Item 1. Condensed Consolidated Financial Statements
Q BIOMED INC.
Condensed Consolidated Balance Sheets
(Unaudited)
|
|
As of February 29,
|
|
|
As of November 30,
|
|
|
|
2020
|
|
|
2019
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
740,644
|
|
|
$
|
172,636
|
|
Prepaid expenses and other current assets
|
|
|
57,162
|
|
|
|
17,662
|
|
Total current assets
|
|
|
797,806
|
|
|
|
190,298
|
|
Intangible assets, net
|
|
|
437,500
|
|
|
|
450,000
|
|
Total Assets
|
|
$
|
1,235,306
|
|
|
$
|
640,298
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
436,405
|
|
|
$
|
652,051
|
|
Accrued expenses
|
|
|
1,206,881
|
|
|
|
1,145,660
|
|
Accrued expenses - related party
|
|
|
4,000
|
|
|
|
7,500
|
|
Accrued interest payable
|
|
|
211,081
|
|
|
|
189,801
|
|
Convertible note payable, net
|
|
|
2,250,803
|
|
|
|
3,243,292
|
|
Total current liabilities
|
|
|
4,109,170
|
|
|
|
5,238,304
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
Convertible notes payable, net
|
|
|
2,356,726
|
|
|
|
447,335
|
|
Total long-term liabilities
|
|
|
2,356,726
|
|
|
|
447,335
|
|
Total Liabilities
|
|
|
6,465,896
|
|
|
|
5,685,639
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Deficit:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 100,000,000 shares authorized; no shares issued and outstanding as of February 29, 2020 and November 30, 2019
|
|
|
—
|
|
|
|
—
|
|
Common stock, $0.001 par value; 250,000,000 shares authorized; 21,308,271 and 19,709,068 shares issued and outstanding as of February 29, 2020 and November 30, 2019, respectively
|
|
|
21,308
|
|
|
|
19,709
|
|
Additional paid-in capital
|
|
|
43,083,816
|
|
|
|
37,328,827
|
|
Accumulated deficit
|
|
|
(48,335,714
|
)
|
|
|
(42,393,877
|
)
|
Total Stockholders' Deficit
|
|
|
(5,230,590
|
)
|
|
|
(5,045,341
|
)
|
Total Liabilities and Stockholders' Deficit
|
|
$
|
1,235,306
|
|
|
$
|
640,298
|
|
The accompanying notes are an integral part of these
condensed consolidated financial statements
Q BioMed Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
|
|
For the Three Months ended
|
|
|
|
February
29, 2020
|
|
|
February
28, 2019
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
$
|
5,569,971
|
|
|
$
|
1,242,711
|
|
Research and development expenses
|
|
|
262,872
|
|
|
|
814,699
|
|
Total operating expenses
|
|
|
5,832,843
|
|
|
|
2,057,410
|
|
|
|
|
|
|
|
|
|
|
Other (income) expenses:
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
197,516
|
|
|
|
290,672
|
|
Change in fair value of embedded derivatives
|
|
|
(88,522
|
)
|
|
|
27,000
|
|
Total other expenses
|
|
|
108,994
|
|
|
|
317,672
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,941,837
|
)
|
|
$
|
(2,375,082
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and diluted
|
|
$
|
(0.29
|
)
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
20,311,768
|
|
|
|
14,404,289
|
|
The accompanying notes are an integral part of these
condensed consolidated financial statements
Q BIOMED INC.
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficit)
(Unaudited)
|
|
Common Stock
|
|
|
Additional Paid
|
|
|
Accumulated
|
|
|
Total
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
in Capital
|
|
|
Deficit
|
|
|
Equity (Deficit)
|
|
Balance as of December 1, 2019
|
|
|
19,709,068
|
|
|
$
|
19,709
|
|
|
$
|
37,328,827
|
|
|
$
|
(42,393,877
|
)
|
|
$
|
(5,045,341
|
)
|
Issuance of common stock to convert notes payable
|
|
|
1,518,202
|
|
|
|
1,518
|
|
|
|
1,134,295
|
|
|
|
—
|
|
|
|
1,135,813
|
|
Cashless warrants exercise
|
|
|
20,860
|
|
|
|
21
|
|
|
|
(21
|
)
|
|
|
—
|
|
|
|
—
|
|
Share based compensation for services
|
|
|
60,141
|
|
|
|
60
|
|
|
|
4,515,227
|
|
|
|
—
|
|
|
|
4,515,287
|
|
Share based compensation related to warrants modification
|
|
|
—
|
|
|
|
—
|
|
|
|
105,488
|
|
|
|
—
|
|
|
|
105,488
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,941,837
|
)
|
|
|
(5,941,837
|
)
|
Balance as of February 29, 2020
|
|
|
21,308,271
|
|
|
$
|
21,308
|
|
|
$
|
43,083,816
|
|
|
$
|
(48,335,714
|
)
|
|
$
|
(5,230,590
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
Additional Paid
|
|
|
|
Accumulated
|
|
|
|
Total
Stockholders'
|
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
in Capital
|
|
|
|
Deficit
|
|
|
|
Equity (Deficit)
|
|
Balance as of December 1, 2018
|
|
|
14,290,236
|
|
|
$
|
14,290
|
|
|
$
|
31,994,129
|
|
|
$
|
(32,114,147
|
)
|
|
$
|
(105,728
|
)
|
Share based compensation for services
|
|
|
175,919
|
|
|
|
175
|
|
|
|
483,600
|
|
|
|
—
|
|
|
|
483,775
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,375,082
|
)
|
|
|
(2,375,082
|
)
|
Balance as of February 28, 2019
|
|
|
14,466,155
|
|
|
$
|
14,465
|
|
|
$
|
32,477,729
|
|
|
$
|
(34,489,229
|
)
|
|
$
|
(1,997,035
|
)
|
The accompanying notes are an integral part of these
condensed consolidated financial statements
Q BIOMED INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
For the three months
ended
|
|
|
|
February 29, 2020
|
|
|
February 28, 2019
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,941,837
|
)
|
|
$
|
(2,375,082
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
Share based compensation for services
|
|
|
4,515,287
|
|
|
|
483,775
|
|
Share based compensation related to warrants modification
|
|
|
105,488
|
|
|
|
—
|
|
Change in fair value of embedded conversion option
|
|
|
(88,522
|
)
|
|
|
27,000
|
|
Accretion of debt discount
|
|
|
91,184
|
|
|
|
236,124
|
|
Amortization expense
|
|
|
12,500
|
|
|
|
12,500
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(39,500
|
)
|
|
|
4,379
|
|
Accounts payable and accrued expenses
|
|
|
(157,925
|
)
|
|
|
185,983
|
|
Accrued interest payable
|
|
|
106,333
|
|
|
|
54,389
|
|
Net cash used in operating activities
|
|
|
(1,396,992
|
)
|
|
|
(1,370,932
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds received from issuance of convertible note, net of discount of $35,000
|
|
|
1,965,000
|
|
|
|
—
|
|
Net cash provided by financing activities
|
|
|
1,965,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
568,008
|
|
|
|
(1,370,932
|
)
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period
|
|
|
172,636
|
|
|
|
2,694,413
|
|
Cash at end of the period
|
|
$
|
740,644
|
|
|
$
|
1,323,481
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
—
|
|
|
$
|
—
|
|
Cash paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures for noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
Issuance of common stock to convert notes payable and accrued interest
|
|
$
|
1,135,814
|
|
|
$
|
—
|
|
Cashless warrants exercise
|
|
$
|
21
|
|
|
$
|
—
|
|
The accompanying notes are an integral part of these
condensed consolidated financial statements
Q BIOMED INC.
Notes to Condensed Consolidated Financial Statements
Note 1 - Organization of the Company and Description
of the Business
Q BioMed Inc. (“Q BioMed”) and its wholly
owned subsidiaries Q BioMed Cayman SEZC and QBMG Q BioMed Germany UG (collectively, “the Company”), 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.
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, 2019. 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 will be forced to scale back the Company’s operations or cease its 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 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, 2019 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 Standards
In December 2019, the FASB issued ASU No. 2019-12,
“Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to
simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general
principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted.
The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.
Recent Adopted Standards
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 Company adopted ASC 842 on December 1, 2019, using the optional transition
method to apply the new guidance as of December 1, 2019, rather than as of the earliest period presented, and elected the package
of practical expedients described above. The adoption of this standard on December 1, 2019 did not impact the Company’s condensed
consolidated financial statements as the Company is not subject to any lease agreements on December 1, 2019.
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. Early adoption is permitted, and the guidance is to be applied using a full or
modified retrospective approach. The adoption of this standard on December 1, 2019, did not impact the Company’s 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.
Potentially dilutive securities
|
|
February 29,
2020
|
|
|
November 30,
2019
|
|
Warrants
|
|
|
9,535,000
|
|
|
|
7,180,000
|
|
Convertible Notes
|
|
|
3,614,000
|
|
|
|
5,732,000
|
|
Stock Options
|
|
|
1,350,000
|
|
|
|
1,200,000
|
|
Note 5 - Convertible Notes
Q BIOMED INC.
Notes to Condensed Consolidated Financial Statements
|
|
February 29, 2020
|
|
|
November 30, 2019
|
|
Convertible Notes Payable, current:
|
|
|
|
|
|
|
Principal value of 2018 Debenture
|
|
$
|
1,765,000
|
|
|
$
|
2,730,000
|
|
Fair value of bifurcated contingent put option
|
|
|
4,000
|
|
|
|
74,000
|
|
Debt discount
|
|
|
(33,000
|
)
|
|
|
(61,000
|
)
|
Carrying value of 2018 Debenture
|
|
|
1,736,000
|
|
|
|
2,743,000
|
|
Principal value of 2019 August Debenture
|
|
|
550,000
|
|
|
|
550,000
|
|
Debt discount
|
|
|
(35,000
|
)
|
|
|
(50,000
|
)
|
Carrying value of 2019 August Debenture
|
|
|
515,000
|
|
|
|
500,000
|
|
Total carrying value of convertible notes payable, current
|
|
$
|
2,251,000
|
|
|
$
|
3,243,000
|
|
|
|
|
|
|
|
|
|
|
Convertible Notes Payable, long-term:
|
|
|
|
|
|
|
|
|
Principal value of 2019 October Debenture
|
|
$
|
500,000
|
|
|
$
|
500,000
|
|
Fair value of bifurcated contingent put option
|
|
|
8,000
|
|
|
|
29,000
|
|
Debt discount
|
|
|
(69,000
|
)
|
|
|
(82,000
|
)
|
Carrying value of 2019 October Debenture
|
|
|
439,000
|
|
|
|
447,000
|
|
Principal value of 2019 December Debenture
|
|
|
1,000,000
|
|
|
|
—
|
|
Fair value of bifurcated contingent put option
|
|
|
107,000
|
|
|
|
—
|
|
Debt discount
|
|
|
(146,000
|
)
|
|
|
—
|
|
Carrying value of 2019 December Debenture
|
|
|
961,000
|
|
|
|
—
|
|
Principal value of 2020 January Debenture
|
|
|
1,000,000
|
|
|
|
—
|
|
Fair value of bifurcated contingent put option
|
|
|
107,000
|
|
|
|
—
|
|
Debt discount
|
|
|
(150,000
|
)
|
|
|
—
|
|
Carrying value of 2020 January Debenture
|
|
|
957,000
|
|
|
|
—
|
|
Total carrying value of convertible notes, long-term
|
|
$
|
2,357,000
|
|
|
$
|
447,000
|
|
During the quarter ended February
29, 2020, the Company raised approximately $2.0 million from issuance of various debentures (the “Debentures”). The
Debentures have a maturity date of June 6, 2021. The Debentures bear interest at the rate of 5.5% per annum, and on issuance, the
Company paid to the holder a commitment fee equal to 2.5% of the amount of the Debentures.
The Debentures may be converted at any time on
or prior to maturity at the lower of $3.00 or 93% of the average of the four lowest daily VWAPs during the 10 consecutive trading
days immediately preceding the conversion date, provided that as long as we are not in default under the Debenture, the conversion
price may never be less than $2.00.
Any time after the six-month anniversary of the
issuance of the Debentures that the daily VWAP 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 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 at the option of the Company in cash or 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.
Upon issuance of the Debentures, the Company recognized
a debt discount of approximately $331,000, resulting from the recognition of issuance costs of $35,000 and a bifurcated embedded
derivative of $296,000. 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. 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:
Q BIOMED INC.
Notes to Condensed Consolidated Financial Statements
|
|
January 15, 2020
|
|
|
December 6, 2019
|
|
Strike price
|
|
$
|
3.00
|
|
|
$
|
3.00
|
|
Terms (years)
|
|
|
1.4
|
|
|
|
1.5
|
|
Volatility
|
|
|
97%
|
|
|
|
98%
|
|
Risk-free rate
|
|
|
1.7%
|
|
|
|
1.6%
|
|
Dividend yield
|
|
|
0%
|
|
|
|
0%
|
|
The fair value of the monthly payment provision in all outstanding debentures
with the feature are revalued as of February 29, 2020 based on the following key inputs:
|
|
February 29, 2020
|
|
Strike price
|
|
|
$1.00 - $3.00
|
|
Terms (years)
|
|
|
1.0
|
|
Volatility
|
|
|
101%
|
|
Risk-free rate
|
|
|
1.0%
|
|
Dividend yield
|
|
|
0%
|
|
Debt Conversion
The following table summarizes debt conversion during
the three months ended February 29, 2020:
Principal value of 2018 Debenture
|
|
$
|
965,000
|
|
Accrued interest
|
|
|
85,000
|
|
Fair value of bifurcated contingent put option
|
|
|
86,000
|
|
Sub-total
|
|
$
|
1,136,000
|
|
|
|
|
|
|
Fair value of common stock issued (974,871 shares)
|
|
$
|
1,136,000
|
|
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
|
|
|
|
February
29, 2020
|
|
|
February
28, 2019
|
|
Interest expense based on the coupon interest rate of the outstanding debt
|
|
$
|
107,000
|
|
|
$
|
55,000
|
|
Accretion of debt discount
|
|
|
91,000
|
|
|
|
236,000
|
|
Total interest expense
|
|
$
|
198,000
|
|
|
$
|
291,000
|
|
Note 6 - Commitments and Contingencies
Legal
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.
Q BIOMED INC.
Notes to Condensed Consolidated Financial Statements
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.
Office Facility Agreement
In December 2016, the Subsidiary entered
into a license to occupy a shared office facility in Cayman Islands for $30,000 per annum. The initial term of the agreement ended
in December 2019 and the Company renewed the agreement for another three years with the same terms.
This agreement does not identify a specific
asset and does not convey the use of substantially all of the shared office capacity. As such, this agreement does not contain
a lease under ASC 842. The Company recognizes monthly license payments as incurred over the term of the arrangement.
The associated expense is classified within
general and administrative expenses.
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
|
|
|
|
February
29, 2020
|
|
|
February
28, 2019
|
|
Consulting and legal expenses
|
|
$
|
105,000
|
|
|
$
|
102,000
|
|
Note 8 - Stockholders’ Equity Deficit
Issuance of shares for services
During the three months ended February 29, 2020, the
Company issued an aggregate of 60,141 shares of the Company common stock to various vendors for advisory services, valued at approximately
$0.1 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.
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 February 29, 2020 and the changes during the period then ended:
Q BIOMED INC.
Notes to Condensed Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Remaining
Contractual
|
|
|
|
|
|
|
|
Warrants
|
|
|
Exercise
Price
|
|
|
Life
(years)
|
|
|
Intrinsic
Value
|
|
Outstanding at December 1, 2019
|
|
|
|
7,180,000
|
|
|
$
|
2.22
|
|
|
|
3.2
|
|
|
$
|
2,463,000
|
|
Issued
|
|
|
|
2,631,000
|
|
|
|
2.14
|
|
|
|
4.9
|
|
|
|
—
|
|
Cashless exercise
|
|
|
|
(30,000
|
)
|
|
|
0.86
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited/expired
|
|
|
|
(246,000
|
)
|
|
|
4.01
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at February 29, 2020
|
|
|
|
9,535,000
|
|
|
$
|
2.14
|
|
|
|
3.5
|
|
|
$
|
8,680,000
|
|
Exercisable at February 29, 2020
|
|
|
|
9,497,000
|
|
|
$
|
2.14
|
|
|
|
3.5
|
|
|
$
|
8,656,000
|
|
On February 10, 2020, the Company issued 885,000 warrants
to certain consultants and service providers in exchange for services rendered. The warrants are exercisable into shares of the
Company’s common stock for five years from the date of issuance at an exercise price of $2.12 per share.
On February 10, 2020, the Company issued 1,500,000
warrants to the Company’s two officers in exchange for services rendered. The warrants are exercisable into shares of the
Company’s common stock in six months from their issuance until five years from the date of issuance at an exercise price
of $2.12 per share.
The following assumptions were used to compute the
fair value of warrants granted during the three months ended February 29, 2020:
|
|
For the Three Months
ended
|
|
|
|
February 29, 2020
|
|
Strike price
|
|
$
|
2.12
|
|
Term (years)
|
|
|
5.0
|
|
Volatility
|
|
|
120%
|
|
Risk-free rate
|
|
|
1.4%
|
|
Dividend yield
|
|
|
0.0%
|
|
Modification of Warrants
On February 12, 2020, the Company modified an aggregated
of 245,625 warrants (the “Warrants”) that were originally granted to certain investors and consultants. The exercise
price of the Warrants was reduced to $2.33 per share and the term of the Warrants were extended for 2 years from the original maturity
date.
The Company received $20,000 cash from one of the investors
as consideration for this modification. The Company immediately recognized approximately $0.1 million incremental stock-based compensation
on February 12, 2020 based on the following weighted average assumptions:
|
|
After Modification
|
|
|
Before Modification
|
|
Strike price
|
|
$
|
2.33
|
|
|
$
|
4.40
|
|
Term (years)
|
|
|
4.1
|
|
|
|
2.1
|
|
Volatility
|
|
|
122%
|
|
|
|
155%
|
|
Risk-free rate
|
|
|
1.4%
|
|
|
|
1.5%
|
|
Dividend yield
|
|
|
0.0%
|
|
|
|
0.0%
|
|
Q BIOMED INC.
Notes to Condensed Consolidated Financial Statements
Options Issued for Services
The following represents a summary of all outstanding
options to purchase the Company’s common stock at February 29, 2020 and the changes during the period then ended:
|
|
|
|
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average
|
|
|
Remaining
Contractual
|
|
|
|
|
|
|
|
Options
|
|
|
Exercise
Price
|
|
|
Life
(years)
|
|
|
Intrinsic
Value
|
|
Outstanding at December 1, 2019
|
|
|
|
1,200,000
|
|
|
$
|
1.35
|
|
|
|
3.4
|
|
|
$
|
453,000
|
|
Issued
|
|
|
|
150,000
|
|
|
|
1.50
|
|
|
|
4.8
|
|
|
|
—
|
|
Outstanding at February 29, 2020
|
|
|
|
1,350,000
|
|
|
$
|
1.37
|
|
|
|
3.3
|
|
|
$
|
1,965,000
|
|
Exercisable at February 29, 2020
|
|
|
|
1,230,000
|
|
|
$
|
1.35
|
|
|
|
3.2
|
|
|
$
|
1,810,000
|
|
Stock-based Compensation
The Company recognized general and administrative expenses
of approximately $4.5 million and $0.16 million as a result of the shares, outstanding warrants and options issued to consultants
and employees during the three months ended February 29, 2020 and February 28, 2019, respectively.
As of February 29, 2020, the estimated unrecognized
stock-based compensation associate with these agreements is approximately $0.12 million and will be fully recognized over the next
12 months.
Note 10 – Subsequent events
Amendments to Articles of Incorporation or Bylaws
On April 3, 2020, the Company’s
Board of Directors authorized the creation of up to 500,000 shares of Class A Convertible Preferred Stock (the “Class A Preferred
Shares”) and up to 1,000,000 shares of Class B Convertible Preferred Stock (the “Class B Preferred Shares”).
On April 6, 2020, the Company filed a Certificate of Designations with the Secretary of Nevada creating such Class A and Class
B Preferred Shares
Financing Agreements
On April 6, 2020, the Company entered into a securities
purchase agreement (the “SPA”) with accredited investors (the “Investors”). Pursuant to the SPA, the Investors
agreed to purchase:
|
•
|
76,566 shares of Series A Convertible
Preferred Stock (the “Series A Preferred Shares”) in exchange for convertible debentures with principal and interest
of $765,656
|
|
•
|
100,000 Series A Preferred Shares
for cash of $1,000,000,
|
|
•
|
203,134 shares of Series B Convertible
Preferred Stock (‘the “Series B Preferred Shares”) in exchange for convertible debentures with principal and
interest of $2,031,342
|
|
•
|
100,000 Series B Preferred Shares
for cash of $1,000,000 and
|
|
•
|
on April 17, 2020, 200,000 Series
B Preferred Shares for $2,000,000 in cash.
|
By April 17, 2020, the Investors have the right
to convert all remaining unconverted debt into 51,432 Series A Preferred Shares.
Debt Conversion
In March 2020, the Company converted approximately
$1.2 million outstanding debt and interest into 1,110,497 shares of common stock.
Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operation
Forward-Looking Statements
This Quarterly Report contains forward-looking statements
about our business, financial condition and prospects that reflect management’s assumptions and beliefs based on information
currently available. The expectations indicated by such forward-looking statements might not be realized. If any of our management’s
assumptions should prove incorrect, or if any of the risks and uncertainties underlying such expectations should materialize, our
actual results may differ materially from those indicated by the forward-looking statements.
The key factors that are not within our control and
that may have a direct bearing on operating results include, but are not limited to, acceptance of our services, our ability to
create and expand our customer base, managements’ ability to raise capital in the future, the retention of key employees
and changes in the regulation of our industry.
There may be other risks and circumstances that management
may be unable to predict. When used in this Quarterly Report, words such as, “believes,” “expects,”
“intends,” “plans,” “anticipates,” “estimates” and similar expressions are
intended to identify forward-looking statements, although there may be certain forward-looking statements not accompanied by such
expressions.
Overview
Q BioMed Inc. (or “the Company”) was incorporated
in the State of Nevada on November 22, 2013 and is a commercial stage 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.
Since the Company's inception, 4.5 years ago, we have
been busy building significant value ranging from blockbuster potential drugs to imminent revenue producing opportunities. Our
mission is to solve problems by accelerating the development of important therapies and availability of those therapies to patients.
Note on COVID-19
To date, the Covid-19 pandemic has not materially affected
our Strontium89 supply chain or production schedule, although a slight delay in supply chain is probable and expected. However,
the pandemic may present an opportunity for Strontium89. In an effort to reduce Covid-19 transmission to at-risk populations and
lower the burden on healthcare systems, systems and organizations are seeking ways to redirect immunocompromised patients out of
hospital settings and hospital care wherever possible. Cancer patients with bone metastases often receive daily radiation treatments
at the hospital. Additionally, those with advanced bone metastases often present at the ER for skeletal-related events and breakthrough
pain. Strontium89 has been used successfully to treat pain associated with bone metastases for over 30 years. As an injection given
only every 90 days with significant efficacy levels and relatively minor side effects, Strontium89 is a solution that fulfills
many of the needs uniquely represented by the Covid-19 pandemic. However, we are still assessing the potential for Strontium89
to fulfill this need and don’t yet know what the impact of that effort may be.
With respect to Covid-19, we are working on developing
a potential treatment. It is early stage, but could be a very important tool in treating several infectious diseases that result
in respiratory complications. Our technology partner and licensor, Mannin Research has received requests from, and submitted responses
to, governmental organizations worldwide and philanthropic groups for information about the potential use of its biologic treatment
for Covid-19. The potential treatment is based on the understanding that vascular leakage is a key driver of organ injury in diseases
such as Acute Respiratory Distress Syndrome (ARDS) caused by viruses, including Covid-19. The Angiopoietin-Tie2 signaling pathway
for the treatment of vascular permeability associated with pulmonary edema from respiratory infections like Covid -19, but also
ARDS, SARS, seasonal Influenzas and others. There were 45 million symptomatic flu cases, 810,000 hospitalizations and 61,000 deaths
– in the US alone during the 2017-2018 flu season, according to the CDC. We are in the early stages of investigations and
preclinical evaluation of this potential drug and hope to collaborate with others on a global basis to advance this program as
rapidly as possible. Even if it is ultimately too late to treat this season's Covid-19 outbreak, if effective, it could be utilized
for seasonal influenzas and future similar pandemic viral threats
Metastron™ and Strontium-89 Chloride USP Injection
We have been working hard to commercialize Strontium-89
for the non-opiate treatment of metastatic cancer bone pain.
On November 14, 2019, the Department of Health and
Human Services notified us that our supplemental abbreviated new drug application for a new drug product manufacturing site, IsoTherapeutics
Group, LLC, has been approved. IsoTherapeutics is now cleared to manufacture our FDA approved non-opioid cancer bone pain drug
Strontium-89 Chloride USP.
On February 13th we announced the launch of our FDA
approved non-opioid drug Strontium-89 (Strontium Chloride Sr-89 Injection, USP) which has been shown to relieve the persistent
pain associated with cancer that has metastasized to bone. In several multicenter, placebo-controlled trials in cancer patients
with persistent pain after external beam radiation therapy for bone metastases, pain relief occurred in more patients treated with
a single injection of Strontium-89 than in patients treated with an injection of placebo*, with a greater percentage of patients
experiencing pain scores of zero with no use of rescue opioid analgesics. Median duration of pain palliation has been shown to
be 2 to 5 months. Strontium-89 can be redosed every 90 days.
An estimated 10 million people are living with this
condition, and due to the opioid crisis, doctors and patients are looking for an alternative to treat metastatic cancer associated
bone pain. Given that Strontium-89 can be administered every three months and proven effective in approximately 80% of the patients
who received the drug, Q BioMed is hopeful that broad market reacceptance will be swift.
We have already received enquiries and orders from
clinics and hospitals around the world. Through our US distribution partner, Jubilant RadiopharmaTM, we have the capability
to reach patients in all 50 states. Our contract manufacturing facility, which is FDA approved to manufacture Strontium-89, is
manufacturing initial commercial-scale quantities, with the first lot produced and shipped in February 2020. The first patient
was dosed in early March, and recent feedback has been that they have had positive results that affirm the outcomes expected from
our clinical data. We look forward to having many more patients benefit from the pain relief that Strontium89 can provide. Manufacturing
will reach full production quantities in April, if no major interruptions occur due to COVID-19 restrictions on people or supply
chain, materials, patients should start to receive treatment from April onwards. Commercial and marketing activities, including
conferences (post COVID-19 restrictions) and sales, will commence concurrent with commercial availability. Strontium89 is reimbursed
by Medicare and most insurance companies.
This is a major milestone for Q BioMed. We are now
a revenue generating entity. We look forward to being able to help serve the unmet needs of the millions of patients suffering
from debilitating pain associated with metastatic cancer in the bone. Years of well documented data prove that Strontium89 benefits
this patient population. We believe this drug has a very important role to play as clinicians move toward proven non-opioid therapeutics
for pain palliation.
We plan to launch the drug in global markets including
Europe in 2020 and we have already seen interest from this region. This year Q BioMed will also plan to undertake further research
for Strontium89 for potential label extension into therapeutic use for survival benefit in metastatic bone cancer through a Phase
IV study as well as explore combination studies for enhancing the value proposition of the drug through better outcomes.
Our leadership team has been expanded with the addition
of a Chief Commercial Officer as well as a Global Head of Regulatory Affairs who will focus on international regulatory access
to markets beyond the US. We have proactively on-boarded our commercial team tasked with infrastructure set-up, including: medical
information and pharmacovigilance, government contracting, marketing, contract sales and telesales. We have announced a distribution
partnership with Jubilant Radiopharma who have all the capabilities we require to access the US market, including warehousing/inventory
management, invoicing and customer service/ordering. Jubilant also has a sales team that calls on major providers, a national network
of nuclear pharmacies in the U.S. and distribution and coverage throughout the U.S.
The global demand for access to generic drugs and non-opioid
therapies has given Q BioMed access to a global market much sooner than expected and we continue to be extremely excited about
its prospects to re-establish a deserved niche in the late stage cancer treatment landscape.
QBM001
There is currently no treatment for this 20,000 US
and 250,000 worldwide subgroup of autistic children that are born each year and become minimally verbal or non-verbal. We recently
filed for Orphan Drug Designation with the FDA and look forward to working with the regulators on this application. We worked with
7 centers of excellence for autism to define a differential diagnosis for our targeted subgroup, and all are on board. We completed
a biomarker study that allows us to better define which children should be included in our planned trial. The biomarker also provided
insight into how to improve the dosing. We believe that a highly targeted population with an improved, targeted dose, will allow
our planned trials to be smaller and increase the likelihood of being successful. Having also identified an autism animal model
with our biomarkers will also now accelerate our path to IND in 2021.
Uttroside-B
In 2019, we successfully synthesized the Uttroside
B molecule from its natural plant-based source. We believe that we are the only entity to have successfully synthesized Uttroside
B and have filed patents for the synthesis and method of use. The synthesized product is now being tested and to date has shown
exact comparison to the natural product in the same liver cancer cell lines. Manufacturing scale-up and preclinical testing is
being planned and is expected to start in the next quarter. We are excited about bringing a potential first line treatment to the
liver cancer market as there are more than 40,000 liver cancer patients in the US diagnosed every year, with total diagnosis per
year increasing 3% each year for the last 15 years. Each patient has a life expectancy of less than four months. Our initial data
from both animals and cell lines suggests that our developing molecule could be very effective - as much as 10 times more effective
than current treatments. As a result, we intend to bring this product to a proof of concept trial. If demonstrated, we will actively
seek partnerships in order to realize a return on our investment.
MAN-01 and GDF15
There are over 60 million patients worldwide with Primary
Open-Angle Glaucoma. MAN-01 aims to reduce the pressure build-up in the eye by assisting with, and correcting, drainage problems
in tiny vessels in the eye called the Schlemm’s Canal. MAN-01 is being designed to target these unique and extremely important
vessels, as over 70% of all fluid in the eye flows through the Schlemm’s Canal. Currently, the MAN-01 program is finalizing
its preclinical lead candidate optimization by completing a series of ophthalmic in vivo studies to demonstrate efficacy. After
successful completion of the in vivo studies, Mannin Research will begin preparing for preclinical toxicology and filing of its
IND. Our research shows that the drug’s mechanism of action may ameliorate vessel damage in several other diseases such as:
kidney disease, cardiovascular disease, and against infectious diseases, such as influenza and the current corona virus outbreak.
We believe these programs comprise a multi-disease platform technology that has several valuable applications. Adding the GDF15
biomarker to our portfolio is a significant step to securing a unique product offering that put precision medicine and patient
specific treatment in the hands of clinicians. GDF15 is a companion diagnostic marker to the MAN-01 drug for determining the severity
of glaucoma using the expression levels of Growth Differentiation Factor 15 (GDF15). Determining the severity of glaucoma using
this biomarker will aid in treatment decisions for patients diagnosed with, and being treated for, glaucoma. Recent buyouts in
the Biotechnology space has us believing that large pharma companies could be looking for valuable assets like this with multiple
downlines because of expiring patient protection on current drugs. Our collaborators at the Washington University in St. Louis
are currently examining the effectiveness of GDF15 as a clinical biomarker in a clinical trial. In parallel, Q BioMed and Mannin
Research are working with the Biointerfaces Institute at McMaster University in Ontario, Canada to develop a GDF15 biomarker diagnostic
kit for monitoring glaucoma severity and progression. The aim is to develop a simple integrated diagnostic test that can be performed
at a physician’s office with no external, expensive equipment.
The MAN Platform for other indications:
Mannin presented positive data on a potential new treatment
for acute kidney injury (AKI) at the American Society of Nephrology’s annual meeting held on November 7, 2019 in Washington
DC.
The data presented demonstrates the Ang-Tie2 signaling
pathway as a promising therapeutic target for renal protection from acute kidney injury following ischemic reperfusion. Ischemia–reperfusion
(IR) injury to the kidney occurs in a range of clinically important scenarios including hypotension, sepsis and in surgical procedures
such as cardiac bypass surgery and kidney transplantation, leading to AKI. In-hospital mortality for patients with AKI has recently
been estimated to be between 20 and 25% and mortality rates in excess of 50% have been reported in critically ill patients with
AKI requiring dialysis. For those patients who survive, complications include chronic kidney disease (CKD) and end-stage renal
disease (ESRD); cardiovascular events, and reduced quality of life. In the United States, AKI is associated with an increase in
hospitalization costs that range from $5.4 to $24.0 billion. No effective treatments have been approved by the FDA. This represents
a very significant opportunity to advance a therapeutic in an underserved patient population.
Mannin is developing new therapeutics to treat a variety
of vascular diseases, including the new coronavirus which originated in Wuhan, China, with a rapidly rising number of deaths and
confirmed cases. The Coronavirus has been declared a Global Health Emergency by the World Health Organization (WHO).
While Mannin is not developing a vaccine against infectious
diseases, it is hoping to develop a new drug which would increase the survival rate of patients by reducing the severity of disease
through enhancement of host-directed therapeutic response.
Mannin recently submitted a grant application to the
U.S. National Institutes of Health for Small Business Technology Transfer Grant Applications for approximately US $0.2 million
for the MAN-11 biologic. The studies will be conducted at Northwestern University to investigate treatment of vascular leakage
to treat sepsis and other infectious diseases. Mannin has also been working with Canada’s National Research Council (NRC.CNRC)
since December 2019 to support the development of the biologic. In September 2019, the German state of Saxony awarded Mannin an
approximately US $7.7 million grant to advance the Mannin portfolio of vascular diseases, including development of the biologic.
While we continue to advance all our assets, our key
focus for both capital expense and time is on the commercialization of Strontium-89 Chloride USP Injection. This is a near-term
revenue generator and we believe a significant catalyst and long-term value driver for us.
Financial Overview
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
This management’s discussion and analysis of
our financial condition and results of operations is based on our condensed consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”).
The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our condensed
consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to fair
value of financial instruments, research and development costs, accrued expenses and stock-based compensation. We base our estimates
on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Other than
as set out in Note 3 to our accompanying unaudited condensed consolidated financial statements we believe there have been no significant
changes in our critical accounting policies as described in the Form 10-K.
Unaudited Results of Operations for the three months
ended February 29, 2020 and February 28, 2019:
|
|
For the Three Months ended
|
|
|
|
February 29, 2020
|
|
|
February 28, 2019
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
$
|
5,570,000
|
|
|
$
|
1,243,000
|
|
Research and development expenses
|
|
|
263,000
|
|
|
|
814,000
|
|
Total operating expenses
|
|
|
5,833,000
|
|
|
|
2,057,000
|
|
|
|
|
|
|
|
|
|
|
Other (income) expenses:
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
198,000
|
|
|
|
291,000
|
|
Change in fair value of embedded derivatives
|
|
|
(89,000
|
)
|
|
|
27,000
|
|
Total other expenses
|
|
|
109,000
|
|
|
|
318,000
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,942,000
|
)
|
|
$
|
(2,375,000
|
)
|
Operating expenses
We incur various costs and expenses in the execution
of our business. The increase in operating expenses was mainly due to an increased charge in stock-based compensation compared
to last year. We recorded approximately $4.5 million and $0.5 million of stock-based compensation under general and administrative
expense during the three months ended February 29, 2020 and February 28, 2019, respectively.
Interest expenses
During the three months ended February 29, 2020, interest
expense decreased to approximately $0.2 million from $0.3 million in the prior year.
The following table summarizes interest expenses
incurred during the three months ended February 29, 2020 and February 28, 2019, respectively:
|
|
For the Three Months ended
|
|
|
|
February 29, 2020
|
|
|
February 28, 2019
|
|
Interest expense based on the coupon interest rate of the outstanding debt
|
|
$
|
107,000
|
|
|
$
|
55,000
|
|
Accretion of debt discount
|
|
|
91,000
|
|
|
|
236,000
|
|
Total interest expense
|
|
$
|
198,000
|
|
|
$
|
291,000
|
|
Change in fair value of embedded derivatives
We recognized approximately $89,000 gain and $27,000
loss resulting from the change in fair value of embedded contingent put options in convertible notes during the three months ended
February 29, 2020 and February 28, 2019, respectively. The fluctuation is mainly due the change of stock price during the reporting
periods.
Net loss
During the three months ended February 29, 2020 and
February 28, 2019, we incurred net losses of approximately $5.9 million and $2.4 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.
Liquidity and Capital Resources
We prepared the accompanying condensed consolidated
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 have not yet established an ongoing source of revenues
and must cover our operating through debt and equity financings to allow us to continue as a going concern. We had approximately
$0.7 million in cash as of February 29, 2020. 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 our 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 cannot be certain that additional funding will be available on acceptable terms, or
at all. Our management determined that there was substantial doubt about our ability to continue as a going concern within one
year after the condensed consolidated financial statements were issued, and management’s concerns about our ability to continue
as a going concern within the year following this report persist.
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.
Cash Flows
The following table sets forth the significant sources
and uses of cash for the periods addressed in this report:
|
|
For the Three Months
ended
|
|
|
|
February 29, 2020
|
|
|
February 28, 2019
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by:
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(1,397,000
|
)
|
|
$
|
(1,371,000
|
)
|
Financing activities
|
|
|
1,965,000
|
|
|
|
—
|
|
Net increase (decrease) in cash
|
|
$
|
568,000
|
|
|
$
|
(1,371,000
|
)
|
Net cash used in operating activities was approximately
$1.4 million for the three months ended February 29, 2020 as compared to approximately $1.4 million for the three months ended
February 28, 2019.
Net cash provided by financing activities was approximately
$2.0 million for the three months ended February 29, 2020, resulting from proceeds received from issuance of two debentures. There
were no activities for the three months ended February 28, 2019.
Commitments and Contingencies
Advisory Agreements
We entered into customary consulting arrangements with
various counterparties to provide consulting services, business development and investor relations services, pursuant to which
we agreed to issue shares of common stock as services are received.
Office Facility Agreement
In December 2016, we entered into a license
to occupy a shared office facility in Cayman Islands for $30,000 per annum. The initial term of the agreement ended
in December 2019 and we renewed the agreement for another three years with the same terms.
This agreement does not identify a specific
asset and does not convey the use of substantially all of the shared office capacity. As such, this agreement does not contain
a lease under ASC 842. We recognize monthly license payments as incurred over the term of the arrangement.
The associated expense is classified within general and
administrative expenses.
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 included within general and administrative expenses in the accompanying Condensed Consolidated Statements of Operations as
follows:
|
|
For the Three Months ended
|
|
|
|
February 29, 2020
|
|
|
February 28, 2019
|
|
Consulting and legal expenses
|
|
$
|
105,000
|
|
|
$
|
102,000
|
|
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.