PROSPECTUS
Filed Pursuant
to Rule 424(b)(3)
File No.
333-222008
1,711,875
Shares of Common Stock
1,711,875
Warrants to Purchase Shares of Common
Stock
We are offering
1,711,875 shares of our common stock and
1,711,875
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 of $3.20
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 of $3.20
. 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
29, 2018, the last reported sale price of our common stock on the
OTCQB was $3.87.
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.
|
|
|
Public offering
price
|
$
3.20
|
$
5,478,000
|
Placement
agents’ fees (1)(2)
|
$
0.256
|
$
438,240
|
Proceeds to us,
before expenses
|
$
2.944
|
$
5,039,760
|
(1)
|
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.
|
(2)
|
Does not include
the placement agent warrants
|
We
have engaged Roth Capital Partners, LLC to act as our lead
placement agent and CIM Securities, 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 5% 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. 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
February 1, 2018, subject to the satisfaction of certain
conditions.
Lead Placement Agent
Roth Capital Partners
|
Co-Lead Placement Agent
CIM Securities, LLC
|
The date of this prospectus is
January 29, 2018
Table
of Contents
|
|
|
|
|
1
|
|
12
|
|
13
|
|
13
|
|
15
|
|
15
|
|
17
|
|
17
|
|
20
|
|
27
|
|
28
|
|
39
|
|
40
|
|
40
|
|
41
|
|
42
|
|
42
|
|
42
|
|
42
|
|
F-1
|
i
|
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
|
|
|
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
|
|
|
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
|
|
The
Offering
|
|
|
|
|
|
|
Securities
offered
|
1,711,875 shares
and
1,711,875
warrants.
|
|
|
Common
stock outstanding immediately before the Offering:
|
12,206,409 shares
as of January 29, 2018
|
|
|
Common
stock outstanding immediately after the Offering:
|
Immediately after
this offering, 13,918,284 shares will be outstanding and, assuming
the purchasers exercise the warrants and no additional shares are
issued prior to completion of their exercise, 15,630,159
shares
will be outstanding.
|
|
|
Leak-out
agreement:
|
Pursuant to
leak-out agreements, each investor has agreed that until February
26, 2018, such investor, either alone or together with its
affiliates, in this offering will limit its selling to no more than
such investor's proportionate percentage of an aggregate among all
investor of 35% 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 common
warrants), provided, that the foregoing restriction shall not apply
to any actual "long" (as defined in Regulation SHO of the
Securities Exchange Act of 1934, as amended) sales by such investor
or its affiliates at a price great than $4.00 (in each case, as
adjusted for stock splits, stock dividends, stock combinations,
recapitalizations or other similar event occurring after the date
hereof).
|
|
|
Use
of Proceeds:
|
A
fter estimated
placement agents
’ fees and estimated
offering expenses payable by us, we will receive net proceeds from
this offering of $4,914,760.
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, we will receive additional gross proceeds
of $5,478,000, and we will receive gross proceeds of $328,680 if
the placement agents’ warrants are exercised. 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.
|
|
|
Quotation
of common stock:
|
Our common stock is
listed for quotation on the OTCQB market under the symbol
“QBIO.”
|
|
|
Dividend
policy:
|
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.
|
|
|
Risk
factors:
|
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.
|
|
|
OTCQB
Ticker
|
QBIO
|
|
|
v
|
|
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. An investor should
only purchase the Company's securities if he or she can afford to
suffer the loss of his or her entire investment.
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 proceeds from the sale of a product candidate, equity or
debt
. 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 due to our
accumulated deficit, negative total equity and recurring losses
from operations; 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.
We
incurred recurring net losses for the years ended 2016 and 2015. As
of November 30, 2016 and 2015, our accumulated deficit was
$8,301,703 and $1,130,192, respectively, and our total stock
holder’s equity was $2,043,115 and $255,905,
respectively.
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.,
|
●
|
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.,
|
●
|
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
|
●
|
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:
|
●
|
|
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.
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:
|
●
|
|
obtaining
regulatory clearance to commence a clinical trial;
|
|
|
|
|
|
●
|
|
identifying,
recruiting and training suitable clinical
investigators;
|
|
|
|
|
|
●
|
|
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;
|
|
|
|
|
|
●
|
|
obtaining
sufficient quantities of a product candidate for use in clinical
trials;
|
|
|
|
|
|
●
|
|
obtaining
Investigator Review Board, or IRB, or ethics committee approval to
conduct a clinical trial at a prospective site;
|
|
|
|
|
|
●
|
|
identifying,
recruiting and enrolling patients to participate in a clinical
trial; and
|
|
|
|
|
|
●
|
|
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.
|
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:
|
●
|
|
failure to conduct
the clinical trial in accordance with regulatory requirements or
our clinical protocols;
|
|
|
|
|
|
●
|
|
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;
|
|
|
|
|
|
●
|
|
stopping rules
contained in the protocol;
|
|
|
|
|
|
●
|
|
unforeseen safety
issues or any determination that the clinical trial presents
unacceptable health risks; and
|
|
|
|
|
|
●
|
|
lack of adequate
funding to continue the clinical trial.
|
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:
|
●
|
|
reliance on the
third party for regulatory compliance and quality
assurance;
|
|
|
|
|
|
●
|
|
the possible breach
of the manufacturing agreement by the third party;
|
|
|
|
|
|
●
|
|
the possible
termination or nonrenewal of the agreement by the third party at a
time that is costly or inconvenient for us; and
|
|
|
|
|
|
●
|
|
reliance on the
third party for regulatory compliance, quality assurance, and
safety and pharmacovigilance reporting.
|
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:
|
●
|
|
the efficacy and
safety as demonstrated in clinical trials;
|
|
|
|
|
|
●
|
|
the clinical
indications for which the product is approved;
|
|
|
|
|
|
●
|
|
acceptance by
physicians, major operators of hospitals and clinics and patients
of the product as a safe and effective treatment;
|
|
|
|
|
|
●
|
|
acceptance of the
product by the target population;
|
|
●
|
|
the potential and
perceived advantages of product candidates over alternative
treatments;
|
|
|
|
|
|
●
|
|
the safety of
product candidates seen in a broader patient group, including its
use outside the approved indications;
|
|
|
|
|
|
●
|
|
the cost of
treatment in relation to alternative treatments;
|
|
|
|
|
|
●
|
|
the availability of
adequate reimbursement and pricing by third parties and government
authorities;
|
|
|
|
|
|
●
|
|
relative
convenience and ease of administration;
|
|
|
|
|
|
●
|
|
the prevalence and
severity of adverse events;
|
|
|
|
|
|
●
|
|
the effectiveness
of our sales and marketing efforts; and
|
|
|
|
|
|
●
|
|
unfavorable
publicity relating to the product.
|
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:
|
●
|
|
patent applications
may not result in any patents being issued;
|
|
|
|
|
|
|
|
●
|
|
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;
|
|
|
|
|
|
|
|
●
|
|
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;
|
|
|
|
|
|
|
|
●
|
|
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
|
|
|
|
|
|
|
|
●
|
|
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.
|
|
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:
|
●
|
|
obtain licenses,
which may not be available on commercially reasonable terms, if at
all;
|
|
●
|
|
abandon an
infringing product candidate or redesign our products or processes
to avoid infringement;
|
|
|
|
|
|
●
|
|
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;
|
|
|
|
|
|
●
|
|
pay substantial
royalties, fees and/or grant cross licenses to our technology;
and/or
|
|
|
|
|
|
●
|
|
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.
|
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 issuance and sale of
1,711,875
share
s by us in this offering an initial public
offering price of $3.20
per s
hare
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
$2.846
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
of $3.20
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:
●
sales or
potential sales of substantial amounts of our common
stock;
●
delay or failure
in initiating or completing pre-clinical or clinical trials or
unsatisfactory results of these trials;
●
announcements
about us or about our competitors, including clinical trial
results, regulatory approvals or new product introductions;
●
developments
concerning our licensors, product manufacturers or our ability to
produce MAN 01;
●
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 $3.87 as of January 29,
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
$
4,914,760
from this offering if all of the shares in this offering are
sold
.
Gross
proceeds
|
$
5,478,000
|
Placement agents' fees (
8
% of gross proceeds)
|
$
438,240
|
Placement
agents' expenses
|
$
50,000
|
Other
offering expenses
|
$
75,000
|
Net
proceeds
|
$
4,914,760
|
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
|
$
852,500
|
Marketing
and IR
|
$
577,420
|
R&D
Man01
|
$
700,000
|
R&D
SR89
|
$
450,000
|
R&D
SR89 Phase 4 Clinical
|
$
1,200,000
|
R&D
QBM01
|
$
827,420
|
R&D
Uttroside-B
|
$
307,420
|
Total
|
$
4,914,760
|
We will receive
additional gross proceeds of $5,478,000
if all of the
warrants that are part of the shares are exercised and gross
proceeds of $328,680
if all of the
placement agent warrants are exercised.
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
29, 2018
.
At the offering price of
$3.20
per
share,
less placement agents' fees and estimated offering
expenses payable by us, our pro forma as adjusted net tangible book
value as of August 31, 2017 would have been $4,924,760 or $0.354
per share.
This
represents an immediate increase in our historical net tangible
book value of $
0.353
per
share to existing stockholders and an immediate dilution of
$2.846
per
share to new investors.
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 in this
offering and after deducting placement agents' fees and
estimated offering expenses payable by us.
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:
Public offering
price per share
|
$
3.20
|
Net tangible book
value (deficit) per share before the offering
|
$
0.001
|
Impact on net
tangible book value per share of this offering
|
$
0.353
|
|
|
Pro forma net
tangible book value per share after this offering
|
$
0.354
|
|
|
Dilution in net
tangible book value per share to new investors
|
$
2.846
|
The following tables summarizes, on a pro forma
basis as of January 29, 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
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:
|
|
Total Consideration
|
|
|
|
|
|
|
|
Existing
stockholders
|
12,206,409
|
87.7
%
|
$
14,841,876.73
|
73.0
%
|
$
1.22
|
New public
investors
|
1,711,875
|
12.3
%
|
$
5,478,000.00
|
27.0
%
|
$
3.20
|
|
|
|
|
|
|
Total
|
13,918,284
|
100
%
|
$
20,319,876.73
|
100
%
|
$
1.46
|
|
|
|
|
|
|
14
The information also assumes no exercise of any
outstanding stock options or warrants or conversion of outstanding
convertible notes. As of
January 29, 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 29,
2018
, net tangible book value per
share after this offering would have been $0.468 and total dilution
per share to new investors would have been
$2.732.
As of
January 29, 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 29, 2018
, net tangible book value per share after this
offering would have been $0.955 and total dilution per share to new
investors would have been $2.245.
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 CIM Securities, 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
share
s offered pursuant to this
prospectus:
|
Per Share
|
|
Public offering
price
|
$
3.20
|
$
5,478,000
|
Placement
agents’ fees (1)
|
$
0.256
|
$
438,240
|
Proceeds to us,
before expenses
|
$
2.944
|
$
5,039,760
|
(1)
|
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.
|
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 5% 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 $3.84 per share, which represents 120% of the
exercise price of the warrants sold in this 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).
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.
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
leak-out agreements, each investor has agreed that until February
26, 2018, such investor, either alone or together with its
affiliates, in this offering will limit its selling to no more than
such investor's proportionate percentage of an aggregate among all
investor of 35% 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 common
warrants), provided, that the foregoing restriction shall not apply
to any actual "long" (as defined in Regulation SHO of the
Securities Exchange Act of 1934, as amended) sales by such investor
or its affiliates at a price great than $4.00 (in each case, as
adjusted for stock splits, stock dividends, stock combinations,
recapitalizations or other similar event occurring after the date
hereof).
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, CIM Securities, 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 a five
year warrant to purchase 39,247 shares of our common stock at an
exercise price of $4.50.
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
●
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 are
“accredited investors” within the meaning of Regulation
D under the Securities Act of 1933, as amended, and have either (i)
a minimum of $200,000 income, or (ii) a minimum net worth of
$1,000,000. 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 29, 2018, and
100,000,000 shares of preferred stock of which none were
outstanding as of January 29, 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
1,711,875
shares of our common stock at an initial exercise price per share
of $3.20
, 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 29, 2018, the last reported sale price per share for our
common stock on the OTCQB as reported was $3.87.
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:
|
●
|
|
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.
|
|
●
|
|
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.
|
|
●
|
|
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.
|
|
●
|
|
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.
|
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 29, 2018 was
$3.87 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,
|
|
|
|
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,
|
|
|
|
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,
|
|
|
|
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,
|
|
|
|
|
|
|
|
|
|
|
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
$4.00. The options may not be exercised within the first six months
of vesting.
Our directors do
not receive any stated salary for their services as directors or
members of committees of the board of directors, but by resolution
of the board, a fixed fee may be allowed for attendance at each
meeting. Directors may also serve the Company in other capacities
as an officer, agent or otherwise, and may receive compensation for
their services in such other capacity. No such fees have been paid
to any director since incorporation. Reasonable travel
expenses are reimbursed.
Summary
Compensation Table
The following table
sets forth information concerning all cash compensation awarded to,
earned by or paid to all individuals serving as the Company’s
principal executive officers during the last two completed fiscal
years ended November 30, 2016 and 2017, respectively and all
non-cash compensation awarded to those same individuals in those
time periods.
Name
and
Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
(4)(5)
|
Non-
Equity
Incentive
Plan
Compen
sation
($)
|
Non-
qualified
Deferred
Compen
sation
Earnings
($)
|
All
Other
Compen
s
ation
($)
(1)
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
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 29, 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 29, 2018.
|
|
(2
|
)
|
This percentage is
based upon 12,206,409 shares of common stock outstanding as of
January 29, 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
|
|
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
|
|
Total
Stockholders' Equity (Deficit)
|
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,
|
|
|
|
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
|
|
|
|
|
|
|
|
|
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
|
|
Net
unrealized gain/(loss)
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
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,
|
|
|
|
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
|
|
|
|
|
|
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
|
|
Net
unrealized gain/(loss)
|
|
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 Exercise Price
|
|
Weighted
Average Remaining Contractual 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
Exercise Price
|
|
Weighted
Average
Remaining Contractual
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
PROSPECTUS
1,711,875 Shares of Common Stock
1,711,875
Warrants to Purchase
1,711,875
Shares of Common Stock
Lead Placement Agent
Roth Capital Partners
|
Co-Lead Placement Agent
CIM Securities, LLC
|
January
29, 2018
Q BioMed (CE) (USOTC:QBIO)
Historical Stock Chart
From Jun 2024 to Jul 2024
Q BioMed (CE) (USOTC:QBIO)
Historical Stock Chart
From Jul 2023 to Jul 2024