Attached files
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 2017
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from __________ to
__________
Commission File Number: 000-55535
Q BIOMED INC.
(Exact name of registrant specified in its charter)
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Nevada
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46-4013793
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(State or Other Jurisdiction of Incorporation or
Organization)
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(I.R.S. Employer Identification No.)
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c/o Ortoli Rosenstadt LLP
501 Madison Ave. 14th Floor New York, NY10022
(Address of Principal Executive Offices)
Registrant’s telephone number, including area
code: (212)
588-0022
Securities Registered Pursuant to Section 12(b) of the Exchange
Act:
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Title of Each Class
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Name of Exchange on which Registered
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None
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None
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Securities Registered Pursuant to Section 12(g) of the
Act: Common
Stock
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes
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No ☑
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange Act.
Yes ☐ No
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Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☑
No ☐
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T during the preceding 12 months (or
for such shorter period that the registrant was required to submit
and post such files). Yes ☑
No ☐
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of the registrant’s
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See
definition of “large accelerated filer,”
“accelerated filer,” “smaller reporting
company” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if smaller reporting
company)
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Smaller reporting company
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☒
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Emerging growth company
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes
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No ☑
The aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the most
recent price at which the common equity was sold:
$22,420,596 as of May
31, 2017.
As of February 26, 2018 there were 13,947,784 shares of the
registrant’s common stock, $0.001 par value,
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
FORWARD LOOKING STATEMENTS
This annual report contains forward-looking statements that involve
risks and uncertainties. Any statements contained herein that are
not statements of historical fact may be deemed to be
forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as
“may”, “will”, “should”,
“expect”, “plan”, “intend”,
“anticipate”, “believe”,
“estimate”, “predict”,
“potential” or “continue”, the negative of
such terms or other comparable terminology. In evaluating these
statements, you should consider various factors, including the
assumptions, risks and uncertainties outlined in this annual
report. Any of these items may cause our actual results to differ
materially from any forward-looking statement made in this annual
report. Forward-looking statements in this annual report include,
among others, statements regarding our capital needs, business
plans and expectations.
While these forward-looking statements, and any assumptions upon
which they are based, are made in good faith and reflect our
current judgment regarding future events, our actual results will
likely vary, sometimes materially, from any estimates, predictions,
projections, assumptions or other future performance suggested
herein. Some of the risks and assumptions include:
● our
need for additional financing;
● our
limited operating history;
● our
history of operating losses;
● our
lack of insurance coverage;
● the
competitive environment in which we operate;
● changes
in governmental regulation and administrative
practices;
● our
dependence on key personnel;
● conflicts
of interest of our directors and officers;
● our
ability to fully implement our business plan;
● our
ability to effectively manage our growth; and
● other
regulatory, legislative and judicial
developments.
We advise the reader that these cautionary remarks expressly
qualify in their entirety all forward-looking statements
attributable to us or persons acting on our behalf. The
forward-looking statements in this annual report are made as of the
date of this annual report and we do not intend or undertake to
update any of the forward-looking statements to conform these
statements to actual results, except as required by applicable law,
including the securities laws of the United States.
AVAILABLE INFORMATION
Q Biomed Inc. files annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange
Commission (the “SEC”). You may read and copy documents
referred to in this Annual Report on Form 10-K that have been filed
with the SEC at the SEC’s Public Reference Room, 450 Fifth
Street, N.W., Washington, D.C. You may obtain information on the
operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. You can also obtain copies of our SEC filings by
going to the SEC’s website at
http://www.sec.gov.
REFERENCES
As used in this annual report: (i) the terms “we”,
“us”, “our” and the “Company”
mean Q BioMed Inc.; (ii) “SEC” refers to the Securities
and Exchange Commission; (iii) “Securities Act” refers
to the United States Securities Act of
1933, as amended; (iv)
“Exchange Act” refers to the United
States Securities Exchange Act of
1934, as amended; and (v) all
dollar amounts refer to United States dollars unless otherwise
indicated.
FORM 10-K
For the fiscal year ended November 30, 2017
TABLE OF CONTENTS
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PART I
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4
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PART II
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PART III
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PART IV
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PART I
ITEM 1. DESCRIPTION OF
BUSINESS
We are
a biotechnology acceleration and development company focused on
acquiring and in-licensing pre-clinical, clinical-stage and
approved life sciences therapeutic products. Currently, we have a
portfolio of four therapeutic products, including an FDA approved
product, Strontium 89, a radiopharmaceutical for metastatic cancer
bone pain, and three development stage products: QBM-001 for rare
pediatric non-verbal autism spectrum disorder, Uttroside-B for
liver cancer, and MAN 01 for glaucoma. We aim to maximize
risk-adjusted returns by focusing on multiple assets throughout the
discovery and development cycle. We expect to benefit from early
positioning in illiquid and/or less well known privately-held
assets, thereby enabling us to capitalize on valuation growth as
these assets move forward in their development.
Our
mission is to:
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(i)
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license
and acquire pre-commercial innovative life sciences assets in
different stages of development and therapeutic areas from academia
or small private companies;
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(ii)
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license
and acquire FDA approved drugs and medical devices with limited
current and commercial activity; and
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(iii)
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accelerate
and advance our assets to the next value inflection point by
providing: strategic capital, business development and financial
advice and experienced sector specific advisors.
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In
2018, we plan: (i) to generate revenue from our Strontium 89
product for pain palliation in bone metastases as well as commence
a therapeutic expansion post-marketing phase 4 trial for this
product; and (ii) to commence a phase 2/3 pivotal trial with our
QBM-001 asset to address a non-verbal learning disorder in autistic
children. In 2019, we intend to file investigational new drug
applications, or INDs, with the FDA for each of our Uttroside-B and
MAN 01 assets for the treatment of liver cancer and glaucoma,
respectively.
Following
is a summary of our product pipeline.
Our Strategy
Our
goal is to become a leading biotechnology acceleration and
development company with a diversified portfolio of therapeutic
products commercially available and in development. To achieve this
goal, we are executing on the following strategy:
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Strategically collaborate or in- and out-license select
programs.
We seek
to collaborate or in- and out-license certain potentially
therapeutic candidate products to biotechnology or pharmaceutical
companies for preclinical and clinical development and
commercialization.
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Highly leverage external talent and resources.
We plan
to maintain and further build our team which is skilled in
evaluating technologies for development and product development
towards commercialization. By partnering with industry specific
experts, we are able to identify undervalued assets that we can
fund and assist in enhancing inherent value. We plan to continue to
rely on the extensive experience of our management team to execute
on our objectives.
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Evaluate commercialization and monetization strategies on a
product-by-product basis in order to maximize the value of our
product candidates or future potential products.
As we
move our drug candidates through development toward regulatory
approval, we will evaluate several options for each drug
candidate’s commercialization or monetization strategy. These
options include building our own internal sales force; entering
into a joint marketing partnership with another pharmaceutical or
biotechnology company, whereby we jointly sell and market the
product; and out-licensing any product that we develop by ourselves
or jointly with another party, whereby another pharmaceutical or
biotechnology company sells and markets such product and pays us a
royalty on sales. Our decision will be made separately for each
product and will be based on a number of factors including capital
necessary to execute on each option, size of the market to be
addressed and terms of potential offers from other pharmaceutical
and biotechnology companies. It is too early for us to know which
of these options we will pursue for our drug candidates, assuming
their successful development.
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Acquire commercially or near-commercially ready products and build
out the current market for such.
In
addition to acquiring pre-clinical products, in assembling a
diversified portfolio of healthcare assets, we plan on acquiring
assets that are either FDA approved or are reasonably expected to
be FDA approved within 12 months of our acquiring them. We
anticipate hiring a contract sales organization to assume the bulk
of the sales and distribution efforts related to any such
product.
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General Information
We were
incorporated in the State of Nevada on November 22, 2013 under the
name ISMO Technology Solutions and attempted to establish a base of
operation in the information technology sector and provide IT
hardware, software and support solutions to businesses and
households. However, we did not pursue our business plan to any
great extent due to the deteriorating health of the major
shareholder and CEO, Mr. Enrique Navas.
On
August 5, 2015, we recorded a stock split effectuated in the form a
stock dividend. The stock dividend was paid at a rate of 1.5
“new” shares for every one issued and outstanding share
held. All common share amounts and per share amounts as referred
throughout this prospectus have been adjusted to reflect the stock
split.
On
April 21, 2015, we issued 2,500,000 shares of our common stock to
Mr. Denis Corin pursuant to a consulting agreement and Mr. Corin
also agreed to join the Board of Directors. On July 15, 2016, we
issued to Mr. Corin five-year warrants to purchase 150,000 shares
of common stock at a price of $1.45 per share.
On June
1, 2015, our shareholders elected Mr. William Rosenstadt to the
Board of Directors and appointed him as Chief Legal
Officer. In exchange for such services for a one-year
term, we agreed to pay Mr. Rosenstadt 375,000 shares of our common
stock. We engaged the law firm at which Mr. Rosenstadt is a partner
to provide us with legal services. We have paid for these services
through the issuance to such law firm of 500,000 shares of our
common stock on June 1, 2015, five-year warrants to purchase
250,000 shares of common stock at a price of $4.15 per share on
January 15, 2016 and five-year warrants to purchase 50,000 shares
of common stock at a price of $1.45 per share on July 16, 2016. On
July 15, 2016, we issued Mr. Rosenstadt five-year warrants to
purchase 150,000 shares of common stock at a price of $1.45 per
share for his services as a director.
Also on
June 1, 2015, our Board of Directors determined it was in the best
interest of the Company to establish a base of operations in the
biomedical industry. As a result, the Board of Directors
approved a change in the Company’s name from “ISMO Tech
Solutions, Inc.” to “Q BioMed Inc.” Q
BioMed Inc. established its business as a biomedical acceleration
and development company focused on licensing, acquiring and
providing strategic resources to life sciences and healthcare
companies.
On July
23, 2015, our founder and CEO, Mr. Enrique Navas, resigned from his
position a director of our company and any positions that he held
as an officer of the Company. This resignation did not result
from any dispute or disagreement with us, our independent
accountants, our counsel or our operations, policies and practices.
Mr. Navas agreed to return 3,750,000 shares of common stock owned
by him to the treasury.
On
October 27, 2015, we filed a Certificate of Amendment to our
Articles of Incorporation with the Secretary of State of Nevada to
increase the number of shares of common stock that we are
authorized to issue from 100,000,000 shares to 250,000,000
shares. The Certificate of Amendment affected no provisions of
our Articles of Incorporation other than the number of common stock
that we are authorized to issue, and we are still authorized to
issue 100,000,000 shares of preferred stock.
Our Drug Discovery Approach
We aim
to acquire or license and have assembled a pipeline of multiple
therapeutics in development stages ranging from early pre-clinical
to commercial ready. Our model seeks to diversify risk by
broadening the therapeutic areas we work in as well as providing
multiple catalysts as we advance assets through the clinical and
regulatory process.
Our
mission is to:
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(i)
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license
and acquire pre-commercial innovative life sciences assets in
different stages of development and therapeutic areas from academia
or small private companies;
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(ii)
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license
and acquire FDA approved drugs and medical devices with limited
current and commercial activity;
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(iii)
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accelerate
and advance our assets to the next value inflection point by
providing: (A) strategic capital, (B) business development and
financial advice and (C) experienced sector specific
advisors.
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Our Research and Development Activities
In the fiscal years ended November 30, 2017 and 2016, we have
incurred approximately $3.0 million and $1.3 million, respectively,
on research and development activities, including the issuance of
125,000 and 50,000 shares of common stock issued to Asdera LLC
(“Asdera”) and Bio-Nucleonics Inc. (“BNI”)
in the corresponding year, valued at approximately $488,000 and
$160,000, respectively.
Mannin Intellectual Property
On
October 29, 2015, we entered into a Patent and Technology License
and Purchase Option Agreement with Mannin whereby we were granted a
worldwide, exclusive license on, and option to acquire, certain
Mannin intellectual property, or IP, within the four-year
term.
The
Mannin IP is initially focused on developing a first-in-class eye
drop treatment for glaucoma. The technology platform may be
expanded in scope beyond ophthalmological uses and may include
cystic kidney disease and others. The initial cost to acquire the
exclusive license from Mannin was $50,000 and the issuance of
200,000 shares of our common stock, valued at $548,000, subject to
an 18-month restriction from trading and subsequent leak-out
conditions. Upon Mannin completing a successful phase 1 proof of
concept trial in glaucoma, we will be obligated to issue an
additional 1,000,000 shares of our common stock to Mannin, also
subject to leak-out conditions. We believe this milestone could
occur in the first half of 2019.
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Pursuant
to the exclusive license from Mannin, we may purchase the Mannin IP
within the next four years in exchange for: (i) investing a minimum
of $4,000,000 into the development of the Mannin IP and (ii)
possibly issuing Mannin additional shares of our common stock based
on meeting pre-determined valuation and market conditions.
During the years ended November 30,
2017 and 2016, we incurred approximately $1.9 million and $1.1
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, of which an aggregate of $2.0
million and $0.7 million was already paid as of November 30, 2017
and 2016, respectively. Through November 30, 2017, we have
funded an aggregate of $2.7 million to Mannin under the Exclusive
License.
In the
event that: (i) we do not exercise the option to purchase the
Mannin IP; (ii) we fail to invest the $4,000,000 within four years
from the date of the exclusive license; or (iii) we fail to make a
diligent, good faith and commercially reasonable effort to progress
the Mannin IP, all Mannin IP shall revert back to Mannin and we
shall be granted the right to collect twice the monies invested
through that date of reversion by way of a royalty along with other
consideration which may be perpetual.
MAN 01 – New Vascular Therapeutics including Primary Open
Angle Glaucoma
Mannin
is utilizing a proprietary research platform technology to address
the need for a new class of drugs to treat various vascular
diseases. Our lead indication is for a first-in-class therapeutic
eye-drop for the treatment of Primary Open Angle
Glaucoma.
We are
developing a first-in-class drug targeting the Schlemm's canal and
its role in regulating interocular eye pressure, one of the leading
causes of glaucoma. No other glaucoma company is targeting the
Schlemm's canal, the main drainage pathway in the eye. This unique
vessel is responsible for 70-90% of the fluid drainage in the eye.
The MAN 01 drug is currently in the lead optimization stage of its
pre-clinical testing. We aim to initiate IND enabling studies is
2018 and file an IND in 2019.
We
believe that a deep pipeline of novel therapeutics can be developed
from this research platform, which would treat a spectrum of
vascular diseases including Cystic Kidney Disease, Pediatric
Glaucoma and Inflammation.
Recently,
a number of significant deals and announcements have been made in
the ophthalmology space. Aerie Pharmaceuticals, Inc. announced
successful efficacy data from its first phase III registration
study, Mercury 1, on Roclatan. Roclatan (once daily) is being
evaluated for its ability of lowering intraocular pressure, or IOP,
in patients with glaucoma or ocular hypertension. The success of
this Aerie trial is an indication of the importance of this market,
and the acute need for novel drugs to treat the over 60 million
sufferers of this disease. In addition, in October 2015, Allergan
plc, a leading global pharmaceutical company, acquired AqueSys,
Inc. a private clinical stage medical device company focused on
developing ocular implants that reduce IOP associated with
glaucoma, in an all-cash transaction for a $300 million upfront
payment and regulatory approval and commercialization milestone
payments related to AqueSys' lead development
programs.
BioNucleonics Intellectual Property
On May
30, 2016, we entered into a Patent and Technology License and
Purchase Option Agreement with BNI, which agreement was amended on
September 6, 2016, whereby we were granted a worldwide, exclusive
license on certain BNI intellectual property and the option to
acquire the BNI IP within three years of the BNI.
The BNI
IP consists of generic Strontium Chloride SR89 (Generic
Metastron®) and all of BNI’s intellectual property
relating to it. Currently, SR89 is a radiopharmaceutical
therapeutic for cancer bone pain therapy. We plan on exploring
options to broaden the technology platform in scope to uses beyond
metastatic cancer bone pain. In exchange for the consideration, we
agreed, upon reaching various milestones, to issue to BNI an
aggregate of 110,000 shares of common stock that are subject to
restriction from trading until commercialization of the product
(which we anticipate will occur in Spring 2018) and subsequent leak-out conditions, and provide
funding to BNI for an aggregate of $850,000 in cash, of which we
had paid $466,000 as of November 30, 2017. Once we have
funded up to $850,000 in cash, we may exercise the option to
acquire the BNI IP at no additional charge. In September
2016, we issued 50,000 shares of common stock, with a fair value of
$160,500, to BNI pursuant to the exclusive license from
BNI.
In the
event that: (i) we do not exercise the option to purchase the BNI
IP; (ii) we fail to invest the $850,000 within three years from the
date of the exclusive license; or (iii) we fail to make a diligent,
good faith and commercially reasonable effort to progress the BNI
IP, all BNI IP shall revert back to BNI and we shall be granted the
right to collect twenty percent of the monies invested through that
date of reversion by way of a royalty until such time that the
aggregate of royalties paid exceeds twice the aggregate of all
total cash investment paid by Q Bio along with other consideration
which may be perpetual.
Generic Strontium89 Chloride SR89 Injection USP
Strontium89
is an FDA approved drug for pain palliation in bone metastases,
primarily from breast, prostate and lung cancers. It is Medicare
and Healthcare insurance reimbursable. Strontium-89 is a pure beta
emitting radiopharmaceutical. It is a chemical analog of calcium
and for this reason, localizes in bone. There is a significant
concentration of both calcium and strontium analogs at the site of
active osteoblastic activity. This is the biochemical basis for its
use in treating metastatic bone disease.
Strontium
89 shows prolonged retention in metastatic bone lesions with a
biological half-life of over 50 days, remaining up to 100 days
after injection of the radiopharmaceutical, whereas the half-life
in normal bone tissue is approximately 14 days. Strontium-89 has
been shown to decrease pain in patients with osteoblastic
metastases resulting from prostate cancer. When Strontium-89
Chloride is used, pain palliation occurs in up to 80% of patients
within 2 to 3 weeks after administration and lasts from 3 to 12
months with an average of about 6 months.
6
In the
United States, of the estimated 450,000 individuals newly diagnosed
with either breast or prostate cancer, one in three will develop
bone metastases, a common cause of pain in cancer patients. These
figures are expected to increase as the potential patient
population ages.
Strontium
89 is a non-opioid drug for the treatment of debilitating
metastatic cancer pain in the bone. We believe there is a
significant opportunity to market this effective drug as
practitioners and caregivers are being encouraged to reexamine
their use of opiates for treating patients in pain. We estimate the
palliation market to be approximately $300 million annually.
Additional therapeutic indications for Strontium 89 are possible,
and we intend to pursue those in 2018, hopefully resulting in entry
into a multi-billion dollar therapeutic area.
ASDERA Intellectual Property
On
April 21, 2017, we entered into a License Agreement on Patent &
Know-How Technology with ASDERA whereby we were granted a
worldwide, exclusive, license on certain ASDERA intellectual
property.
Among
the more than 60,000 US children who develop autism spectrum
disorders, or ASD, every year, approximately 20,000 become
nonverbal and will have to rely on assisted living for the rest of
their lives. The ASDERA IP is intended to treat the rare pediatric
condition (nonverbal disorder) during the second year of life, when
children learn to speak. Many of the children who miss this
treatment window will become non-verbal for all of their lives.
Currently, there is no treatment for this nonverbal disorder. The
ASDERA IP is not intended to treat other aspects of ASD or to be
used beyond the estimated treatment window. The ASDERA IP consists
of patent-rights and know-how relating to a product candidate named
ASD-002 (now identified as QBM001).
The
initial cost to acquire the exclusive license from ASDERA was
$50,000 and the issuance of 125,000 shares of our unregistered
common stock subject to a leak-out conditions after the Rule 144
period has ended. In addition to royalties based upon net sales of
the product candidate, if any, we are required to make additional
payments upon the following milestones:
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the
filing of an investigational new drug application, or IND, with the
US Food and Drug Administration;
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successful
interim results of Phase II/III clinical trial of the product
candidate;
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FDA
acceptance of a new drug application;
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FDA
approval of the product candidate; and
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achieving
certain worldwide net sales.
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Subject
to the terms of the Agreement, we will be in control of the
development and commercialization of the product candidate and are
responsible for the costs of such development and
commercialization. We have undertaken a good-faith commitment
to (i) initiate a Phase II/III clinical trial at the earlier of the
two-year anniversary of the Agreement or one year from the
FDA’s approval of the IND and (ii) to make our first
commercial sale by the fifth-anniversary of the Agreement.
Failure to show a good-faith effort to meet those goals would mean
that the ASDERA IP would revert to ASDERA. Upon such
reversion, ASDERA would be obligated to pay us royalties on any
sales of products derived from the ASDERA IP until such time that
ASDERA has paid us twice the sum that we had provided ASDERA prior
to the reversion.
QBM-001 - Addressing Rare Pediatric Non-verbal Spectrum
Disorder
Causes
of non-verbal learning disorder have been linked to several
complications that range from a specific mutated gene as with
Fragile X Syndrome and Dravet Syndrome or autoimmunity, where the
body’s immune system is attacking parts of the brain. Trauma,
microbial infections and environmental factors have also been
linked to non-verbal learning disorder. Ongoing research is helping
to further explain the root cause of why children become non-verbal
or minimally verbal.
Children
born into families where there is a genetic history of autism or
epileptic spectrum disorders or that have a sibling that has been
diagnosed with an autistic or epileptic spectrum disorder have a
much higher chance of becoming non-verbal.
More
than 60,000 US children develop Autism Spectrum Disorders
(“ASD”) every year, of whom 20,000 become non-verbal. A
similar number of children with ASD symptoms in Europe develop
pediatric non-verbal disorder each year. No drugs are currently
available to ameliorate this condition. In the United States, of
the estimated 20,000 who become non- or minimally verbal and will
require assisted living for the rest of their life. The lifetime
cost of that care is estimated at $10 million per
person.
Cognitive
intervention is the only form for treatment that has shown to help
improve speech capability and social interaction, however, it has
not been able to alleviate the lifetime burden of $10 million per
person for cost of care. This is compounded by an additional
$10 million during the lifespan of the person due to loss in
productivity in addition to severe emotional strain for the child
and the parents.
QBM-001
is proposed to be given to high-risk genetically identified
children during the second year of life to regulate faulty membrane
channels that are known to cause migraines and/or seizures. This
drug acts as an allosteric regulator of these faulty channels in
the brain to potentially alleviate the condition and allow toddlers
to actively develop language and speech and avoid life-long speech
and intellectual disability of being non-verbal
As
there are no treatment option for these patients, we believe there
is a significant economic opportunity to bring a drug to market in
this indication. The active ingredient in our compound is well
known and has been approved by worldwide regulators for many years.
Using a novel delivery and formulation for the active ingredient,
we intend to advance this drug through the 505(b)2 pathway in a
single phase 2/3 clinical trial expected to commence in
2018.
7
RGCB and OMRF Intellectual Property
On June
15, 2017, we entered into a Technology License Agreement RGCB and
OMRF whereby they granted us a worldwide, exclusive, license on
intellectual property related to Uttroside-B. Uttroside-B is
a chemical compound derived from the plant Solanum nigrum
Linn, also known as Black Nightshade or Makoi. We seek to use
the Uttroside-B IP to create a chemotherapeutic agent
against liver cancer.
The
initial cost to acquire the exclusive license for Uttroside is
$10,000. In addition to royalties based upon net sales of the
product candidate, if any, we are required to make additional
payments upon the following milestones:
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the
completion of certain preclinical studies;
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the
filing of an investigational new drug application with the US Food
and Drug Administration or the filing of the equivalent application
with an equivalent governmental agency;
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successful
completion of each of Phase I, Phase II and Phase III clinical
trials;
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FDA
approval of the product candidate;
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approval
by the foreign equivalent of the FDA of the product
candidate;
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achieving
certain worldwide net sales; and
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a
change of control of our Company.
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Subject
to the terms of the exclusive license for Uttroside, we will be in
control of the development and commercialization of the product
candidate and are responsible for the costs of such development and
commercialization. We have undertaken a good-faith commitment
to (i) fund the pre-clinical trials and (ii) to initiate a Phase II
clinical trial within six years of the date of the Agreement.
Failure to show a good-faith effort to meet those goals would mean
that the exclusive license for Uttroside would revert to the
licensors.
UTTROSIDE-B - A Novel Chemotherapeutic for Liver
Cancer
The
liver is the football-sized organ in the upper right area of the
belly. Symptoms of liver cancer are uncommon in the early stages.
Liver cancer treatments vary, but may include removal of part of
the liver, liver transplant, chemotherapy, and in some cases
radiation. Primary liver cancer (hepatocellular carcinoma) tends to
occur in livers damaged by birth defects, alcohol abuse, or chronic
infection with diseases such as hepatitis B and C, hemochromatosis
(a hereditary disease associated with too much iron in the liver),
and cirrhosis. In the United States, the average age at onset of
liver cancer is 63 years. Men are more likely to develop liver
cancer than women, by a ratio of 2 to 1.
The
only currently marketed drug is a tryosine kinase inhibitor
antineoplastic agent, sorafinib. Current sales of sorafinib are
estimated at $1 billion per year.
Uttroside-B
appears to affect phosphorylated JNK (pro survival signaling) and
capcase activity (apoptosis in liver cancer). It is a natural
compound fractionated Saponin derived from the Solarim Nigrum
plant. It is a small molecule that showed in early investigation to
increase the cytotoxicity of a variety of liver cancer cell types
and importantly to be up to ten times more potent than Sorafenib in
pre-clinical studies. This potency motivates us to work with our
partners to synthesize the molecule and move into a clinical
program. We plan to initiate clinical work in late
2018.
Patents and Intellectual Property Rights
If
products we acquired do not have adequate intellectual protection,
we will take the necessary steps to protect our proprietary
therapeutic product candidate assets and associated technologies
that are important to our business consisting of seeking and
maintaining domestic and international patents. These may cover our
products and compositions, their methods of use and processes for
their manufacture and any other inventions that may be commercially
important to the development of our business. We also rely on trade
secrets to protect aspects of our business. Our competitive
position depends on our ability to obtain patents on our
technologies and our potential products, to defend our patents, to
protect our trade secrets and to operate without infringing valid
and enforceable patents or trade secrets of others. We seek
licenses from others as appropriate to enhance or maintain our
competitive position.
We hold
a license to all intellectual property related to each of (i) MAN
01, the drug candidate for the treatment of Primary Open Angle
Glaucoma, (ii) ASD-002 (QBM001), the drug candidate related to a
nonverbal disorder associated with autism, (iii) SR89, our generic
Strontium 89 Chloride product candidate for metastatic cancer bone
pain therapy, and (iv)
the Uttroside platform.
We do
not hold, and have not applied for, any patents in our own right.
All patents are held in the licensors or inventors names and are
assignable under license agreements to Q BioMed Inc..
8
Competition
We
operate in highly competitive segments of the biotechnology and
biopharmaceutical markets. We face competition from many different
sources, including commercial pharmaceutical and biotechnology
enterprises, academic institutions, government agencies, and
private and public research institutions. Our product candidates,
if successfully developed and approved, will compete with
established therapies, as well as new treatments that may be
introduced by our competitors. Many of our competitors have
significantly greater financial, product development, manufacturing
and marketing resources than us. Large pharmaceutical companies
have extensive experience in clinical testing and obtaining
regulatory approval for drugs. In addition, many universities and
private and public research institutes are active in the fields in
which we research, some in direct competition with us. We also may
compete with these organizations to recruit management, scientists
and clinical development personnel. Smaller or early-stage
companies may also prove to be significant competitors,
particularly through collaborative arrangements with large and
established companies. New developments, including the development
of other biological and pharmaceutical technologies and methods of
treating disease, occur in the pharmaceutical and life sciences
industries at a rapid pace. Developments by competitors may render
our product candidates obsolete or noncompetitive. We will also
face competition from these third parties in recruiting and
retaining qualified personnel, establishing clinical trial sites
and patient registration for clinical trials and in identifying and
in-licensing new product candidates.
Our
generic SR89 product candidate will compete directly with
Metastron® which is produced by a subsidiary of General
Electric Company, a company with a market capitalization of over
$150 billion. Metastron is currently the sole SR89 product for the
treatment of cancer related bone pain, and we may not be able to
penetrate this market sufficiently. General Electric Company may
choose to significantly reduce the cost of Metastron, and we may
face further price competition if other companies choose to produce
a generic SR89 product. Such price competition may cause us to
reduce our price and in turn, decrease any revenues we may
generate.
Government Regulation
The
clinical development, manufacturing, labeling, storage,
record-keeping, advertising, promotion, import, export, marketing
and distribution of our product candidates are subject to extensive
regulation by the FDA in the United States and by comparable health
authorities in foreign markets. In the United States, we are not
permitted to market our product candidates until we receive
approval of a BLA from the FDA. The process of obtaining BLA
approval is expensive, often takes many years and can vary
substantially based upon the type, complexity and novelty of the
products involved. In addition to the significant clinical testing
requirements, our ability to obtain marketing approval for these
products depends on obtaining the final results of required
non-clinical testing, including characterization of the
manufactured components of our product candidates and validation of
our manufacturing processes. The FDA may determine that our product
manufacturing processes, testing procedures or facilities (or those
of third parties upon which we rely) are insufficient to justify
approval. Approval policies or regulations may change and the FDA
has substantial discretion in the pharmaceutical approval process,
including the ability to delay, limit or deny approval of a product
candidate for many reasons. Despite the time and expense invested
in clinical development of product candidates, regulatory approval
is never guaranteed.
The FDA
or another regulatory agency can delay, limit or deny approval of a
product candidate for many reasons, including, but not limited
to:
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the FDA
or comparable foreign regulatory authorities may disagree with the
design or implementation of our clinical trials;
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we may
be unable to demonstrate to the satisfaction of the FDA that a
product candidate is safe and effective for any
indication;
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the FDA
may not accept clinical data from trials which are conducted by
individual investigators or in countries where the standard of care
is potentially different from the United States;
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the
results of clinical trials may not meet the level of statistical
significance required by the FDA for approval;
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we may
be unable to demonstrate that a product candidate’s clinical
and other benefits outweigh its safety risks;
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the FDA
may disagree with our interpretation of data from preclinical
studies or clinical trials;
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the FDA
may fail to approve our manufacturing processes or facilities or
those of third-party manufacturers with which we or our
collaborators contract for clinical and commercial supplies;
or
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the
approval policies or regulations of the FDA may significantly
change in a manner rendering our clinical data insufficient for
approval.
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With
respect to foreign markets, approval procedures vary among
countries and, in addition to the aforementioned risks, can involve
additional product testing, administrative review periods and
agreements with pricing authorities. In addition, recent events
raising questions about the safety of certain marketed
pharmaceuticals may result in increased cautiousness by the FDA and
comparable foreign regulatory authorities in reviewing new
pharmaceuticals based on safety, efficacy or other regulatory
considerations and may result in significant delays in obtaining
regulatory approvals. Any delay in obtaining, or inability to
obtain, applicable regulatory approvals would prevent us from
commercializing our product candidates.
Costs and Effects of Compliance with Environmental
Laws
Federal,
state, and international environmental laws may impose certain
costs and restrictions on our business. We do not believe that we
have yet spent or lost money due to these laws and
regulations.
Product Liability and Insurance
We face
an inherent risk of product liability exposure related to the
testing of our product candidates in human clinical trials and the
eventual sale and use of any product candidates, and claims could
be brought against us if use or misuse of one of our product
candidates causes, or merely appears to have caused, personal
injury or death. While we have and intend to maintain product
liability insurance relating to our clinical trials, our coverage
may not be sufficient to cover claims that may be made against us
and we may be unable to maintain such insurance. Any claims against
us, regardless of their merit, could severely harm our financial
condition, strain our management and other resources or destroy the
prospects for commercialization of the product which is the subject
of any such claim. We are unable to predict if we will be able to
obtain or maintain product liability insurance for any products
that may be approved for marketing. Additionally, we have entered
into various agreements where we indemnify third parties for
certain claims relating to our product candidates. These
indemnification obligations may require us to pay significant sums
of money for claims that are covered by these indemnifications. We
currently do not maintain product liability insurance.
9
Employees
As of
December 31, 2017, we had 2 employees and 6 management
consultants.
Properties
We do
not own any properties. We have leased office space in the Cayman
Islands.
Legal Proceedings
We are
not a party to any material pending legal proceeding, arbitration
or governmental investigation, and to the best of our knowledge, no
such proceedings have been initiated against us.
ITEM 1A. RISK
FACTORS
Investing in our securities involves a high degree of risk. You
should carefully consider and evaluate all of the information
included and incorporated by reference or deemed to be incorporated
by reference in this report. Our business, results of operations or
financial condition could be adversely affected by any of these
risks or by additional risks and uncertainties not currently known
to us or that we currently consider immaterial.
Risks Related to our Company
If we do not obtain additional financing, our business may be at
risk or execution of our business plan may be delayed.
As of the date hereof, we have raised our operating
funds through contacts, high net-worth individuals and
strategic investors situated in the United States and Cayman
Islands. We have not generated any revenue from operations since
inception. We have limited assets upon which to commence our
business operations and to rely otherwise. At November
30, 2017, we had cash and cash equivalents of approximately
$825,000. On February 2, 2018, we netted approximately
$4,915,000 from the registered sale of common stock and warrants to
purchase common stock. As we have a monthly burn rate of
approximately $600,000, we anticipate that we 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 our business plan that includes various
expenses such as fulfilling our obligations under licensing
agreements, legal, operational set-up, general and administrative,
marketing, employee salaries and other related start-up expenses.
Obtaining additional funding will be subject to a number of
factors, including general market conditions, investor acceptance
of our business plan and initial results from our business
operations. These factors may impact the timing, amount, terms or
conditions of additional financing available to us. If we are
unable to raise sufficient funds, we will be forced to scale back
or cease our operations.
Our independent registered public accountant has issued a going
concern opinion after auditing our consolidated financial
statements; our ability to continue depends on our ability to raise
additional capital and our operations could be curtailed if we are
unable to obtain required additional funding when
needed.
We will be required to expend substantial amounts of working
capital in order to acquire and market our proposed products and
establish the necessary relationships to implement our business
plan. We were incorporated on November 22, 2013. Our operations to
date were funded entirely by capital raised from our private
offering of securities. Notwithstanding the offering, we will
continue to require additional financing to execute our business
strategy. We totally depend on external sources of
financing for the foreseeable future. Failure to raise additional
funds in the future will adversely affect our business operations,
and may require us to suspend our operations, which in turn may
result in a loss to the purchasers of our common stock. We entirely
depend on our ability to attract and receive additional funding
from either the sale of securities or the issuance of debt
securities. Needed funds might never be available to us on
acceptable terms or at all. The inability to obtain sufficient
funding of our operations in the future could restrict our ability
to grow and reduce our ability to continue to conduct business
operations. The report of our independent registered public
accounting firm on our consolidated financial statements, included
herein, raised substantial doubt about our ability to continue as a
going concern. Our ability to continue as a going concern depends
on our ability to raise additional capital. If we are unable to
obtain necessary financing, we will likely be required to curtail
our development plans which could cause us to become dormant. Any
additional equity financing may involve substantial dilution to our
then existing stockholders.
Our business relies on intellectual property owned by third
parties, and this reliance exposes us to the termination of the
right to use that intellectual property and may result in
inadvertent infringement of patents and proprietary rights of
others.
Currently, we have four assets. Our business depends
on:
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our
ability to continuously use the technology related to an eye drop
treatment for glaucoma, our Mannin platform, that we have licensed
from Mannin Research Inc.,
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our
ability to continuously use our intellectual property relating to
generic Strontium Chloride-89, our BioNucleonics platform, that we
have licensed from Bio-Nucleonics, Inc.,
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our
ability to continuously use our intellectual property relating to a
rare pediatric condition (nonverbal disorder), our ASDERA platform,
that we have licensed from ASDERA LLC and
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our
ability to continuously use our intellectual property relating to a
chemical compound derived from the plant Solanum nigrum Linn, also known as
Black Nightshade or Makoi, that we seek to use to create
a chemotherapeutic agent against liver cancer, our
uttroside platform,
and that we have licensed from the Rajiv Gandhi Centre for
Biotechnology, an autonomous research institute under the
Government of India, known as RGCB, and the Oklahoma Medical
Research Foundation, or the OMRF.
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If the licenses were to terminate, we would lose the ability to
conduct our business pursuant to our plan of
operations. Our ability to pursue our business plan
would then depend on finding alternative platforms to
license. We may not be able to find an attractive
platform on a timely and cost effective basis, and even if we did,
such platform might be inferior to the ones we currently have a
license to use and may not be attractive to potential
customers.
Many entities, including some of our competitors, have or may
obtain patents and other intellectual property rights that cover or
affect products or services related to those assets that we
license. If a court determines that one or more aspect
of the licensed platform infringes on intellectual property owned
by others, we may be required to cease using that platform, to
obtain licenses from the owners of the intellectual property or to
redesign the platform in such a way as to avoid infringing the
intellectual property rights. If a third party holds intellectual
property rights, it may not allow us to use its intellectual
property at any price, which could materially adversely affect our
competitive position.
The Mannin platform, BioNucleonics platform, the ASDERA platform
and the Uttroside platform may potentially infringe other
intellectual property rights. U.S. patent applications are
generally confidential until the Patent and Trademark Office issues
a patent. Therefore, we cannot evaluate the extent to which the
licensed platform may infringe claims contained in pending patent
applications. Further, without lengthy litigation, it is often not
possible to determine definitively whether a claim of infringement
is valid. We may not be in a position to protect the
intellectual property that we license as we are not the owners of
that intellectual property and do not currently have the financial
resources to engage in lengthy litigation.
Failure to maintain the license for, or to acquire, the
intellectual property underlying any license or sublicense on which
our plan of operations is based may force us to change our plan of
operations.
We have to meet certain conditions to maintain the licenses for the
intellectual property underlying the Mannin platform, the
BioNucleonics platform, the ASDERA platform and the Uttroside
platform and to acquire such intellectual property. Such conditions
include payments of cash and shares of common stock, obtaining
certain governmental approvals, initiating sales of products based
on the intellectual property and other matters. We might not
have the resources to meet these conditions and as a result may
lose the licenses to the intellectual property that is vital to our
business.
We lack an operating history and have not generated any revenues to
date. Future operations might never result in revenues. If we
cannot generate sufficient revenues to operate profitably, we may
have to cease operations.
As we were incorporated on November 22, 2013 and more recently
changed business direction, we do not have any operating history
upon which an evaluation of our future success or failure can be
made. Our ability to achieve and maintain profitability and
positive cash flow depends upon our ability to manufacture a
product and to earn profit by attracting enough clients who will
buy our products or services. We might never generate
revenues or, if we generate revenues, achieve profitability.
Failure to generate revenues and profit will eventually cause us to
suspend, curtail or cease operations.
We may be exposed to potential risks and significant expenses
resulting from the requirements under section 404 of the
Sarbanes-Oxley Act of 2002.
We are required, pursuant to Section 404 of the Sarbanes-Oxley Act
of 2002, to include in our annual report our assessment of the
effectiveness of our internal control over financial reporting. We
expect to incur significant continuing costs, including accounting
fees and staffing costs, in order to maintain compliance with the
internal control requirements of the Sarbanes-Oxley Act of 2002.
Our management concluded that our internal controls and procedures
were not effective to detect the inappropriate application of US
GAAP for our most recent fiscal year. As we develop our business,
hire employees and consultants and seek to protect our intellectual
property rights, our current design for internal control over
financial reporting must be strengthened to enable management to
determine that our internal controls are effective for any period,
or on an ongoing basis. Accordingly, as we develop our
business, such development and growth will necessitate changes to
our internal control systems, processes and information systems,
all of which will require additional costs and
expenses.
In the future, if we fail to complete the annual Section 404
evaluation in a timely manner, we could be subject to regulatory
scrutiny and a loss of public confidence in our internal controls.
In addition, any failure to implement required new or improved
controls, or difficulties encountered in their implementation,
could harm our operating results or cause us to fail to meet our
reporting obligations.
Limited oversight of our management may lead to corporate
conflicts.
We have only two directors who are also officers. Accordingly, we
cannot establish board committees comprised of independent members
to oversee functions like compensation or audit issues. In
addition, since we only have two directors, they have significant
control over all corporate issues.
Because we are not subject to compliance with rules requiring the
adoption of certain corporate governance measures, our shareholders
have limited protections against interested director transactions,
conflicts of interest and similar matters. The Sarbanes-Oxley
Act of 2002, as well as rules enacted by the SEC, the New York
Stock Exchange and the Nasdaq Stock Market, requires the
implementation of various measures relating to corporate
governance. These measures are designed to enhance the integrity of
corporate management and the securities markets and apply to
securities which are listed on the New York Stock Exchanges or the
Nasdaq Stock Market. Because we are not presently required to
comply with many of the corporate governance provisions, we have
not yet adopted these measures and, currently, would not be able to
comply with such corporate governance provisions. We do not have an
audit or compensation committee comprised of independent directors.
Our two directors perform these functions and are not independent
directors. Thus, there is a potential conflict in that our
directors are also engaged in management and participate in
decisions concerning management compensation and audit issues that
may affect management performance.
11
Until we have a larger board of directors that would include some
independent members, if ever, there will be limited oversight of
our directors’ decisions and activities and little ability
for minority shareholders to challenge or reverse those activities
and decisions, even if they are not in the best interests of
minority shareholders.
Additionally, these two directors beneficially own approximately
37% of our common stock. Although it is possible for them to be
outvoted by the remaining shareholders at a general or special
meeting if the two directors voted together, the size of their
shareholdings and the absence of any other person beneficially
owning more than 10% of our common stock would make this a
difficult undertaking.
Because the results of preclinical studies and early clinical
trials are not necessarily predictive of future results, any
product candidate we advance into clinical trials may not have
favorable results in later clinical trials, if any, or receive
regulatory approval.
Pharmaceutical development has inherent risk. We will be required
to demonstrate through well-controlled clinical trials for our
product candidates for our Mannin platform, the ASDERA platform
and the Uttroside platform and any additional uses based on
the BioNucleonics platform that our product candidates are
effective with a favorable benefit-risk profile for use in their
target indications before we can seek regulatory approvals for
their commercial sale. Success in early clinical trials does not
mean that later clinical trials will be successful as product
candidates in later-stage clinical trials may fail to demonstrate
sufficient safety or efficacy despite having progressed through
initial clinical testing. We also may need to conduct additional
clinical trials that are not currently anticipated. Companies
frequently suffer significant setbacks in advanced clinical trials,
even after earlier clinical trials have shown promising results. In
addition, only a small percentage of drugs under development result
in the submission of a New Drug Application or Biologics License
Application, known as BLA, to the U.S. Food and Drug Administration
and even fewer are approved for commercialization.
Any product candidates we advance into clinical development are
subject to extensive regulation, which can be costly and time
consuming, cause unanticipated delays or prevent the receipt of the
required approvals to commercialize our product
candidates.
The clinical development, manufacturing, labeling, storage,
record-keeping, advertising, promotion, import, export, marketing
and distribution of our product candidate, Man-01, are subject to
extensive regulation by the FDA in the United States and by
comparable health authorities in foreign markets. In the United
States, we are not permitted to market our product candidates until
we receive approval of a BLA from the FDA. The process of obtaining
BLA approval is expensive, often takes many years and can vary
substantially based upon the type, complexity and novelty of the
products involved. In addition to the significant clinical testing
requirements, our ability to obtain marketing approval for these
products depends on obtaining the final results of required
non-clinical testing, including characterization of the
manufactured components of our product candidates and validation of
our manufacturing processes. The FDA may determine that our product
manufacturing processes, testing procedures or facilities are
insufficient to justify approval. Approval policies or regulations
may change and the FDA has substantial discretion in the
pharmaceutical approval process, including the ability to delay,
limit or deny approval of a product candidate for many reasons.
Despite the time and expense invested in clinical development of
product candidates, regulatory approval is never
guaranteed.
The FDA or another regulatory agency can delay, limit or deny
approval of a product candidate for many reasons, including, but
not limited to:
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the FDA or comparable foreign regulatory authorities may disagree
with the design or implementation of our clinical
trials;
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we may be unable to demonstrate to the satisfaction of the FDA that
a product candidate is safe and effective for any
indication;
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the FDA may not accept clinical data from trials which are
conducted by individual investigators or in countries where the
standard of care is potentially different from the United
States;
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results of clinical trials may not meet the level of
statistical significance required by the FDA for
approval;
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we may be unable to demonstrate that a product candidate’s
clinical and other benefits outweigh its safety risks;
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the FDA may disagree with our interpretation of data from
preclinical studies or clinical trials;
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the FDA may fail to approve our manufacturing processes or
facilities or those of third-party manufacturers with which we or
our collaborators contract for clinical and commercial supplies;
or
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the approval policies or regulations of the FDA may significantly
change in a manner rendering our clinical data insufficient for
approval.
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With respect to foreign markets, approval procedures vary among
countries and, in addition to the aforementioned risks, can involve
additional product testing, administrative review periods and
agreements with pricing authorities. In addition, recent events
raising questions about the safety of certain marketed
pharmaceuticals may result in increased cautiousness by the FDA and
comparable foreign regulatory authorities in reviewing new
pharmaceuticals based on safety, efficacy or other regulatory
considerations and may result in significant delays in obtaining
regulatory approvals. Any delay in obtaining, or inability to
obtain, applicable regulatory approvals would prevent us from
commercializing our product candidates.
Any product candidate we manufacture or advance into clinical
trials may cause unacceptable adverse events or have other
properties that may delay or prevent their regulatory approval or
commercialization or limit their commercial potential.
Unacceptable adverse events caused by any of our product candidates
that we manufacture or advance into clinical trials could cause us
or regulatory authorities to interrupt, delay or halt production or
clinical trials and could result in the denial of regulatory
approval by the FDA or other regulatory authorities for any or all
targeted indications and markets. This, in turn, could prevent us
from commercializing the affected product candidate and generating
revenues from its sale.
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Except for our Strontium Chloride 89, known as SR89, product
candidate, we have not yet completed testing of any of our product
candidates for the treatment of the indications for which we intend
to seek product approval in humans, and we currently do not know
the extent of adverse events, if any, that will be observed in
patients who receive any of our product candidates. If any of our
product candidates cause unacceptable adverse events in clinical
trials, we may not be able to obtain regulatory approval or
commercialize such product or, if such product candidate is
approved for marketing, future adverse events could cause us to
withdraw such product from the market.
Delays in the commencement of our clinical trials could result in
increased costs and delay our ability to pursue regulatory
approval.
The commencement of clinical trials can be delayed for a variety of
reasons, including delays in:
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obtaining regulatory clearance to commence a clinical
trial;
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identifying, recruiting and training suitable clinical
investigators;
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reaching agreement on acceptable terms with prospective clinical
research organizations (“CROs”) and trial sites, the
terms of which can be subject to extensive negotiation, may be
subject to modification from time to time and may vary
significantly among different CROs and trial sites;
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obtaining sufficient quantities of a product candidate for use in
clinical trials;
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obtaining Investigator Review Board, or IRB, or ethics committee
approval to conduct a clinical trial at a prospective
site;
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identifying, recruiting and enrolling patients to participate in a
clinical trial; and
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retaining patients who have initiated a clinical trial but may
withdraw due to adverse events from the therapy, insufficient
efficacy, fatigue with the clinical trial process or personal
issues.
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Any delays in the commencement of our clinical trials will delay
our ability to pursue regulatory approval for our product
candidates. In addition, many of the factors that cause, or lead
to, a delay in the commencement of clinical trials may also
ultimately lead to the denial of regulatory approval of a product
candidate.
Suspensions or delays in the completion of clinical testing could
result in increased costs to us and delay or prevent our ability to
complete development of that product or generate product
revenues.
Once a clinical trial has begun, patient recruitment and enrollment
may be slower than we anticipate. Clinical trials may also be
delayed as a result of ambiguous or negative interim results or
difficulties in obtaining sufficient quantities of product
manufactured in accordance with regulatory requirements and on a
timely basis. Further, a clinical trial may be modified, suspended
or terminated by us, an IRB, an ethics committee or a data safety
monitoring committee overseeing the clinical trial, any clinical
trial site with respect to that site, or the FDA or other
regulatory authorities due to a number of factors,
including:
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failure to conduct the clinical trial in accordance with regulatory
requirements or our clinical protocols;
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inspection of the clinical trial operations or clinical trial sites
by the FDA or other regulatory authorities resulting in the
imposition of a clinical hold;
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stopping rules contained in the protocol;
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unforeseen safety issues or any determination that the clinical
trial presents unacceptable health risks; and
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lack of adequate funding to continue the clinical
trial.
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Changes in regulatory requirements and guidance also may occur and
we may need to amend clinical trial protocols to reflect these
changes. Amendments may require us to resubmit our clinical trial
protocols to IRBs for re-examination, which may impact the costs,
timing and the likelihood of a successful completion of a clinical
trial. If we experience delays in the completion of, or if we must
suspend or terminate, any clinical trial of any product candidate,
our ability to obtain regulatory approval for that product
candidate will be delayed and the commercial prospects, if any, for
the product candidate may suffer as a result. In addition, any of
these factors may also ultimately lead to the denial of regulatory
approval of a product candidate.
Our product candidates (if approved) or any other product
candidates that we may develop and market may be later withdrawn
from the market or subject to promotional limitations.
We may not be able to obtain the labeling claims necessary or
desirable for the promotion of our product candidates if approved.
We may also be required to undertake post-marketing clinical
trials. If the results of such post-marketing studies are not
satisfactory or if adverse events or other safety issues arise
after approval, the FDA or a comparable regulatory agency in
another country may withdraw marketing authorization or may
condition continued marketing on commitments from us that may be
expensive and/or time consuming to complete. In addition, if we or
others identify adverse side effects after any of our products are
on the market, or if manufacturing problems occur, regulatory
approval may be withdrawn and reformulation of our products,
additional clinical trials, changes in labeling of our products and
additional marketing applications may be required. Any
reformulation or labeling changes may limit the marketability of
our products if approved.
Our dependence on third party suppliers or our inability to
successfully produce any product could adversely impact our
business.
We rely on third parties to supply us with component and materials
required for the development and manufacture of our product
candidates. If they fail to provide the required components or we
are unable to find a partner to manufacture the necessary products,
there would be a significant interruption of our supply, which
would materially adversely affect clinical development and
potential commercialization of the product. In the event that the
FDA or such other agencies determine that we or any third-party
suppliers have not complied with cGMP, our clinical trials could be
terminated or subjected to a clinical hold until such time as we or
any third party are able to obtain appropriate replacement
material. Furthermore, if any contract manufacturers who supply us
cannot successfully manufacture material that conforms to our
specifications and with FDA regulatory requirements, we will not be
able to secure and/or maintain FDA approval for our product
candidates. We, and any third-party suppliers are and will be
required to maintain compliance with cGMPs and will be subject to
inspections by the FDA or comparable agencies in other
jurisdictions to confirm such compliance.
13
We do and will also rely on our partners and manufacturers to
purchase from third-party suppliers the materials necessary to
produce our product candidates for our anticipated clinical trials.
We do not have any control over the process or timing of the
acquisition of raw materials by our manufacturers. Moreover, we
currently do not have any agreements for the commercial production
of these raw materials. Any significant delay in the supply of a
product candidate or the raw material components thereof for an
ongoing clinical trial could considerably delay completion of our
clinical trials, product testing and potential regulatory approval
of our product candidates.
We may not have the resources or capacity to commercially
manufacture our product candidates, and we will likely continue to
be dependent upon third party manufacturers. Our current inability,
or our dependence on third parties, to manufacture and supply us
with clinical trial materials and any approved products may
adversely affect our ability to develop and commercialize our
product candidates on a timely basis or at all.
We intend to contract with third parties either directly or through
our licensors for the manufacture of our product candidates.
This reliance on third parties increases the risk that we will not
have sufficient quantities of our product candidates or that such
supply will not be available to us at an acceptable cost, which
could delay, prevent or impair our commercialization
efforts.
We do not have any manufacturing facilities. We expect to use
third-party manufacturers for the manufacture of our product
candidates and have entered into contracts with manufacturers
through the licensor of our radio-pharmaceutical product, SR89.
Even with such contracts in place, reliance on third-party
manufacturers entails additional risks, including:
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reliance
on the third party for regulatory compliance and quality
assurance;
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the
possible breach of the manufacturing agreement by the third
party;
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the
possible termination or nonrenewal of the agreement by the third
party at a time that is costly or inconvenient for us;
and
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reliance
on the third party for regulatory compliance, quality assurance,
and safety and pharmacovigilance reporting.
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Third-party manufacturers may not be able to comply with current
good manufacturing practices, or cGMP, regulations or similar
regulatory requirements outside the United States. Our failure, or
the failure of our third-party manufacturers, to comply with
applicable regulations could result in sanctions being imposed on
us, including fines, injunctions, civil penalties, delays,
suspension or withdrawal of approvals, license revocation, seizures
or recalls of product candidates or medicines, operating
restrictions and criminal prosecutions, any of which could
significantly and adversely affect supplies of our medicines and
harm our business and results of operations.
Any product that we may produce may compete with other product
candidates and products for access to manufacturing facilities.
There are a limited number of manufacturers that operate under cGMP
regulations and that might be capable of manufacturing for
us.
Any performance failure
on the part of future manufacturers could result in a decrease or
end to revenue. If any a contract manufacturer cannot perform as
agreed, we may be required to replace that manufacturer. We may
incur added costs and delays in identifying and qualifying any such
replacement.
Our anticipated future dependence upon others for the manufacture
of our product candidates may adversely affect our future profit
margins and our ability to commercialize any medicines that receive
marketing approval on a timely and competitive basis.
We will likely rely on third parties to conduct our clinical
trials. If these third parties do not meet our deadlines or
otherwise conduct the trials as required, our clinical development
programs could be delayed or unsuccessful and we may not be able to
obtain regulatory approval for or commercialize our product
candidates when expected or at all.
We do not have the ability to conduct all aspects of our
preclinical testing or clinical trials ourselves. We intend to use
and do use Mannin, BioNucleonics, ASDERA, RGCB, OMRF and CROs
to conduct our planned clinical trials and will and do rely upon
such CROs, as well as medical institutions, clinical investigators
and consultants, to conduct our trials in accordance with our
clinical protocols. Our CROs, investigators and other third parties
will and do play a significant role in the conduct of these trials
and the subsequent collection and analysis of data from the
clinical trials.
There is no guarantee that any CROs, investigators and other third
parties upon which we rely for administration and conduct of our
clinical trials will devote adequate time and resources to such
trials or perform as contractually required. If any of these third
parties fail to meet expected deadlines, fail to adhere to our
clinical protocols or otherwise perform in a substandard manner,
our clinical trials may be extended, delayed or terminated. If any
of our clinical trial sites terminate for any reason, we may
experience the loss of follow-up information on patients enrolled
in our ongoing clinical trials unless we are able to transfer the
care of those patients to another qualified clinical trial site. In
addition, principal investigators for our clinical trials may serve
as scientific advisors or consultants to us from time to time and
receive cash or equity compensation in connection with such
services. If these relationships and any related compensation
result in perceived or actual conflicts of interest, the integrity
of the data generated at the applicable clinical trial site may be
jeopardized.
If our competitors develop treatments for the target indications of
our product candidates that are approved more quickly, marketed
more successfully or demonstrated to be more effective than our
product candidates, our commercial opportunity will be reduced or
eliminated.
We operate in highly competitive segments of the biotechnology and
biopharmaceutical markets. We face competition from many different
sources, including commercial pharmaceutical and biotechnology
enterprises, academic institutions, government agencies, and
private and public research institutions. Our product candidates,
if successfully manufactured and/or developed and approved, will
compete with established therapies, as well as new treatments that
may be introduced by our competitors. Many of our competitors have
significantly greater financial, product development, manufacturing
and marketing resources than us. Large pharmaceutical companies
have extensive experience in clinical testing and obtaining
regulatory approval for drugs. In addition, many universities and
private and public research institutes are active in cancer
research, some in direct competition with us. We also may compete
with these organizations to recruit management, scientists and
clinical development personnel. Smaller or early-stage companies
may also prove to be significant competitors, particularly through
collaborative arrangements with large and established companies.
New developments, including the development of other biological and
pharmaceutical technologies and methods of treating disease, occur
in the pharmaceutical and life sciences industries at a rapid pace.
Developments by competitors may render our product candidates
obsolete or noncompetitive. We will also face competition from
these third parties in recruiting and retaining qualified
personnel, establishing clinical trial sites and patient
registration for clinical trials and in identifying and
in-licensing new product candidates.
14
If
competitors introduce their own generic equivalent of our SR89
product candidate, our revenues and gross margin from such products
could decline rapidly.
Revenues and gross margin derived from generic pharmaceutical
products often follow a pattern based on regulatory and competitive
factors that we believe are unique to the generic pharmaceutical
industry. As the patent(s) for a brand name product or the
statutory marketing exclusivity period (if any) expires, the first
generic manufacturer to receive regulatory approval for a generic
equivalent of the product often is able to capture a substantial
share of the market. However, as other generic manufacturers
receive regulatory approvals for their own generic versions, that
market share, and the price of that product, will typically decline
depending on several factors, including the number of competitors,
the price of the branded product and the pricing strategy of the
new competitors. The number of our competitors producing a generic
version equivalent to our SR89 product candidate could increase to
such an extent that we may stop marketing our product for which we
previously obtained approval, which would have a material adverse
impact on our revenues, if we ever achieve revenues, and gross
margin.
If we are unable to establish sales and marketing capabilities or
fail to enter into agreements with third parties to market,
distribute and sell any products we may successfully develop, we
may not be able to effectively market and sell any such products
and generate product revenue.
We do not currently have the infrastructure for the sales,
marketing and distribution of any of our product candidates, and
must build this infrastructure or make arrangements with third
parties to perform these functions in order to commercialize any
products that we may successfully develop. The establishment and
development of a sales force, either by us or jointly with a
partner, or the establishment of a contract sales force to market
any products we may develop will be expensive and time-consuming
and could delay any product launch. If we, or our partners, are
unable to establish sales and marketing capability or any other
non-technical capabilities necessary to commercialize any products
we may successfully develop, we will need to contract with third
parties to market and sell such products. We may not be able to
establish arrangements with third parties on acceptable terms, or
at all.
We may expend our limited resources to pursue a particular product
candidate or indication and fail to capitalize on product
candidates or indications for which there may be a greater
likelihood of success.
Because we have limited financial and managerial resources, we will
focus on a limited number of research programs and product
candidates for specific indications. As a result, we may forego or
delay pursuit of opportunities with other product candidates for
other indications for which there may be a greater likelihood of
success or may prove to have greater commercial potential.
Notwithstanding our investment to date and anticipated future
expenditures on MAN 01 (Mannin), Uttroside-B (OMRF), QBM001
(Asdera) and the BioNucleonics IP, we have not yet developed,
and may never successfully develop, any marketed treatments using
these products other than the SR89 product candidate for which
there is FDA approval. Research programs to identify new product
candidates or pursue alternative indications for current product
candidates require substantial technical, financial and human
resources. Although we intend to, and do, support certain
investigator-sponsored clinical trials of MAN 01, Uttroside-B,
QBM001 evaluating various indications, as well as other uses of
SR89, these activities may initially show promise in identifying
potential product candidates or indications, yet fail to yield
product candidates or indications for further clinical
development.
We depend upon the services of our key management personnel, and
the loss of their services would likely result in disruptions of
our operations and have a material adverse effect on our
business.
Our management and operations are dependent on the services of our
management team, namely Mr. Denis Corin, our Chief Executive
Officer and Chairman, and Mr. William Rosenstadt, our Chief Legal
Officer and a Director. We do not have employment or
non-compete agreements with or maintain key-man life insurance in
respect of either of these individuals. Because of their
knowledge of the industry and our operations and their experience
with us, we believe that our future results depend upon their
efforts, and the loss of the services of either of these
individuals for any reason could result in a disruption of our
operations which will likely have a material adverse effect on our
business.
Other than our Chief Executive Officer, we currently do not have
full-time employees, but we retain the services of independent
contractors/consultants on a contract-employment basis. Our ability
to manage growth effectively will require us to continue to
implement and improve our management systems and to recruit and
train new employees. We might not be able to successfully attract
and retain skilled and experienced personnel.
15
If we fail to attract and retain key management and clinical
development personnel, we may be unable to successfully develop or
commercialize our product candidates.
We will need to expand and effectively manage our managerial,
operational, financial and other resources in order to successfully
pursue our clinical development and commercialization efforts. As a
company with a limited number of personnel, we highly depend on the
development, regulatory, commercial and financial expertise of the
members of our senior management and advisors, in particular Denis
Corin, our chairman and chief executive officer. The loss of this
individual or the services of any of our other senior management
could delay or prevent the further development and potential
commercialization of our product candidates and, if we are not
successful in finding suitable replacements, could harm our
business. Our success also depends on our continued ability to
attract, retain and motivate highly qualified management and
scientific personnel and we may not be able to do so in the future
due to the intense competition for qualified personnel among
biotechnology and pharmaceutical companies, as well as universities
and research organizations. If we are not able to attract and
retain the necessary personnel, we may experience significant
impediments to our ability to implement our business
strategy.
Applicable regulatory requirements, including those contained in
and issued under the Sarbanes-Oxley Act of 2002, may make it
difficult for us to retain or attract qualified officers and
directors, which could adversely affect the management of our
business and our ability to retain listing of our common
stock.
We may be unable to attract and retain those qualified officers,
directors and members of board committees required to provide for
effective management because of the rules and regulations that
govern publicly-held companies, including, but not limited to,
certifications by principal executive officers. The enactment of
the Sarbanes-Oxley Act has resulted in the issuance of a series of
related rules and regulations and the strengthening of existing
rules and regulations by the SEC, as well as the adoption of new
and more stringent rules by the stock exchanges. The perceived
increased personal risk associated with these changes may deter
qualified individuals from accepting roles as directors and
executive officers.
Further, some of these changes heighten the requirements for board
or committee membership, particularly with respect to an
individual’s independence from our business and level of
experience in finance and accounting matters. We may have
difficulty attracting and retaining directors with the requisite
qualifications. If we are unable to attract and retain qualified
officers and directors, the management of our business and our
ability to obtain or retain listing of our shares of common stock
on any stock exchange could be adversely affected.
We may be exposed to potential risks and significant expenses
resulting from the requirements under section 404 of the
Sarbanes-Oxley Act of 2002.
We are required, pursuant to Section 404 of the Sarbanes-Oxley Act
of 2002, to include in our annual report our assessment of the
effectiveness of our internal control over financial reporting. We
expect to incur significant continuing costs, including accounting
fees and staffing costs, in order to maintain compliance with the
internal control requirements of the Sarbanes-Oxley Act of 2002.
Our management concluded that our internal controls and procedures
were not effective to detect the inappropriate application of US
GAAP for our most recent fiscal year. As we develop our business,
hire employees and consultants and seek to protect our intellectual
property rights, our current design for internal control over
financial reporting must be strengthened to enable management to
determine that our internal controls are effective for any period,
or on an ongoing basis. Accordingly, as we develop our
business, such development and growth will necessitate changes to
our internal control systems, processes and information systems,
all of which will require additional costs and
expenses.
In the future, if we fail to complete the annual Section 404
evaluation in a timely manner, we could be subject to regulatory
scrutiny and a loss of public confidence in our internal controls.
In addition, any failure to implement required new or improved
controls, or difficulties encountered in their implementation,
could harm our operating results or cause us to fail to meet our
reporting obligations.
Because of the small size of our company, we do not have separate
Chairman, Chief Executive Officer and Chief Financial Officer
positions, which may expose us to potential risks, including our
failure to produce reliable financial reports and prevent and/or
detect fraud.
We have not adopted a formal policy to separate or combine the
positions of Chairman and Chief Executive Officer, both of which
are currently held by Denis Corin who is also our acting principal
financial officer. In addition, our two employees also
comprise our Board of Directors. As such, there is no
division of labor between our management and of our Board of
Directors. This structure exposes us to a number of risks,
including a failure to maintain adequate internal controls, our
failure to produce reliable financial reports and our failure to
prevent and/or detect financial fraud. Any such failures
would adversely affect our financial condition and overall business
operations.
We are required, pursuant to Section 404 of the Sarbanes-Oxley Act
of 2002, to include in our annual report our assessment of the
effectiveness of our internal control over financial reporting. We
expect to incur significant continuing costs, including accounting
fees and staffing costs, in order to maintain compliance with the
internal control requirements of the Sarbanes-Oxley Act of 2002.
Our management concluded that our internal controls and procedures
were not effective to detect the inappropriate application of US
GAAP for our most recent fiscal year. As we develop our business,
hire employees and consultants and seek to protect our intellectual
property rights, our current design for internal control over
financial reporting must be strengthened to enable management to
determine that our internal controls are effective for any period,
or on an ongoing basis. Accordingly, as we develop our
business, such development and growth will necessitate changes to
our internal control systems, processes and information systems,
all of which will require additional costs and expenses. Among
other outcomes, a downturn in general economic conditions
could:
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increase the cost of raising, or decrease our ability to raise,
additional funds; as we do not anticipate generating sufficient
revenue in the next twelve months to cover our operating costs, we
may need to raise additional funding to implement our business if
we do not raise sufficient funds in this offering. A recession or
other negative economic factors could make this more difficult or
prohibitive; or
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interfere with services provided by third parties; we use third
parties for research purposes and intend to use third parties for
the production and distribution of our generic SR89 product
candidate, and a general recession or other economic conditions
could jeopardize the ability of any third parties to fulfill their
obligations to us;
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In the future, if we fail to complete the annual Section 404
evaluation in a timely manner, we could be subject to regulatory
scrutiny and a loss of public confidence in our internal controls.
In addition, any failure to implement required new or improved
controls, or difficulties encountered in their implementation,
could harm our operating results or cause us to fail to meet our
reporting obligations.
16
Risks Related to our Industry
We are subject to general economic conditions outside of our
control.
Projects for the acquisition and development of our products are
subject to many factors, which are outside our
control. These factors include general economic
conditions in North America and worldwide (such as recession,
inflation, unemployment, and interest rates), shortages of labor
and materials and price of materials and competitive products and
the regulation by federal and state governmental authorities. If
any or several of these facts develop in a way that is adverse to
our interest, we will not be in a position to reverse them, and we
may not be able to survive such a development.
If any product candidate that we successfully develop does not
achieve broad market acceptance among physicians, patients,
healthcare payors and the medical community, the revenues that it
generates from their sales will be limited.
Even if we successfully produce product candidates, they may not
gain market acceptance among physicians, patients, healthcare
payors and the medical community. Coverage and reimbursement of our
product candidates by third-party payors, including government
payors, generally is also necessary for commercial success. The
degree of market acceptance of any approved products will depend on
a number of factors, including:
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the efficacy and safety as demonstrated in clinical
trials;
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the clinical indications for which the product is
approved;
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acceptance by physicians, major operators of hospitals and clinics
and patients of the product as a safe and effective
treatment;
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acceptance of the product by the target population;
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the potential and perceived advantages of product candidates over
alternative treatments;
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the safety of product candidates seen in a broader patient group,
including its use outside the approved indications;
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the cost of treatment in relation to alternative
treatments;
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the availability of adequate reimbursement and pricing by third
parties and government authorities;
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relative convenience and ease of administration;
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the prevalence and severity of adverse events;
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the effectiveness of our sales and marketing efforts;
and
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unfavorable publicity relating to the product.
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If any product candidate is approved but does not achieve an
adequate level of acceptance by physicians, hospitals, healthcare
payors and patients, we may not generate sufficient revenue from
these products and may not become or remain
profitable.
We may incur substantial product liability or indemnification
claims relating to the clinical testing and/or use of our product
candidates.
We face an inherent risk of product liability exposure related to
the testing of our product candidates in human clinical trials, as
well as related to the manufacture and consumption of product
candidates that we successfully commercialize. Claims could be
brought against us if use or misuse of one of our product
candidates causes, or merely appears to have caused, personal
injury or death. While the manufacturer of our SR89 product
maintains a $5 Million product liability policy, and the holder of
the ANDA (BioNucleonics) are responsible for having their own
coverage, we intend to obtain supplemental coverage, but do not
currently have our own product liability insurance. When we
initiate clinical trials, we intend to obtain the relevant
coverage. As a result, such coverage may not be sufficient to cover
claims that may be made against us and we may be unable to maintain
such insurance. Any claims against us, regardless of their merit,
could severely harm our financial condition, strain our management
and other resources or destroy the prospects for commercialization
of the product which is the subject of any such claim. We are
unable to predict if we will be able to obtain or maintain product
liability insurance for any products that may be approved for
marketing. Additionally, we have entered into various agreements
where we indemnify third parties for certain claims relating to our
product candidates. These indemnification obligations may require
us to pay significant sums of money for claims that are covered by
these indemnifications.
Healthcare reform and restrictions on reimbursements may limit our
financial returns.
Our ability or the ability of our collaborators to commercialize
any of our product candidates that we successfully develop may
depend, in part, on the extent to which government health
administration authorities, private health insurers and other
organizations will reimburse consumers for the cost of these
products. These third parties are increasingly challenging both the
need for and the price of new drug products. Significant
uncertainty exists as to the reimbursement status of newly approved
therapeutics. Adequate third-party reimbursement may not be
available for our product candidates to enable us or our
collaborators to maintain price levels sufficient to realize an
appropriate return on their and our investments in research and
product development.
Our success depends upon intellectual property, proprietary
technologies and regulatory market exclusivity periods, and the
intellectual property protection for our product candidates depends
significantly on third parties.
Our success depends, in large part, on obtaining and maintaining
patent protection and trade secret protection for our product
candidates and their formulations and uses, as well as successfully
defending these patents against third-party challenges. The parties
from which we license our intellectual property are responsible for
prosecuting and maintaining patent protection relating to the
intellectual property to which we have a license from that party.
If any of these parties fails to appropriately prosecute and
maintain patent protection for the intellectual property, our
ability to develop and commercialize the respective product
candidate may be adversely affected and we may not be able to
prevent competitors from making, using and selling competing
products. This failure to properly protect the intellectual
property rights could have a material adverse effect on our
financial condition and results of operations.
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The patent application process is subject to numerous risks and
uncertainties, and we or our partners might not be successful in
protecting our product candidates by obtaining and defending
patents. These risks and uncertainties include the
following:
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patent
applications may not result in any patents being
issued;
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patents
that may be issued or in-licensed may be challenged, invalidated,
modified, revoked, circumvented, found to be unenforceable, or
otherwise may not provide any competitive advantage;
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our
competitors, many of which have substantially greater resources
than we or our partners and many of which have made significant
investments in competing technologies, may seek, or may already
have obtained, patents that will limit, interfere with, or
eliminate our ability to make, use and sell our potential
products;
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there
may be significant pressure on the U.S. government and other
international governmental bodies to limit the scope of patent
protection both inside and outside the United States for disease
treatments that prove successful as a matter of public policy
regarding worldwide health concerns; and
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countries
other than the United States may have patent laws less favorable to
patentees than those upheld by U.S. courts, allowing foreign
competitors a better opportunity to create, develop, and market
competing products.
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In addition to patents, we and our partners also rely on trade
secrets and proprietary know-how. Although we have taken steps to
protect our trade secrets and unpatented know-how, including
entering into confidentiality agreements with third parties, and
confidential information and inventions agreements with employees,
consultants and advisors, third parties may still obtain this
information or come upon this same or similar information
independently.
We also intend to rely on our ability to obtain and maintain a
regulatory period of market exclusivity for any of our biologic
product candidates that are successfully developed and approved for
commercialization. Although this period in the United States is
currently 12 years from the date of marketing approval, there is a
risk that the U.S. Congress could amend laws to significantly
shorten this exclusivity period, as proposed by President Obama.
Once any regulatory period of exclusivity expires, depending on the
status of our patent coverage and the nature of the product, we may
not be able to prevent others from marketing products that are
biosimilar to or interchangeable with our products, which would
materially adversely affect us.
In addition, U.S. patent laws may change which could prevent or
limit us from filing patent applications or patent claims to
protect our products and/or technologies or limit the exclusivity
periods that are available to patent holders. For example, on
September 16, 2011, the Leahy-Smith America Invents Act, or
the America Invents Act, was signed into law, and includes a number
of significant changes to U.S. patent law. These include changes to
transition from a “first-to-invent” system to a
“first-to-file” system and to the way issued patents
are challenged. These changes may favor larger and more established
companies that have more resources to devote to patent application
filing and prosecution. The U.S. Patent and Trademark Office
implemented the America Invents Act on March 16, 2013, and it
remains to be seen how the judicial system and the U.S. Patent and
Trademark Office will interpret and enforce these new laws.
Accordingly, it is not clear what impact, if any, the America
Invents Act will ultimately have on the cost of prosecuting our
patent applications, our ability to obtain patents based on our
discoveries and our ability to enforce or defend our issued
patents.
If we or our partners are sued for infringing intellectual property
rights of third parties, it will be costly and time consuming, and
an unfavorable outcome in that litigation would have a material
adverse effect on our business.
Our success also depends on our ability and the ability of any of
our current or future collaborators to develop, manufacture, market
and sell our product candidates without infringing the proprietary
rights of third parties. Numerous U.S. and foreign issued patents
and pending patent applications, which are owned by third parties,
exist in the fields in which we are developing products, some of
which may be directed at claims that overlap with the subject
matter of our intellectual property. Because patent applications
can take many years to issue, there may be currently pending
applications, unknown to us, which may later result in issued
patents that our product candidates or proprietary technologies may
infringe. Similarly, there may be issued patents relevant to our
product candidates of which we are not aware.
There is a substantial amount of litigation involving patent and
other intellectual property rights in the biotechnology and
biopharmaceutical industries generally. If a third-party claims
that we or any of our licensors, suppliers or collaborators
infringe the third party’s intellectual property rights, we
may have to:
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obtain licenses, which may not be available on commercially
reasonable terms, if at all;
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abandon an infringing product candidate or redesign our products or
processes to avoid infringement;
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pay substantial damages, including the possibility of treble
damages and attorneys’ fees, if a court decides that the
product or proprietary technology at issue infringes on or violates
the third party’s rights;
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pay substantial royalties, fees and/or grant cross licenses to our
technology; and/or
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defend litigation or administrative proceedings which may be costly
whether we win or lose, and which could result in a substantial
diversion of our financial and management resources.
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We may be involved in lawsuits to protect or enforce our patents or
the patents of our licensors, which could be expensive, time
consuming and unsuccessful.
18
Competitors may infringe our patents or the patents of our
licensors. To counter infringement or unauthorized use, we may be
required to file infringement claims, which can be expensive and
time-consuming. An adverse result in any litigation or defense
proceedings could put one or more of our patents at risk of being
invalidated, found to be unenforceable, or interpreted narrowly and
could put our patent applications at risk of not issuing.
Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation, there
is a risk that some of our confidential information could be
compromised by disclosure during this type of
litigation.
We may be subject to claims that our consultants or independent
contractors have wrongfully used or disclosed alleged trade secrets
of their other clients or former employers to us.
As is common in the biotechnology and pharmaceutical industry, we
engage the services of consultants to assist us in the development
of our product candidates. Many of these consultants were
previously employed at, or may have previously been or are
currently providing consulting services to, other biotechnology or
pharmaceutical companies, including our competitors or potential
competitors. We may become subject to claims that we or these
consultants have inadvertently or otherwise used or disclosed trade
secrets or other proprietary information of their former employers
or their former or current customers. Litigation may be necessary
to defend against these claims. Even if we are successful in
defending against these claims, litigation could result in
substantial costs and be a distraction to management.
Risks Related to our Securities
Our shares of common stock are subject to the “penny
stock’ rules of the securities and exchange commission and
the trading market in our securities will be limited, which will
make transactions in our stock cumbersome and may reduce the value
of an investment in our stock.
The U.S. Securities and Exchange Commission has adopted rules that
regulate broker-dealer practices in connection with transactions in
"penny stocks.” Penny stocks generally are equity
securities with a price of less than $5 (other than securities
registered on certain national securities exchanges or quoted on
the NASDAQ system, provided that current price and volume
information with respect to transactions in such securities is
provided by the exchange or system). Penny stock rules
require a broker-dealer, prior to a transaction in a penny stock
not otherwise exempt from those rules, to deliver a standardized
risk disclosure document prepared by the SEC, which specifies
information about penny stocks and the nature and significance of
risks of the penny stock market. A broker-dealer must also
provide the customer with bid and offer quotations for the penny
stock, the compensation of the broker-dealer, and sales person in
the transaction, and monthly account statements indicating the
market value of each penny stock held in the customer's account.
In addition, the penny stock rules require that, prior to a
transaction in a penny stock not otherwise exempt from those rules,
the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and
receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing
the trading activity in the secondary market for stock that becomes
subject to those penny stock rules. If a trading market for
our common stock develops, our common stock will probably become
subject to the penny stock rules, and shareholders may have
difficulty in selling their shares.
Any additional financing may dilute existing shareholders and
decrease the market price for shares of our common
stock.
If we raise additional capital, our existing shareholders may incur
substantial and immediate dilution. We estimate that we will need
approximately $20,000,000 in additional funds over the next 2
years to complete our business plan. The most likely source of
future funds available to us is through the sale of additional
shares of common stock. Such sales might occur below market price
and below the price of which existing shareholders purchased their
shares.
Our Articles of Incorporation provide indemnification for officers,
directors and employees.
Our governing instruments provide that officers, directors,
employees and other agents and their affiliates shall only be
liable to our Company for losses, judgments, liabilities and
expenses that result from the negligence, misconduct, fraud or
other breach of fiduciary obligations. Thus certain alleged errors
or omissions might not be actionable by us. The governing
instruments also provide that, under the broadest circumstances
allowed under law, we must indemnify our officers, directors,
employees and other agents and their affiliates for losses,
judgments, liabilities, expenses and amounts paid in settlement of
any claims sustained by them in connection with our Company,
including liabilities under applicable securities
laws.
The market price of our common stock may be volatile and may
fluctuate in a way that is disproportionate to our operating
performance.
Our shares of common stock trading on the OTCQB will fluctuate
significantly. There is a volatility associated with Bulletin Board
securities in general and the value of your investment could
decline due to the impact of any of the following factors upon the
market price of our common stock:
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sales or potential sales of substantial amounts of our common
stock;
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delay or failure in initiating or completing pre-clinical or
clinical trials or unsatisfactory results of these
trials;
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announcements about us or about our competitors, including clinical
trial results, regulatory approvals or new product
introductions;
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developments concerning our licensors, product manufacturers or our
ability to produce Man-01;
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developments concerning our licensors, product manufacturers or our
ability to produce SR89;
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litigation and other developments relating to our patents or other
proprietary rights or those of our competitors;
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conditions in the pharmaceutical or biotechnology
industries;
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governmental regulation and legislation;
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variations in our anticipated or actual operating
results;
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change in securities analysts’ estimates of our performance,
or our failure to meet analysts’ expectations;
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change in general economic trends; and
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investor perception of our industry or our prospects.
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Many of these factors are beyond our control. The stock markets in
general, and the market for pharmaceutical and biotechnological
companies in particular, have historically experienced extreme
price and volume fluctuations. These fluctuations often have been
unrelated or disproportionate to the operating performance of these
companies. These broad market and industry factors could reduce the
market price of our common stock, regardless of our actual
operating performance.
19
Sales of a substantial number of shares of our common stock, or the
perception that such sales may occur, may adversely impact the
price of our common stock.
A large number of our shares may be sold without restriction in
public markets. These include:
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approximately
6,660,000 of our outstanding shares of common stock recorded by our
transfer agent as of November 30, 2107 as unrestricted and freely
tradable;
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shares
of our common stock that are, or are eligible to be, unrestricted
and free trading pursuant to Rule 144 or other exemptions from
registration under the Securities Act that have not yet been
recorded by our transfer agent as such;
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1,711,875
shares of our common stock that were sold pursuant to a
registration statement on Form S-1 on February 1, 2018;
and
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1,711,875
shares of our common stock underlying warrants that were sold
pursuant to a registration statement on Form S-1 on February 1,
2018.
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A large portion of the shares that are freely tradable, were issued
at a price that is significantly below the closing price of $2.99
as of February 26, 2018. If the holders of our free trading shares
wanted to make a profit on their investment (or if they wish to
sell for a loss), there might not be enough purchasers to maintain
the market price of our common stock on the date of such
sales. Any such sales, or the fear of such sales, could
substantially decrease the market price of our common stock and the
value of your investment.
We have not paid dividends to date and do not intend to pay any
dividends in the near future.
We have never paid dividends on our common stock and presently
intend to retain any future earnings to finance the operations of
our business. You may never receive any dividends on our
shares.
The exercise of warrants and options or future sales of our common
stock may further dilute the shares of common stock you receive in
this offering.
As of the date hereof, we have outstanding vested and unvested
options and warrants exercisable into 3,583,995 shares of common
stock. The issuance of any shares of common stock pursuant to
exercise of such options and warrants or the conversion of such
notes would dilute your percentage ownership of our Company, and
the issuance of any shares of common stock pursuant to exercise of
such options and warrants or the conversion of such notes at a per
share price below the offering price of shares being acquired in
this offering which would dilute the net tangible value per share
for such investor.
Our Board of Directors is authorized to sell additional shares of
common stock, or securities convertible into shares of common
stock, if in their discretion they determine that such action would
be beneficial to us. Approximately 95% of our authorized shares of
common stock and 100% of our shares of preferred stock are
available for issuance. Any such issuance would dilute the
ownership interest of persons acquiring common stock in this
offering, and any such issuance at a share price lower than then
net tangible book value per share at the time an investor purchased
its shares would dilute the net tangible value per share for such
investor.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM
2. DESCRIPTION OF PROPERTY
The Company maintains a corporate office at 501 Madison Avenue,
14th Floor, New York, NY 10022. Such office is solely for the
purpose of maintaining a physical presence to receive
correspondence and it is at no cost as our general counsel
maintains his offices at that location. The company also maintains
a single month to month office in Grand Cayman, where the
Company’s President and Chairman, Mr. Denis Corin, resides,
and it is at no cost.
ITEM 3. LEGAL
PROCEEDINGS
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
20
PART II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Market Information
Our common stock is listed on the Over the Counter QB
(“OTCQB”) under the symbol “QBIO”. The
market for our common stock is limited, volatile and sporadic. The
following table sets forth, for the periods indicated, the high and
low bid prices of our common stock on the OTCQB as reported by
Google Finance. The following quotations reflect inter-dealer
prices, without retail mark-up, markdown, or commissions, and may
not reflect actual transactions.
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High Bid
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Low Bid
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Fiscal Year 2018
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December
1, 2017 through February 26, 2018
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$5.55
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$2.73
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Fiscal Year 2017
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November
30, 2017
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$5.90
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$3.35
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August
31, 2017
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$5.10
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$3.19
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May
31, 2017
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$7.90
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$3.35
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February
29, 2017
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$12.61
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$3.20
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Fiscal Year 2016
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November
30, 2016
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$6.00
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$2.39
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August
31, 2016
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$4.14
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$1.26
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May
31, 2016
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$4.10
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$2.00
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February
29, 2016
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$4.69
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$2.35
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The last reported sales price for our shares on the OTCQB as of
February 26, 2018, was $2.99 per share. As of February 26, 2018, we
had approximately 3,840 shareholders who held stock through
securities position listings.
Holders
As of February 26, 2018, we had
13,947,784 shares of $0.001 par value common stock issued
and outstanding. Our Transfer Agent is VStock Transfer, LLC,
18 Lafayette Place, Woodmere, NY 11598, Phone: (212)
828-8436.
Dividends
We have never declared or paid any cash dividends on our common
stock. For the foreseeable future, we intend to retain any
earnings to finance the development and expansion of our business
and do not anticipate paying any cash dividends on our common
stock. Any future determination to pay dividends will be at the
discretion of the Board of Directors and will depend upon then
existing conditions, including our financial condition and results
of operations, capital requirements, contractual restrictions,
business prospects and other factors that the board of directors
considers relevant.
ITEM 6. SELECTED FINANCIAL DATA
We are a smaller reporting company as defined by Rule 12b-2 of the
Exchange Act and are not required to provide the information
required under this item.
ITEM 7. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with our consolidated
financial statements and related notes included elsewhere in this
report. This discussion contains certain forward-looking statements
that involve risk and uncertainties. Our actual results may differ
materially from those discussed below. Factors that could cause or
contribute to such differences include, but are not limited to,
those identified below and those set forth under the Section
entitled "Risk Factors", and other documents we file with the
Securities and Exchange Commission. Historical results are not
necessarily indicative of future results.
Overview
Q BioMed Inc. (or “the Company”) was incorporated in
the State of Nevada on November 22, 2013 and is a biomedical
acceleration and development company focused on licensing,
acquiring and providing strategic resources to life sciences and
healthcare companies. We intend to mitigate risk by acquiring
multiple assets over time and across a broad spectrum of healthcare
related products, companies and sectors. We intend to
develop these assets to provide returns via organic growth, revenue
production, out-licensing, sale or spin out.
21
Recent Developments
Capital Raising
On August 1, 2017 we closed a $3,050,390 equity
financing. The financing with a small group of accredited investors
provides the necessary capital to meet near term milestones and
catalysts in its most advanced product portfolio assets, including
the commercialization of Strontium Chloride 89, multiple IND
enabling studies, CMC manufacturing and at least one IND
filing.
On February 1, 2018 we closed a $5.48 million equity financing.
This financing with a small group of hedge funds and accredited
investors provides the capital to advance all assets and the
capital to meet near term catalysts, including the expected
initiation of sales of SR89 and the filing of an IND for
QBM001.
Strontium 89 Chloride commercialization
On September 6, 2016, we announced the closing of a definitive
agreement to exclusively license worldwide and ultimately acquire
all the assets from a private company related to an FDA approved
generic drug for the treatment of pain associated with metastatic
bone cancer, Generic Strontium Chloride Sr-89 Injection USP
(“SR89”).
This licensed radiopharmaceutical agent is indicated for the
treatment of pain associated with metastatic bone cancer. SR89
provides long lasting relief for patients suffering from bone pain
due to metastatic cancer, typically caused by advanced-stage
breast, prostate or lung cancer. The drug is preferentially
absorbed in bone metastases. It has been proven to provide a
long-term effect resulting in non-narcotic cancer pain relief and
enhanced quality of life.
We have initiated final drug product manufacturing
however as a result of the 2 major hurricanes in both Texas and
Florida and their impact on the logistics and in particular the
contract manufacturing facilities in those states, we are taking
additional steps to ensure that the manufacturing process meets our
strict standards and safety is never compromised. We are building
additional redundancies into our supply chain, including adding new
manufacturing sites and securing the required FDA approval for
those sites. We will work with the regulators to affect those
changes as soon as possible. As a result of these measures
SR89 may not be commercially available until the the
2nd
quarter of 2018, pending approval of
the FDA. A new website, www.PainFreeCancer.com was recently
announced in anticipation of the commercial
launch.
We intend to make this drug as widely available as possible and to
ensure that the drug will be priced competitively. In light of the
current opiate overuse and abuse crisis, we are pleased to be
offering this non-narcotic cancer pain palliation drug to patients
suffering from this debilitating condition.
There are approximately 300,000 – 400,000 new cases of bone
metastases in patients with prostate, breast and lung cancer per
year in the U.S. alone with 1 in 3 of those being ideal
candidates for SR89. Approximately 80% of patients using SR89
have reported experiencing a substantial decrease in pain, an
increase in physical activity and a reduction in the need for
opiate analgesics. In the body, strontium acts similarly to
calcium and is preferentially taken up in osteoblastic tissue while
the unabsorbed isotope is excreted in the urine the first 2 to 3
days following injection, clearing rapidly from the blood and
selectively localizing in bone mineral. Uptake of strontium by bone
occurs preferentially in sites of active osteogenesis; thus primary
bone tumors and areas of metastatic involvement (blastic lesions)
can accumulate significantly greater concentrations of strontium
than surrounding normal bone.
Generic Strontium Chloride Sr-89 Injection USP can be used in
combination with (and reduce the dosage of) opiate based drugs like
Oxycotin®, Morphine, Percocet® or replace them
entirely. It can also be used in combination with cancer
therapeutic drugs. Clinical studies have demonstrated that the
combination of alternating weekly chemohormonal therapies with SR89
demonstrated a prolonged progression-free and overall survival with
acceptable toxicity.
We believe there is an opportunity to invest additional resources
into the program by conducting a post-marketing phase 4 trial to
expand the indication and label to a primary cancer therapeutic.
This would grow the revenue potential significantly and place our
drug in the multi-billion dollar cancer therapy
market.
License Agreement in Rare Pediatric Autistic Spectrum
Disorder
On April 25, 2017, we entered into a licensing agreement that
provides us with the worldwide exclusive rights to ASDERA’s
ASD-002 (now annotated as QBM-001). QBM-001 is being developed to
treat a rare pediatric nonverbal disorder. Under the terms of the
agreement, the Company receives global rights to develop and
commercialize the drug in the rare pediatric disease
market.
We recently announced a partnership with Sphaera Pharma to
develop a new and proprietary analog of QBM-001 for pediatric
developmental nonverbal disorder. Sphaera Pharma will employ its
proprietary and patented platform to produce a novel analog that
aims to reduce or eliminate potential side effects and can reduce
the amount of product a toddler needs to take on a daily basis.
Preclinical testing of the new analog is currently underway to
support a pre-IND and subsequent IND filing expected in the
2nd
quarter of 2018. We plan to initiate a
phase 2/3 pivotal clinical trial in the Summer of
2018.
The proprietary analog will also allow Q BioMed to apply for a
global composition of matter patent for QBM-001, while still
ensuring Q BioMed can pursue the 505(b)2 regulatory pathway in the
US to ensure toddlers can possibly benefit from QBM-001 as soon as
possible.
Among the more than 60,000 US children who develop autism spectrum
disorders (ASD) every year, 20,000 become nonverbal or lose the
ability to speak. The numbers are similar in Europe and this
nonverbal group will have to rely on assisted living for the rest
of their life.
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Given the severity of this disorder and the immense emotional toll
on these children and their families, our goal is to move the
product forward quickly by using all the regulatory tools available
to us to expedite the advancement of this drug
candidate.
The cost for treatment and assisted living in the US alone can
equal or exceed ten million dollars per patient over a lifetime.
The estimated cost to the US healthcare system and lost
productivity is estimated at 200 billion dollars. Currently there
is no treatment for this disorder. EEG, behavioral, and genetic
testing can identify a targeted population of children in their
second year of life that we believe would respond to this
treatment.
Research published in 2014 by Wittkowski et al. in the Nature
journal Translational Psychiatry and independently confirmed
in 2015 by Guglielmi et al. indicated that certain ion
channels were not active enough in this targeted population. Given
that we are developing an analogue of a well-known approved drug
that regulates these channels, we expect to advance this clinically
through a 505(b)2 pathway in 2018 with a single Phase 2/3 pivotal
trial, which, if successful, could have the drug ready for market
in less than 2 years.
License Agreement in Liver Cancer Chemotherapeutic Drug
Candidate
On June 15, 2017, we signed a final license agreement with The
Oklahoma Medical Research Foundation (OMRF) and the Rajiv Gandhi
Centre for Biotechnology (RGCB). Under the agreement Q BioMed has
the global exclusive rights to develop and market a novel
chemotherapeutic drug to treat liver cancer.
The compound was isolated and characterized from the leaves
of Solanum
nigrum Linn, or black
nightshade, a plant widely used in traditional medicine. In animal
models, the compound, called uttrocide B, was shown to be 10 times
more cytotoxic to HepG2 liver cancer cells than the only drug
currently on the market for the condition and caused no noticeable
side effects.
Liver cancer is the second most common cause of cancer deaths
worldwide, according to the Centers for Disease Control and
Prevention, and claims approximately 750,000 lives each year. The
American Cancer Society estimates that 39,000 people in the U.S.
will be diagnosed with primary liver cancer in 2017 and that 27,000
will die from the disease this year.
We are currently working on synthesizing the molecule chemically to
ensure commercial availability and scalability. We anticipate that
pre-IND work will be done by the middle of this year, and the IND
is expected to be filed in the second half of 2018.
Mannin License Update
Additionally, Mannin Research Inc. (“Mannin”), our
technology partner company focused on drug candidate MAN-01 for
treatment of Primary Open Angle Glaucoma (POAG), has initiated
pre-clinical lead candidate optimization of a small molecule for
topical application. Lead candidate selection is progressing
on-time and on-budget. The topical application in the form of an
easy to administer eye drop is a key differentiator for Mannin and
aims to solve the compliance problems and invasive procedures
currently available to patients suffering from
glaucoma.
Mannin is continuing its focus on research and discovery on the
biology of Tie2/TEK signaling and its relationship with
Schlemm’s Canal function and regulation of intra-ocular
pressure. Additional data sets and IP have been developed around
this novel mechanism of action. Mannin is evaluating
strategic partnerships opportunities to grow its intellectual
property portfolio within the Tie2/TEK signaling market, and is
seeking complementary technologies to strengthen its product
pipeline. The Ties/TEK platform is applicable to other indications
and we have made progress in identifying potential treatments for
cardiovascular diseases as well as kidney diseases using this
innovative approach.
In February 2017, Mannin was accepted into Johnson & Johnson
Innovation, JLABS @ Toronto. JLABS @ Toronto is a
40,000 square-foot life science innovation center. The labs provide
a flexible environment for start-up companies pursuing new
technologies and research platforms to advance medical care.
Through a “no strings attached” model, Johnson &
Johnson Innovation does not take an equity stake in the companies
occupying JLABS @ Toronto and the companies are free to develop
products – either on their own, or by initiating a separate
external partnership with Johnson & Johnson Innovation or any
other company.
Mannin will utilize JLABS @ Toronto as complementary lab
space to conduct commercial research and development as it relates
to its MAN-01 program for Glaucoma and to the greater Tie2 platform
technology. As a resident, Mannin will have access to the
development and commercialization expertise provided by JLABS
@ Toronto. Mannin has been utilizing its presence in
JLABS @Toronto to increase its visibility within the biotechnology
community in Toronto. Since taking up residency in JLABS in January
2017, Mannin has participated in numerous events hosted at the
JLABS @ Toronto site. These events have provided Mannin with
one-on-one interactions with investors, media, government agencies,
and industry executives. Being a JLABS resident company provides
Mannin with access to a world class network of investors and
industry partners. Mannin is establishing research and development
partnerships with companies and organizations to provide direct
support for the MAN-01 program and Mannin’s other research
and development initiatives.
We are pleased with the progress Mannin research teams have
achieved over the past several months and look forward to putting
the final drug candidates into IND enabling studies.
We continue to advance all the assets in our pipeline. We have
executed on our plan to build a pipeline of considerable inherent
value with several catalysts expected for 2018. We aim to have a
commercial drug on the market by the 2nd
quater of 2018 and 2 new INDs filed in
2018 including a Phase 4 and a Phase 2/3 pivotal trial. We remain
committed to advancing our assets towards the patients that need
them and driving value for our shareholders.
23
Financial Overview
Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition
and results of operations is based on our audited consolidated
financial statements, which have been prepared in accordance with
United States generally accepted accounting principles (“U.S.
GAAP”). The preparation of the consolidated financial
statements requires us to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements, as well as the reported revenue
generated and expenses incurred during the reporting periods. Our
estimates are based on our historical experience and on various
other factors that we believe are reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that
are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or
conditions and any such differences may be material. We believe
that the accounting policies discussed below are critical to
understanding our historical and future performance, as these
policies relate to the more significant areas involving
management's judgments and estimates.
Fair value of financial instruments
Fair value estimates discussed herein are based upon certain market
assumptions and pertinent information available to management as of
November 30, 2017 and 2016. The respective carrying value of
certain on-balance-sheet financial instruments approximated their
fair values. These financial instruments include cash and accounts
payable. Fair values were assumed to approximate carrying values
for cash and accounts payable because they are short term in
nature.
FASB Accounting Standards Codification (ASC) 820
“Fair
Value Measurements and Disclosures” (ASC 820) defines fair value as the
exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date.
ASC 820 also establishes a fair value hierarchy that distinguishes
between (1) market participant assumptions developed based on
market data obtained from independent sources (observable inputs)
and (2) an entity’s own assumptions about market participant
assumptions developed based on the best information available in
the circumstances (unobservable inputs). The fair value hierarchy
consists of three broad levels, which gives the highest priority to
unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1) and the lowest priority to unobservable
inputs (Level 3). The three levels of the fair value hierarchy are
described below:
|
|
●
|
Level 1: The preferred inputs
to valuation efforts are “quoted prices in active markets for
identical assets or liabilities,” with the caveat that the
reporting entity must have access to that market. Information
at this level is based on direct observations of transactions
involving the same assets and liabilities, not assumptions, and
thus offers superior reliability. However, relatively few items,
especially physical assets, actually trade in active
markets.
|
|
|
●
|
Level 2: FASB acknowledged that
active markets for identical assets and liabilities are relatively
uncommon and, even when they do exist, they may be too thin to
provide reliable information. To deal with this shortage of direct
data, the board provided a second level of inputs that can be
applied in three situations.
|
|
|
●
|
Level 3: If inputs from levels
1 and 2 are not available, FASB acknowledges that fair value
measures of many assets and liabilities are less precise. The board
describes Level 3 inputs as “unobservable,” and limits
their use by saying they “shall be used to measure fair value
to the extent that observable inputs are not available.” This
category allows “for situations in which there is little, if
any, market activity for the asset or liability at the measurement
date”. Earlier in the standard, FASB explains that
“observable inputs” are gathered from sources other
than the reporting company and that they are expected to reflect
assumptions made by market participants.
|
Fair value measurements discussed herein are based upon certain
market assumptions and pertinent information available to
management as of and during the years ended November 30, 2017 and
2016. The respective carrying value of cash and accounts payable
approximated their fair values as they are short term in
nature.
Embedded Conversion Features
We evaluate embedded conversion features within convertible debt to
determine whether the embedded conversion feature(s) should be
bifurcated from the host instrument and accounted for as a
derivative at fair value with changes in fair value recorded in the
Statement of Operations. If the conversion feature does not
require recognition of a bifurcated derivative, the convertible
debt instrument is evaluated for consideration of any beneficial
conversion feature (“BCF”) requiring separate
recognition. When we record a BCF, the intrinsic value of the BCF
is recorded as a debt discount against the face amount of the
respective debt instrument (offset to additional paid-in capital)
and amortized to interest expense over the life of the
debt.
Derivative Financial Instruments
We do not use derivative instruments to hedge exposures to cash
flow, market, or foreign currency risks. We evaluate all of our
financial instruments, including issued stock purchase warrants, to
determine if such instruments are derivatives or contain features
that qualify as embedded derivatives. For derivative financial
instruments that are accounted for as liabilities, the derivative
instrument is initially recorded at its fair value and is then
re-valued at each reporting date, with changes in the fair value
reported in the Statement of Operations. Depending on the features
of the derivative financial instrument, we use either the
Black-Scholes option-pricing model or a binomial model to value the
derivative instruments at inception and subsequent valuation
dates. The classification of derivative instruments,
including whether such instruments should be recorded as
liabilities or as equity, is re-assessed at the end of each
reporting period.
24
Stock Based Compensation Issued to Nonemployees
Common stock issued to non-employees for acquiring goods or
providing services is recognized at fair value when the goods are
obtained or over the service period. If the award contains
performance conditions, the measurement date of the award is the
earlier of the date at which a commitment for performance by the
non-employee is reached or the date at which performance is
reached. A performance commitment is reached when performance by
the non-employee is probable because of sufficiently large
disincentives for nonperformance.
Research and Development
We expense the cost of research and development as
incurred. Research and development expenses comprise
costs incurred in funding research and development activities,
license fees, and other external costs. Nonrefundable advance
payments for goods and services that will be used in future
research and development activities are expensed when the activity
is performed or when the goods have been received, rather than when
payment is made, in accordance with ASC
730, Research and
Development.
Income Taxes
Deferred tax assets and liabilities are computed based upon the
difference between the financial statement and income tax basis of
assets and liabilities using the enacted marginal tax rate
applicable when the related asset or liability is expected to be
realized or settled. Deferred income tax expenses or benefits
are based on the changes in the asset or liability each period.
If available evidence suggests that it is more likely than
not that some portion or all of the deferred tax assets will not be
realized, a valuation allowance is required to reduce the deferred
tax assets to the amount that is more likely than not to be
realized. Future changes in such valuation allowance are
included in the provision for deferred income taxes in the period
of change.
Deferred income taxes may arise from temporary differences
resulting from income and expense items reported for financial
accounting and tax purposes in different periods. Deferred
taxes are classified as current or non-current, depending on the
classification of assets and liabilities to which they relate.
Deferred taxes arising from temporary differences that are
not related to an asset or liability are classified as current or
non-current depending on the periods in which the temporary
differences are expected to reverse.
We apply a more-likely-than-not recognition threshold for all tax
uncertainties, which only allows the recognition of those tax
benefits that have a greater than fifty percent likelihood of being
sustained upon examination by the taxing authorities. As of
November 30, 2017, we reviewed our tax positions and determined
there were no outstanding, or retroactive tax positions with less
than a 50% likelihood of being sustained upon examination by the
taxing authorities, therefore this standard has not had a material
effect on us.
Our policy for recording interest and penalties associated with
audits is to record such expense as a component of income tax
expense. There were no amounts accrued for penalties or interest
during the years ended November 30, 2017. Management is currently
unaware of any issues under review that could result in significant
payments, accruals or material deviations from its
position.
On
December 22, 2017, the United States enacted new tax legislation,
the Tax Cuts and Jobs Act. We are currently in the process of
evaluating the impact this law will have on our consolidated
financial statements and calculating the related impact to our tax
expense. We expect the largest impact from this legislation to the
Company to be from the provisions that lower the corporate tax rate
to 21% beginning on January 1, 2018, and impose tax on earnings
outside the United States that have previously not been subject to
United States tax, which must be paid beginning in fiscal 2019
through fiscal 2026. The adjustments to the Company’s tax
expense for this legislation will be recorded beginning in the
period of enactment and are not expected to materially affect the
consolidated financial statements, given the Company’s net
deferred tax asset position has a full valuation
allowance.
Recent accounting pronouncements
In March 2016, the FASB issued ASU
No. 2016-06, Derivatives and Hedging (Topic
815): Contingent Put and Call Options in Debt
Instruments. This new standard
simplifies the embedded derivative analysis for debt instruments
containing contingent call or put options by removing the
requirement to assess whether a contingent event is related to
interest rates or credit risks. We adopted ASU No. 2016-06 in the
fiscal year ended November 30, 2017 and its adoption did not have a
material impact on our 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. This new standard will be effective for us on January 1,
2018. We do not expect the adoption of this new standard to
have a material impact on our consolidated financial statements.
In January 2017, the FASB issued an ASU 2017-01, Business
Combinations (Topic 805) Clarifying the Definition of a Business.
The amendments in this Update is to clarify the definition of a
business with the objective of adding guidance to assist entities
with evaluating whether transactions should be accounted for as
acquisitions (or disposals) of assets or businesses. The definition
of a business affects many areas of accounting including
acquisitions, disposals, goodwill, and consolidation. The guidance
is effective for annual periods beginning after December 15, 2017,
including interim periods within those periods. The Update may be
adopted early. We adopted the provisions of ASC 2017-01 effective
December 1, 2016. Adoption did not have a material impact on our
financial position, results of operations, or cash
flows.
25
In May 2017, the FASB issued ASU 2017-09, Compensation – Stock
Compensation (Topic 718): Scope of Modification
Accounting. The new standard
provides guidance about which changes to the terms or conditions of
a share-based payment award require an entity to apply modification
accounting in Topic 718. The new standard will be effective on
January 1, 2018; however, early adoption is permitted. The Company
adopted ASU 2017-09 as of January 1, 2018. The adoption of this
standard did not impact the Company’s 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). The amendments in Part I of
this Update change the classification analysis of certain
equity-linked financial instruments (or embedded features) with
down round features. When determining whether certain financial
instruments should be classified as liabilities or equity
instruments, a down round feature no longer precludes equity
classification when assessing whether the instrument is indexed to
an entity’s own stock. The amendments also clarify existing
disclosure requirements for equity-classified instruments. As a
result, a freestanding equity-linked financial instrument (or
embedded conversion option) no longer would be accounted for as a
derivative liability at fair value as a result of the existence of
a down round feature. For freestanding equity classified financial
instruments, the amendments require entities that present earnings
per share (EPS) in accordance with Topic 260 to recognize the
effect of the down round feature when it is triggered. That effect
is treated as a dividend and as a reduction of income available to
common shareholders in basic EPS. Convertible instruments with
embedded conversion options that have down round features are now
subject to the specialized guidance for contingent beneficial
conversion features (in Subtopic 470-20, Debt—Debt with
Conversion and Other Options), including related EPS guidance (in
Topic 260). The amendments in Part II of this Update recharacterize
the indefinite deferral of certain provisions of Topic 480 that now
are presented as pending content in the Codification, to a scope
exception. Those amendments do not have an accounting effect. For
public business entities, the amendments in Part I of this Update
are effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2018. Early adoption is
permitted for all entities, including adoption in an interim
period. If an entity early adopts the amendments in an interim
period, any adjustments should be reflected as of the beginning of
the fiscal year that includes that interim period. We are currently
assessing the impact the adoption of ASU 2017-11 will have on our
consolidated financial statements.
Results of Operation for the years ended November 30, 2017 and
2016
|
|
For
the year ended November 30,
|
|
|
|
2017
|
2016
|
|
Operating
expenses:
|
|
|
|
General and
administrative expenses
|
$9,271,804
|
$5,032,257
|
|
Research and
development expenses
|
3,099,971
|
1,314,250
|
|
Total operating
expenses
|
12,371,775
|
6,346,507
|
|
|
|
|
|
Other
income (expenses):
|
|
|
|
Interest
expense
|
(760,314)
|
(480,285)
|
|
Interest
income
|
138
|
-
|
|
Loss on conversion
of debt
|
(463,578)
|
(85,123)
|
|
Gain (loss) on
extinguishment of debt
|
(76,251)
|
134,085
|
|
Loss on issuance of
convertible notes
|
-
|
(481,000)
|
|
Change in fair
value of embedded conversion option
|
(810,017)
|
121,000
|
|
Change in fair
value of warrant liability
|
(59,870)
|
7,587
|
|
Loss on
modification of Private Placement Units
|
-
|
(41,268)
|
|
Total other
expenses
|
(2,169,892)
|
(825,004)
|
|
|
|
|
|
Net
loss
|
$(14,541,667)
|
$(7,171,511)
|
|
|
|
|
|
Net loss per share - basic and diluted
|
$(1.39)
|
$(0.81)
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
10,466,648
|
8,861,212
|
Revenues
Q BioMed Inc. was incorporated, in the State of Nevada on November
22, 2013, focusing on licensing, acquiring and providing strategic
resources to life sciences and healthcare companies. Revenue
will only be possible when we have acquired licenses for
commercially ready assets that can be sold. During the years
ended November 30, 2017 and 2016, we did not generate any
revenues.
Operating expenses
We incur various costs and expenses in the execution of our
business. During the year ended November 30, 2017, we incurred
approximately $12.4 million in total expenses, including
approximately $9.3 million in general and administrative expenses
and approximately $3.1 million in research and development
expenses. During the year ended November 30, 2016, we
incurred approximately $6.3 million in total expenses, including
approximately $5.0 million in general and administrative expenses
and approximately $1.3 million in research and development
expenses. The increase in general and administrative
expenses was mainly due to an increase in professional services,
financing costs and marketing activities in fiscal year 2017 as
compared to the prior year. The increase in research and
development was mainly due to the investment in manufacturing SR89
and development of Man01, pursuant to the related agreements, in
fiscal 2017.
26
Other (income) expenses
Our total other expenses increased to $2.2 million during the year
ended November 30, 2017 from $825,000 during the prior year,
primarily as the result of increases in interest expense, losses on
the conversion and extinguishment of debt, and the change in fair
value of bifurcated conversion options of certain convertible
notes.
During the year ended November 30, 2017, interest expense increased
to $760,000 from $480,000 in the prior year. Interest expense in
the year ended November 30, 2017 is comprised of approximately
$628,000 accretion of debt discount and approximately $132,000 of
accrued interest expense based on the coupon interest rate of the
debt. Interest expense in the year ended November 30, 2016 is
comprised of approximately $414,000 accretion of debt discount and
approximately $66,000 of accrued interest expense based on the
coupon interest rate of the debt. The increase in interest expense
results from the increase in the weighted average debt balance in
fiscal year 2017 compared to fiscal year 2016. All of the
Company’s outstanding debt was either converted or
extinguished as of November 30, 2017.
During the year ended November 30, 2016, we recognized losses upon
the issuance of convertible notes of $481,000. In connection with
the issuance of our Series A, B, C Notes, and the original issuance
of our Series D Notes, during the year ended November 30, 2016, the
embedded conversion feature in each note was separately measured at
fair value. The initial recognition resulted in an aggregate debt
discount of approximately $750,000, and an aggregate loss of
$481,000, which represented the excess of the fair value of the
embedded conversion at initial issuance of $1.2 million over the
aggregate principal amount of convertible debt
issued.
During the year ended November 30, 2017, losses on conversion of
debt increased to approximately $464,000 from approximately $85,000
in the prior year. The recognized losses result for the conversion
of notes where the conversion option has been bifurcated for
accounting purposes. As a result, conversions are recognized as an
extinguishment of the bifurcated conversion option and of the loan
host, which results in a gain or loss based on the difference
between the carrying value of the conversion option and loan host
compared to the fair value of the common stock issued to convert
the note.
During the year ended November 30, 2016, we recognized a gain of
approximately $134,000 resulting from a modification of outstanding
Series D convertible notes that was recognized as an
extinguishment.
During the year ended November 30, 2017, we recognized a loss of
$810,000 as compared to a gain of $121,000 in the prior year, for
the aggregate increase in fair value of conversion options embedded
in convertible notes. In connection with the issuance of our Series
A, B, C Notes, and the original issuance of our Series D Notes, in
the years ended November 30, 2017 and 2016, the embedded conversion
feature in each note was separately measured at fair value with
subsequent changes in fair value recognized in current operations.
We use a binomial valuation model, with fourteen steps of the
binomial tree, to estimate the fair value of the embedded
conversion options.
Net loss
In the years ended November 30, 2017 and 2016, we incurred net
losses of approximately $14.5 million and $7.2 million,
respectively. Our management expects to continue to incur net
losses for the foreseeable future, due to our need to continue to
open a new head office, improve our website and implement other
aspects of our business plan.
Liquidity and Capital Resources
We have not yet established an ongoing source of revenues
sufficient to cover our operating costs and allow us to continue as
a going concern. We had a working capital of approximately $356,000
as of November 30, 2017. We prepared the accompanying
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 had
a net loss of approximately $14.5 million and $7.2 million during
the years ended November 30, 2017 and 2016, respectively, and had
net cash used in operating activities of approximately $5.6 million
and $1.5 million during years ended November 30, 2017 and 2016,
respectively. These matters, among others, raise
substantial doubts about our ability to continue as a going
concern.
Our ability to continue as a going concern depends on the ability
to obtain adequate capital to fund operating losses until we
generate adequate cash flows from operations to fund its operating
costs and obligations. If we are unable to obtain adequate capital,
we could be forced to cease operations.
We depend upon our ability, and will continue to attempt, to secure
equity and/or debt financing. We might not be successful, and
without sufficient financing it would be unlikely for us to
continue as a going concern. The accompanying
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 years ended November 30,
|
|
|||||
|
|
|
2017
|
|
|
2016
|
|
||
|
Net cash provided by (used in):
|
|
|
|
|
|
|
||
|
Operating
activities
|
|
$
|
(5,584,451
|
)
|
|
$
|
(1,545,259
|
)
|
|
Financing
activities
|
|
|
4,940,510
|
|
|
|
2,882,575
|
|
|
Net increase (decrease) in cash
|
|
$
|
(643,941)
|
|
|
$
|
1,337,316
|
|
Net cash used in operating activities was approximately $5.6
million for the year ended November 30, 2017 as compared to
approximately $1.5 million for the year ended November 30,
2016. The increase in net cash used in operating activities
results from the net loss of approximately $14.5 million for the
year ended November 30, 2017, partially offset by aggregate
non-cash expenses of approximately $8.9 million. The net
cash used in operating activities for the year ended November 30,
2016 results primarily from to the net loss of approximately $7.2
million, partially offset by a non-cash expense of $5.1
million.
27
Net cash provided by financing activities was approximately $4.9
million for the year ended November 30, 2017, resulting mainly from
proceeds received from the issuance of convertible notes payable
and note payable and issuance of common stock and warrants through
the private placement. Net cash provided by financing
activities was approximately $2.9 million for the year ended
November 30, 2016, resulting mainly from proceeds received from the
issuance of convertible notes payable and note payable and issuance
of common stock and warrants through the private
placement.
Obligations and Commitments
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.
We expect to issue an aggregate of approximately 27,000 shares of
common stock subsequent to November 30, 2017 through the term of
arrangements, June 2018.
Lease Agreement
In December 2016, the Subsidiary entered into a lease agreement for
its office space located in Cayman Islands for $30,000 per
annum. The initial term of the agreement ends in December
2019 and can be renewed for another three years.
Rent expenses was classified within general and administrative
expenses and was approximately $27,000 for the year ended November
30, 2017.
Legal
We are not currently involved in any legal matters arising in the
normal course of business. From time to time, we could become
involved in disputes and various litigation matters that arise in
the normal course of business. These may include disputes and
lawsuits related to intellectual property, licensing, contract law
and employee relations matters. Periodically, we review the
status of significant matters, if any exist, and assesses its
potential financial exposure. If the potential loss from any claim
or legal claim is considered probable and the amount can be
estimated, we accrue a liability for the estimated loss.
Legal proceedings are subject to uncertainties, and the outcomes
are difficult to predict. Because of such uncertainties,
accruals are based on the best information available at the
time. As additional information becomes available, we
reassess the potential liability related to pending claims and
litigation.
Finder’s Agreement
In October 2016, we entered into two agreements to engage two
financial advisors to assist us in our search for potential
investors, vendors or partners to engage in a license, merger,
joint venture or other business arrangement. As a compensation for
their efforts, we agreed to pay the financial advisors a fee equal
to 7% and 8% in cash, and to pay one of the financial advisors an
additional fee equal to 7% in warrants of all consideration
received by us. We have not incurred any finders’
fees pursuant to the agreements to-date.
Related Party Transactions
We entered into consulting agreements with certain management
personnel and stockholders for consulting and legal
services. Consulting and legal expenses resulting from
such agreements were approximately $420,000 and $300,000 for the
year ended November 30, 2017 and 2016, respectively, and were
included within general and administrative expenses in the
accompanying Consolidated Statements of Operations.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
We are a smaller reporting company as defined by Rule 12b-2 of the
Exchange Act and are not required to provide the information
required under this item.
28
ITEM 8. CONSOLIDATED FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
The following documents (pages F-1 to F-23) form part of the report
on the Consolidated Financial Statements
|
|
PAGE
|
|
Report
of Independent Registered Public Accounting Firm (fiscal year ended
in 2017)
|
F-2
|
|
Consolidated
Balance Sheets
|
F-3
|
|
Consolidated
Statements of Operations
|
F-4
|
|
Consolidated
Statement of Changes in Stockholders’ Equity
(Deficit)
|
F-5
|
|
Consolidated
Statements of Cash Flows
|
F-6
|
|
Notes
to Consolidated Financial Statements
|
F-7
|
ITEM 9. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
We have not had any disagreements with our accountants or auditors
that would need to be disclosed pursuant to Item 304 of Regulation
S-K promulgated under the Securities Act of 1933.
ITEM
9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Management is required to maintain disclosure controls and
procedures that are designed to ensure that information required to
be disclosed in our reports, filed under the Securities Exchange
Act of 1934, is recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms, and
that such information is accumulated and communicated to our
management, including our chief executive officer and chief
financial officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognized that any
controls and procedures, no matter how well designed and operated,
can provide only reasonable and not absolute assurance of achieving
the desired control objectives. In reaching a reasonable level of
assurance, management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible
controls and procedures. In addition, the design of any system of
controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all
potential future conditions. Over time, a control may become
inadequate because of changes in conditions or the degree of
compliance with policies or procedures may deteriorate. Because of
the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be
detected.
As required by the SEC Rules 13a-15(b) and 15d-15(b), an evaluation
is required to be carried out under the supervision and with the
participation of our management, including our principal executive
officer and principal financial officer, of the effectiveness of
the design and operation of our disclosure controls and procedures
as of the end of the period covered by this report. Our principal
executive officer and principal financial officer concluded that
our disclosure controls and procedures were not effective at the
reasonable assurance level due to the material weaknesses described
below.
To address these material weaknesses, management engaged financial
consultants, performed additional analyses and other procedures to
ensure that the financial statements included herein fairly
present, in all material respects, our financial position, results
of operations and cash flows for the periods
presented.
Management’s Annual Report on Internal Control Over Financial
Reporting
The
management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting
(“ICFR”) for the Company. Our internal control system
was designed to, in general, provide reasonable assurance to the
Company’s management and board regarding the preparation and
fair presentation of published financial statements, but because of
its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Our
management assessed the effectiveness of the Company’s
internal control over financial reporting as of November 30, 2017.
The framework used by management in making that assessment was the
criteria set forth in the document entitled “2013 Internal
Control – Integrated Framework” issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on
that assessment, management concluded that, during the period
covered by this report, such internal controls and procedures were
not effective as of November 30, 2017 and that material weaknesses
in ICFR existed as more fully described below.
29
A
material weakness is a deficiency, or a combination of
deficiencies, within the meaning of Public Company Accounting
Oversight Board (“PCAOB”) Auditing Standard AS 2201, in
internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of the
Company's annual or interim financial statements will not be
prevented or detected on a timely basis. Management has identified
the following material weaknesses which have caused management to
conclude that as of December 31, 2017 our internal controls over
financial reporting were not effective at the reasonable assurance
level:
1.
We do not have
written documentation of our internal control policies and
procedures. Written documentation of key internal controls over
financial reporting is a requirement of Section 404 of the
Sarbanes-Oxley Act which is applicable to us for the year ended
November 30, 2017. Failure to have written documentation signifies
that management could not evaluate the design adequacy of our
internal controls nor perform tests over their operating
effectiveness.
2.
We do not have
sufficient resources in our accounting function, which restricts
the Company’s ability to gather, analyze and properly review
information related to financial reporting in a timely manner. In
addition, due to our size and nature, segregation of all
conflicting duties may not always be possible and may not be
economically feasible. However, to the extent possible, the
initiation of transactions, the custody of assets and the recording
of transactions should be performed by separate
individuals.
3.
We do not have
personnel with sufficient experience with United States generally
accepted accounting principles to address complex
transactions.
4.
We have inadequate
controls to ensure that information necessary to properly record
transactions is adequately communicated on a timely basis from
non-financial personnel to those responsible for financial
reporting.
5.
We have
determined that oversight over our external financial reporting and
internal control over our financial reporting by our audit
committee is ineffective. The audit committee has not provided
adequate review of the Company’s SEC’s filings and
consolidated financial statements and has not provided adequate
supervision and review of the Company’s accounting personnel
or oversight of the independent registered accounting firm’s
audit of the Company’s consolidated financial
statement.
We have
begun to take steps to remediate some of the weaknesses described
above, including by engaging a financial reporting advisor with
expertise in accounting for complex transactions. We intend to
continue to address these weaknesses as resources
permit.
Notwithstanding
the assessment that our ICFR was not effective and that there are
material weaknesses as identified herein, we believe that our
consolidated financial statements contained in this Annual Report
fairly present our financial position, results of operations and
cash flows for the years covered thereby in all material
respects.
This
annual report does not include an attestation report of the
Company’s registered public accounting firm regarding
internal control over financial reporting. Management’s
report was not subject to attestation by the Company’s
registered public accounting firm as we are a smaller reporting
company and are not required to provide the report.
Changes in Internal Control Over Financial Reporting
1.
Our internal
control over financial reporting has not changed during the fourth
quarter covered by this Annual Report on Form 10-K.
Not Applicable.
30
PART III
ITEM 10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth information with respect to persons
who are serving as directors and officers of the
Company. Each director holds office until the next
annual meeting of shareholders or until his successor has been
elected and qualified.
|
|
|
|
Held
|
|
|
|
|
Position
|
|
Name
|
Age
|
Positions
|
Since
|
|
|
|
|
|
|
Denis
Corin
|
44
|
Chief
Executive Officer and Director (Chairman)
|
2015
|
|
|
|
|
|
|
William
Rosenstadt
|
49
|
General
Counsel and Director
|
2015
|
|
|
|
|
|
|
Rick
Panicucci
|
57
|
Director
|
2018
|
Biography of Directors and Officers
Mr. Denis Corin has been the
Chief Executive Officer and Chairman of the Board of the Company
since April 21, 2015. Mr. Corin is a management consultant. He has
worked for large pharmaceutical (Novartis) and diagnostic
instrumentation companies (Beckman Coulter) in their sales
organizations responsible for sales in multi-product disciplines
including pharmaceuticals and diagnostics and diagnostic automation
equipment. After Novartis and Beckman Coulter, he served as
Director of Investor Relations in the small-cap biotech arena at
MIV Therapeutics Inc, a company specializing in next generation
drug delivery and drug eluting cardiovascular stents. Mr. Corin
served as an executive and on the board of directors of TapImmune
Inc. from July 2009 to May 2012. He received his Bachelor degrees
in Economics and Marketing from the University of Natal, South
Africa in 1996.
Mr. William Rosenstadt was
appointed as the Company’s general counsel and member of the
Company’s board of directors on June 1, 2015. Mr. Rosenstadt
is a practicing corporate and securities lawyer. He is also the
founding member and the managing partner of Ortoli Rosenstadt LLP,
a law firm, formed in 2006. Mr. Rosenstadt received his Juris
Doctorate from Benjamin N. Cardozo School of Law in 1995 and his
Bachelor of Arts from Syracuse University in
1990.
Dr. Rick Panicucci was appointed as a member of the Company’s board of directors
on February 13, 2018. Dr. Panicucci specializes in the early stages
of drug discovery for various companies. His responsibilities
include solid state chemistry and formulation development of all
small molecule therapeutics in early development, and developing
novel drug delivery technologies for small molecules and large
molecules including siRNA. Since September 2015, Dr. Panicucci has
been working with one of our licensors, Mannin Research Inc., in
the development plan for MAN-01, a novel drug candidate that we
license for the topical treatment of open-angle glaucoma. Since
February 2015, he has served as the Vice President of
Pharmaceutical Development at WuXi AppTec, where he is responsible
for providing scientific leadership in the areas of Developability,
Formulation Development and GMP Manufacturing. Prior to WuXi he
held the position of Global Head of Chemical and Pharmaceutical
Profiling (CPP) at Novartis from 2004 to 2015, where he led the
development and implementation of innovative dosage form designs
and continuous manufacturing paradigms. He has also held positions
as the Director of Formulation Development at Vertex
Pharmaceuticals and Senior Scientist at Biogen.
Dr. Panicucci received his Ph.D. in Physical Organic Chemistry at
the University of Toronto, and has two postdoctoral fellowships at
University of California at Santa Barbara and the Ontario Cancer
Institute. Dr. Panicucci will
continue advise on the scientific and commercial development of our
MAN-01 glaucoma drug with Mannin Research Inc. He will also now
provide insight and guidance on all our pipeline
assets.
In connection with his service as a director, we have entered into
an agreement with Dr. Panicucci pursuant to which he will earn
options to acquire up to 50,000 shares of our common stock. The
options will vest in quarterly installments of 12,500 each and are
exercisable for 5 years at $3.00 per option.
Section 16(a) Beneficial Ownership Reporting
Compliance
Based solely upon a review of Forms 3, 4 and 5, we believe that
those persons who, at any time during our most recent fiscal year,
were either a director, officer or beneficial owner of more than
ten percent of our common stock filed those reports required
by section 16(a) of the Exchange Act. We do not believe that
all of those reports were filed on a timely basis.
Our directors do not receive any stated salary for their services
as directors or members of committees of the board of directors,
but have received stock options for director services and, by
resolution of the board, a fixed fee may be allowed for attendance
at each meeting. Directors may also serve the Company in other
capacities as an officer, agent or otherwise, and may receive
compensation for their services in such other capacity. No such
fees have been paid to any director since
incorporation. Reasonable travel expenses are
reimbursed.
31
Summary Compensation Table
The following table sets forth information concerning all cash
compensation awarded to, earned by or paid to all individuals
serving as the Company’s principal executive officers during
the last two completed fiscal years ended November 30, 2017 and
2016, respectively and all non-cash compensation awarded to those
same individuals in those time periods.
|
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards ($)
|
Option
Awards ($) (4)
|
Non-Equity
Incentive Plan Compensation ($)
|
Non-qualified
Deferred Compensation Earnings ($)
|
All
Other Compensations ($) (1)
|
Total
($)
|
|
Denis
Corin (2)
|
2017
|
$45,000.00
|
$-
|
$-
|
$1,545,000
|
$-
|
$-
|
$175,000
|
$1,765,000
|
|
Chief
Executive Officer
|
2016
|
$-
|
$-
|
$-
|
$195,000
|
$-
|
$-
|
$63,655
|
$258,655
|
|
William
Rosenstadt (3)
|
2017
|
$-
|
$-
|
$-
|
$1,545,000
|
$-
|
$-
|
$280,248
|
$1,825,248
|
|
General
Counsel and Director
|
2016
|
$-
|
$-
|
$-
|
$1,055,000
|
$-
|
$-
|
$112,147
|
$1,167,147
|
|
(1)
|
The amounts represent fees paid or accrued by us to the executive
officers during the past year pursuant to various employment and
consulting services agreements, as between us and the executive
officers, which are described below. Our executive officers are
also reimbursed for any out-of-pocket expenses incurred in
connection with corporate duties. We presently have no pension,
health, annuity, insurance, profit sharing or similar benefit
plans.
|
(2) Mr.
Denis Corin was appointed as Chief Executive Officer and Director
on April 21, 2015.
|
(3)
|
Mr. William Rosenstadt was appointed as General Counsel and
Director on June 5, 2015.
|
|
(4)
|
Represents the aggregate grant date fair value of warrants to
purchase 50,000 common stock issued on July 15, 2016 to Mr. Corin
and warrants to purchase 250,000 and 200,000 common stock issued on
January 4, 2016 and July 15, 2016 to Mr. Rosenstadt, respectively,
in accordance with FASB ASC.
|
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth, as of February 26, 2018, certain
information regarding the ownership of our common stock by (i) each
person known by us to be the beneficial owner of more than 5% of
our outstanding shares of common stock, (ii) each of our directors,
(iii) our Principal Executive Officer and (iv) all of our executive
officers and directors as a group. Unless otherwise indicated, the
address of each person shown is c/o Ortoli Rosenstadt LLP, 501
Madison Avenue 14 th
Floor, New York, New York 10022.
Beneficial ownership, for purposes of this table, includes options
to purchase common stock that are either currently exercisable or
will be exercisable within 60 days of the date of this annual
report.
|
Name and Address of Beneficial Owner
|
Amount and Nature of
Beneficial Owner (1)
|
Percent of Class (2)
|
|
Directors and Officers:
|
|
|
|
Denis
Corin (3)
|
3,112,500
|
21.4%
|
|
William
Rosenstadt (4)
|
1,502,500
|
10.1%
|
|
Rick
Panicucci
|
50,000
|
0.4%
|
|
|
|
|
|
Directors
and Officers as a Group (3)(4)
|
4,665,000
|
33.5%
|
|
|
|
|
|
Major Stockholders:
|
|
|
|
Ari
Jatwes
|
860,000
|
6.1%
|
|
Alan
Lindsay
|
1,136,000
|
8.2%
|
|
|
|
|
|
(1)
|
Under Rule 13d-3, a beneficial owner of a security includes any
person who, directly or indirectly, through any contract,
arrangement , understanding, relationship, or otherwise has or
shares: (1) voting power, which includes the power to vote, or to
direct the voting of shares; and (ii) investment power, which
includes the power to dispose or direct the disposition of shares.
Certain shares may be deemed to be beneficially owned by more than
one person (if, for example, persons share the power to vote or the
power to dispose of the shares. In addition, shares are deemed
to be beneficially owned by a person if the person has the right to
acquire the shares (for example, upon the exercise of an option)
within 60 days of the date as of which the information is provided.
In computing the percentage ownership of any person, the amount of
shares outstanding is deemed to include the amount of shares
beneficially owned by such person (and only such person) by reason
of these acquisition rights. As a result, the percentage of
outstanding shares of any person as shown in this table does not
necessarily reflect the person's actual ownership or voting power
with respect to the number of shares of common stock actually
outstanding as of February 26, 2018.
|
|
(2)
|
This percentage is based upon 13,918,284 shares of common stock
outstanding as of February 26, 2018 and any warrants exercisable by
such person within 60 days of the date as of which the information
is provided.
|
|
(3)
|
Includes (i) 150,000 five-year warrants exercisable at $1.45 which
expire on July 15, 2021 for director fees through June 1, 2017,
(ii) 350,000 five-year warrants exercisable at $4.00 which expire
on June 5, 2022 as a bonus for officer services through the date
thereof and (iii) 112,500 five-year options issued on June 5, 2017
for services as a director and officer through June 1, 2018, all of
which are exercisable within 60 days of the date as of which the
information is provided. This amount excludes those options that
have been granted but that have not vested and do not vest within
the next 60 days.
|
|
(4)
|
Includes (i) 250,000 five-year warrants exercisable at $4.15 which
expire on January 1, 2021 which were issued to the law firm at Mr.
Rosenstadt is a partner, (ii) 50,000 five-year warrants exercisable
at $1.45 which expire on July 15, 2021 which were issued to the law
firm at Mr. Rosenstadt is a partner, (iii) 150,000 five-year
warrants exercisable at $1.45 which expire on July 15, 2021 for
director fees through June 1, 2017, (iv) 350,000 five-year warrants
exercisable at $4.00 which expire on June 5, 2022 as a bonus for
officer services through the date thereof and (v) 112,500 five-year
options issued on June 5, 2017 for services as a director and
officer through June 1, 2018, all of which are exercisable within
60 days of the date as of which the information is provided.
An aggregate of 450,000 warrants are exercisable within 60 days of
the date as of which the information is provided.
|
32
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
We entered into consulting agreements with certain management
personnel and stockholders for consulting and legal services.
Consulting and legal expenses resulting from such agreements were
approximately $420,000 and $300,000 for the year ended
November 30, 2017 and 2016, respectively. We do not have any
obligations outstanding to other persons who beneficially own more
than 10% of our common stock.
ITEM 14. PRINCIPAL ACCOUNTING FEES
AND SERVICES
The following table sets forth fees billed to us by our independent
auditors for the years ended November 30, 2017 and 2016 for (i)
services rendered for the audit of our annual consolidated
financial statements and the review of our quarterly consolidated
financial statements, (ii) services rendered that are reasonably
related to the performance of the audit or review of our
consolidated financial statements that are not reported as Audit
Fees, and (iii) services rendered in connection with tax
preparation, compliance, advice and assistance.
Marcum LLP
|
SERVICES
|
2017
|
2016
|
|
Audit
fees
|
$85,000
|
$80,000
|
|
Audit-related
fees
|
10,000
|
-
|
|
Tax
fees
|
-
|
-
|
|
All
other fees
|
-
|
-
|
|
Total fees
|
$95,000
|
$80,000
|
Audit fees and audit related fees represent amounts billed for
professional services rendered for the audit of our annual
consolidated financial statements and the review of our interim
consolidated financial statements. Before our independent
accountants were engaged to render these services, their engagement
was approved by our Directors.
PART
IV
ITEM 15. EXHIBITS,
CONSOLIDATED FINANCIAL STATEMENTS SCHEDULE
The following exhibits are filed as part of this registration
statement. Exhibit numbers correspond to the exhibit requirements
of Regulation S-K.
|
Exhibit No.
|
Description
|
|
||
|
3.1
|
Articles
of Incorporation filed as Exhibit 3 (a) to Form S-1 filed on
January 13, 2014 and incorporated herein by
reference
|
|
||
|
3.2
|
Amendment
to Articles of Incorporation, dated July 20, 2015, filed as
Exhibit 3.1 to our periodic report filed on Form 8-K on August 3,
2015 and incorporated herein by reference
|
|
||
|
3.3
|
Amendment
to Articles of Incorporation, dated October 27, 2015, filed as
Exhibit 3.1 to our periodic report filed on Form 8-K on October 29,
2015 and incorporated herein by reference
|
|
||
|
3.4
|
Articles
of Incorporation filed as Exhibit 3 (b) to Form S-1 filed on
January 13, 2014 and incorporated herein by
reference
|
|
||
|
4.1
|
Form of
Warrant in connection with our February 1, 2018 offering filed as
Exhibit 4.1 to our registration statement on Form S-1 filed on
January 12, 2018
|
|
||
|
4.2
|
Form of
Warrant as filed as Exhibit 4.2 to our current report on Form 8-K
filed on June 9, 2017 and incorporated herein by
reference
|
|
||
|
4.3
|
Form of
Warrant as filed as Exhibit 10.3 to our current report on Form 8-K
filed on August 2, 2017 and incorporated herein by
reference
|
|
||
|
10.1
|
Form of
Non-Institutional Promissory Note filed as Exhibit 10.1 to our
current report on Form 8-K filed on January 13, 2016 and
incorporated herein by reference
|
|
||
|
10.2
|
Stock
Purchase Agreement for Institutional Promissory Note, dated January
8, 2016, with CMGT filed as Exhibit 10.2 to our current report on
Form 8-K filed on January 13, 2016 and incorporated herein by
reference
|
|
||
|
10.3
|
Form of
Institutional Promissory Note filed as Exhibit 10.4 to our current
report on Form 8-K filed on January 13, 2016 and incorporated
herein by reference
|
|
||
|
10.4
|
Advisory
Agreement, dated September 8, 2015, with Wombat Capital Ltd. filed
as Exhibit 10.5 to our current report on Form 8-K filed on January
13, 2016 and incorporated herein by reference
|
|
||
|
10.5
|
Advisory
Agreement, dated June 1, 2015, with Ari Jatwes filed as
Exhibit 10.6 to our current report on Form 8-K filed on January 13,
2016 and incorporated herein by reference
|
|
||
|
10.6
|
Consulting
Agreement, dated November 13, 2015, Pharmafor Ltd. filed as Exhibit
10.7 to our current report on Form 8-K filed on January 13, 2016
and incorporated herein by reference
|
|
||
|
10.7
|
Executive
Services Agreement, dates June 1, 2017, between Denis Corin and Q
BioMed Cayman SEZC filed as Exhibit 10.1 to our current report on
Form 8-K filed on June 9, 2017 and incorporated herein by
reference
|
|
||
|
10.9
|
Form of
Non-Qualified Stock Option Agreement filed as Exhibit 4.1 to our
current report on Form 8-K filed on June 9, 2017 and incorporated
herein by reference
|
|
||
|
10.10
|
Patent
and Technology License and Purchase Option Agreement, dated October
29, 2015, with Mannin Research Inc. filed as Exhibit 10.1 to
our annual report on Form 10-K filed on March 11, 2016 and
incorporated herein by reference +
|
|
||
|
10.11
|
Patent
and Technology License and Purchase Option Agreement, dated May 30,
2016, with Bio-Nucleonics Inc., filed as Exhibit 10.1 to our
quarterly report on Form 10-Q filed on October 17, 2016 and
incorporated herein by reference +
|
|
||
|
10.12
|
First
Amendment to Patent and Technology License and Purchase Option
Agreement, dated September 6, 2016, with Bio-Nucleonics Inc., filed
as Exhibit 10.2 to our quarterly report on Form 10-Q filed on
October 17, 2016 and incorporated herein by
reference +
|
|
||
|
10.13
|
License
Agreement on Patent & Know-How Technology, dated April 21,
2017, between Q BioMed Inc. and ASDERA LLC filed as Exhibit 10.1 to
our quarterly report on Form 10-Q filed on April 25, 2017 and
incorporated herein by reference +
|
|
||
|
10.14
|
Executive
Services Agreement, dated June 5, 2017, between Q BioMed Cayman
SEZC and Denis Corin filed as Exhibit 10.1 to our current report on
Form 8-K filed on June 9, 2017 and incorporated herein by
reference
|
|
||
|
10.15
|
Technology
License Agreement, dated June 15, 2017, among Q BioMed Inc.,
Oklahoma Medical Research Foundation and Rajiv Gandhi Centre for
BioTechnology filed as Exhibit 10.1 to our current report on Form
8-K filed on June 15, 2017 and incorporated herein by
reference +
|
|
||
|
10.16
|
Form of
Placement Agent Agreement in connection with our February 1, 2018
offering filed as Exhibit 10.15 to our registration statement on
Form S-1 filed on January 12, 2018
|
|
||
|
10.17
|
Form of
Securities Purchase Agreement in connection with our February 1,
2018 offering filed as Exhibit 10.16 to our registration statement
on Form S-1 filed on January 12, 2018
|
|
||
|
31
|
Certification of Principal Executive Officer and Acting Principal
Accounting Officer pursuant to Securities Exchange Act of 1934 Rule
13a-14(a) or 15d-14(a)*
|
|
||
|
32
|
Certification of Principal Executive Officer and Acting Principal
Accounting Officer pursuant to 18 U.S.C. Section 1350*
|
|
||
|
|
|
|||
|
101.INS
|
XBRL Instance Document*
|
|
||
|
101.SCH
|
XBRL Taxonomy Extension Schema Document*
|
|
||
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document*
|
|
||
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document*
|
|
||
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document*
|
|
||
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase
Document*
|
|
||
*Filed herewith
+ Portions of this exhibit have been omitted pursuant to a
request for confidential treatment, and the SEC has granted
confidential treatment pursuant to Rule 406 under the Securities
Act. Confidential information has been omitted from the exhibit in
places marked “****”and has been filed separately with
the SEC.
33
SIGNATURES
In
accordance with Section 13 or 15(d) of the Securities Exchange Act,
the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
Q BioMed Inc.
|
|
|
|
|
|
|
Date: February 28, 2018
|
By:
|
/s/ Denis Corin
|
|
|
Name:
|
Denis Corin
|
|
|
Title:
|
President, Chief Executive Officer and Acting Principal Financial
and Accounting Officer
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the
registrant in the capacities and on the dates
indicated.
|
Signature
|
Title
|
Date
|
|
|
|
|
|
/s/ Denis Corin
|
President, Chief Executive Officer and Director
|
February 28, 2018
|
|
Denis Corin
|
(Principal Executive Officer and Acting Principal Financial and
Accounting Officer)
|
|
|
|
|
|
|
/s/ William Rosenstadt
|
General Counsel and Director
|
February 28, 2018
|
|
William Rosenstadt
|
|
|
34
Q BIOMED INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Page No.
|
|
F-2
|
|
|
|
|
|
Consolidated
Financial Statements:
|
|
|
F-3
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
|
|
F-7
|
F-1
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
of Q BioMed Inc.
We have audited the accompanying consolidated balance sheets of Q
BioMed Inc. (the “Company”) as of November 30, 2017 and
2016, and the related consolidated statements of
operations, changes in stockholders’ equity
(deficit) and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. Our audit
included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion.
An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated
financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Q BioMed Inc., as of November 30, 2017 and 2016, and
the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted
in the United States of America.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 2 to the consolidated
financial statements, the Company has suffered losses from
operations and relies on the capital markets to fund
operations. These matters raise substantial doubt about
the Company’s ability to continue as a going
concern. Management’s plans concerning these
matters are also discussed in Note 2 to the consolidated financial
statements. The accompanying consolidated financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ Marcum LLP
Marcum LLP
New York, NY
February 28, 2018
F-2
Q BIOMED INC.
Consolidated Balance
Sheets
|
|
As
of November 30,
|
|
|
|
2017
|
2016
|
|
ASSETS
|
|
|
|
Current
assets:
|
|
|
|
Cash
|
$824,783
|
$1,468,724
|
|
Prepaid
expenses
|
2,500
|
-
|
|
Total current
assets
|
827,283
|
1,468,724
|
|
Total
Assets
|
$827,283
|
$1,468,724
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts payable
and accrued expenses
|
$463,539
|
$497,936
|
|
Accrued expenses -
related party
|
7,500
|
70,502
|
|
Accrued interest
payable
|
-
|
48,813
|
|
Convertible notes
payable (See Note 5)
|
-
|
2,394,849
|
|
Note
payable
|
-
|
100,152
|
|
Warrant
liability
|
-
|
168,070
|
|
Total current
liabilities
|
471,039
|
3,280,322
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
Convertible notes
payable (See Note 5)
|
-
|
231,517
|
|
Total long term
liabilities
|
-
|
231,517
|
|
Total
Liabilities
|
471,039
|
3,511,839
|
|
|
|
|
|
Commitments
and Contingencies (Note 6)
|
|
|
|
|
|
|
|
Stockholders' Equity (Deficit):
|
|
|
|
Preferred
stock, $0.001 par value; 100,000,000 shares authorized; no shares
issued and outstanding as of November 30, 2017 and
2016
|
-
|
-
|
|
Common
stock, $0.001 par value; 250,000,000 shares authorized; 12,206,409
and 9,231,560 shares issued and outstanding as of November 30, 2017
and 2016, respectively
|
12,206
|
9,231
|
|
Additional
paid-in capital
|
23,187,408
|
6,249,357
|
|
Accumulated
deficit
|
(22,843,370)
|
(8,301,703)
|
|
Total Stockholders' Equity (Deficit)
|
356,244
|
(2,043,115)
|
|
Total
Liabilities and Stockholders' Equity (Deficit)
|
$827,283
|
$1,468,724
|
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
Q BIOMED INC.
Consolidated
Statements of Operations
|
|
For
the year ended November 30,
|
|
|
|
2017
|
2016
|
|
Operating
expenses:
|
|
|
|
General and
administrative expenses
|
$9,271,804
|
$5,032,257
|
|
Research and
development expenses
|
3,099,971
|
1,314,250
|
|
Total operating
expenses
|
12,371,775
|
6,346,507
|
|
|
|
|
|
Other
income (expenses):
|
|
|
|
Interest
expense
|
(760,314)
|
(480,285)
|
|
Interest
income
|
138
|
-
|
|
Loss on conversion
of debt
|
(463,578)
|
(85,123)
|
|
Gain (loss) on
extinguishment of debt
|
(76,251)
|
134,085
|
|
Loss on issuance of
convertible notes
|
-
|
(481,000)
|
|
Change in fair
value of embedded conversion option
|
(810,017)
|
121,000
|
|
Change in fair
value of warrant liability
|
(59,870)
|
7,587
|
|
Loss on
modification of Private Placement Units
|
-
|
(41,268)
|
|
Total other
expenses
|
(2,169,892)
|
(825,004)
|
|
|
|
|
|
Net
loss
|
$(14,541,667)
|
$(7,171,511)
|
|
|
|
|
|
Net loss per share - basic and diluted
|
$(1.39)
|
$(0.81)
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
10,466,648
|
8,861,212
|
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
Q BIOMED INC.
Consolidated Statement of
Changes in Shareholders’ Equity (Deficit)
|
|
Common
Stock
|
|
Accumulated
|
Total
Stockholders'
|
|
|
|
Shares
|
Amount
|
Additional
Paid in Capital
|
Deficit
|
Equity
(Deficit)
|
|
Balance
as of November 30, 2015
|
8,597,131
|
$8,597
|
$865,690
|
$(1,130,192)
|
$(255,905)
|
|
Issuance of common
stock and warrants for services
|
341,543
|
342
|
3,300,772
|
-
|
3,301,114
|
|
Issuance of common
stock for acquired in-process research and development
|
50,000
|
50
|
160,450
|
-
|
160,500
|
|
Issuance of common
stock and warrants in connection with Private Placement, net of
warrant liabilities
|
102,256
|
102
|
80,578
|
-
|
80,680
|
|
Modification of
Private Placement Units
|
7,502
|
7
|
22,499
|
|
22,506
|
|
Issuance of
warrants for services to related party
|
-
|
-
|
830,000
|
-
|
830,000
|
|
Issuance of
warrants to settle accounts payable to related party
|
-
|
-
|
30,000
|
-
|
30,000
|
|
Issuance of common
stock upon conversion of convertible notes payable
|
118,128
|
118
|
380,768
|
-
|
380,886
|
|
Beneficial
conversion feature in connection with issuance of convertible
notes
|
-
|
-
|
526,400
|
-
|
526,400
|
|
Issuance of common
stock in connection with OID Note
|
15,000
|
15
|
52,200
|
-
|
52,215
|
|
Net
loss
|
-
|
-
|
-
|
(7,171,511)
|
(7,171,511)
|
|
Balance
as of November 30, 2016
|
9,231,560
|
$9,231
|
$6,249,357
|
$(8,301,703)
|
$(2,043,115)
|
|
Issuance of
additional common stock to convertible notes holders
|
25,641
|
26
|
98,179
|
-
|
98,205
|
|
Issuance of common
stock, warrants and options for services
|
153,705
|
154
|
6,399,431
|
-
|
6,399,585
|
|
Issuance of common
stock for acquired in-process research and development
|
125,000
|
125
|
487,375
|
-
|
487,500
|
|
Beneficial
conversion feature in connection with issuance of convertible
notes
|
-
|
-
|
645,000
|
-
|
645,000
|
|
Issuance of common
stock upon conversion of convertible notes payable
|
1,650,379
|
1,650
|
5,972,236
|
-
|
5,973,886
|
|
Issuance of common
stock and warrants in exchange for extinguishment of convertible
notes payable
|
162,000
|
162
|
518,238
|
-
|
518,400
|
|
Issuance of common
stock in exchange for extinguishment of OID Note
|
46,875
|
47
|
149,953
|
-
|
150,000
|
|
Issuance of common
stock and warrants for cash, net of offering costs
|
791,249
|
791
|
2,369,719
|
-
|
2,370,510
|
|
Reclassification of
warrant liability to equity
|
-
|
-
|
227,940
|
-
|
227,940
|
|
Exercise of
warrants
|
20,000
|
20
|
69,980
|
-
|
70,000
|
|
Net
loss
|
-
|
-
|
-
|
(14,541,667)
|
(14,541,667)
|
|
Balance
as of November 30, 2017
|
12,206,409
|
$12,206
|
$23,187,408
|
$(22,843,370)
|
$356,244
|
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
Q BIOMED INC.
Consolidated Statement of
Cash Flows
|
|
For
the year ended November 30,
|
|
|
|
2017
|
2016
|
|
Cash
flows from operating activities:
|
|
|
|
Net
loss
|
$(14,541,667)
|
$(7,171,511)
|
|
Adjustments to
reconcile net loss to net cash used in operating
activities
|
|
|
|
Issuance of common
stock, warrants and options for services
|
6,399,585
|
4,131,114
|
|
Issuance of common
stock for acquired in-process research and development
|
487,500
|
160,500
|
|
Change in fair
value of embedded conversion option
|
810,017
|
(121,000)
|
|
Change in fair
value of warrant liability
|
59,870
|
(7,587)
|
|
Loss on
modification of Private Placement Units
|
-
|
41,268
|
|
Accretion of debt
discount
|
628,026
|
413,894
|
|
Loss on conversion
of debt
|
463,578
|
85,123
|
|
(Gain) loss on
extinguishment of debt
|
76,251
|
(134,085)
|
|
Loss on issuance of
convertible debt
|
-
|
481,000
|
|
Changes in
operating assets and liabilities:
|
|
|
|
Prepaid
expenses
|
(2,500)
|
-
|
|
Accounts payable
and accrued expenses
|
(34,397)
|
439,134
|
|
Accrued expenses -
related party
|
(63,002)
|
70,502
|
|
Accrued interest
payable
|
132,288
|
66,389
|
|
Net
cash used in operating activities
|
(5,584,451)
|
(1,545,259)
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
Proceeds
received from issuance of convertible notes
|
2,500,000
|
2,495,000
|
|
Proceeds
received from exercise of warrants
|
70,000
|
-
|
|
Proceeds
received from issuance of note payable
|
-
|
150,000
|
|
Proceeds
received for issuance of common stock and warrants , net of
offering costs
|
2,370,510
|
237,575
|
|
Net
cash provided by financing activities
|
4,940,510
|
2,882,575
|
|
|
|
|
|
Net increase (decrease) in cash
|
(643,941)
|
1,337,316
|
|
|
|
|
|
Cash at beginning of period
|
1,468,724
|
131,408
|
|
Cash at end of period
|
824,783
|
$1,468,724
|
|
|
|
|
|
Non-cash financing activities:
|
|
|
|
Issuance
of common stock upon conversion of convertible notes
payable
|
$5,608,514
|
$295,764
|
|
Issuance
of common stock and warrants in exchange for extinguishment of
convertible notes payable
|
$442,149
|
$-
|
|
Issuance
of common stock in exchange for extinguishment of OID
Note
|
$150,000
|
$-
|
|
Issuance
of warrants to settle accounts payable to related
party
|
$-
|
$30,000
|
|
Modification
of Series D convertible note recognized as
extinguishment
|
$-
|
$294,085
|
|
Reclassification
of warrant liability to equity
|
$227,940
|
$-
|
|
|
|
|
|
Cash paid for
interest
|
$-
|
$-
|
|
Cash paid for
income taxes
|
$-
|
$-
|
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
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”).
Note 2 - Basis of Presentation and Going Concern
The accompanying consolidated financial statements are presented in
U.S. dollars and have been prepared in accordance with accounting
principles generally accepted in the United States of America
(“US GAAP”) and pursuant to the accounting and
disclosure rules and regulations of the U.S. Securities and
Exchange Commission (the “SEC”).
The Company currently operates in one business segment focusing on
licensing, acquiring and providing strategic resources to life
sciences and healthcare companies. The Company is not organized by
market and is managed and operated as one business. A single
management team reports to the chief operating decision maker, the
Chief Executive Officer, who comprehensively manages the entire
business. The Company does not currently operate any separate lines
of business.
Going Concern
The accompanying 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 had a net
loss of approximately $14.5 million and $7.2 million during the
years ended November 30, 2017 and 2016, respectively, and had net
cash used in operating activities of approximately $5.6 million and
$1.5 million during years ended November 30, 2017 and 2016,
respectively. These matter, amongst others, raise doubt about the
Company’s ability to continue as a going
concern.
As of November 30, 2017, the Company has raised operating
funds through contacts, high net-worth individuals and
strategic investors. The Company has not generated any revenue from
operations since inception and has limited assets upon which to
commence its business operations. At November 30, 2017,
the Company had cash and cash equivalents of approximately
$825,000. On February 2, 2018, the Company netted
approximately $4,915,000 from the registered sale of common stock
and warrants to purchase common stock. The Company’s expected
monthly burn rate is approximately $600,000. As such, 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 consolidated financial statements are issued. The
accompanying 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
Use of estimates
The preparation of consolidated financial statements in conformity
with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported
amounts of revenue and expenses during the reporting period.
Actual results may differ from those estimates, and such
differences may be material to the consolidated financial
statements. The more significant estimates and assumptions by
management include among others: the valuation allowance of
deferred tax assets resulting from net operating losses, the
valuation of warrants on the Company’s stock and the
valuation of embedded conversion options within the Company’s
convertible notes payable.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentration of credit risk consist of cash accounts in a
financial institution which, at times may exceed the Federal
depository insurance coverage ("FDIC") of $250,000. At
November 30, 2017, the Company had a cash balance on deposit that
exceeded the balance insured by the FDIC limit by approximately
$471,000 with one bank and was exposed to credit risk for amounts
held in excess of the FDIC limit. The Company does not anticipate
nonperformance by these institutions. The Company had not
experienced losses on these accounts and management believes the
Company is not exposed to significant risks on such
accounts.
F-7
Fair value of financial instruments
Fair value is defined as the price that would be received for sale
of an asset or paid for transfer of a liability, in an orderly
transaction between market participants at the measurement
date. U.S. GAAP establishes a three-tier fair value
hierarchy, which prioritizes the inputs used in measuring fair
value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1 measurements) and the lowest priority to
unobservable inputs (Level 3 measurements). These tiers
include:
|
●
|
Level 1, defined as observable inputs such as quoted prices for
identical instruments in active markets;
|
|
●
|
Level 2, defined as inputs other than quoted prices in active
markets that are either directly or indirectly observable such as
quoted prices for similar instruments in active markets or quoted
prices for identical or similar instruments in markets that are not
active; and
|
|
●
|
Level 3, defined as unobservable inputs in which little or no
market data exists, therefore requiring an entity to develop its
own assumptions, such as valuations derived from valuation
techniques in which one or more significant inputs or significant
value drivers are unobservable.
|
Fair value measurements discussed herein are based upon certain
market assumptions and pertinent information available to
management as of and during the years ended November 30, 2017 and
2016. The respective carrying value of cash and accounts
payable approximated their fair values as they are short term in
nature.
Embedded Conversion Features
The Company evaluates embedded conversion
features within convertible debt to determine whether the embedded
conversion feature(s) should be bifurcated from the host instrument
and accounted for as a derivative at fair value with changes in
fair value recorded in the Statement of Operations.
If the conversion feature does not require recognition
of a bifurcated derivative, the convertible debt instrument is
evaluated for consideration of any beneficial conversion feature
(“BCF”) requiring separate recognition. When the
Company records a BCF, the intrinsic value of the BCF is recorded
as a debt discount against the face amount of the respective
debt instrument (offset to additional paid-in capital)
and amortized to interest expense over the life of the
debt.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures
to cash flow, market, or foreign currency risks. The Company
evaluates all of its financial instruments, including
issued stock purchase warrants, to determine if such
instruments are derivatives or contain features that qualify
as embedded derivatives. For derivative financial instruments
that are accounted for as liabilities, the derivative
instrument is initially recorded at its fair value and is then
re-valued at each reporting date, with changes in the fair
value reported in the Statement of Operations. Depending on
the features of the derivative financial instrument, the Company
uses either the Black-Scholes option-pricing model or a
binomial model to value the derivative instruments at
inception and subsequent valuation dates. The classification
of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is re-assessed at
the end of each reporting period.
Stock Based Compensation Issued to Nonemployees
Common stock issued to non-employees for acquiring goods or
providing services is recognized at fair value when the goods are
obtained or over the service period. If the award contains
performance conditions, the measurement date of the award is the
earlier of the date at which a commitment for performance by the
non-employee is reached or the date at which performance is
reached. A performance commitment is reached when performance by
the non-employee is probable because of sufficiently large
disincentives for nonperformance.
General and administrative expenses
The significant components of general and administrative expenses
consist of interest expense, bank fees, printing, filing fees,
other office expenses, and business license and permit
fees.
Research and development
The Company expenses the cost of research and development as
incurred. Research and development expenses include
costs incurred in funding research and development activities,
license fees, and other external costs. Nonrefundable advance
payments for goods and services that will be used in future
research and development activities are expensed when the activity
is performed or when the goods have been received, rather than when
payment is made.
F-8
Income Taxes
Deferred tax assets and liabilities are computed based upon the
difference between the financial statement and income tax basis of
assets and liabilities using the enacted marginal tax rate
applicable when the related asset or liability is expected to be
realized or settled. Deferred income tax expenses or benefits
are based on the changes in the asset or liability each period.
If available evidence suggests that it is more likely than
not that some portion or all of the deferred tax assets will not be
realized, a valuation allowance is required to reduce the deferred
tax assets to the amount that is more likely than not to be
realized. Future changes in such valuation allowance are
included in the provision for deferred income taxes in the period
of change.
Deferred income taxes may arise from temporary differences
resulting from income and expense items reported for financial
accounting and tax purposes in different periods. Deferred
taxes are classified as current or non-current, depending on the
classification of assets and liabilities to which they relate.
Deferred taxes arising from temporary differences that are
not related to an asset or liability are classified as current or
non-current depending on the periods in which the temporary
differences are expected to reverse.
The Company applies a more-likely-than-not recognition threshold
for all tax uncertainties, which only allows the recognition
of those tax benefits that have a greater than fifty percent
likelihood of being sustained upon examination by the taxing
authorities. As of November 30, 2017, the Company reviewed its tax
positions and determined there were no outstanding, or retroactive
tax positions with less than a 50% likelihood of being sustained
upon examination by the taxing authorities, therefore this standard
has not had a material effect on the Company.
The Company’s policy for recording interest and penalties
associated with audits is to record such expense as a component of
income tax expense. There were no amounts accrued for penalties or
interest during the years ended November 30, 2017. Management is
currently unaware of any issues under review that could result in
significant payments, accruals or material deviations from its
position.
Recent accounting pronouncements
In March 2016, the FASB issued ASU
No. 2016-06, Derivatives and Hedging (Topic
815): Contingent Put and Call Options in Debt
Instruments. This new standard
simplifies the embedded derivative analysis for debt instruments
containing contingent call or put options by removing the
requirement to assess whether a contingent event is related to
interest rates or credit risks. The Company adopted ASU No. 2016-06
in the fiscal year ended November 30, 2017 and its adoption did not
have a material impact on the Company's 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. This new standard will be effective for the Company on
December 1, 2018. The Company is currently evaluating the
impact of the new standard on its consolidated financial
statements.
In January 2017, the FASB issued an ASU 2017-01, Business
Combinations (Topic 805) Clarifying the Definition of a Business.
The amendments in this Update is to clarify the definition of a
business with the objective of adding guidance to assist entities
with evaluating whether transactions should be accounted for as
acquisitions (or disposals) of assets or businesses. The definition
of a business affects many areas of accounting including
acquisitions, disposals, goodwill, and consolidation. The guidance
is effective for annual periods beginning after December 15, 2017,
including interim periods within those periods. The Update may be
adopted early. The Company adopted the provisions of ASC 2017-01
effective December 1, 2016. Adoption did not have a material impact
on the Company's financial position, results of operations, or cash
flows.
In May 2017, the FASB issued ASU 2017-09, Compensation – Stock
Compensation (Topic 718): Scope of Modification
Accounting. The new standard
provides guidance about which changes to the terms or conditions of
a share-based payment award require an entity to apply modification
accounting in Topic 718. The ASU is effective for annual
reporting periods, including interim periods within those annual
reporting periods, beginning after December 15, 2017. Early
adoption is permitted, including adoption in any interim
period. The Company adopted ASU
2017-09 as of December 1, 2017. The adoption of this standard did
not impact the Company’s 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 fiscal years beginning after December
15, 2018, and interim periods within those fiscal years. Early
adoption is permitted, and the guidance is to be applied using a
full or modified retrospective approach. Management is currently
assessing the impact the adoption of ASU 2017-11 will have on the
Company’s consolidated financial
statements.
F-9
Note 4 – Loss per share
Basic net loss per share was calculated by dividing net loss by the
weighted-average common shares outstanding during the
period. Diluted net loss per share was calculated by
dividing net loss by the weighted-average common shares outstanding
during the period using the treasury stock method or the two-class
method, whichever is more dilutive. The table below
summarizes potentially dilutive securities that were not
considered in the computation of diluted net loss per share because
they would be anti-dilutive.
|
Potentially dilutive securities
|
November 30, 2017
|
November 30, 2016
|
|
Warrants (Note
10)
|
3,083,995
|
1,047,500
|
|
Convertible debt
(Note 5)
|
-
|
1,067,105
|
|
Options (Note
10)
|
450,000
|
-
|
Note 5 – Convertible Notes
|
|
November
30, 2017
|
November
30, 2016
|
|
Series
A Notes:
|
|
|
|
Principal value of
10%, convertible at $2.00 at November 30, 2016.
|
$-
|
$12,500
|
|
Fair value of
bifurcated embedded conversion option of Series A
Notes
|
-
|
12,000
|
|
Debt
discount
|
-
|
(2,194)
|
|
Carrying value of
Series A Notes
|
-
|
22,306
|
|
|
|
|
|
Series
B Notes:
|
|
|
|
Principal value of
10%, convertible at $2.00 at November 30, 2016.
|
-
|
55,000
|
|
Fair value of
bifurcated embedded conversion option of Series B
Notes
|
-
|
55,000
|
|
Debt
discount
|
-
|
(19,229)
|
|
Carrying value of
Series B Notes
|
-
|
90,771
|
|
|
|
|
|
Series
C Notes:
|
|
|
|
Principal value of
10%, convertible at $1.55 at November 30, 2016.
|
-
|
576,383
|
|
Fair value of
bifurcated embedded conversion option of Series C
Notes
|
-
|
838,000
|
|
Debt
discount
|
-
|
(250,969)
|
|
Carrying value of
Series C Notes
|
-
|
1,163,414
|
|
|
|
|
|
Series
D Notes:
|
|
|
|
Principal value of
10%, convertible at $1.85 at November 30, 2016.
|
-
|
160,000
|
|
Debt
discount
|
-
|
(140,961)
|
|
Carrying value of
Series D Notes
|
-
|
19,039
|
|
|
|
|
|
Series
E Notes:
|
|
|
|
Principal value of
10%, convertible at $2.50 at November 30, 2016.
|
-
|
180,000
|
|
Debt
discount
|
-
|
(124,164)
|
|
Carrying value of
Series E Notes
|
-
|
55,836
|
|
|
|
|
|
Secured
Convertible Debenture:
|
|
|
|
Principal value of
5%, convertible at $2.98 at November 30, 2016.
|
-
|
1,500,000
|
|
Fair value of
bifurcated contingent put option of Secured Convertible
Debenture
|
-
|
72,000
|
|
Debt
discount
|
-
|
(297,000)
|
|
Carrying value of
Secured Convertible Debenture Note
|
-
|
1,275,000
|
|
Total
short-term carrying value of convertible notes
|
$-
|
$2,394,849
|
|
Total
long-term carrying value of convertible notes
|
$-
|
$231,517
|
F-10
During
the year ended November 30, 2017, all outstanding convertible notes
and secured convertible debentures were converted by the holders or
extinguished. See discussion below.
During the year ended November 30, 2017 and 2016, the Company
recognized interest expense of approximately $628,000 and $414,000,
respectively, resulting from amortization of the debt discount for
Series A, B, C, D and E Notes.
Series A Notes
The Series A convertible notes payable (the “Series A
Notes”) are due and payable 18 months after issuance and bear
interest at 10% per annum. At the election of the
holder, outstanding principal and accrued but unpaid interest under
the Series A Notes is convertible into shares of the
Company’s common stock at any time prior to maturity at a
conversion price per share equal to the higher of:
(i) forty percent (40%) discount to the average closing price
for the ten (10) consecutive trading days immediately preceding the
notice of conversion or (ii) $1.25 per share. At maturity,
any remaining outstanding principal and accrued but unpaid
interest outstanding under the Series A Notes
will automatically convert into shares of the Company’s
common stock under the same terms. As of November 30, 2017, the
Company has no Series A Notes outstanding.
Series B Notes
The Series B convertible notes payable (the “Series B
Notes”) have the same terms as the Series A
Notes. During the year ended November 30, 2016, the
Company issued an additional of $105,000 in principal of Series B
notes to third party investors. As of November 30, 2017, the
Company has no Series B Notes outstanding.
Series C Notes
The Series C convertible notes payable (the “Series C
Notes”) are due and payable 18 months after issuance and bear
interest at 10% per annum. At the election of the
holder, outstanding principal and accrued but unpaid interest under
the Series C Notes is convertible into shares of the
Company’s common stock at a conversion price per share equal
to the lesser of a 40% discount to the average closing price for
the 10 consecutive trading days immediately preceding the notice of
conversion or $1.55, but in no event shall the conversion price be
lower than $1.25 per share. If the average VWAP, as
defined in the agreement, for the ten trading days immediately
preceding the maturity date $5.00 or more, any
remaining outstanding principal and accrued but unpaid
interest outstanding under the Series C Notes
will automatically convert into shares of the Company’s
common stock under the same terms.
The terms of the Series C Notes also provided that up until
maturity date, the Company cannot enter into any additional, or
modify any existing, agreements with any existing or future
investors that are more favorable to such investor in relation to
the Series D Note holders, unless, the Series C Note holders are
provided with such rights and benefits (“Most Favored Nations
Clause”).
During the year ended November 30, 2016, the Company issued an
additional of $550,000 in principal of Series C notes to third
party investors. As of November 30, 2017, the Company has no Series
C Notes outstanding.
Series D Notes
The Series D convertible notes payable (the “Series D
Notes”) are due and payable 18 months after issuance and bear
interest at 10% per annum. At the election of the
holder, outstanding principal and accrued but unpaid interest under
the Series D Notes is convertible into shares of the
Company’s common stock at a fixed conversion price per share
equal to $1.85. The Series D Notes automatically convert
upon maturity at $1.85 per share if the ten trading days VWAP
immediately preceding maturity is $5.00 or
greater. Additionally, if the Company’s common
shares are up-listed to a senior exchange such as the AMEX or
NASDAQ, all monies due under the Series D Notes will automatically
convert at $1.85 per share. During the year ended November
30, 2016, the Company issued $160,000 in principal of Series D
notes to third party investors.
The terms of the Series D Notes also included the Most Favored
Nations Clause. The Most Favored Nations Clause was viewed as
providing the Series D Note holder with down-round price
protection. As such, the embedded conversion option in the
Series D Note was separately measured at fair value upon issuance,
with subsequent changes in fair value recognized in current
earnings.
On September 30, 2016, the Company amended the Most Favored Nations
Clause of the Series D Notes to restrict the Company from taking
dilutive action without the Series D note holders’ consent,
effectively removing the down-round price protection. The amendment
of the Series D Notes was recognized as an extinguishment of the
originally issued Series D Notes, resulting in a gain on
extinguishment of approximately $134,000.
At the amendment date, the conversion price of the amended Series D
Notes was below the quoted market price of the Company’s
common stock. As such, the Company recognized a beneficial
conversion feature equal to the intrinsic value of the conversion
price on the amendment date, resulting in a discount to the amended
Series D Notes of $160,000 with a corresponding credit to
additional paid-in capital. The resulting debt discount is
presented net of the related convertible note balance in the
accompanying Consolidated Balance Sheets and is amortized to
interest expense over the note’s term.
As of November 30, 2017, the Company has no Series D Notes
outstanding.
F-11
Series E Notes
The Series E convertible notes payable (the “Series E
Notes”) are due and payable 18 months after issuance and bear
interest at 10% per annum. At the election of the
holder, outstanding principal and accrued but unpaid interest under
the Series E Notes is convertible into shares of the
Company’s common stock at a fixed conversion price per share
equal to $2.50. The Series E Notes automatically convert
upon maturity at $2.50 per share if the ten trading days VWAP
immediately preceding maturity is $5.00 or
greater. Additionally, if the Company’s common
shares are up-listed to a senior exchange such as the AMEX or
NASDAQ, all monies due under the Series E Notes will automatically
convert at $2.50 per share. During the year ended November
30, 2016, the Company issued $180,000 in principal of Series E
Notes to third party investors.
At the issuance date, the conversion price of the Series E Notes
was below the quoted market price of the Company’s common
stock. As such, the Company recognized a beneficial conversion
feature equal to the intrinsic value of the conversion price on the
amendment date, resulting in a discount to the Series E Notes of
approximately $141,000 with a corresponding credit to additional
paid-in capital. The resulting debt discount is presented net of
the related convertible note balance in the accompanying
Consolidated Balance Sheets and is amortized to interest expense
over the note’s term. As of November 30, 2017, the Company
has no Series E Notes outstanding.
Secured Convertible Debentures
On November 29, 2016, the Company entered into a securities
purchase agreement with an accredited investor to place Convertible
Debentures (the “Debentures”) with a one-year term in
the aggregate principal amount of up to $4,000,000. The initial
closing occurred on November 30, 2016 when the Company issued a
Debenture for $1,500,000. The second closing is scheduled for
within three days of the date on which the Company registers for
resale all of the shares of common stock into which the Debentures
may be converted (the “Conversion Shares”). The
Debentures bear interest at the rate of 5% per annum. In
addition, the Company must pay to an affiliate of the holder a fee
equal to 5% of the amount of the Debenture at each
closing.
The Debenture may be converted at any time on or prior to maturity
at the lower of $4.00 or 93% of the average of the four lowest
daily VWAP of the Company’s common stock during the ten
consecutive trading days immediately preceding the conversion date,
provided that as long as the Company is not in default under the
Debenture, the conversion price may never be less than $2.00.
The Company may not convert any portion of the Debenture if such
conversion would result in the holder beneficially owning more than
4.99% of the Company’s then issued common stock, provided
that such limitation may be waived by the holder.
Any time after the six-month anniversary of the issuance of the
Debenture, if the daily VWAP of the Company’s common stock is
less than $2.00 for a period of twenty consecutive trading days
(the “Triggering Date”) and only for so long as such
conditions exist after a Triggering Date, the Company shall make
monthly payments beginning on the last calendar day of the month
when the Triggering Date occurred. Each monthly payment shall
be in an amount equal to the sum of (i) the principal amount
outstanding as of the Triggering Date divided by the number of such
monthly payments until maturity, (ii) a redemption premium of 20%
in respect of such principal amount being paid (up to a maximum of
$300,000 in redemption premium) and (iii) accrued and unpaid
interest as of each payment date. The Company may, no more
than twice, obtain a thirty-day deferral of a monthly payment due
as a result of a Triggering Date through the payment of a deferral
fee in the amount equal to 10% of the total amount of such monthly
payment. Each deferral payment may be paid by the issuance of
such number of shares as is equal to the applicable deferral
payment divided by a price per share equal to 93% of the average of
the four lowest daily VWAP of the Company’s common stock
during the ten consecutive Trading Days immediately preceding the
due date in respect of such monthly payment begin deferred,
provided that such shares issued will be immediately freely
tradable shares in the hands of the holder.
The Company also executed a Registration Rights Agreement pursuant
to which it is required to file a registration statement for the
resale of the shares of common stock into which the Debenture may
be converted within 30 days of the initial closing. The Company is
required to use its best efforts to cause such registration
statement to be declared effective within 90 days of the initial
closing.
The Company also entered into a Security Agreement to secure
payment and performance of its obligations under the Debenture and
related agreements pursuant to which the Company granted the
investor a security interest in all of its assets. The
security interest granted pursuant to the Security Agreement
terminates on (i) the effectiveness of the Registration Statement
if the Company’s common stock closing price is greater than
$2.00 for the twenty consecutive trading days prior to
effectiveness or (ii) any time after the effectiveness of the
registration statement that the Company’s common stock
closing price is greater than $2.00 for the twenty consecutive
trading days.
Upon issuance of the Debentures, the Company recognized an
aggregate debt discount of approximately $1.028 million, resulting
from the recognition of beneficial conversion features aggregating
$870,000 and bifurcated embedded derivatives aggregating $158,000.
The beneficial conversion features were recognized as
the intrinsic value of the conversion option on issuance
of each Debentures. The monthly payment provision within
the Debentures is a contingent put option that is required to be
separately measured at fair value, with subsequent changes in fair
value recognized in the Statement of Operations. The Company
estimated the fair value of the monthly payment provision, at
issuance and at each reporting period, using probability analysis
of the occurrence of a Triggering Date applied to the
discounted maximum redemption premium for any given payment. The
probability analysis utilized an expected volatility for the
Company's common stock ranging from 101.58% to 146.26% and a risk
free rates from 0.53% to 1.08%. The maximum redemption was
discounted at 20%-22%, the calculated effective rate of the
Debentures before measurement of the contingent put option.
The fair value estimate is a Level 3 measurement.
On October 3, 2017, the Company amended the Debentures to extend
the maturity date from November 30, 2017 to November 30, 2018, and
issued 25,641 restricted shares of its common stock to the holder
of the Debentures as consideration for conversion. The fair value
of the restricted shares was recognized as a loss on conversion. As
of November 30, 2017, no Debentures were outstanding.
F-12
Embedded Conversion Options
In connection with the issuance of the Series A, B, C and the
original issuance of the Series D Notes during the year ended
November 30, 2016, the Company recognized a debt discount of
approximately $750,000, and a loss on issuance of $481,000,
which represents the excess of the fair value of the embedded
conversion at initial issuance of $1.2 million over the principal
amount of convertible debt issued. The embedded
conversion feature is separately measured at fair value, with
changes in fair value recognized in current
operations. Management used a binomial valuation
model, with fourteen steps of the binomial tree, to estimate the
fair value of the embedded conversion option at issuance of the
Series A, B, C and the original issuance of the Series D Notes
issued during the year ended November 30, 2017 and 2016, with the
following key inputs:
|
Embedded derivatives in Convertible Notes at inception
|
|
|
|
|
||||||
|
|
For the years ended
November 30,
|
|
||||||||
|
|
2017
|
|
2016
|
|
||||||
|
Stock price
|
|
$
|
-
|
|
|
$
|
2.60 - $3.26
|
|
||
|
Terms (years)
|
|
|
-
|
|
|
|
1.5
|
|
||
|
Volatility
|
|
|
-
|
|
|
|
116.77
|
%
|
||
|
Risk-free rate
|
|
|
-
|
|
|
|
0.51% - 0.76
|
%
|
||
|
Dividend yield
|
|
|
-
|
|
|
|
0.00
|
%
|
||
|
|
|
|
|
|
|
|
|
|
||
|
Embedded derivatives in Convertible Notes at period
end
|
|
|
|
|
||||||
|
|
As of November 30,
|
|
||||||||
|
|
2017
|
|
2016
|
|
||||||
|
Stock price
|
|
$
|
-
|
|
|
$
|
3.43
|
|
||
|
Term (years)
|
|
|
-
|
|
|
|
0.25 - 1.05
|
|
||
|
Volatility
|
|
|
-
|
|
|
|
156.74% - 163.49
|
%
|
||
|
Risk-free rate
|
|
|
-
|
|
|
|
0.48% - 0.80
|
%
|
||
|
Dividend yield
|
|
|
-
|
|
|
|
0.00
|
%
|
||
|
|
|
|
|
|
|
|
|
|
||
As of November 30, 2017 and 2016, the embedded conversion options
have an aggregate fair value of $0 and $977,000, respectively, and
are presented on a combined basis with the related loan host in the
Company’s Consolidated Balance Sheets. The tables
below presents changes in fair value for the embedded conversion
options, which is a Level 3 fair value measurement:
|
Rollforward of Level 3 Fair Value Measurement for the Year Ended
November 30, 2017
|
|
|||
|
|
|
|
|
|
|
Balance at November 30, 2016
|
Issuance
|
Net unrealized gain/(loss)
|
Conversion
|
Balance at November 30, 2017
|
|
$977,000
|
86,000
|
810,017
|
(1,873,017)
|
$-
|
|
Rollforward of Level 3 Fair Value Measurement for the Year Ended
November 30, 2016
|
|
|||
|
|
|
|
|
|
|
Balance at November 30, 2015
|
Issuance
|
Net unrealized gain/(loss)
|
Settlements
|
Balance at November 30, 2016
|
|
$229,000
|
1,303,000
|
(121,000)
|
(434,000)
|
$977,000
|
F-13
Conversions of debt
The following conversions of occurred during the year ended
November 30, 2017:
|
|
Principal
|
Shares
|
|
Series
A conversions
|
$12,500
|
5,936
|
|
Series
B conversions
|
55,000
|
27,995
|
|
Series
C conversions
|
576,383
|
407,484
|
|
Series
D conversions
|
160,000
|
91,782
|
|
Series
E conversions
|
180,000
|
76,455
|
|
Secured
Debenture conversions
|
4,000,000
|
1,040,727
|
|
Total
|
$4,983,883
|
1,650,379
|
|
|
|
|
The following conversions debt occurred during the year ended
November 30, 2016:
|
|
Principal
|
Shares
|
|
Series
A conversions
|
$37,500
|
22,148
|
|
Series
B conversions
|
100,000
|
51,111
|
|
Series
C conversions
|
58,617
|
44,869
|
|
Total
|
$196,117
|
118,128
|
|
|
|
|
As the embedded conversion option in each convertible note and in
each Debenture had been separately measured at fair value or
separately recognized as a beneficial conversion feature, the
conversion of each instrument was recognized as an extinguishment
of debt. The Company recognized an aggregate loss on
conversion of debt of approximately $464,000 as the difference
between the aggregate fair value of common stock issued to the
holders of approximately $6.6 million and the aggregate net
carrying value of the convertible notes and debentures, including
the bifurcated conversion options.
Note 6 – Note Payable
As of November 30, 2017, and 2016, the Company had an outstanding
promissory note of $0 and $150,000 (“OID Note”),
respectively. The OID Note does not pay interest and matured
on November 3, 2017. At the issuance date, the $150,000 OID Note
was issued together with 15,000 restricted shares of the
Company’s common stock for cash proceeds of $150,000. As
such, the Company recognized a beneficial conversion feature,
resulting in a discount to the OID Note of approximately $52,000
with a corresponding credit to additional paid-in capital. The
resulting debt discount is presented net of the related convertible
note balance in the accompanying consolidated balance sheet as of
November 30, 2016 and was amortized to interest expense over the
note’s term.
Note 7 – Commitments and Contingencies
Legal
The Company is not currently involved in any legal matters arising
in the normal course of business. From time to time, the
Company could become involved in disputes and various litigation
matters that arise in the normal course of business. These
may include disputes and lawsuits related to intellectual property,
licensing, contract law and employee relations matters.
Periodically, the Company reviews the status of significant
matters, if any exist, and assesses its potential financial
exposure. If the potential loss from any claim or legal claim is
considered probable and the amount can be estimated, the Company
accrues a liability for the estimated loss. Legal proceedings
are subject to uncertainties, and the outcomes are difficult to
predict. Because of such uncertainties, accruals are based on
the best information available at the time. As additional
information becomes available, the Company reassesses the potential
liability related to pending claims and litigation.
Advisory Agreements
The Company entered into customary consulting arrangements with
various counterparties to provide consulting services, business
development and investor relations services, pursuant to which the
Company agreed to issue shares of common stock as services are
received. The Company expects to issue an aggregate of
approximately 27,000 shares of common stock subsequent to November
30, 2017 through the end term of arrangements, February
2018.
Lease Agreement
In December 2016, the Subsidiary entered into a lease agreement for
its office space located in Cayman Islands for $30,000 per
annum. The initial term of the agreement ends in December
2019 and can be renewed for another three years.
Rent expenses was classified within general and administrative
expenses and was approximately $27,000 and $0 for the year ended
November 30, 2017 and 2016.
F-14
License Agreements
Mannin
On October 29, 2015, the Company entered into a Patent and
Technology License and Purchase Option Agreement (“Exclusive
License”) with a vendor whereby the Company was granted a
worldwide, exclusive, license on, and option to, acquire certain
intellectual property (“Mannin IP”) which initially
focused on developing a first-in-class eye drop treatment for
glaucoma within the four-year term of the Exclusive
License. The technology platform may be expanded in
scope beyond ophthalmological uses and may include cystic kidney
disease and others. Pursuant to the Executive License, the
Company has an option to purchase the Mannin IP within the next
four years upon: (i) investing a minimum of $4,000,000 into the
development of the intellectual property and (ii) possibly issuing
additional shares of the Company’s common stock based on
meeting pre-determined valuation and market conditions. The
purchase price for the IP is $30,000,000 less the amount of cash
paid by the Company for development and the value of the common
stock issued to the vendor.
During the years ended November 30, 2017 and 2016, the Company
incurred approximately $1.9 million and $1.1 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, of which an aggregate of $2.0 million and $0.7
million was already paid as of November 30, 2017 and 2016,
respectively. Through November 30, 2017, the Company has
funded an aggregate of $2.7 million to Mannin under the Exclusive
License.
In the event that: (i) the Company does not exercise the option to
purchase the Mannin IP; (ii) the Company fails to invest the
$4,000,000 within four years from the date of the Exclusive
License; or (iii) the Company fails to make a diligent, good faith
and commercially reasonable effort to progress the Mannin IP, all
Mannin IP shall revert to the vendor and the Company will be
granted the right to collect twice the monies invested through that
date of reversion by way of a royalty along with other
consideration which may be perpetual.
Bio-Nucleonics
On September 6, 2016, the Company entered into the Patent and
Technology License and Purchase Option Agreement (the “BNI
Exclusive License”). with Bio-Nucleonics Inc.
(“BNI”) whereby the Company was granted a worldwide,
exclusive, perpetual, license on, and option to, acquire certain
BNI intellectual property (“BNI IP”) within the
three-year term of the BNI Exclusive License.
In exchange for the consideration, the Company agreed to, upon
reaching various milestones, issue to BNI an aggregate of 110,000
shares of common stock that are subject to restriction from trading
until commercialization of the product (approximately 12 months)
and subsequent leak-out conditions, and provide funding to BNI for
an aggregate of $850,000 in cash, of which the Company had paid
$466,000 as of November 30, 2017. Once the Company has
funded up to $850,000 in cash, the Company may exercise its option
to acquire the BNI IP at no additional charge. In
September 2016, the Company issued 50,000 shares of common stock,
with a fair value of $160,500, to BNI pursuant to the BNI Exclusive
License.
During the years ended November 30, 2017 and 2016, the Company
incurred approximately $467,000 and $219,000, respectively, in
research and development expenses pursuant to the BNI Exclusive
License.
In the event that: (i) the Company does not exercise the option to
purchase the BNI IP; (ii) the Company fails to make the aggregate
cash payment within three years from the date of the Exclusive
License; or (iii) the Company fails to make a diligent, good faith
and commercially reasonable effort to progress the BNI IP, all BNI
IP shall revert to BNI and the Company shall be granted the right
to collect twice the monies invested through that date of reversion
by way of a royalty along with other consideration which may be
perpetual.
Asdera
On April 21, 2017, the Company entered into a License Agreement on
Patent & Know-How Technology (“Asdera License”)
with Asdera LLC (“Asdera”) whereby the Company was
granted a worldwide, exclusive, license on certain Asdera
intellectual property (“Asdera IP”). The initial cost
to acquire the Asdera License is $50,000 and the issuance of
125,000 shares of the Company’s common stock, with a fair
value of $487,500, of which the Company had fully paid and issued
as of November 30, 2017, and recorded in research and development
expenses in the accompanying Consolidated Statements of Operations.
In addition to royalties based upon net sales of the product
candidate, if any, the Company is required to make certain
additional payments upon the following milestones:
|
●
|
the filing of an investigational new drug application (the
“IND”) with the US Food and Drug Administration
(“FDA”);
|
|
●
|
successful interim results of Phase II/III clinical trial of the
product candidate;
|
|
●
|
FDA acceptance of a new drug application;
|
|
●
|
FDA approval of the product candidate; and
|
|
●
|
achieving certain worldwide net sales.
|
F-15
Subject to the terms of the Agreement, the Company will be in
control of the development and commercialization of the product
candidate and are responsible for the costs of such development and
commercialization. The Company has undertaken a good-faith
commitment to (i) initiate a Phase II/III clinical trial at the
earlier of the two-year anniversary of the agreement or one year
from the FDA’s approval of the IND and (ii) to make the first
commercial sale by the fifth-anniversary of the agreement.
Failure to show a good-faith effort to meet those goals would mean
that the Asdera IP would revert to Asdera. Upon such
reversion, Asdera would be obligated to pay the Company royalties
on any sales of products derived from the Asdera IP until such time
that Asdera has paid the Company twice the sum that the Company had
provided Asdera prior to the reversion.
OMRF
OMRF License Agreement
On June 15, 2017, the Company entered into a Technology License
Agreement (“OMRF License Agreement”) with the Rajiv
Gandhi Centre for Biotechnology, an autonomous research institute
under the Government of India (“RGCB”), and the
Oklahoma Medical Research Foundation (“OMRF” and
together with RGCB, the “Licensors”), whereby the
Licensors granted the Company a worldwide, exclusive, license on
intellectual property related to Uttroside B (the “Uttroside
B IP”). Uttroside B is a chemical compound derived from
the plant Solanum nigrum Linn, also known as Black Nightshade
or Makoi. The Company seeks to use the Uttroside B IP to
create a chemotherapeutic agent against liver
cancer.
The initial cost to acquire the OMRF License Agreement is $10,000,
which will be payable upon reaching certain agreed
conditions. In addition to royalties based upon net sales of
the product candidate, if any, the Company is required to make
additional payments upon the following milestones:
|
●
|
the completion of certain preclinical studies (the
“Pre-Clinical Trials”);
|
|
●
|
the filing of an investigational new drug application (the
“IND”) with the US Food and Drug Administration
(“FDA”) or the filing of the equivalent of an IND with
the foreign equivalent of the FDA;
|
|
●
|
successful completion of each of Phase I, Phase II and Phase III
clinical trials;
|
|
●
|
FDA approval of the product candidate;
|
|
●
|
approval by the foreign equivalent of the FDA of the product
candidate;
|
|
●
|
achieving certain worldwide net sales; and
|
|
●
|
a change of control of QBIO.
|
Subject to the terms of the Agreement, the Company will be in
control of the development and commercialization of the product
candidate and are responsible for the costs of such development and
commercialization. The Company has undertaken a good-faith
commitment to (i) fund the Pre-Clinical Trials and (ii) to initiate
a Phase II clinical trial within six years of the date of the
Agreement. Failure to show a good-faith effort to meet those
goals would mean that the RGCB License Agreement would revert to
the Licensors.
No milestones have been reached to date on these license
agreements.
Note 8 - Related Party Transactions
The Company entered into consulting agreements with certain
management personnel and stockholders for consulting and legal
services. Consulting and legal expenses resulting from
such agreements were approximately $420,000 and $300,000 for the
year ended November 30, 2017 and 2016, respectively, and were
included within general and administrative expenses in the
accompanying Consolidated Statements of Operations.
Note 9 - Stockholders’ Equity (Deficit)
As of November 30, 2017, and 2016, the Company is authorized to
issue up to 250,000,000 shares of its $0.001 par value common stock
and up to 100,000,000 shares of its $0.001 par value preferred
stock.
F-16
Private Placement
2016 activity
In May 2016, the Company entered into a subscription agreement with
an investor in connection with the Company’s private
placement (“May Private Placement”), generating gross
proceeds of $50,000 by selling 20,000 units (each, Unit A”)
at a price per Unit A of $2.50, with each Unit A consisting of one
share of common stock and a two-year warrant to purchase one share
of the Company’s common stock at an exercise price of $3.50
per share.
The subscription agreement requires the Company to issue the May
Private Placement investor additional common shares if the Company
were to issue common stock or issue securities convertible or
exercisable into shares of common stock at a price below $2.50 per
share within 90 days from the closing of the May Private
Placement. The additional shares are calculated as the
difference between the common stock that would have been issued in
the May Private Placement using the new price per unit less shares
of common stock already issued pursuant to the May Private
Placement.
In August 2016, the Company consummated another private placement,
for gross proceeds of approximately $10,000 by selling 6,500 units
at a purchase price of $1.55 per unit. As a result, the
Company issued the May Private Placement investor an additional
12,258 shares of common stock according to the
agreement.
In September 2016, the Company entered into a subscription
agreement (the “Subscription Agreement”) with certain
investors in connection with the Company’s private placement
(“September Private Placement”), generating gross
proceeds of $112,500 by selling 37,498 units (each, “Unit
B”) at a price per Unit B of $3.00, with each Unit B
consisting of one share of common stock and a two-year warrant to
purchase one share of the Company’s common stock at an
exercise price of $5.00 per share.
In November 2016, the Company entered into additional Subscription
Agreements with certain investors, generating gross proceeds of
$65,000 by selling 26,000 units (each, “Unit C”) at a
price per Unit C of $2.50, with each Unit C consisting of one share
of common stock and a two-year warrant to purchase one share of the
Company’s common stock at an exercise price of $4.00 per
share.
The Subscription Agreement requires the Company to issue the
investor additional units if the Company were to issue common stock
or issue securities convertible or exercisable into shares of
common stock at a price below a specified price per share within 90
days from the closing of the private placement. The
additional units are calculated as the difference between the
common stock that would have been issued using the new price per
unit less shares of common stock already issued pursuant to the
private placement.
Pursuant to the Subscription Agreement, the Company issued an
additional of 7,502 units to the September Private Placement
investors or no additional consideration. In addition, the
Company also modified the exercise price of the warrants issued in
the Unit B to $4.00 per share, which in effect, made the Unit B
equivalent to Unit C (together as “Private Placement
Unit”). The Company recorded approximately $41,000 as
loss in connection with the issuance of additional units and
modification of the warrants in the accompanying consolidated
statements of operations, resulted from the value of the additional
shares issued of approximately $23,000 and the change in warrant
liability of approximately $19,000.
2017 activity
On August 1, 2017, the Company closed its private placement
(“August Private Placement”), selling an aggregate of
953,249 units (“Units”) at a price of $3.20 per Unit,
for an aggregate cash proceeds of approximately $2.4 million, net
of offering costs, and the retirement of $0.5 million in principal
and accrued interest of the Debentures. A Unit consists of
one common stock and one warrant exercisable for five years from
the date of issuance into a share of the Company’s common
stock at an exercise price of $4.50.
In connection with the August Private Placement, the Company issued
an aggregate of 39,246 warrants to the placement agent as
consideration. These warrants have the same terms with the
warrants issued in the August Private Placement.
In January 2017, the Company issued 20,000 shares of the
Company’s common stock upon receiving the notice to exercise
the warrants at an exercise price of $3.50 included in Unit A sold
in the private placement held in May 2017, for an aggregate
purchase price of $70,000.
Issued for services
2016 activity
During the year ended November 30, 2016, the Company issued an
aggregate of 341,543 shares of common stock, valued at
approximately $1.6 million, and five-year warrants to purchase
175,000 shares of common stock at exercise prices ranging from of
$1.45 to $3.00 per share for advisory services. The warrants vest
25% per quarter over the next year and were valued at $377,500
using inputs described in Note 9. The Company recognized
the value of the warrants over the vesting
period.
In addition, the Company issued fully-vested five-year warrants to
a stockholder, a director and general counsel of the Company to
purchase an aggregate of 375,000 shares of common stock at strike
prices ranging from $1.45 to $4.15 per share. The
warrants were valued at $957,500 using inputs described in Note
9. The warrants were issued for services and settlement
of a $30,000 in accounts payable.
F-17
In July 2016, the Company issued five-year warrants to purchase an
aggregate of 300,000 shares of the Company’s common stock at
$1.45 to two members of the Company’s Board of Director for
their compensation for their board services. The warrants vest 25%
per quarter starting on grant date and were valued at $390,000
using inputs described in Note 9. The Company recognized
the value of the warrants over the vesting
period.
The Company recognized general and administrative expenses of
approximately $4.1 million, as a result of these transactions
during the year ended November 30, 2016.
The estimated unrecognized stock-based compensation associated with
these agreements is approximately $399,000 and will be recognized
over the next 0.2 year.
2017 activity
The Company entered into customary consulting arrangements with
various counterparties to provide consulting services, business
development and investor relations services. During the
year ended November 30, 2017, the Company issued an aggregate of
153,705 shares of the Company common stock to various vendors for
investor relation and introductory services, valued at
approximately $0.7 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 consolidated
statements of operations for the year ended November 30,
2017.
In September 2017, the Company issued warrants to purchase up to
50,000 shares of the Company’s common stock to two vendors
for services. The warrants are exercisable for three years at a per
share price of $4.00.
On October 3, 2017, the Company amended the Debentures to extend
the maturity date from November 30, 2017 to November 30, 2018, and
issued 25,641 restricted shares of its common stock to the holder
of the Debentures as consideration.
Note 10 - Warrants and Options
Warrant Liability
As of November 30, 2016, the Company had outstanding warrants
issued as part of the private placement units initially classified
as liabilities because the exercise price may be adjusted downward,
in certain circumstances, for a ninety-day period following their
initial issuance. Warrant liabilities were measured at fair
value, with changes in fair value recognized each reporting period
in the Statement of Operations. The warrants ceased being
liability classified at the conclusion of the ninetieth day from
issuance. As a result, an aggregate of approximately $228,000
in warrant liability was reclassified to equity during the year
ended November 30, 2017. All other warrants are equity
classified.
In September 2017, the Company issued equity-classified warrants to
purchase up to 50,000 shares of the Company’s common stock to
two vendors for services. The warrants are exercisable for three
years at a per share price of $4.00.
The warrant liability is a Level 3 fair value measurement,
recognized on a recurring basis. Both observable and unobservable
inputs may be used to determine the fair value of positions that
the Company has classified within the Level 3 category. As a
result, the unrealized gains and losses for liabilities within the
Level 3 category may include changes in fair value that were
attributable to both observable inputs (e.g., changes in market
interest rates) and unobservable inputs (e.g., probabilities of the
occurrence of an early termination event).
|
Fair value of warrant liability at November 30, 2016
|
$168,070
|
|
Issuance
of new warrant liability
|
-
|
|
Change
in fair value of warrant liability
|
59,870
|
|
Reclassification
of warrant liability to equity
|
(227,940)
|
|
Fair value of warrant liability at November 30, 2017
|
$-
|
Summary of warrants
The following represents a summary of all outstanding warrants to
purchase the Company’s common stock, including warrants
issued to vendors for services and warrants issued as part of the
units sold in the private placements, at November 30, 2017 and 2016
and the changes during the period then ended:
|
|
Warrants
|
Weighted Average Exercise Price
|
Intrinsic Value
|
Weighted Average Remaining Contractual Life (years)
|
|
Outstanding
at November 30, 2015
|
100,000
|
$2.18
|
$1,370,000
|
4.80
|
|
Issued
|
984,998
|
$2.67
|
$1,033,000
|
3.97
|
|
Expired
|
(37,498)
|
$5.00
|
$-
|
-
|
|
Outstanding
at November 30, 2016
|
1,047,500
|
$2.54
|
$1,158,000
|
4.10
|
|
Issued
|
2,056,495
|
$4.25
|
$512,960
|
4.46
|
|
Exercised
|
(20,000)
|
$3.50
|
$19,800
|
-
|
|
Outstanding
at November 30, 2017
|
3,083,995
|
$3.67
|
$2,539,185
|
4.02
|
|
Exercisable
at November 30, 2017
|
2,323,245
|
$3.56
|
$2,170,618
|
3.90
|
|
|
|
|
|
|
F-18
Fair value of all outstanding warrants was calculated with the
following key inputs:
|
|
For
the year ended November 30, 2017
|
For
the year ended November 30, 2016
|
|
Stock
price
|
$3.40 - $5.60
|
$1.60 - $4.15
|
|
Term
(years)
|
1.75 - 5.0
|
2.0 - 5.0
|
|
Volatility
|
129.64% - 143.47%
|
101.13% - 138.69%
|
|
Risk-free
rate
|
1.42% - 2.14%
|
0.76% - 1.83%
|
|
Dividend
yield
|
0.00%
|
0.00%
|
Options issued for services
The
following represents a summary of all outstanding options to
purchase the Company’s common stock at November 30, 2017 and
changes during the period then ended:
|
|
Options
|
Weighted
Average Exercise Price
|
Intrinsic
Value
|
Weighted
Averegae Remaining Contractual Life (years)
|
|
Outstanding at
November 30, 2016
|
-
|
$-
|
$-
|
-
|
|
Issued
|
450,000
|
$4.00
|
$220,500
|
4.51
|
|
Exercised
|
-
|
$-
|
$-
|
-
|
|
Outstanding at
November 30, 2017
|
450,000
|
$4.00
|
$220,500
|
4.51
|
|
Exercisable at
November 30, 2017
|
112,500
|
$4.00
|
$55,125
|
4.51
|
|
|
|
|
|
|
Stock-based Compensation
The
Company recognized general and administrative expenses of
approximately $6.4 million and $4.1 million, as a result of the
shares, outstanding warrants and options issued to consultants and
employees during the year ended November 30, 2017 and 2016,
respectively.
As of
November 30, 2017, the estimated unrecognized stock-based
compensation associated with these agreements is approximately
$437,000 and will be recognized over the next 0.15
year.
Note 11 - Income Taxes
On
December 22, 2017, the United States enacted new tax legislation,
the Tax Cuts and Jobs Act. The Company is currently in the process
of evaluating the impact this law will have on the consolidated financial statements and
calculating the related impact to the Company’s tax expense.
The Company expects the largest impact to the company from this
legislation to be from the provisions that lower the corporate tax
rate to 21% beginning on January 1, 2018, and impose tax on
earnings outside the United States that have previously not been
subject to United States tax, which must be paid beginning in
fiscal 2019 through fiscal 2026. The adjustments to the
Company’s tax expense for this legislation will be recorded
beginning in the period of enactment and are not expected to
materially affect the consolidated financial statements, given
the Company’s net deferred tax asset position has a full
valuation allowance.
At November 30, 2017, the Company has a net operating loss
(“NOL”) carryforward for Federal and state income tax
purposes totaling approximately $10.0 million available to reduce
future taxable income which, if not utilized, will begin to expire
in the year 2037. The NOL carry forward is subject to review and
possible adjustment by the Internal Revenue Service and state tax
authorities. Under the Internal Revenue Code (“IRC”)
Sections 382 and 383, annual use of the Company’s net
operating loss carryforwards to offset taxable income may be
limited based on cumulative changes in ownership. The Company has
not completed an analysis to determine whether any such limitations
have been triggered as of November 30, 2017. The amount of the
annual limitation, if any, will be determined based on the value of
the Company immediately prior to the ownership change. Subsequent
ownership changes may further affect the limitation in future
years.
The Company has evaluated the positive and negative evidence
bearing upon the realizability of its deferred tax assets. Based on
the Company’s history of operating losses since inception,
the Company has concluded that it is more likely than not that the
benefit of its deferred tax assets will not be realized.
Accordingly, the Company has provided a full valuation allowance
for deferred tax assets as of November 30, 2017 and 2016. The
valuation allowance increased by approximately $5.9 million and
$2.5 million for the fiscal years ended November 30, 2017 and
2016.
The tax effects of the temporary differences and carry forwards
that give rise to deferred tax assets consist of the
following:
|
|
As of November 30,
|
|
|
|
2017
|
2016
|
|
Deferred tax
assets:
|
|
|
|
Net-operating loss
carryforward
|
$3,810,498
|
$885,120
|
|
Stock-based
compensation
|
4,466,254
|
1,685,262
|
|
License
agreement
|
595,780
|
293,433
|
|
Tax amortization
for license agreement
|
(102,747)
|
-
|
|
Charitable
contributions
|
387
|
-
|
|
Total Deferred Tax
Assets
|
8,770,172
|
2,863,815
|
|
Valuation
allowance
|
(8,770,172)
|
(2,863,815)
|
|
Deferred Tax Asset,
Net of Allowance
|
$-
|
$-
|
F-19
A reconciliation of the statutory income tax rates and the
Company’s effective tax rate is as follows:
|
|
For the year ended November 30,
|
|
|
|
2017
|
2016
|
|
Statutory Federal
Income Tax Rate
|
(34.0)%
|
(34.0)%
|
|
State and Local
Taxes, Net of Federal Tax Benefit
|
(10.3)%
|
(4.7)%
|
|
Loss on conversion
of debt
|
1.4%
|
0.5%
|
|
Gain/ loss on
extinguishment of convertible note
|
0.2%
|
(0.7)%
|
|
Change in fair
value of embedded conversion option and related accretion of
interest expense
|
4.4%
|
1.6%
|
|
Change in fair
value of warrant liability
|
0.2%
|
0.0%
|
|
Loss on
modification of Private Placement Units
|
0.0%
|
0.2%
|
|
Loss on issuance of
convertible debt
|
0.0%
|
2.6%
|
|
Non-U.S.
operations
|
0.3%
|
0.0%
|
|
Change in Valuation
Allowance
|
37.8%
|
34.5%
|
|
|
|
|
|
Income Taxes
Provision (Benefit)
|
0.0%
|
0.0%
|
The Company's major tax jurisdictions are the United States and New
York. All of the Company's tax years will remain open starting 2013
for examination by the Federal and state tax authorities from the
date of utilization of the net operating loss. The Company does not
have any tax audits pending.
Note 12 - Subsequent Events
On
February 1, 2018, the Company sold an aggregate of 1,711,875 shares
of common stock, and 1,711,875 warrants to purchase shares of
common stock, in a registered public offering for gross proceeds of
approximately $5,478,000. The warrants are exercisable for
five years at $3.20 per share. The Company paid placement
agent commissions of approximately $418,000 and issued the
placement agent five-year warrants to purchase 81,688 shares of
common stock at $3.84 per share. After the placement agents’
commissions and other offering expenses, the Company netted
approximately $4,915,000 of proceeds. The Company intends to use
the net proceeds from the offering to: i) launch our non-opioid FDA
approved Strontium Chloride 89 USP Injection (SR89), a therapeutic
drug for the treatment of skeletal pain associated with metastatic
cancers; ii) focus on the clinical planning and IND filing for a
Phase 4 post-marketing study to expand the indication of the
approved SR89; iii) complete pre-IND studies and the filing of an
IND for a phase II/III clinical program to test the efficacy of
QBM-001, our product candidate for the treatment of young children
with a rare autistic spectrum disorder that severely inhibits their
ability to communicate; iv) continue development work on our novel
chemotherapeutic drug for liver cancer; and v) further the
optimization and pre-clinical testing of our glaucoma drug Man-01
for the treatment of open angle glaucoma.
F-20