The accompanying notes are an integral part
of these condensed consolidated financial statements
The accompanying notes are an integral part
of these condensed consolidated financial statements
The accompanying notes are an integral part
of these condensed consolidated financial statements
The accompanying notes are an integral part
of these condensed consolidated financial statements
Notes to Condensed Consolidated 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. These condensed consolidated financial statements are unaudited and
should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report
on Form 10-K for the year ended November 30, 2018. Certain disclosures included in the annual financial statements have been condensed
or omitted from these financial statements as they are not required for interim financial statements under U.S. GAAP and the rules
of the SEC. These unaudited consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary
for a fair statement of the results for the interim periods presented. These adjustments are of a normal, recurring nature. Interim
period operating results may not be indicative of the operating results for a full year.
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 has and is expected to incur
net losses and cash outflows from operations in pursuit of extracting value from its acquired intellectual property. These matters,
amongst others, raise doubt about the Company’s ability to continue as a going concern.
The Company has not generated any revenue
from operations since inception and has limited assets upon which to commence its business operations. Management anticipates
that the Company will have to raise additional funds and/or generate revenue from drug sales within twelve months to continue operations.
Additional funding will be needed to implement the Company’s 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 initial results from our business operations. These factors may impact
the timing, amount, terms or conditions of additional financing available to us. If the Company is unable to raise sufficient funds,
management we will be forced to scale back the Company’s operations or cease our operations.
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.
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, 2018 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.
Q BIOMED INC.
Notes to Condensed Consolidated Financial
Statements
Recent accounting pronouncements
On February 2016, the FASB issued ASU No. 2016-02, Leases (Topic
842). Under the new guidance, lessees will be required to recognize all leases (with the exception of short-term leases) on
the balance sheet as a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured
on a discounted basis and a right-of-use asset, which is an asset that represents the lessee¹s right to use, or control the
use of, a specified asset for the lease term. The guidance in ASU 2017-11 is effective for the Company on December 1, 2019.
Early adoption is permitted, and the guidance is to be applied using a full or modified retrospective approach. The Company is
currently evaluating the impact of the new standard on its condensed consolidated financial statements.
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) Accounting
for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable
Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception.
The ASU allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion
feature) is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features)
with down round features may no longer be required to be accounted classified as liabilities. A company will recognize the value
of a down round feature only when it is triggered and the strike price has been adjusted downward. For equity-classified freestanding
financial instruments, such as warrants, an entity will treat the value of the effect of the down round, when triggered, as a dividend
and a reduction of income available to common shareholders in computing basic earnings per share. For convertible instruments with
embedded conversion features containing down round provisions, entities will recognize the value of the down round as a beneficial
conversion discount to be amortized to earnings. The guidance in ASU 2017-11 is effective for the Company on December 1, 2019.
Early adoption is permitted, and the guidance is to be applied using a full or modified retrospective approach. The Company is
currently evaluating the impact of the new standard on its condensed consolidated financial statements.
Recent adopted pronouncements
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606), as modified by ASU 2015-14, Revenue from Contracts with Customers (Topic
606): Deferral of the Effective Date , ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus
Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10, Revenue from Contracts with Customers (Topic 606):
Identifying Performance Obligations and Licensing , and ASU 2016-12, Revenue from Contracts with Customers (Topic 606):
Narrow-Scope Improvements and Practical Expedients . The revenue recognition principle in ASU 2014-09 is that an entity should
recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or services. In addition, new and enhanced disclosures will be required.
Companies may adopt the new standard either using the full retrospective approach, a modified retrospective approach with practical
expedients, or a cumulative effect upon adoption approach. The adoption of this standard on December 1, 2018 did not impact
the Company’s condensed consolidated financial statements.
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. The adoption of this standard on December 1, 2018 did not impact the Company’s condensed consolidated financial
statements.
In June 2018, the FASB issued ASU 2018-07,
Compensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. This ASU is intended
to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent with the accounting for
employee share-based compensation. The adoption of this standard on December 1, 2018 did not impact the Company’s condensed
consolidated financial statements.
Q BIOMED INC.
Notes to Condensed Consolidated Financial
Statements
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.
|
|
August 31,
|
|
Potentially dilutive securities
|
|
2019
|
|
|
2018
|
|
Warrants
|
|
|
4,984,000
|
|
|
|
4,955,058
|
|
Convertible Notes
|
|
|
2,171,000
|
|
|
|
-
|
|
Stock Options
|
|
|
1,200,000
|
|
|
|
900,000
|
|
Note 5 - Convertible Notes
|
|
August 31, 2019
|
|
|
November 30, 2018
|
|
Convertible Notes Payable, current:
|
|
|
|
|
|
|
|
|
Principal value of 2019 Debenture
|
|
$
|
550,000
|
|
|
$
|
-
|
|
Debt discount
|
|
|
(65,000
|
)
|
|
|
-
|
|
Carrying value of 2019 Debenture
|
|
|
485,000
|
|
|
|
-
|
|
Total carrying value of convertible notes payable, current
|
|
$
|
485,000
|
|
|
$
|
-
|
|
Convertible Notes Payable, long-term:
|
|
|
|
|
|
|
|
|
Principal value of 2018 Debenture
|
|
$
|
3,800,000
|
|
|
$
|
4,000,000.00
|
|
Fair value of bifurcated
contingent put option
|
|
|
658,000
|
|
|
|
262,000
|
|
Debt discount
|
|
|
(481,291
|
)
|
|
|
(1,388,728
|
)
|
Carrying value of 2018 Debenture
|
|
|
3,976,709
|
|
|
|
2,873,272
|
|
Total carrying value of convertible notes, long-term
|
|
$
|
3,976,709
|
|
|
$
|
2,873,272
|
|
2019 Debenture
On August 28, 2019, the Company entered
into a securities purchase agreement with an accredited investor pursuant to which the Company sold a convertible debenture (the
“2019 Debenture”) with a maturity date of twelve months after the issuance thereof for $500,000. The 2019 Debenture
is in the aggregate principal amount of $550,000, which amount includes an original issue discount of $40,000 and payment of the
lender’s legal fees of $10,000. The 2019 Debenture carries an interest rate of 10% per annum. Upon an event of default, as
defined, the outstanding balance of the 2019 Debenture bears interest at a rate of 18% per annum. The Company may prepay the 2019
Debenture at 110% of the outstanding aggregate principal amount within the first six months of issuance and at 125% of the outstanding
aggregate principal amount thereafter.
In certain circumstances, a premium is
due upon the outstanding balance upon written notice from the lender. A premium of fifteen percent is due for each occurrence of
any major default, a premium of ten percent is due for each occurrence of an unapproved variable security issuance default, and
a premium of five percent is due for each occurrence of any minor default.
The lender has the right to convert the
outstanding aggregate principal amount at any time at the conversion price of $2.50 per share. At any time that is six months after
the issuance, the lender may redeem a portion of the 2019 Debenture, not to exceed $150,000 in any month. The Company may pay such
a redemption in cash and/or shares of its common stock. Any payment of such a redemption in shares of common stock shall be made
at the lesser of $2.50 or 93% of the average of the four lowest VWAPs in the prior ten trading day, provided that no such conversion
price shall be less than $2.00. Any payment of such a redemption in cash shall be at 120% of the amount being redeemed. Moreover,
the Company has the right to defer up to two (2) separate redemptions for up to thirty (30) days each by providing written notice
to the lender within three (3) trading days of its receipt of a redemption notice. In the event the Company elects to exercise
its deferral right, the 2019 Debenture’s outstanding balance shall automatically be increased by ten percent (10%) of the
redemption amount to which such deferral relates.
Q BIOMED INC.
Notes to Condensed Consolidated Financial
Statements
2018 Debentures
The monthly payment provision within
the 2018 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. The fair value estimate is a Level 3 measurement.
The Company estimated the fair value of the monthly payment provision by estimating the probability of the occurrence of a
Triggering Date and applying the probability to the discounted maximum redemption premium for any given payment with the following
key inputs:
|
|
August 31, 2019
|
|
November 30, 2018
|
Stock price
|
|
$0.91
|
|
$1.95 - $2.97
|
Terms (years)
|
|
0.50 – 0.66
|
|
1.2 - 1.4
|
Volatility
|
|
79.78%
|
|
72.1% - 76.5%
|
Risk-free rate
|
|
1.89% - 2.10%
|
|
2.4% - 2.5%
|
Dividend yield
|
|
0.00%
|
|
0.00%
|
Discount rate
|
|
35.17%
|
|
35.17%
|
In August 2019, the Company modified the
conversion price for $293,726 of principal and accrued interest outstanding under the 2018 Debentures and holders immediately converted
the amount into 334,556 shares of the Company’s common stock. Had the holders converted $293,726 of principal and accrued
interest under the previously existing conversion terms, the holders would have received 146,863 shares of the Company’s
common stock. The additional 187,693 shares received upon conversion, with an aggregate fair value of $197,078, is recognized in
the accompanying Condensed Consolidated Statements of Operations as a loss on induced conversion of debt.
Interest expense
Interest expense, included in the accompanying
Condensed Consolidated Statements of Operations, is comprised of the following for each period presented:
|
|
For the three months ended August 31,
|
|
|
For the nine months ended August 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Interest expense based on the coupon interest rate of the outstanding debt
|
|
$
|
55,000
|
|
|
$
|
-
|
|
|
$
|
166,000
|
|
|
$
|
-
|
|
Accretion of debt discount
|
|
$
|
389,000
|
|
|
$
|
-
|
|
|
$
|
907,000
|
|
|
$
|
-
|
|
Costs incurred to defer monthly contingent payments of convertible notes
|
|
$
|
32,000
|
|
|
$
|
-
|
|
|
$
|
64,000
|
|
|
$
|
-
|
|
Note 6 - Commitments and Contingencies
Legal
Periodically, the Company reviews the status
of significant matters, if any exist, and assesses our 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.
Q BIOMED INC.
Notes to Condensed Consolidated Financial
Statements
BNI matter
On December 28, 2018, the Company commenced
litigation against BioNucleonics, Inc. (“BNI”) and parties related to BNI in the Supreme Court of New York, New York
County (removed to federal court in February 2019). The litigation stems from a license agreement that the Company entered into
with BNI in 2016 and amended from time to time. Under the agreement with BNI, the Company were granted a worldwide, exclusive license
on certain BNI intellectual property and the option to acquire the BNI IP within three years of the agreement. The BNI IP consists
of generic Strontium Chloride SR89 (generic Metastron®) (“SR89”) and all of BNI’s intellectual property relating
to it (“BNI IP”). SR89 is a radiopharmaceutical therapeutic for cancer bone pain therapy.
The
Company believes that it has fulfilled the obligations under the agreement to exercise an option to acquire the BNI IP and has
notified BNI of such exercise, but BNI has not transferred the BNI IP to the Company. As a result, the Company has commenced litigation
to, among other actions, obtain all of the BNI IP. The Company also seeks judgments against BNI and related parties for the misappropriation
of funds, breach of contract, fraud and fraudulent inducement. In February 2019, such lawsuit was removed to the Federal court
located in the Southern District of New York. On September 23, 2019, the Company entered into a settlement agreement with
BNI and parties related to BNI. See Note 10 – Subsequent Events, below.
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.
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 expense is classified within general
and administrative expenses on a straight-line basis and included in the accompanying Condensed Consolidated Statements of Operations
as follows:
|
|
For the three months ended
August 31,
|
|
|
For the nine months ended
August 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Rent expense
|
|
$
|
7,500
|
|
|
$
|
7,500
|
|
|
$
|
22,500
|
|
|
$
|
23,000
|
|
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.
On March 26, 2019, the Company entered
into an amendment to the Patent and Technology License and Purchase Option Agreement that it initially entered into with Mannin
Research Inc. on October 29, 2015 (the “Mannin Agreement”). Under such amendment, the term of the option granted under
the Mannin Agreement was extended to October 29, 2021 in exchange for the Company issuing 100,000 shares to Mannin Research Inc.
on April 9, 2019.
During the nine months ended August 31,
2019 and 2018, the Company incurred approximately $1.9 million and $1.7 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.
Q BIOMED INC.
Notes to Condensed Consolidated Financial
Statements
Washington University
On March 9, 2019, the Company entered into
an Exclusive License Agreement with Washington University for license of a diagnostic marker for determining the severity of glaucoma
using the expression levels of Growth Differentiation Factor 15. The agreement calls for the Company to pay an initial fee of approximately
$88,000, pay annual maintenance fees ranging from $15,000 to $75,000, make additional payments upon the following milestones:
|
·
|
The first commercial sale of a companion diagnostic product;
|
|
·
|
Initiation of a clinical trial for a diagnostic product to support FDA PMA or 510(k) regulatory approval or the foreign equivalent;
|
|
·
|
PMA or 510(k) regulatory approval by the FDA or the foreign equivalent; and
|
|
·
|
The first commercial sale of a diagnostic product.
|
In additional to the above payments, royalty
payments based upon sales of a companion diagnostic product or diagnostic product are required.
Note 7 - 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 included within general and administrative expenses in the accompanying Condensed Consolidated Statements
of Operations as follows:
|
|
For the three months ended
August 31,
|
|
|
For the nine months ended
August 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Consulting and legal expenses
|
|
$
|
78,000
|
|
|
$
|
60,000
|
|
|
$
|
270,000
|
|
|
$
|
180,000
|
|
Note 8 - Stockholders’ Equity
Deficit
As of August 31, 2019 and November 30,
2018, 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.
Issuance of shares for services
During the nine months ended August 31,
2019, the Company issued an aggregate of 526,541 shares of the Company common stock to various vendors for advisory services, valued
at approximately $886,000 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 Condensed Consolidated Statements of Operations.
Issuance of shares to partially convert
notes payable
In August 2019, the Company issued an aggregate
of 334,556 shares of the Company’s common stock to convert $293,726 of principal and accrued interest outstanding under the
2018 Debentures. Of the 334,556 shares, 146,863 shares were recognized as a conversion of debt at a conversion price of $2.00,
while 187,693 shares were recognized as loss on induced conversion of convertible debt in the accompanying Condensed Consolidated
Statements of Operations. See Note 5, above, for further discussion.
Issuance of shares to defer monthly
contingent payment of convertible note
In August 2019, the Company issued an aggregate
of 30,894 shares of the Company’s common stock, valued at approximately $31,000, to holders of the 2018 Debentures to defer
a monthly contingent payment that became due. The estimated fair market value of the shares issued was recognized within interest
expense in the accompanying Condensed Consolidated Statements of Operations.
Q BIOMED INC.
Notes to Condensed Consolidated Financial
Statements
Note 9 - Warrants and Options
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, 2019 and the changes during the period then ended:
|
|
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life (years)
|
|
|
Intrinsic
Value
|
|
Outstanding at November 30, 2018
|
|
|
4,984,058
|
|
|
$
|
3.48
|
|
|
|
3.51
|
|
|
$
|
250,000
|
|
Issued
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Expired
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding at August 31, 2019
|
|
|
4,984,058
|
|
|
$
|
3.48
|
|
|
|
2.76
|
|
|
$
|
-
|
|
Exercisable at August 31, 2019
|
|
|
4,921,558
|
|
|
$
|
3.49
|
|
|
|
2.75
|
|
|
$
|
-
|
|
Fair value of all outstanding warrants
issued to non-employees for services was calculated with the following key inputs:
|
|
For the nine months ended August 31,
|
|
|
2018
|
Stock price
|
|
$2.14 - $3.61
|
Term (years)
|
|
3.0 – 5.0
|
Volatility
|
|
123.00% - 128.49%
|
Risk-free rate
|
|
2.47% - 2.78%
|
Dividend yield
|
|
0.00%
|
There were no warrants issued for the nine months ended August
31, 2019.
Options issued for services
The following represents a summary of all
outstanding options to purchase the Company’s common stock at August 31, 2019 and the changes during the period then ended:
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weightd
Average
Remaining
Contractual
Life (years)
|
|
|
Intrinsic
Value
|
|
Outstanding at November 30, 2018
|
|
|
900,000
|
|
|
$
|
3.68
|
|
|
|
3.99
|
|
|
$
|
-
|
|
Issued
|
|
|
300,000
|
|
|
$
|
1.53
|
|
|
|
4.75
|
|
|
$
|
-
|
|
Outstanding at August 31, 2019
|
|
|
1,200,000
|
|
|
$
|
3.15
|
|
|
|
3.62
|
|
|
$
|
-
|
|
Exercisable at August 31, 2019
|
|
|
1,050,000
|
|
|
$
|
3.38
|
|
|
|
3.46
|
|
|
$
|
-
|
|
Q BIOMED INC.
Notes to Condensed Consolidated Financial Statements
Fair value of options issued in the nine-month
period ended August 31, 2018 was calculated with the following key inputs. No options were granted in the nine-month period ended
August 31, 2019.
|
|
For the nine months ended August 31,
|
|
|
|
2019
|
|
|
2018
|
|
Exercise price
|
|
$
|
1.53
|
|
|
|
$3.00 - $3.61
|
|
Expected term (years)
|
|
|
5.0
|
|
|
|
5.0
|
|
Volatility
|
|
|
98.75
|
%
|
|
|
128.00% - 130.00%
|
|
Risk-free rate
|
|
|
2.03
|
%
|
|
|
2.52% - 2.71%
|
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00%
|
|
Stock-based Compensation
Stock-based compensation expense is classified
within general and administrative expenses as a result of the shares, outstanding warrants and options issued to consultants and
employees and included in the accompanying Condensed Consolidated Statements of Operations as follows:
|
|
For the three months ended
August 31,
|
|
|
For the nine months ended
August 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Stock-based compensation expense
|
|
|
183,000
|
|
|
|
946,000
|
|
|
|
463,000
|
|
|
|
1,500,000
|
|
As of August 31, 2019, the estimated unrecognized
stock-based compensation associate with these agreements is approximately $136,000 and will be fully recognized over the next five
months.
Note 10 – Subsequent events
Research Collaboration
On September 5, 2019, the Company entered
into a research collaboration and master services agreement (the “Agreement”) with Chemveda Life Sciences India Private
Limited (“Chemveda”), a contract research and manufacturing services company. The Company and Chemveda have been engaged
in a collaborative joint research program since February 2017. Under the Agreement, the Company will continue the collaborative
joint research program with Chemveda regarding the synthesis of Uttroside B, isolated from the leaves of Solanum nigrum, and any
of its analogues for use in the clinical trials and treatment of Hepatocellular Carcinomas and any other targets and therapeutic
areas (the “Program”). The term of the Agreement is for up to two years from execution.
Under the Agreement and depending upon
reaching certain milestones, the Company have agreed to pay Chemveda total compensation of up to $660,000, $360,000 of which will
be payable in cash and $300,000 of which will be payable in stock. To date, the Company have paid Chemveda $210,000 in cash compensation
under the Agreement and have made no compensation payments in stock. The Company have also agreed to pay royalties (capped at a
total amount) to Chemveda based on net sales of any and all drug product(s) resulting from the collaboration, being developed by
us.
Subject to the terms of the Agreement,
Chemveda shall have the first right of refusal and, if exercised, the exclusive right to manufacture any products developed as
a result of the Program for precommercial and commercial production.
Q BIOMED INC.
Notes to Condensed Consolidated Financial Statements
Securities Purchase Agreements
In September 2019, the Company executed
securities purchase agreements with various investors to purchase units, each unit consisting of (i) one share of common stock
and (ii) one and one half (1.5) warrants to purchase a share of common stock, at $0.86, which is 110% of the closing price of the
Company’s common stock as listed on OTCQB on September 18, 2019, raising approximately $208,000 in cash.
In October 2019, the Company issued 148,261
units (with each unit consisting of one share of common stock and 1.5 warrants to purchase a share of common stock) to the Company’s
legal counsel in exchange for $91,922 of services provided. The Company’s Chief Legal Officer and a Director is the Managing
Partner at the law firm where these services were provided.
Amendment to 2018 Debentures
On September 23, 2019, the Company and
holder of the 2018 Debentures entered into an amendment agreement to the securities purchase agreement for the 2018 Debentures,
pursuant to which, the conversion price of the 2018 Debentures was reduced to the lower of (i) $1.00, (ii) 93% of the average of
the four lowest daily VWAPs during the 10 consecutive trading days immediately preceding the conversion date, provided that as
long as we are not in default under the 2018 Debentures, the conversion price may never be less than $0.50, or (iii) a price agreed
to by us and the investor. Additionally, the maturity date of the 2018 Debentures was extended to September 21, 2020.
On September 23 and October 7, 2019, holders
of the 2018 Debentures converted an aggregate of $531,992 of principal and accrued interest outstanding under the revised conversion
terms and received an aggregate of 1,163,204 shares of the Company’s common stock. Had the holders converted $531,992 of
principal and accrued interest under the previously existing conversion terms, the holders would have received 265,996 shares of
the Company’s common stock. The additional 897,208 shares received upon conversion had an aggregate fair value of $589,223.
Settlement Agreement
As described in Note 6, above, the Company
commenced litigation against BNI and parties related to BNI in the Supreme Court of New York, New York County o December 28, 2018.
On September 23, 2019, the Company entered into a settlement agreement with BNI and parties related to BNI. Pursuant to the terms
of the settlement agreement, the Company settled its dispute with BNI and all parties to the litigation dismissed their claims
in exchange for entering into a Second Amendment to the License Agreement (entered into on September 23, 2019) pursuant to which:
|
·
|
BNI agreed to immediately transfer and/or
assign to the Company all intellectual property, patents and products that is owned by BNI that is related to Strontium-Chloride
89;
|
|
·
|
The Company agreed to issue BNI 50,000
shares of its common stock upon the entry into the settlement agreement and 100,000 shares of its common stock upon the approval
of the U.S. Food and Drug Administration (“FDA”) approval of BNI’s Prior Approval Supplements filing
|
|
·
|
The Company agreed to make a cash payment
to BNI of $25,000
|
|
·
|
The Company agreed to an on-going royalty
payment of 3% on all gross profits derived by the Company from the sale of Strontium-Chloride 89 and MetastronTM; and
|
|
·
|
The Company agreed to assume fees and
expenses related to (i) all outstanding CMO fees owed by BNI to IsoTherapeutics relating to Strontium-Chloride 89 (approximately
$67,000), (ii) all outstanding fees owed by BNI to the FDA relating to Strontium-Chloride 89 (approximately $208,000) and (iii)
related fees for the development and approval of Strontium-Chloride 89 following the date of the settlement agreement.
|
The agreement to (i) make a cash payment
of $25,000 to BNI, (ii) pay all outstanding CMO fees owed by BNI to IsoTherapeutics relating to Strontium-Chloride 89 (approximately
$67,000), and (iii) issue to BNI 50,000 shares of the Company’s common stock are recognizable subsequent events with an aggregate
fair value of approximately $125,000. All other portions of the settlement agreement are not recognizable subsequent events. As
of August 31, 2019, the Company had recognized $125,000 in accrued expenses related to this matter. The agreement to assume fees
owed by BNI to the FDA relating to Strontium-Chloride 89 is not a recognizable subsequent event as of August 31, 2019, as the fee
is contingent as of the settlement agreement date and payment of the fee by the Company is not probable as of the settlement agreement
date.
Q BIOMED INC.
Notes to Condensed Consolidated Financial Statements
Repricing of Existing Warrants
On September 24, 2019, the Company reduced
the exercise price of 950,000 options and warrants previously issued to Denis Corin for services as a director and for services
as an officer to $1.25 per share and reduced the exercise price of 1,250,000 options and warrants previously issued to William
Rosenstadt for services as a director and for services as an offer to $1.25 per share. On September 24, 2019, the Company reduced
the exercise price of 360,000 options and warrants previously issued to Ari Jatwes for services as a consultant to $1.25 per share
and reduced the exercise price of 50,000 warrants previously issued to Rick Panicucci for services as a director to $1.25 per share.
Distribution Agreement
On October 3, 2019, the Company entered
into an exclusive distribution agreement for Strontium-89/Metastron™ with Jubilant Radiopharma for the U.S.
market. Jubilant Radiopharma is an industry leading pharmaceutical company specializing in nuclear medicine focused on developing,
manufacturing, commercializing and distributing high quality and sustainable diagnostic and therapeutic agents on a global scale.
Issuance of Debentures
On October 11, 2019, the Company entered
into a securities purchase agreement with an accredited investor to place convertible debentures with a maturity date of eighteen
months after the issuance thereof in the aggregate principal amount of up to $750,000 (the “Transaction”), provided
that in case of an event of default, the debentures may become at the holder’s election immediately due and payable. The
initial closing of the Transaction occurred on October 11, 2019 when the Company issued a debenture for $500,000. The second closing
is scheduled for within thirty days of October 11, 2109 provided that the holder has converted a minimum of $250,000 of a different
convertible debenture previously issued to the holder. The debentures bear interest at the rate of 5.5% per annum. In addition,
the Company must pay to the holder a fee equal to 2.5% of the amount of the debentures.
The holder may convert a debenture in its
sole discretion at any time on or prior to maturity at the lower of $1.00 or 93% of the average of the four lowest daily VWAPs
during the 10 consecutive trading days immediately preceding the conversion date, provided that as long as we are not in default
under the debenture, the conversion price may never be less than $0.50. The holder may not convert any portion of a debenture if
such conversion would result in the holder beneficially owning more than 4.99% of our then issued and common stock, provided that
such limitation may be waived by the holder with 65 days’ notice.
Any time after the six-month anniversary
of the issuance of a debenture that the daily VWAP is less than $0.50 for a period of twenty consecutive trading days (the “Triggering
Date”) and only for so long as such conditions exist after a Triggering Date as that term is defined in the Transaction documents,
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 and
(iii) accrued and unpaid interest hereunder 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 VWAPs during
the 10 consecutive Trading Days immediately preceding the due date in respect of such monthly payment being deferred, provided
that such shares issued will be immediately freely tradable shares in the hands of the holder.