to purchase up to 25,000 shares of our
common stock to a consultant as a bonus for their business
development services to the Company over the last 12 months. The
warrants are exercisable for five years at a per share price of
$4.00. The warrants may not be exercised within the first six
months of their issuance.
On June
5, 2017, we issued warrants to purchase up to 10,000 shares of our
common stock to a consultant as a bonus for accounting services to
the Company over the last 12 months. The warrants are exercisable
for five years at a per share price of $4.00. The warrants may not
be exercised within the first six months of their
issuance.
II-3
On
August 1, 2017, we issued 953,249 units in exchange for $3,050,390,
which included payment through the retirement of $518,400 of
outstanding debt. Each unit consisted of two shares of our
common stock and a warrant to purchase a share of our common stock
at $4.50. We also issued 39,246 warrants to the placement agents in
the August 1, 2017 transaction pursuant to the placement agents
agreement to which the placement agents and we are
parties.
On October 3, 2017, we issued 25,641 restricted shares of our
common stock to the holder of the Debentures as consideration for
extending the maturity date of the Debentures from November 30,
2017 to November 30, 2018.
In September and October 2017, we issued an aggregate of 31,000
shares of its common stock to our vendors for
services.
On October 16, 2017, we issued 146,662 shares of our common stock
to the holder of a convertible notes issued on March 10, 2017 upon
the conversion of $500,445 of principal and interest of such
note.
On November 2, 2017, the Company issued 46,875 shares of its common
stock in full settlement of $150,000 in principal and interest due
to CMGT as a result of promissory notes issued by it in November
2016.
On November 22, 2017, we issued 166,592 shares of our common stock
to the holder of a convertible notes issued on November 29, 2016
and March 10, 2017 upon the conversion of $551,771 of principal and
interest of such notes.
On November 23, 2017, we issued 13,200 shares of our common stock
to an investor upon its conversion of $30,000 in principal in, and
$3,000 in interest on, a convertible note purchased from us on
November 22, 2016.
On November 29, 2017, we issued 270,270 shares of our common stock
to the holder of a convertible notes issued on November 29, 2016
upon the conversion of $1,000,000 of principal of such note and the
waiver and release of any other amounts or obligations, including
interest, due under such note, a convertible note issued on March
10, 2017 and a convertible note issued on April 7,
2017.
The
issuances of the securities mentioned above qualified for the
exemption from registration contained in Section 4(2) of the
Securities Act of 1933.
II-4
|
Description
|
3.1
|
Articles of
Incorporation filed as Exhibit 3 (a) to Form S-1 filed on January
13, 2014 and incorporated herein by reference
|
3.2
|
Amendment to
Articles of Incorporation, dated July 20, 2015, filed as
Exhibit 3.1 to our periodic report filed on Form 8-K on August 3,
2015 and incorporated herein by reference
|
3.3
|
Amendment to
Articles of Incorporation, dated October 27, 2015, filed as Exhibit
3.1 to our periodic report filed on Form 8-K on October 29, 2015
and incorporated herein by reference
|
3.4
|
Articles of
Incorporation filed as Exhibit 3 (b) to Form S-1 filed on January
13, 2014 and incorporated herein by reference
|
4.1
|
Form of Warrant in
connection with this offering*
|
4.2
|
Form of Warrant as filed as Exhibit 4.2 to our current report on
Form 8-K filed on June 9, 2017 and incorporated herein by
reference
|
4.3
|
Form
of Warrant as filed as Exhibit 10.3 to our current report on Form
8-K filed on August 2, 2017 and incorporated herein by
reference
|
5.1
|
Opinion of Ortoli
Rosenstadt LLP*
|
10.1
|
Form of
Non-Institutional Promissory Note filed as Exhibit 10.1 to our
current report on Form 8-K filed on January 13, 2016 and
incorporated herein by reference
|
10.2
|
Stock
Purchase Agreement for Institutional Promissory Note, dated January
8, 2016, with CMGT filed as Exhibit 10.2 to our current report on
Form 8-K filed on January 13, 2016 and incorporated herein by
reference
|
10.3
|
Form of
Institutional Promissory Note filed as Exhibit 10.4 to our current
report on Form 8-K filed on January 13, 2016 and incorporated
herein by reference
|
10.4
|
Advisory Agreement,
dated September 8, 2015, with Wombat Capital Ltd. filed as Exhibit
10.5 to our current report on Form 8-K filed on January 13, 2016
and incorporated herein by reference
|
10.5
|
Advisory Agreement,
dated June 1, 2015, with Ari Jatwes
filed as Exhibit 10.6 to
our current report on Form 8-K filed on January 13, 2016 and
incorporated herein by reference
|
10.6
|
Consulting
Agreement, dated November 13, 2015, Pharmafor Ltd. filed as Exhibit 10.7 to our
current report on Form 8-K filed on January 13, 2016 and
incorporated herein by reference
|
10.7
|
Executive Services Agreement, dates June 1, 2017, between Denis
Corin and Q BioMed Cayman SEZC filed as Exhibit 10.1 to our current
report on Form 8-K filed on June 9, 2017 and incorporated herein by
reference
|
10.9
|
Form of Non-Qualified Stock Option Agreement filed as Exhibit 4.1
to our current report on Form 8-K filed on June 9, 2017 and
incorporated herein by reference
|
10.10
|
Patent
and Technology License and Purchase Option Agreement, dated October
29, 2015, with Mannin Research Inc. filed as Exhibit 10.1 to
our annual report on Form 10-K filed on March 11, 2016 and
incorporated herein by reference +
|
10.11
|
Patent
and Technology License and Purchase Option Agreement, dated May 30,
2016, with Bio-Nucleonics Inc., filed as Exhibit 10.1 to our
quarterly report on Form 10-Q filed on October 17, 2016 and
incorporated herein by reference +
|
10.12
|
First
Amendment to Patent and Technology License and Purchase Option
Agreement, dated September 6, 2016, with Bio-Nucleonics Inc., filed
as Exhibit 10.2 to our quarterly report on Form 10-Q filed on
October 17, 2016 and incorporated herein by
reference +
|
10.13
|
License
Agreement on Patent & Know-How Technology, dated April 21,
2017, between Q BioMed Inc. and ASDERA LLC filed as Exhibit 10.1 to
our quarterly report on Form 10-Q filed on April 25, 2017 and
incorporated herein by reference +
|
10.14
|
Executive Services
Agreement, dated June 5, 2017, between Q BioMed Cayman SEZC and
Denis Corin filed as Exhibit 10.1 to our current report on Form 8-K
filed on June 9, 2017 and incorporated herein by
reference
|
10.15
|
Technology
License Agreement, dated June 15, 2017, among Q BioMed Inc.,
Oklahoma Medical Research Foundation and Rajiv Gandhi Centre for
BioTechnology filed as Exhibit 10.1 to our current report on Form
8-K filed on June 15, 2017 and incorporated herein by
reference +
|
10.16
|
Form of Placement Agent Agreement*
|
10.17
|
Form of Securities Purchase Agreement*
|
21.1
|
Q BioMed Inc. has
one subsidiary: Q BioMed Cayman SEZC, which was incorporated in the
Cayman Islands. Q BioMed Inc. has 100% of the voting and
dispositive control over Q BioMed Cayman SEZC capital
stock.
|
23.1
|
Consent of Marcum
LLP*
|
23.2
|
Consent of Ortoli
Rosenstadt LLP (included in Exhibit 5.1)*
|
24.1
|
Power of Attorney
(included on the signature page to this Registration
Statement)*
|
* Filed
herewith
+ Portions of this exhibit have been omitted pursuant to a
request for confidential treatment, and
the SEC has granted confidential treatment
pursuant to Rule 406 under the Securities Act. Confidential
information has been omitted from the exhibit in places marked
“****”and has been filed separately with the
SEC
.
II-5
The
undersigned registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration
Statement:
(i)
To include any
prospectus required by Section 10(a)(3) of the Securities Act of
1933, as amended;
(ii)
To reflect in the
prospectus any facts or events arising after the effective date of
the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase
or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)) if,
in the aggregate, the changes in volume and price represent no more
than 20% change in the maximum aggregate offering price set forth
in the “Calculation of Registration Fee” table in the
effective registration statement; and
(iii)
To include any
material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material
change to such information in the registration
statement;
Provided,
however, that:
(A)
Paragraphs (a)(1)(i) and (a)(1)(ii) of this section do not apply if
the registration statement is on Form S-8, and the information
required to be included in a post-effective amendment by those
paragraphs is contained in reports filed with or furnished to the
Commission by the registrant pursuant to section 13 or section
15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement; and
(B)
Paragraphs (a)(1)(i), (a)(1)(ii), and (a)(1)(iii) of this section
do not apply if the registration statement is on Form S-3 or Form
F-3 and the information required to be included in a post-effective
amendment by those paragraphs is contained in reports filed with or
furnished to the Commission by the registrant pursuant to section
13 or section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement, or is
contained in a form of prospectus filed pursuant to Rule 424(b)
that is part of the registration statement.
(2) That,
for the purpose of determining any liability under the Securities
Act of 1933, as amended, each such post- effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be initial bona fide offering
thereof.
(3) To
remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(4) That,
for the purpose of determining liability under the Securities Act
of 1933, as amended, to any purchaser:
(A)
Each prospectus filed by the registrant pursuant to Rule 424(b)(3)
shall be deemed to be part of the Registration Statement as of the
date the filed prospectus was deemed part of and included in the
Registration Statement; and
(B)
Each prospectus required to be filed pursuant to Rule 424(b)(2),
(b)(5), or (b)(7) as part of a Registration Statement in reliance
on Rule 430B relating to an offering made pursuant to Rule
415(a)(1)(i), (vii), or (x) for the purpose of providing the
information required by Section 10(a) of the Securities Act of
1933, as amended, shall be deemed to be part of and included in the
Registration Statement as of the earlier of the date such form of
prospectus is first used after effectiveness or the date of the
first contract of sale of securities in the offering described in
the prospectus. As provided in Rule 430B, for liability purposes of
the issuer and any person that is at that date an underwriter, such
date shall be deemed to be a new effective date of the Registration
Statement relating to the securities in the Registration Statement
to which that prospectus relates, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof. Provided, however, that no statement made in a
Registration Statement or prospectus that is part of the
Registration Statement or made in a document incorporated or deemed
incorporated by reference into the Registration Statement or
prospectus that is part of the Registration Statement will, as to
the purchaser with a time of contract of sale prior to such
effective date, supersede or modify any statement that was made in
the Registration Statement or prospectus that was part of the
Registration Statement or made in any such document immediately
prior to such effective date.
(5) That,
for the purpose of determining liability of the registrant under
the Securities Act of 1933, as amended, to any purchaser in the
initial distribution of the securities, the undersigned registrant
undertakes that in a primary offering of securities of the
undersigned registrant pursuant to this Registration Statement,
regardless of the underwriting method used to sell the securities
to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the
undersigned registrant will be a seller to the purchaser and will
be considered to offer or sell such securities to such
purchaser:
(i)
Any preliminary
prospectus or prospectus of the undersigned registrant relating to
the offering required to be filed pursuant to Rule
424;
(ii)
Any free writing
prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned
registrant;
(iii)
The portion of any
other free writing prospectuses relating to the offering containing
material information about the undersigned registrant or its
securities provided by or on behalf of the undersigned registrant;
and
(iv)
Any other
communication that is an offer in the offering made by the
undersigned registrant to the purchaser.
(e) The
undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the
prospectus is sent or given, the latest annual report to security
holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or
Rule 14c-3 under the Securities Exchange Act of 1934; and, where
interim financial information required to be presented by Article 3
of Regulation S-X are not set forth in the prospectus, to deliver,
or cause to be delivered to each person to whom the prospectus is
sent or given, the latest quarterly report that is specifically
incorporated by reference in the prospectus to provide such interim
financial information.
(h) Insofar
as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Securities Act of 1933, as amended, and will be governed by the
final adjudication of such issue.
II-6
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, on
January 10,
2018
.
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Q
BioMed Inc.
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By:
|
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/s/
Denis Corin
|
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Denis
Corin
|
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Chief
Executive Officer (Principal Executive Officer), Chief Financial
Officer (Principal Accounting Officer)
|
Pursuant
to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in
the capacities and on the dates indicated. Each person in so
signing also makes, constitutes and appoints Denis Corin, his or
her true and lawful attorney-in-fact, with full power of
substitution, in any and all capacities, to execute and cause to be
filed with the Securities and Exchange Commission pursuant to the
requirements of the Securities Act of 1933, as amended, any and all
amendments and post-effective amendments to this Registration
Statement, with exhibits to such registration statements and
amendments and other documents in connection therewith, and hereby
ratifies and confirms all that said attorney-in-fact or his or her
substitute or substitutes may do or cause to be done by virtue
hereof.
Signature
|
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Title
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Date
|
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|
|
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/s/
William Rosenstadt
|
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Director
|
|
January
10, 2018
|
William
Rosenstadt
|
|
|
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|
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|
|
|
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/s/
Denis Corin
|
|
Director
|
|
January
10, 2018
|
Denis
Corin
|
|
|
|
|
II-7
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