0001410578-23-001445.txt : 20230616 0001410578-23-001445.hdr.sgml : 20230616 20230616160019 ACCESSION NUMBER: 0001410578-23-001445 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20230228 FILED AS OF DATE: 20230616 DATE AS OF CHANGE: 20230616 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Q BioMed Inc. CENTRAL INDEX KEY: 0001596062 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 464013793 STATE OF INCORPORATION: NV FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-55535 FILM NUMBER: 231020817 BUSINESS ADDRESS: STREET 1: 366 MADISON AVE. STREET 2: 3RD FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 212-588-0022 MAIL ADDRESS: STREET 1: 366 MADISON AVE. STREET 2: 3RD FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 FORMER COMPANY: FORMER CONFORMED NAME: ISMO Tech Solutions, Inc. DATE OF NAME CHANGE: 20140107 10-Q 1 tmb-20230228x10q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: February 28, 2023

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 as specified in its charter)

Nevada

30-0967746

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

 

c/o Ortoli Rosenstadt LLP

366 Madison Avenue, 3rd Floor

New York, NY 10017

(Address of principal executive offices)

 

 

(212) 588-0022

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Symbol

Name of each exchange on which registered

None

None

None

Indicate by check mark whether the registrant (1) 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes    No   

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.

Large accelerated filer      

Accelerated filer                           

Non-accelerated filer        

Smaller reporting company          

 

Emerging growth company          

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  No 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common Stock, $0.001 par value

145,094,531 shares

(Class)

(Outstanding at June 15, 2023)


CAUTIONARY NOTE

We note that this Quarterly report does not meet fully the requirements of quarterly reports as required by Form 10-Q. Particularly, we note that the financial statements included in this Form 10-Q have not been reviewed by an independent auditor. These are not the type of financial statement that an investor would expect to see from a company that has had its financial statements audited and reviewed by an independent accounting firm per the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.  This quarterly report is non-reviewed, therefore incomplete and should not be relied upon as accurate, timely or fit for any purpose. Although the Company intends to amend this quarterly report as soon as practicable and invites any inquiries to be directed to Company management, it may not be able to ever amend it.



PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Q BIOMED INC.

Condensed Consolidated Balance Sheets

    

As of February 28, 

    

As of November 30, 

2023

    

2022

(Unaudited)

(Unaudited)

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash

$

23,173

$

49,973

Accounts receivable

11,535

Prepaid expenses and other current assets

 

10,808

 

10,808

Total current assets

 

33,981

 

72,316

Investment

3,143,201

3,143,201

Intangible assets, net

 

287,500

 

300,000

Total Assets

$

3,464,682

$

3,515,517

LIABILITIES AND STOCKHOLDERS‘ DEFICIT

 

 

Current liabilities:

 

 

Accounts payable

$

2,252,619

$

2,132,063

Accrued expenses

3,221,201

1,545,052

Accrued interest payable

 

257,297

 

254,686

Debt

4,083,262

4,109,981

Derivative liabilities

91,158

91,158

Total current liabilities

 

9,905,733

 

8,132,940

Total Liabilities

 

9,905,733

 

8,132,940

Commitments and Contingencies (Note 8)

 

  

 

  

Stockholders' Deficit:

 

  

 

  

Preferred stock, $0.001 par value; 100,000,000 shares authorized as of February 28, 2023 and November 30, 2022

 

 

Convertible Series A, 500,000 shares designated - 227,998 shares issued and outstanding at February 28, 2023 and November 30, 2022, respectively

 

2,206,516

 

2,160,916

Convertible Series B, 1,000,000 shares designated - 296,000 shares issued and outstanding at February 28, 2023 and November 30, 2022, respectively

2,933,823

2,874,623

Convertible Series C, 100,000,000 shares designated – 1,000,000 shares issued and outstanding at February 28, 2023 and November 30, 2022, respectively

50,000

50,000

Common stock, $0.001 par value; 250,000,000 shares authorized; 133,027,272 and 84,328,041 shares issued and outstanding as of February 28, 2023 and November 30, 2022, respectively

133,027

84,328

Additional paid-in capital

 

56,552,997

 

56,308,513

Accumulated deficit

 

(68,317,414)

 

(66,095,802)

Total Stockholders' Deficit

 

(6,441,051)

 

(4,617,422)

Total Liabilities and Stockholders' Deficit

$

3,464,682

$

3,515,517

The accompanying notes are an integral part of these condensed consolidated financial statements

1


Q BioMed Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

For the Three Months Ended

    

February 28, 2023

    

February 28, 2022

    

Net Sales

$

$

75,059

Cost of sales

2,500

73,945

Gross income (loss)

(2,500)

1,114

Operating expenses:

General and administrative expenses

439,818

1,096,300

Research and development expenses

 

2,691

 

69,268

Total operating expenses

 

442,510

 

1,165,568

Loss from operations

(445,010)

(1,164,454)

Other expenses:

 

 

Interest expense

 

276,602

 

414,377

Change in fair value of embedded derivatives

 

 

235,817

Loss on debt extinguishment

232,100

Settlement of registration liability

241,875

Total other expenses

 

276,602

 

1,124,169

Net loss

(721,612)

(2,288,623)

Accumulated dividend on convertible preferred stock

(104,800)

(122,808)

Net loss attributable to common stockholders

$

(826,412)

$

(2,411,431)

Net income (loss) per share - basic and diluted

$

(0.02)

$

(0.08)

Weighted average shares outstanding, basic and diluted

 

108,730,450

 

29,594,999

The accompanying notes are an integral part of these condensed consolidated financial statements

2


Q BIOMED INC.

Condensed Consolidated Statements of Changes in Shareholders’ Deficit

(Unaudited)

    

For the Three Months Ended February 28, 2023

Total

Series A Preferred Stock

Series B Preferred Stock

Series C Preferred Stock

Common Stock

Additional Paid 

Accumulated

Stockholders’

    

Shares

    

Amount

    

Shares

    

Amount

Shares

Amount

    

Shares

    

Amount

    

in Capital

    

Deficit

    

Deficit

Balance as of November 30, 2022

227,998

$

2,160,916

296,000

$

2,874,623

1,000,000

$

50,000

84,328,041

$

84,328

$

56,308,513

$

(66,095,802)

$

(4,617,422)

Issuance of common stock to convert notes payable

 

 

 

 

 

48,699,231

 

48,699

 

333,251

 

 

381,950

Accumulated dividend on preferred stock

 

 

45,600

 

 

59,200

 

 

 

(104,800)

 

 

Share based compensation for services

16,033

16,033

Net loss

 

 

 

 

 

 

 

 

(721,612)

 

(721,612)

Balance as of February 28, 2023 (Unaudited)

 

227,998

$

2,206,516

 

296,000

$

2,933,823

1,000,000

$

50,000

 

133,027,272

$

133,027

$

56,552,997

$

(68,317,414)

$

(6,441,051)

For the Three Months Ended February 28, 2022

Total

Series A Preferred Stock

Series B Preferred Stock

Series C Preferred Stock

Common Stock

Additional Paid

Accumulated

Stockholders’

    

Shares

    

Amount

    

Shares

    

Amount

Shares

    

Amount

    

Shares

    

Amount

    

in Capital

    

Deficit

    

Deficit

Balance as of November 30, 2021

    

227,998

    

$

2,161,195

    

400,000

    

$

3,915,512

$

    

28,647,788

    

$

28,648

    

$

53,335,901

    

$

(64,126,618)

    

$

(4,685,362)

Issuance of common stock and warrants for cash

 

 

 

 

 

400,000

 

400

 

99,630

 

 

100,030

Cash proceeds from warrants modification

20,000

20,000

Issuance common stock for dividend payment on preferred stock

(45,600)

(80,000)

277,877

278

125,322

Issuance of common stock to convert notes payable

1,577,648

1,578

1,052,369

1,053,947

Issuance of common stock to extinguish accrued liabilities

26,627

26

9,773

9,799

Accumulated dividend on preferred stock

 

 

44,586

 

 

78,222

 

 

 

(122,808)

 

 

Share based compensation for services

 

 

 

 

 

94,925

 

95

 

151,420

 

 

151,515

Share based compensation for warrants modification

 

 

 

 

 

 

 

17,019

 

 

17,019

Adoption of ASU 2020-06

(290,967)

82,909

(208,058)

Net loss

 

 

 

 

 

 

 

 

(2,288,623)

 

(2,288,623)

Balance as of February 28, 2022 (Unaudited)

 

227,998

$

2,160,181

 

400,000

$

3,913,734

$

 

31,024,865

$

31,025

$

54,397,659

$

(66,332,332)

$

(5,829,733)

The accompanying notes are an integral part of these condensed consolidated financial statements

3


Q BIOMED INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

For the Three Months Ended

    

February 28, 2023

    

February 28, 2022

Cash flows from operating activities:

Net loss

$

(721,612)

$

(2,288,623)

Adjustments to reconcile net loss to net cash used in in operating activities

 

 

Share based compensation for services

 

16,033

 

151,515

Accretion of debt discount

 

195,582

 

351,805

Amortization expense

12,500

12,500

Settlement on registration liability

241,875

Loss on debt extinguishment

232,100

Changes in operating assets and liabilities:

 

 

Accounts receivable

 

11,535

 

52,389

Prepaid expenses and other current assets

 

 

(661)

Accounts payable and accrued expenses

296,705

583,974

Accrued interest payable

 

50,873

 

33,434

Net cash used in operating activities

 

(138,187)

 

(376,856)

Cash flows from financing activities:

 

  

 

  

Proceeds received from issuance of convertible notes, net

111,387

Proceeds received from issuance of common stock and warrants

100,030

Cash advances

 

 

50,000

Proceeds received for warrants modification

20,000

Net cash provided by financing activities

 

111,387

 

170,030

Net decrease in cash

 

(294,036)

 

(206,826)

Cash at beginning of the year

 

344,009

 

344,009

Cash at end of the year

$

49,973

$

137,183

Supplemental disclosures for noncash investing and financing activities:

Issuance of common stock to convert notes payable and accrued interest

$

381,950

$

1,053,947

Accumulated dividend on convertible preferred stock

$

104,800

$

122,808

Issuance of common stock for dividend payment on preferred stock

$

$

125,600

Issuance of common stock to extinguish accrued liabilities

$

$

9,799

Adoption of ASU 2020-06

$

$

208,058

The accompanying notes are an integral part of these condensed consolidated financial statements

4


Table of Contents

Q BIOMED INC.

Notes to Condensed Consolidated Financial Statements

Note 1 - Organization of the Company and Description of the Business

Q BioMed Inc. (“Q BioMed”), and its wholly owned subsidiaries Q BioMed Cayman SEZC and QBMG Q BioMed Germany UG (collectively, “the Company”), is a biomedical acceleration and development company focused on licensing, acquiring and providing strategic resources to life sciences and healthcare companies. Q BioMed intends to mitigate risk by acquiring multiple assets over time and across a broad spectrum of healthcare related products, companies and sectors. The Company intends to develop these assets to provide returns via organic growth, revenue production, out-licensing, sale or the spinoff of new public companies.

The accompanying condensed consolidated financial statements include the accounts of the Company’s wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Note 2 - Basis of Presentation and Going Concern

Basis of Presentation

The accompanying interim period unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. These condensed consolidated financial statements are unaudited and should be read in conjunction with the unaudited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended November 30, 2022 that was filed with SEC on May 26, 2023. Certain disclosures included in the annual financial statements have been condensed or omitted from these financial statements as they are not required for interim financial statements under U.S. GAAP and the rules of the SEC. These unaudited condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. These adjustments are of a normal, recurring nature. Interim period operating results may not be indicative of the operating results for a full year.

Going Concern

The accompanying condensed consolidated financial statements are prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has and is expected to incur net losses and cash outflows from operations in pursuit of extracting value from its acquired intellectual property. These matters, amongst others, raise substantial doubt about the Company’s ability to continue as a going concern.

Management anticipates that the Company will have to raise additional funds and/or generate revenue from drug sales within twelve months to continue operations. Additional funding will be needed to implement the Company’s business plan that includes various expenses such as fulfilling our obligations under licensing agreements, legal, operational set-up, general and administrative, marketing, employee salaries and other related start-up expenses. Obtaining additional funding will be subject to a number of factors, including general market conditions, investor acceptance of our business plan and initial results from our business operations. These factors may impact the timing, amount, terms or conditions of additional financing available to us. If the Company is unable to raise sufficient funds, management will be forced to futher scale back the Company’s operations or cease its operations.

Management has determined that there is substantial doubt about the Company’s ability to continue as a going concern within one year after the condensed consolidated financial statements are issued. The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.

Risk and Uncertainties

COVID 19

The impact of the worldwide spread of a novel strain of coronavirus (“COVID-19”) has been unprecedented and unpredictable, but based on the Company’s current assessment, the Company does not expect any material impact on its long-term strategic plans,

5


Table of Contents

Q BIOMED INC.

Notes to Condensed Consolidated Financial Statements

operations and its liquidity due to the worldwide spread of COVID-19. However, the Company is continuing to assess the effect on its operations by monitoring the spread of COVID-19 and the actions implemented to combat the virus throughout the world and its assessment of the impact of COVID-19 may change.

Note 3 - Summary of Significant Accounting Policies

The Company’s significant accounting policies are disclosed in the unaudited financial statements for the year ended November 30, 2022 included in the Company’s Form 10-K.

Modification of Equity Classified Awards

From time-to-time equity classified awards may be modified. On the modification date, the Company estimates the fair value of the awards immediately before and immediately after modification. The incremental increase in fair value is recognized as expense immediately to the extent the underlying equity awards are vested and on a straight-line basis over the same remaining amortization schedule as the unvested underlying equity awards. The classification of stock-based awards, including whether such instruments should be recorded as liabilities or as equity, is reassessed on the modification date.

Induced Conversion of Convertible Preferred Stock

The Company accounts for gains or losses on extinguishment of equity-classified preferred stock as deemed dividends, to be included in the net loss per common stockholder used to calculate earnings per share. The difference between (1) the fair value of the consideration transferred to the holders of the preferred stock and (2) the carrying amount of the preferred stock (net of issuance costs) is subtracted from (or added to) net loss to arrive at net loss available to common stockholders in the calculation of earnings per share.

Sequencing Policy

The Company adopted a sequencing policy under ASC 815-40-35 (“ASC 815”) whereby in the event that reclassification of contracts from equity to liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain financial instruments with a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive financial instruments, with the earliest financial instruments receiving the first allocation of shares. Pursuant to ASC 815, issuance of stock-based awards to the Company’s employees, non-employees or directors recognized under ASC 718 are not subject to the sequencing policy. Any modifications of awards (e.g., options or warrants) that remain subject to vesting, or any modifications of awards that continue to be held by active employees, are not subject to the sequencing policy. Modifications of vested awards held by non-employees are subject to the sequencing policy.

Recent Accounting Standards

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. It specifically addresses: (1) how an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2) how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; and (3) how an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. This ASU will be effective for all entities for fiscal years beginning after December 15, 2021. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted, including adoption in an interim period. The Company is still evaluating the impact of adoption the ASU 2021-04 on its condensed consolidated financial statements.

6


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Q BIOMED INC.

Notes to Condensed Consolidated Financial Statements

Recently Adopted Accounting Standards

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This ASU is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. This update permits the use of either the modified retrospective or fully retrospective method of transition. The Company elected to early adopt this guidance on December 1, 2021, on a modified retrospective basis. The adoption resulted in approximately $291,000 decrease in additional paid in capital from the derecognition of the bifurcated equity component, $208,000 increase in debt from the derecognition of the discount associated with the bifurcated equity component and $83,000 decrease to the opening balance of accumulated deficit.

Note 4 - Loss per share

Basic net loss per share was calculated by dividing net loss by the weighted-average shares of common stock outstanding during the period. Diluted net loss per share was calculated by dividing net loss by the weighted-average shares of common stock 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 (amounts are rounded to nearest thousand).

Potentially dilutive securities

    

February 28, 2023

    

November 30, 2022

Series A convertible preferred stock

2,280,000

2,280,000

Series B convertible preferred stock

8,457,000

8,457,000

Series C convertible preferred stock

1,000,000

1,000,000

Common stock purchase warrants

11,752,000

11,752,000

Stock Options

4,450,000

4,450,000

Convertible Notes

 

86,360,000

 

86,360,000

Potentially dilutive securities

 

114,299,000

 

114,299,000

Note 5 – Intangible Asset Acquisition

On November 23, 2018, the Company entered into an Asset Sale Agreement (“ASA”) with GE Healthcare Limited (“GE”) whereby the Company acquired GE’s radiopharmaceutical drug, Metastron® and all related intellectual property including, but not limited to sales and distribution data, market authorizations and trademarks for Metastron® in various countries in exchange for an upfront payment of $0.5 million, a one-time milestone payment based on future sales, and royalty payments based on future sales. The Company did not acquire any workforce, manufacturing, inventory, sales agreements, or distribution agreements associated with Metastron®. The first commercial sale of Metastron™ by the Company will occur only after the successful transfer or assignment of all intellectual property, material sales and distribution data, technical transfer, and the establishment of new manufacturing sites by the Company and under the appropriate regulatory filings required by the jurisdictions in which Metastron™ is sold.

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Q BIOMED INC.

Notes to Condensed Consolidated Financial Statements

The acquired assets are concentrated in a single asset and the set is not considered a business. As such, the transaction is recognized as the acquisition of a finite-lived intangible asset. The one-time milestone payment based on future sales, and royalty payments based on future sales will be recognized when the payments are probable and estimable, which is expected to be when the related sales targets are achieved and the payments payable to GE. The acquired asset is being amortized on a straight-line basis over its estimated 10-year life. Amortization expense for the three months ended February 28, 2023 and 2022 was $12,500, respectively. The estimated remaining amortization expense for each of the five succeeding fiscal year:

Three month ended February 28,

    

    

2023

 

37,500

2024

 

50,000

2025

 

50,000

2026

 

50,000

2027

 

50,000

Thereafter

 

50,000

$

287,500

Note 6 – Investment

For the year ended November 30, 2022, $3.6 million was converted from Licensing fees and Share awards expensed in Research and Development in recognition of shares received in Investment in an Associate – Mannin. We incurred a $500k loss between the value of shares received and the amount expended in Research and Development.

Note 7 - Debt

The table below summarizes outstanding debt as of February 28, 2023 and November 30, 2022 (amounts are rounded to nearest thousand):

    

February 28, 2023

    

November 30, 2022

Convertible Notes Payable:

Principal value of 2021 Debentures

$

2,408,000

$

2,408,000

Fair value of bifurcated contingent put option

 

1,099,000

 

1,099,000

Debt discount

 

(70,000)

 

(70,000)

2021 Convertible notes payable, net

3,437,000

3,437,000

Principal value of 2022 Debentures

560,000

560,000

Fair value of bifurcated contingent put option

333,000

333,000

Debt discount

(305,000)

(305,000)

2022 Convertible notes payable, net

588,000

588,000

Principal value of 2023 Debentures, net of conversions

 

(222,000)

 

Debt discount

 

196,000

 

2023 Convertible notes payable, net

(82,000)

Cash advances

85,000

85,000

Total carrying value of convertible notes payable

$

4,084,000

$

4,110,000

2023 Convertible Notes Payable

2023 Debentures

January 2023 Debenture

On January 12, 2023, the Company entered into a securities purchase agreement with an accredited investor, pursuant to which the Company sold a convertible debenture (the “January Debenture”) in the principal amount of $49,000.

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Q BIOMED INC.

Notes to Condensed Consolidated Financial Statements

The January Debenture includes an original issue discount of $5,250. The Company also incurred an additional $3,750 of issuance cost resulting from the payment of the lender’s legal fees. The January Debenture has a maturity date of January 12, 2024, provided that in case of an event of default, the debenture may become at the holder’s election immediately due and payable. The January Debenture carries an interest rate of 12% per annum, provided that any principal or interest which is not paid when due shall bear interest at the rate of 22% per annum from the due date until payment (the “Default Interest”).  The Company shall pay ten (10) mandatory monthly payments of $5,488 commencing on March 1, 2023.  In the event of default the January Debenture shall become immediately due and payable and the Company shall pay to the lender an amount equal to 150% times the sum of (i) the then outstanding principal amount of the January Debenture plus (ii) accrued and unpaid interest on the unpaid principal amount to the date of payment plus (iii) default interest, if any, shall immediately become due and payable.

February 2023 Debenture

On February 13, 2023, the Company entered into a securities purchase agreement with an accredited investor, pursuant to which the Company sold a convertible debenture (the “February Debenture”) in the principal amount of $62,387.

The February Debenture includes an original issue discount of $8,137. The Company also incurred an additional $4,250 of issuance cost resulting from the payment of the lender’s legal fees. The February Debenture has a maturity date of February 14, 2024, provided that in case of an event of default, the debenture may become at the holder’s election immediately due and payable. The February Debenture carries an interest rate of 6% per annum, provided that any principal or interest which is not paid when due shall bear interest at the rate of 22% per annum from the due date until payment (the “Default Interest”). The lender shall have the right from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following the date of the February Debenture and ending on the later of: (i) the Maturity Date, or (ii) the date of payment of the default amount (the “Conversion Period”), all or any part of the outstanding and unpaid amount into fully paid and non-assessable shares of Common Stock.

2022 Convertible Notes Payable

2022 Debentures

July 2022 Debenture

On July 1, 2022, the Company entered into a Securities Purchase Agreement with an accredited investor (“DL”) pursuant to which the Company issued to DL a Convertible Promissory Note (the “DL Note”) in the aggregate principal amount of $119,888. The DL Note includes an original issue discount of $16,888 (includes $1,250 due diligence fee retained by DL). The Company also incurred an additional $3,000 of issuance cost resulting from the payment of the lender’s legal fees. The DL Note has a maturity date of July 1, 2023, and the Company has agreed to pay interest on the unpaid principal balance of the DL Note at the rate of 10.0% per annum from the date on which the DL Note is issued (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has the right to prepay the DL Note, provided it makes a payment including a prepayment to DL as set forth in the DL Note. The outstanding principal amount of the DL Note may not be converted prior to the period beginning on the date that is 180 days following the Issue Date. Following the 180th day, DL may convert the DL Note into shares of the Company’s common stock at a conversion price equal to 80% of the average of 3 lowest trading price with a 10-day look back immediately preceding the date of conversion.

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Q BIOMED INC.

Notes to Condensed Consolidated Financial Statements

The contingent share-settled redemption feature, contingent acceleration upon merger, acquisition, and event of default within the DL Note are all contingent put options that are required to be bifurcated as a single compound embedded derivative at fair value, with subsequent changes in fair value recognized in the Condensed Consolidated Statement of Operations. The fair value estimate is a Level 3 measurement. The Company estimated the fair value of put option on the merger, acquisition, and event of default by estimating the probability of the occurrence of triggering date (the “Probability factor”) and applying the probability to the discounted maximum redemption premium for any given payment with the following key inputs:

    

July 1, 2022

 

Strike price

$

0.05

Terms (years)

 

1.0

Volatility

 

138

%

Risk-free rate

 

2.8

%

Dividend yield

 

0

%

Probability factor

20

%

The aggregate fair value of the embedded put option on the issuance date was approximately $104,000, which exceeded the net proceeds of $100,000, resulting in an approximate loss of $4,000 upon the on issuance of the convertible note.

For the three months ended February 28, 2023, the Company issued 14,875,997 shares of common stock to convert approximately $120,000 of outstanding debt upon the conversion.

August 2022 Debenture

On August 10, 2022 (the “Effective Date’), the Company entered into a Securities Purchase Agreement with an accredited investor (“the Lender”) pursuant to which the Company issued to the Lender a Convertible Promissory Note (the “August Note”) in the aggregate principal amount of $275,000 for a purchase price of $250,000. The August Note has a maturity date of February 6, 2023, and the Company has agreed to pay interest on the unpaid principal balance of the August Note at the rate of 10.0% per annum. Upon the later of the date the obligations under this Note are satisfied or the 6-month anniversary and for 30 days thereafter, the Lender has the exclusive right to elect conversion of any original issue discount or interest amount due under this August Note, into shares of the Company’s common stock at a conversion price per share equal to $0.035. The conversion option does not apply to the principal amount. The conversion option and contingent put upon an event of default are required to be bifurcated as a single compound embedded derivative at fair value under ASC 815, because it is not considered to be classified in stockholders’ equity. The subsequent changes in fair value are recognized in the Condensed Consolidated Statement of Operations. The fair value estimate is a Level 3 measurement. The Company estimated the fair value with the following key inputs:

    

August 10, 2022

 

Strike price

$

0.04

Terms (years)

 

0.5

Volatility

 

200

%

Risk-free rate

 

3.1

%

Dividend yield

 

0

%

The aggregate fair value of the conversion option on the issuance date was approximately $23,000, which was recognized as an additional debt discount.

As additional consideration for making the August Note, the Company agreed to issue 300,000 unregistered common shares within 10 business days to the Lender (the “Commitment shares”). The commitment to issue the shares was valued at the Effective Date fair value of approximately $11,000 and recognized as an additional debt discount. The commitment is a forward contract, recognized at fair value, as a result of applying the Company’s sequencing policy, and recognized at fair value with changes in fair value recognized in the Company’s Condensed Consolidated Statements of Operations until settled on August 24, 2022.

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Q BIOMED INC.

Notes to Condensed Consolidated Financial Statements

September 2022 Debenture

On September 15, 2022, the Company entered into a securities purchase agreement with an accredited investor, pursuant to which the Company sold a convertible debenture (the “September Debenture”) in the principal amount of $102,637.

The September Debenture has a maturity date of September 15, 2023, provided that in case of an event of default, the debenture may become at the holder’s election immediately due and payable. The September Debenture carries an interest rate of 6% per annum, provided that any principal or interest which is not paid when due shall bear interest at the rate of 22% per annum from the due date until payment (the “Default Interest”). The Company may prepay the Debenture at 120% of the outstanding aggregate principal amount within the first 60 days of issuance and at 130% of the sum of the outstanding principal amount, the accrued and unpaid interest on the unpaid principal amount and any Default Interest from 61 to 180 days after issuance.

November 2022 Debenture

On November 22, 2022, the Company entered into a securities purchase agreement with an accredited investor, pursuant to which the Company sold a convertible debenture (the “November Debenture”) in the principal amount of $62,387.

The November Debenture has a maturity date of November 22, 2023, provided that in case of an event of default, the debenture may become at the holder’s election immediately due and payable. The November Debenture carries an interest rate of 6% per annum, provided that any principal or interest which is not paid when due shall bear interest at the rate of 22% per annum from the due date until payment (the “Default Interest”). The Company may prepay the Debenture at 120% of the outstanding aggregate principal amount within the first 60 days of issuance and at 130% of the sum of the outstanding principal amount, the accrued and unpaid interest on the unpaid principal amount and any Default Interest from 61 to 180 days after issuance.

2021 Debenture

February 2021 Debenture

On February 12, 2021, the Company issued a debenture for $0.5 million (the “February Debenture”) pursuant to a securities purchase agreement with an accredited investor dated February 12, 2021. The February Debenture may be converted at any time on or prior to maturity at the lower of $1.15 or 93% of the average of the four lowest daily VWAPs during the 10 consecutive trading days immediately preceding the conversion date, provided that as long as we are not in default under the 2020 Debenture, the conversion price may never be less than $1.00. The debenture has a maturity date of February 12, 2022, provided that in case of an event of default, the debenture may become at the holder’s election immediately due and payable. The debenture bears interest at the rate of 5.5% per annum, and on issuance, the Company paid to the holder a commitment fee equal to 2% of the amount of the debenture.

The aggregate fair value of the contingent put options on the issuance date was approximately $28,000, which was recognized as an additional debt discount.

On January 21, 2022, the Company issued 1,055,000 shares of common stock to convert $0.5 million of outstanding debt and interest and extinguished $95,000 of embedded derivative liability upon the conversion. The conversion price was reduced to $0.50. The Company recognized a loss on debt extinguishment of approximately $232,000 as a result of the reduction of conversion price for the three months ended February 28, 2022.

July 2021 Debenture

On July 26, 2021, the Company entered into a securities purchase agreement with an accredited investor, pursuant to which the Company sold a convertible debenture (the “July Debenture”) in the principal amount of $806,250 and a warrant to purchase up to 645,000 shares of common stock (the “Warrant”) for a total purchase price of $750,000. The Company also paid $18,750 for the lender's legal fee.

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Q BIOMED INC.

Notes to Condensed Consolidated Financial Statements

The July Debenture has a maturity date of April 26, 2022, provided that in case of an event of default, the debenture may become at the holder's election immediately due and payable. The July Debenture carries an interest rate of 10% per annum, provided that any principal or interest which is not paid when due shall bear interest at the rate of 15% per annum from the due date until payment (the “Default Interest”). The Company may prepay the Debenture at 120% of the outstanding aggregate principal amount within the first 60 days of issuance and at 130% of the sum of the outstanding principal amount, the accrued and unpaid interest on the unpaid principal amount and any Default Interest from 61 to 180 days after issuance.

The holder may convert the July Debenture in its sole discretion at any time on or prior to maturity at the lower of $1.00 or 85% of the average of the four (4) lowest VWAPs during the 20 Trading Days prior to the date of such calculation. The “Variable Conversion Price” shall equal, subject to an initial floor price of $0.35 (the “Floor Price”), the lower of $1.00 and 85% of the average of the four (4) lowest VWAPs during the 20 Trading Days prior to the date of such calculation. The initial Floor Price shall be readjusted to $0.10 if following the Issue Date, VWAP of the Company shall be less than $0.35 for a total of ten days.

The Warrant has an exercise price of $1.25 and may be exercised in cash or via cashless exercise, exercisable for five (5) years from issuance. The grant date relative fair value of the Warrant was estimated to be $253,000 as determined based on the relative fair value allocation of the proceeds received. The Warrant were valued using the Black-Scholes option pricing model using the following inputs:

The contingent share-settled redemption feature and contingent prepayment provision within the July Debenture are all contingent put options that are required to be bifurcated as a single compound embedded derivative at fair value, with subsequent changes in fair value recognized in the Condensed Consolidated Statement of Operations. The fair value estimate is a Level 3 measurement. The Company estimated the fair value with the following key inputs:

    

July 1, 2022

 

Strike price

$

0.05

Terms (years)

 

1.0

Volatility

 

138

%

Risk-free rate

 

2.8

%

Dividend yield

 

0

%

Probability factor

20

%

The aggregate fair value of the contingent put options on the issuance date was approximately $209,000, which was recognized as an additional debt discount.

On December 15, 2021, the Company and the holder entered into a Mutual Release Agreement pursuant to which the holder agreed to add the $241,875 to the outstanding principal balance of July Debenture, for no consideration received by the Company, in order to resolve a breach of certain registration provisions of the securities purchase agreement.

The July Debenture is past maturity and is currently in default. However, the Company has not received any default notice from the holder.

During the year ended November 30, 2022, the Company issued an aggregate 3,633,862 shares of common stock to convert approximately $413,000 of outstanding debt and extinguished approximately $159,000 embedded derivative liability upon the conversion. The Company recognized a loss on debt extinguishment of approximately $152,000 as a result of the reduction of conversion price for the year ended November 30, 2022.

September 2021 Debenture

On September 29, 2021, the Company entered into a securities purchase agreement with an accredited investor (“Lender”), pursuant to which the Company sold a convertible debenture (the “September Debenture”) in the principal amount of $2,200,000 with twelve-months term. The September Debenture includes an original issue discount of $185,000 and $15,000 for the payment of the Lender’s legal fees and carries an interest rate of 6% per annum. The Company also incurred other issuance costs of $247,350. On October 26, 2021, the September Debenture maturity date was extended for an additional 3 months to December 20, 2022.

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Q BIOMED INC.

Notes to Condensed Consolidated Financial Statements

The Company may prepay the September Debenture at 105% of the outstanding aggregate principal amount plus accrued interest within the first 60 days of issuance, at 112% of the outstanding aggregate principal amount plus accrued interest from 61-120 days after issuance and at 124% of the outstanding aggregate principal amount plus accrued interest from 121-180 days after issuance. The Debenture may not be prepaid after 180 days.

The Lender has the right to convert all or any amount of the outstanding aggregate principal amount at any time at a fixed conversion price of $1.00 per share. The conversion price after six months shall be fixed at $0.50 per share.

However, in the event the Company’s Common Stock trades below $0.50 per share for more than ten (10) consecutive trading days, the Lender is entitled to convert all or any amount of the outstanding aggregate principal amount into shares of the Company’s Common Stock at a Conversion Price for each share of Common Stock equal to 85% of the average of the 4 lowest VWAP’s in the prior 20 trading days. As a result of entering into the “September Debenture”, for which such instruments contained a variable conversion feature with no floor, the Company has adopted sequencing policy (see Note 3).

The contingent share-settled redemption feature and contingent prepayment provision within the September Debenture are all contingent put options that are required to be bifurcated as a single compound embedded derivative at fair value, with subsequent changes in fair value recognized in the Condensed Consolidated Statement of Operations. The fair value estimate is a Level 3 measurement. The Company estimated the fair value with the following key inputs:

    

September 29, 2021

 

Strike price

$

0.50

Terms (years)

 

1.0

Volatility

 

66

%

Risk-free rate

 

0.1

%

Dividend yield

 

%

The aggregate fair value of the contingent put options on the issuance date was approximately $278,000, which was recognized as an additional debt discount.

On April 8, 2022, the Company issued 245,000 shares of common stock as commitment shares pursuant to the securities purchase agreement. The commitment to issue the shares was valued at the Effective Date fair value of approximately $177,000 and recognized as an additional debt discount. The commitment is a forward contract, recognized at fair value, as a result of applying the Company’s sequencing policy, and recognized at fair value with changes in fair value recognized in the Company’s Condensed Consolidated Statements of Operations until settled on April 8, 2022.

For the three months ended February 28, 2023, the Company issued 33,823,234 shares of common stock to convert approximately $214,000 of outstanding debt and extinguished $146,000 of embedded derivative liability upon the conversion.

For the year ended November 30, 2022, the Company issued 21,025,054 shares of common stock to convert approximately $305,000 of outstanding debt and extinguished $146,000 of embedded derivative liability upon the conversion.

The fair value of the contingent put option in all outstanding debentures with the feature are revalued as of February 28, 2023 and November 30, 2022 based on the following weighted average key inputs:

    

February 28, 2023

    

November 30, 2022

 

Strike price

$

0.55

$

0.55

Terms (years)

 

0.3

 

0.3

Volatility

 

200

%  

 

200

%

Risk-free rate

 

2.9

%  

 

2.9

%

Dividend yield

 

0

%  

 

0

%

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Q BIOMED INC.

Notes to Condensed Consolidated Financial Statements

The following table presents changes in Level 3 liabilities measured at fair value for the period ended February 28, 2023 and for the year ended November 30, 2022. Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long- dated volatilities) inputs (amounts are rounded to nearest thousand:

Balance November 30, 2021

    

$

867,000

Issuance of convertible notes

 

271,000

Debt extinguishment

 

(425,000)

Change in fair value

 

721,000

Balance November 30, 2022

$

1,434,000

Issuance of convertible notes

 

Change in fair value

 

Balance February 28, 2023

$

1,434,000

Debt Conversion

The following table summarizes debt conversion during the period ended February 28, 2023 and the year ended November 30, 2022 (amounts are rounded to nearest thousand):

Debt Amendment

On October 26, 2021, the Company entered into an extension agreement with the holder of September 2021 Debenture (the "Holder") to extend the maturity date from September 30, 2022, to December 29, 2022. The amendment was recognized as a troubled debt restructuring.

On July 22, 2021, the Company entered into an amendment agreement to the securities purchase agreement with the Holder, pursuant to which, the floor price of the 2020 Debenture was reduced to $0.50 per share. Additionally, the maturity date of the 2020 Debenture was extended to December 31, 2021. The amendment was recognized as a debt extinguishment, resulting in a gain on debt extinguishment of approximately $15,000.

Interest expense

Interest expense, included in the accompanying Condensed Consolidated Statements of Operations, is comprised of the following for each period presented (amounts are rounded to nearest thousand):

For the Three Months Ended

    

February 28, 2023

    

February 28, 2022

Interest expense based on the coupon interest rate of the outstanding debt

$

51,000

$

61,000

Accretion of debt discount

217,000

352,000

Other

9,000

1,000

Total interest expense

$

277,000

$

414,000

Cash Advances

Cash advances include cash provided by vendors that is subject to repayment on demand.

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Q BIOMED INC.

Notes to Condensed Consolidated Financial Statements

Note 8 - Commitments and Contingencies

Equity Financing

On May 5, 2021, the Company entered into an agreement with Aedesius Holdings Ltd. ("Aedesius") pursuant to which the Company has agreed with Aedesius that the Company would sell it up to 16,000,000 units (the "Units") for a total aggregate of up to $20,000,000.

Aedesius failed to perform on its obligation and to date has not invested any monies in the Company. As a result, the Company has terminated any and all rights with respect to future fundings and will pursue whatever rights and remedies the Company has at its disposal for breach of contract and damages.

Legal

Periodically, the Company reviews the status of significant matters, if any exist, and assesses its potential financial exposure. If the potential loss from any claim or legal claim is considered probable and the amount can be estimated, the Company accrues a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based on the best information available at the time. As additional information becomes available, the Company reassesses the potential liability related to pending claims and litigation.

As previously reported, on July 12, 2022, the Company was notified that WSI PBG, LLC (“WSI”) filed a complaint against the Company seeking to recover $196,216 in unpaid consulting fees, plus costs and expenses of litigation.  The Company elected not to litigate this suit so as not to increase its liability exposure. Not unexpectedly, on August 24, 2022, WSI obtained a judgment against the Company in the amount of $203,784. The Company is exploring its options in addressing this judgment, including terms of settlement that would result in a satisfaction of this Judgment over a limited period of time.

On July 19, 2022, the Company received notice that the Activus Group (“Activus”) filed a complaint for fees it alleges are due in the amount of $129,600 plus fees and expenses for consulting services provided by Activus as a result of an agreement between the parties. The Company has not filed an answer and is currently determining their next steps in settlement.

On August 15, 2022, the Company received notice that another of its unpaid contractors, Diligent Health Solutions, LLC. (“DHS”), had filed suit against the Company seeking $106,000 in unpaid consulting fees.  Here, too, the Company elected not to litigate this suit so as not to increase its liability exposure.  As a result of the foregoing, DHS obtained a default judgment against the Company in the amount of $111,000.  The company is exploring its options in addressing this judgment, including terms of settlement that would result in a satisfy of this Judgment over a limited period of time.

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.

On March 11, 2022, the Company entered into an engagement letter agreement (“Agreement”) with EF Hutton, division of Benchmark Investments, LLC (“EF Hutton”) to effectuate the Corporation’s Firm Commitment Public Offering and Uplisting and to engage EF Hutton to act as the placement agent for a bridge or other private offering consisting of approximately $2 million. The Company shall be responsible for EF Hutton’s external counsel’s legal costs irrespective of whether the Offering is consummated or not, subject to a maximum of $50,000 in the event that there is not a Closing. The Company incurred $15,000 of expense during year ended November 30, 2022, and no payment was made as of February 28, 2023.

Lease Agreement

In December 2016, one of our subsidiaries entered into a lease agreement for its office space located in Cayman Islands for $30,000 per annum. The initial term of the agreement ended in December 2019, and the Company has renewed its office lease agreement for another

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Q BIOMED INC.

Notes to Condensed Consolidated Financial Statements

three years with the same terms. This agreement does not identify a specific asset and does not convey the use of substantially all of the shared office capacity. As such, this agreement does not contain a lease under ASC 842. The Company recognizes monthly license payments as incurred over the term of the arrangement.

Rent expense is classified within general and administrative expenses on a straight-line.

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.

On March 26, 2019, the Company entered into an amendment to the Patent and Technology License and Purchase Option Agreement that it initially entered into with Mannin Research Inc. on October 29, 2015 (the “Mannin Agreement”). Under such amendment, the term of the option granted under the Mannin Agreement was extended to October 29, 2021, in exchange for the Company issuing 100,000 shares to Mannin Research Inc. on April 9, 2019.

On September 1, 2020, the Company further amended the license agreement allowing Mannin to grant an exclusive license to Mannin GmbH (its wholly owned German subsidiary) in order fully take advantage of the German government grant to Mannin. The agreement also confirms our ongoing investment into the Tie2 platform to create, and therefore maintain economic value for us and our shareholders. The Company has agreed to contribute funds in Mannin GmbH. We shall pay Mannin $1.5 million in cash payable in three instalments, thereof $0.7 million of which has been paid, $0.4 million of which was due on December 31, 2020, and $0.4 million to be paid by June 30, 2021. In addition, we paid Mannin $0.75 million in shares of our common stock valued as of June 15, 2020, in full satisfaction of R&D payables, contracted by Mannin in development of the Tie2 platform. We continue to have the right to 100% of the revenues derived from the Mannin Tie2 technology platform, until such time that Mannin and its subsidiaries have independently raised at least $2.0 million in funds, at which time the parties have agreed to a profit share structure reducing our future capital commitments to Mannin R&D.

During the period ended February 28, 2023 and year ended November 30, 2022, the Company incurred approximately $0.0 and $0.1 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.

For year ended November 30, 2022, $3.6 million was converted from Licensing fees and Share awards expensed in Research and Development in recognition of shares received in Investment in an Associate - Mannin. We incurred a $500k loss between the value of shares received and the amount expended in Research and Development.

Washington University

On March 9, 2019, the Company entered into an Exclusive License Agreement with Washington University for license of a diagnostic marker for determining the severity of glaucoma using the expression levels of Growth Differentiation Factor 15. The agreement calls for the Company to pay an initial fee of approximately $88,000, pay annual maintenance fees ranging from $15,000 to $75,000, make additional payments upon the following milestones:

The first commercial sale of a companion diagnostic product;

Initiation of a clinical trial for a diagnostic product to support FDA PMA or 510(k) regulatory approval or the foreign equivalent;

PMA or 510(k) regulatory approval by the FDA or the foreign equivalent; and

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Q BIOMED INC.

Notes to Condensed Consolidated Financial Statements

The first commercial sale of a diagnostic product.

In addition to the above payments, royalty payments based upon sales of a companion diagnostic product or diagnostic product are required.

Note 9 - Related Party Transactions

The Company entered into consulting agreements with certain management personnel and stockholders for consulting and legal services. Consulting and legal expenses resulting from such agreements were included within general and administrative expenses in the accompanying Condensed Consolidated Statements of Operations as follows (amounts are rounded to nearest thousand), but have not been paid to date:

For the Three Months Ended 

    

February 28, 2023

    

February 28, 2022

Consulting and legal expenses

$

106,000

$

105,000

On February 1, 2021, the Company issued 35,000 shares to Mr. Rosenstadt, the Company's Chief Legal Officer and director, for his services performed in connection with December 2020 financing. The fair value was approximately $35,000, which was recorded as part of debt issuance cost to the 2020 Debenture (see note 5).

On April 16, 2021, the Company entered into two unsecured promissory note agreements (the "Notes") with certain management personnel for an aggregate principal amount of $30,000. The Notes bear interest at 5% per annum and are payable by August 31, 2021. During the quarter ended August 31, 2021, the Company made full repayment of $30,000 to the management personnel, including all outstanding interest.

On May 29, 2022 the company issued 250,000 shares at a nominal value of 10c per share to Mr. Rosenstadt, the company's Chief Legal Officer and director, in lieu of cash for his monthly services.

On May 29, 2022, the company issued 200,000 shares at a nominal value of 10c per share to Mr Corin, the company's Chief Executive Officer, as partial payment of his monthly salary in lieu of cash.

Note 10 - Stockholders’ Deficit

As of February 28, 2023 and November 30, 2022, 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.

Preferred Shares

The original issue price and the liquidation value per share, as of February 28, 2023, of each class of preferred stock is as follows:

    

Original Issue Price

    

Liquidation Value 

Per Share

Per Share

Series A Preferred Share

$

10.00

$

10.20

Series B Preferred Share

$

10.00

$

10.25

Series C Preferred Share

$

0.05

$

0.05

During the year ended November 30, 2022, the Company issued 1,000,000 of Series C preferred stock in the amount of $50,000 for settlement of an amount due to officers and directors.

The Company had accumulated dividends payable on the Preferred Shares of approximately $105,000 as of February 28, 2023.

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Notes to Condensed Consolidated Financial Statements

Common Shares

Issuance of common shares for services

The Company recognized approximately $16,000 related to the vesting of stock options and restricted awards. The $16,000 was recognized within general and administrative expenses in the accompanying Consolidated Statement of Operations for the three months ended February 28, 2023.

Issuance of common shares for cash

On February 14, 2022, the Company entered into a series of securities purchase agreements for the sale of 400,000 units at a $0.25 unit sales price. The Company raised $100,000 in cash. Each unit consisted of one common share and one warrant to purchase one share of common stock at an exercise price of $0.50. The common warrants issued on February 22, 2022, have a fair value of $0.28 per share, see Note 11.

Issuance of common shares for debt conversion

During the three months ended February 28, 2023, the Company issued 33,823,234 shares of common stock to convert approximately $238,000 of outstanding debt and interest. and extinguished approximately $146,000 of embedded derivative liabilities Additionally, the Company reversed approximately $118,000 of unamortized debt discount upon the conversion.

Note 11 - Warrants and Options

Summary of warrants

The following represents a summary of all outstanding warrants to purchase the Company’s common stock, including warrants issued to vendors for services and warrants issued as part of the units sold in the private placements, at February 28, 2023 and November 30, 2022 and the changes during the period then ended (warrants amount and intrinsic value are rounded to nearest thousand):

Weighted Average

Remaining

Weighted Average

Contractual

    

Warrants

    

Exercise Price

    

Life (years)

    

Intrinsic Value

Outstanding at November 30, 2022

 

11,220,000

$

1.01

 

3.8

$

Issued

 

0.50

 

2.23

Forfeited/expired

 

 

Outstanding and exercisable at February 28, 2023

 

11,220,000

$

1.01

 

3.8

$

Grant date fair value of all outstanding warrants was based on the following key inputs:

    

As of February 28, 2023

    

As of November 30, 2022

 

Strike price

$

1.25

$

1.25

Term (years)

 

5.0

 

5.0

Volatility

 

114

%  

 

114

%

Risk-free rate

 

0.4

%  

 

0.8

%

Dividend yield

 

0.0

%  

 

0.0

%

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Q BIOMED INC.

Notes to Condensed Consolidated Financial Statements

Modification date fair value of all outstanding warrants was based on the following key inputs:

    

After Modification

    

Before Modification

 

Strike price

$

1.77

$

2.51

Term (years)

 

3.5

 

0.8

Volatility

 

123

%  

 

77

%

Risk-free rate

 

0.5

%  

 

0.4

%

Dividend yield

 

0.0

%  

 

0.0

%

Warrants issued on February 22, 2022, were classified as liabilities. The fair value of the warrants on grant date was based on the following key inputs:

    

February 22, 2022

 

Strike price

$

0.50

Terms (years)

 

3.0

Volatility

 

126

%

Risk-free rate

 

1.7

%

Dividend yield

 

0.0

%

Modification of Warrants

On February 1, 2022, the Company modified an aggregate of 245,625 warrants (the “Warrants”) that were originally granted to certain investors and consultants. The exercise price of the Warrants was reduced to $0.65 per share and the maturity dates of the Warrants were extended until August 1, 2024.

The Company received $20,000 cash from one of the investors as consideration for this modification. The Company immediately recognized approximately $17,000 incremental stock-based compensation on February 1, 2022 based on the following weighted average assumptions:

    

After Modification

    

Before Modification

Strike price

$

0.65

$

2.33

Term (years)

 

2.5

 

2.1

Volatility

 

135

%  

 

127

%

Risk-free rate

 

1.0

%  

 

1.0

%

Dividend yield

 

0.0

%  

 

0.0

%

Between April and May 2022, the Company modified an aggregate of 4,765,807 warrants (the “Warrants”) that were originally granted to certain investors and officers during 2017 and 2021. The exercise price of the Warrants was reduced to between $0.50 and $0.65 per share and the maturity date of the Warrants were extended for an additional 5 years.

The Company immediately recognized approximately $261,000 incremental stock-based compensation during the quarter ended May 31, 2022 based on the following weighted average assumptions:

    

 After Modification 

    

Before Modification

 

Strike price

$

0.51

$

1.76

Term (years)

6.9

2.1

Volatility

118

%

128

%

Risk-free rate

2.7

%

2.2

%

Dividend yield

0.0

%

0.0

%

On August 31, 2022, the Company modified an aggregate of 3,608,641 warrants (the “Warrants”) that were originally granted to certain officers during 2017 and 2021. The exercise price of the Warrants was reduced to $0.10 per share.

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Q BIOMED INC.

Notes to Condensed Consolidated Financial Statements

The Company immediately recognized approximately $22,000 incremental stock-based compensation during the quarter ended August 31, 2022 based on the following weighted average assumptions:

    

After Modification

    

Before Modification

 

Strike price

$

0.10

$

0.50

Term (years)

 

2.7

 

2.7

Volatility

 

151

%  

 

151

%

Risk-free rate

 

3.5

%  

 

3.5

%

Dividend yield

 

0.0

%  

 

0.0

%

The new warrants issued in February 2022 and warrant modifications, described above, resulted in reclassifying such modified warrants to purchase an aggregate of 5,461,432 common shares from equity to liability as a result of applying the reassessment under ASC 815. The warrants are subsequently recognized at fair value with changes in fair value recognized in the Company’s Condensed Consolidated Statements of Operations.

Options issued for services

The following represents a summary of all outstanding options to purchase the Company’s common stock at February 28, 2023 and November 30, 2022 and the changes during the period then ended (options amount and intrinsic value are rounded to nearest thousand):

Weighted Average

Weighted Average

Remaining Contractual

    

Options

    

Exercise Price

    

Life (years)

    

Intrinsic Value

Outstanding at November 30, 2022

 

5,200,000

$

0.10

 

7.5

$

Issued

 

3,000,000

0.10

 

5.0

Forfeited/expired

Outstanding at February 28, 2023

 

7,450,000

$

0.10

 

6.5

$

Exercisable at February 28, 2023

 

5,200,000

$

0.10

 

7.5

$

The fair value of options granted on February 28, 2023 was based on the following key inputs:

    

February 28, 2023

 

Strike price

$

0.10

Term (years)

 

5.0

Volatility

 

136

%

Risk-free rate

 

3.3

%

Dividend yield

 

0.0

%

Stock-based Compensation

The Company recognized general and administrative expenses of approximately $0.02 million as a result of the shares, outstanding warrants and options issued to consultants and employees during the three months ended February 28, 2022, respectively.

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Q BIOMED INC.

Notes to Condensed Consolidated Financial Statements

Note 12 – Fair Value Measurements

The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of February 28, 2023 and November 30, 2022 (amounts are rounded to nearest thousand):

Fair value measured at February 28, 2023

Quoted prices in active

Significant other

Significant

Fair value at

markets

observable inputs

unobservable inputs

    

February 28, 2023

    

(Level 1)

    

(Level 2)

    

(Level 3)

Embedded derivative liabilities

$

1,434,000

$

$

$

1,434,000

Derivative liabilities

$

91,000

$

$

$

91,000

Fair value measured at November 30, 2022

Quoted prices in active

Significant other

Significant

Fair value at

markets

observable inputs

unobservable inputs

    

November 30, 2022

    

(Level 1)

    

(Level 2)

    

(Level 3)

Embedded derivative liabilities

$

1,434,000

$

$

$

1,434,000

Derivative liabilities

$

91,000

$

$

$

91,000

Transfers to/from Levels 1, 2, and 3 are recognized at the beginning of the reporting period. There were no transfers between levels in the three months ended February 28, 2023.

The Level 1 derivative liability is related to commitment to issue common shares pursuant to the September Debenture which was settled in April 2022 and the August Debenture which was settled in August 2022 (see Note 7).

The following table presents changes in Level 3 liabilities measured at fair value for the three months ended February 28, 2023. Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long- dated volatilities) inputs (amounts are rounded to nearest thousand).

    

Embedded Derivative

    

Derivative

Liabilities

Liabilities

Balance – Level 3, at December 1, 2022

$

1,434,000

$

91,000

Issuance of convertible notes

Balance – Level 3, at February 28, 2023

$

1,434,000

$

91,000

The fair value of the contingent put option in all outstanding debentures with the feature and derivative liabilities, comprised of warrant liabilities, are revalued as of February 28, 2023 and November 30, 2022 based on the following weighted average key inputs:

February 28, 2023

November 30, 2022

 

Embedded Derivative

Derivative

Embedded Derivative

 

    

Liabilities

    

Liabilities

    

Liabilities

 

Strike price

$

0.55

$

0.12

$

0.55

Terms (years)

 

0.3

 

4.3

 

0.3

Volatility

 

200

%  

 

85

%  

 

200

%

Risk-free rate

 

2.9

%  

 

2.1

%  

 

2.9

%

Dividend yield

0

%

0

%

0

%

Probability factor(1)

 

20

%  

 

0

%  

 

0

%

(1)The probability factor for DL Note as of February 28, 2023 was 20%.

21


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Q BIOMED INC.

Notes to Condensed Consolidated Financial Statements

Note 13 – Subsequent Events

On March 31, 2023, the company entered into a 12 month convertible note with an accredited investor in aggregate principal face amount of One Hundred Fifty Thousand Dollars (U.S. $150,000.00) including $15,000.00 original issue discount such that the net receipt was $135,000.00.

On May 26, 2023, the Company filed an annual report on Form 10-K and noted that that annual report does not meet fully the requirements of annual reports as required by Form 10-K. Particularly, the Company noted that the financial statements included in that annual report have not been audited and no audit report regarding such financial statements was included therein. The financial statements included in the annual report are not the type of financial statement that an investor would expect to see from a company that has had its financial statements audited by an independent accounting firm per the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. The recently filed annual report is unaudited, incomplete and should not be relied upon as accurate, timely or fit for any purpose. Although the Company intends to amend that annual report as soon as practicable and invites any inquiries to be directed to Company management, it may not be able to ever amend that annual report.

22


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation

Forward-Looking Statements

This unreviewed Quarterly Report contains forward-looking statements about our business, financial condition and prospects that reflect management’s assumptions and beliefs based on information currently available. The expectations indicated by such forward-looking statements might not be realized. If any of our management’s assumptions should prove incorrect, or if any of the risks and uncertainties underlying such expectations should materialize, our actual results may differ materially from those indicated by the forward-looking statements.

The key factors that are not within our control and that may have a direct bearing on operating results include, but are not limited to, acceptance of our services, our ability to create and expand our customer base, managements’ ability to raise capital in the future, the retention of key employees and changes in the regulation of our industry.

There may be other risks and circumstances that management may be unable to predict. When used in this Quarterly Report, words such as, “believes,” “expects,” “intends,” “plans,” “anticipates,” “estimates” and similar expressions are intended to identify forward-looking statements, although there may be certain forward-looking statements not accompanied by such expressions.

Overview

Q BioMed Inc. (or “the Company”) was incorporated in the State of Nevada on November 22, 2013 and is a commercial stage biomedical acceleration and development company focused on licensing, acquiring and providing strategic resources to life sciences and healthcare companies. We intend to mitigate risk by acquiring multiple assets over time and across a broad spectrum of healthcare related products, companies and sectors. We intend to develop these assets to provide returns via organic growth, revenue production, out-licensing, sale or spin out. Our mission is to solve problems by accelerating the development of important therapies and availability of those therapies to patients.

Our intent is to monetize the current pipeline and build a platform for future growth. There are 4 areas of focus:. commercial product revenue growth, partnerships, joint venture equity value and future development platform. This quarter has been solely focused on maintaining our pipeline and looking for strategic capital or business partnerships and merger opportunities. The microcap biotechs have all been under pressure and we are one of many that have a capital requirement that is challenging to service given our debt and current lack of resources. We are determined to find a solution for the benefit of all our stakeholders.

Commercial Product

We believe that Strontium89 has great potential in the cancer palliation space. As a result of a world in which opioids were a treatment of choice for those patients unlucky enough to be diagnosed with painful metastatic cancers in the bone, we felt that Strontium89 had become a neglected and forgotten drug. We have stayed committed to our belief that Strontium89 was a valuable treatment and have focused on advancing that asset from concept, a neglected drug, to a fully approved, reimbursed commercial product. Since we acquired Strontium89, we have built an infrastructure to commercialize the product, including manufacturing, branding, pharmacovigilance, reporting, federal supply contract, and entering into distribution agreements in the United States and several other countries.

23


Partnership Opportunities

UTTROSIDE B – Liver Cancer Chemotherapeutic

Along with our developmental partners, we are advancing an innovative treatment for liver cancer, a disease indication that currently has a high unmet need. This molecule was identified in India, traditionally used to treat liver ailments. Subsequent research on that isolated molecule showed promising data, indicating that the molecule was more cytotoxic, killing cancer cells more effectively, in liver cancer cells lines than the current first line liver cancer chemotherapeutic. We have advanced this from a naturally occurring unsustainable plant product to a commercially viable and scalable synthetic drug candidate. This provides an opportunity to partner this asset with a larger oncology focused institution. Currently, there are only two approved first-line liver cancer therapies. We have received Orphan Drug Designation, and we are now preparing to advance this toward clinical partnership. We have been successfully prosecuting our patent portfolio and have received patents or notice of allowance in several countries including Japan, Canada, USA and just recently Europe. We are looking for clinical partnerships to advance this product towards the patients that need it.

Development Platform - Rare Disease Focus

During 2023 we will focus our future development platform on the Rare Disease Space. This focuses our resources on an area in which we already have a presence. Our liver cancer drug candidate, Uttroside B, has already received Orphan Drug Designation. We expect to partner this asset in 2023 and will grow our development platform through in-licensing or acquisition once we have the capital to do so.

This rare disease platform will also complement our early-stage treatment for young minimally verbal children on the Autism Spectrum.

Corporate Strategic Goals

Our mission is to solve problems by accelerating the development of important therapies and the availability of those therapies to patients. We have been busy building a portfolio that we believe has significant value ranging from blockbuster potential drugs to revenue-producing opportunities. Lack of capital is our rate limiting factor and we are engaging in efforts along with our bankers and consultants to find both capital and strategic opportunities to unlock the potential in our pipeline.

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 condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities at the date of our condensed 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. Other than as set out in Note 3 to our accompanying unaudited condensed consolidated financial statements, if anything, we believe there have been no significant changes in our critical accounting policies as described in the Form 10-K.

24


Unaudited Results of Operations for the three months ended February 28, 2023 and 2022:

    

For the Three Months Ended

    

February 28, 2023

    

February 28, 2022

    

Change

Net Sales

$

$

75,059

$

(75,059)

Cost of sales

 

2,500

 

73,945

(71,445)

Gross income (loss)

 

(2,500)

 

1,114

(3,614)

Operating expenses:

 

 

General and administrative expenses

 

439,818

 

1,096,300

(656,482)

Research and development expenses

 

2,691

 

69,268

(66,577)

Total operating expenses

 

442,510

 

1,165,568

(723,058)

Loss from operations

 

(445,010)

 

(1,164,454)

719,444

Other (income) expenses:

 

 

Interest expense

 

276,602

 

414,377

(137,775)

Change in fair value of derivatives

 

 

235,817

(235,817)

Loss on debt extinguishment

 

 

232,100

(232,100)

Settlement of registration liability

241,875

(241,875)

Total other expenses (income)

 

276,602

 

1,124,169

(847,567)

Net loss

(721,612)

(2,288,623)

1,772,142

Accumulated dividend on convertible preferred stock

(104,800)

(122,808)

18,008

Net loss attributable to common stockholders

$

(826,412)

$

(2,411,431)

$

1,585,019

Net Sales

During the three months ended February 28, 2023 and 2022, we recognized approximately no sales and $75,000, respectively, of revenue from sales of Strontium89. The decrease was due to less vials were sold during the three months ended February 28, 2023 compared to the same period in the prior year.

Cost of Sales

During the three months ended February 28, 2023 and 2022, we recognized approximately 3,000 and $74,000, respectively, in cost of sales. These costs were related to raw materials cost, manufacturing cost, handling cost and write-offs of expired inventory.

Operating expenses

We incur various costs and expenses in the execution of our business. The decrease in operating expenses was mainly due to a lower burn and scaled back operations due to lack of available capital. We had an approximate $62,000 less costs from marketing, $465,000 less costs from legal and other professional services during the three months ended February 28, 2023 compared to the same period in the prior year.

Interest expense

The following table summarizes interest expense incurred during the three months ended February 28, 2023 and 2022, respectively (amounts are rounded to nearest thousand):

    

For the Three Months Ended

February 28, 2023

    

February 28, 2022

Interest expense based on the coupon interest rate of the outstanding debt

$

51,000

$

61,000

Accretion of debt discount

 

217,000

 

352,000

Other

9,000

1,000

Total interest expense

$

277,000

$

414,000

25


Change in fair value of embedded derivatives

We recognized loss of approximately $236,000 resulting from the change in fair value of embedded contingent put options in convertible notes during the three months ended February 28, 2022, respectively. The fluctuation is mainly due to the change in stock price during the reporting periods.

Loss on debt extinguishment

We recognized a loss of approximately $232,000 due to the conversion of outstanding debentures into shares of common stock during the three months ended February 28, 2022, respectively.

Net loss

During the three months ended February 28, 2023 and 2022, we incurred net losses of approximately $0.7 million and $2.3 million, respectively. Our management expects to continue to incur net losses for the foreseeable future, due to our need to continue to establish a broader pipeline of assets, expenditure on R&D and to implement other aspects of our business plan.

Liquidity and Capital Resources

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 have not yet established a significant ongoing source of revenues and must cover our operating through debt and equity financings to allow us to continue as a going concern. We had approximately $23,000 in cash as of February 28, 2023. Our ability to continue as a going concern depends on our ability to obtain adequate capital to fund operating losses until we generate adequate cash flows from operations to fund our operating costs and obligations. If we are unable to obtain adequate capital, we could be forced to cease operations.

We depend upon our ability, and will continue to attempt, to secure equity and/or debt financing. We cannot be certain that additional funding will be available on acceptable terms, or at all. Our management determined that there was substantial doubt about our ability to continue as a going concern within one year after the consolidated financial statements were issued, and management’s concerns about our ability to continue as a going concern within the year following this report persist.

The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.

Cash Flows

The following table sets forth the significant sources and uses of cash for the periods addressed in this report:

    

For the Three Months Ended

February 28, 2023

    

February 28, 2022

Net Cash provided by (used in)

 

  

 

  

Operating activities

$

(138,187)

$

(376,856)

Investing activities

Financing Activities

 

111,387

 

170,030

Net increase (decrease) in cash

(26,800)

(206,826)

Net Cash Provided by (Used in) Operating Activities

During the three months ended February 28, 2023, operating activities used $0.1 million of cash, resulting from a net loss of $0.7 million, partially offset by $0.02 million of share-based compensation, and non-cash interest expense resulting from accretion of debt discounts of $0.02 million and changes in our operating assets and liabilities of approximately $0.4 million.

26


During the three months ended February 28, 2022, operating activities used $0.4 million of cash, resulting from a net loss of $2.3 million, partially offset by $0.2 million of share-based compensation, change in fair value of embedded conversion options of $0.2 million, settlement on registration liability of approximately $0.2 million, loss on debt extinguishment of approximately $0.2 million, and non-cash interest expense resulting from accretion of debt discounts of $0.4 million and changes in our operating assets and liabilities of approximately $0.7 million.

Net Cash Provided by (Used in) Investing Activities

During the three months ended February 28, 2023, there were no cash activity related to investing.

During the three months ended February 28, 2022, there were no cash activity related to investing.

Net Cash (Used in) Provided by Financing Activities

Net cash provided by financing activities for the three months ended February 28, 2023 was $0.1 million. The net cash provided in the 2023 period relates to proceeds received from the issuance of convertible notes.

Net cash provided by financing activities for the three months ended February 28, 2022 was $0.2 million. The net cash provided in the 2022 period relates to proceeds received from the issuance of common stock and warrant, warrants modification and cash advances.

Obligations and Commitments

Legal

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.

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.

Lease Agreement

In December 2016, we entered into a lease agreement for office space located in Cayman Islands for $30,000 per annum. The initial term of the agreement ended in December 2019 and has been further renewed in 2023 for another three years, at a reduced rate of $15000 per year. This agreement does not identify a specific asset and does not convey the use of substantially all of the shared office capacity. As such, this agreement does not contain a lease under ASC 842. We recognize monthly license payments as incurred over the term of the arrangement.

Rent expense is classified within general and administrative expenses on a straight-line basis.

License Agreements

Mannin

On October 29, 2015, we entered into a Patent and Technology License and Purchase Option Agreement (“Exclusive License”) with a vendor whereby we were 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. Pursuant to the exclusive license from Mannin, we may purchase the Mannin IP within six years of entry into the agreement. During the

27


three months ended Fe, we respectively incurred approximately $0.8 million and $1.0 million of research and development expenses under our license with Mannin. The purchase option under the license agreement has now expired.

On March 26, 2019, we entered into an amendment to the Patent and Technology License and Purchase Option Agreement that it initially entered into with Mannin Research Inc. on October 29, 2015 (the “Mannin Agreement”). Under such amendment, the term of the option granted under the Mannin Agreement was extended to October 29, 2021 in exchange for our issuing 100,000 shares to Mannin Research Inc. on April 9, 2019.

On September 1, 2020, we further amended the license agreement allowing Mannin to grant an exclusive license to Mannin GmbH (its wholly owned German subsidiary) in order fully take advantage of the German government grant to Mannin. The agreement also confirms our ongoing investment into the Tie2 platform to create, and therefore maintain economic value for us and our shareholders. We have agreed to contribute funds in Mannin GmbH. We paid Mannin $1.5 million in cash payable in three instalments. In addition, we paid to Mannin $0.75 million in shares of our common stock valued as of June 15, 2020, in full satisfaction of R&D payables, contracted by Mannin in development of the Tie2 platform. We continue to have the right to 100% of the revenues derived from the Mannin Tie2 technology platform, until such time that Mannin and its subsidiaries have independently raised at least $2 million in funds, expected to happen in 2022, at which time the parties have agreed to a profit share structure reducing our future capital commitments to Mannin R&D.

During the period ended February 28, 2023 and year ended November 30, 2022, the Company incurred approximately $0.0 and $0.1 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.

Washington University

On March 9, 2019, the Company entered into an Exclusive License Agreement with Washington University for license of a diagnostic marker for determining the severity of glaucoma using the expression levels of Growth Differentiation Factor 15. The agreement calls for the Company to pay an initial fee of approximately $88,000, pay annual maintenance fees ranging from $15,000 to $75,000, make additional payments upon the following milestones:

The first commercial sale of a companion diagnostic product;
Initiation of a clinical trial for a diagnostic product to support FDA PMA or 510(k) regulatory approval or the foreign equivalent;
PMA or 510(k) regulatory approval by the FDA or the foreign equivalent; and
The first commercial sale of a diagnostic product.

In addition to the above payments, royalty payments based upon sales of a companion diagnostic product or diagnostic product are required.

Related Party Transactions

We entered into consulting agreements with certain management personnel and stockholders for consulting and legal services. Consulting and legal expenses resulting from such agreements were included within general and administrative expenses in the accompanying Condensed Consolidated Statements of Operations as follows (amounts are rounded to nearest thousand):

For the Three Months Ended

    

February 28, 2023

    

February 28, 2022

Consulting and legal expenses

$

106,000

$

105,000

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

28


Item 3. 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.

Item 4. 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:

1.

Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible, however segregation of duties has been implemented, with regards to the initiation of transactions, the custody of assets and the recording of transactions performed by separate individuals.

2.

We do not have in-house personnel with sufficient experience with United States generally accepted accounting principles to address complex transactions. These functions have been outsourced.

3.

We have determined that oversight over our external financial reporting and internal control over our financial reporting is ineffective as we do not have an audit committee in place.

4.

We have not had our independent accountants audit our financial statements for the year ended November 30, 2022 and provide us with a report for such audit.

5.

We have not had our independent accountants review our financial statements for the three months ended February 28, 2023.

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.

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Changes in internal controls over financial reporting

There were no changes in our internal controls over financial reporting that occurred during the period covered by this report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. We plan to enhance our processes to identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply to our financial statements. Our plans at this time include providing enhanced access to accounting literature, research materials and documents and increased communication among our personnel and third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects. We have engaged accounting and compliance consultants to review our internal controls over financial reporting and other compliance requirements.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

As previously reported, on July 12, 2022 the Company was notified that WSI PBG, LLC (“WSI”) filed a complaint against the Company seeking to recover $196,216 in unpaid consulting fees, plus costs and expenses of litigation.  The Company elected not to litigate this suit so as not to increase its liability exposure.  Not unexpectedly, on August 24, 2022, WSI obtained a judgment against the Company in the amount of $203,784.  The Company is exploring its options in addressing this judgment, including terms of settlement that would result in a satisfaction of this Judgment over a limited period of time.

On July 19, 2022, we received notice that the Activus Group (“Activus”) filed a complaint for fees it alleges are due in the amount $129,600 plus fees and expenses for consulting services provided by Activus as a result of an agreement between the parties. We have not filed an answer and are currently determining our next steps in settlement.

On August 15, 2022, the Company received notice that another of its unpaid contractors, Diligent Health Solutions, LLC. (“DHS”), had filed suit against the Company seeking $106,000 in unpaid consulting fees.  Here, too, the Company elected not to litigate this suit so as not to increase its liability exposure.  As a result of the foregoing, DHS obtained a default judgment against the Company in the amount of $111,000.  The company is exploring its options in addressing this judgment, including terms of settlement that would result in a satisfy of this Judgment over a limited period of time.

Item 1A. Risk Factors

Although risk factors are not required for smaller reporting companies, we stress the following risk:

We note that neither this quarterly report on Form 10-Q (“Quarterly Report”) nor our annual report on Form 10-K for the year ended November 30, 2022 (“Annual Report”) fully meets the requirements of their respective forms. Particularly, we note that the financial statements included in the Annual Report were not audited and no audit report regarding such financial statements was included therein. Additionally, we note that the financial statements included in the Quarterly Report have not been reviewed and approved by an independent public accounting firm. Although we believe that the financial statements in the Annual Report and Quarterly Report satisfy the current public information requirements of Rule 144(c)(2), the financial statements in the Annual Report are not the type of financial statements that an investor would expect to see from a company that has had its financial statements audited by an independent public accounting firm per the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder and the financial statements in the Quarterly Report are not the type of financial statements that an investor would expect to see from a company that has had its financial statements reviewed by an independent public accounting firm per the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. Neither the Annual Report nor the Quarterly Report is complete and neither should not be relied upon as accurate, timely or fit for any purpose. Although the Company intends to amend its Annual Report and this Quarterly Report as soon as practicable and invites any inquiries to be directed to Company management, it may not be able to ever amend the Annual Report or this Quarterly Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On December 12, 2022 we issued 4,077,094 shares of common stock upon the conversion of $44,348 of convertible notes and accrued interest.

On December 2, 2022 we issued 3,564,832 shares of common stock upon the conversion of $39,569 of convertible notes and accrued interest.

On January 4, 2023 we issued 2,817,039 shares of common stock upon the conversion of $26,769 of convertible notes and accrued interest.

On January 6, 2023 we issued 3,048,780 shares of common stock upon the conversion of $25,000 of convertible notes and accrued interest.

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On January 13, 2023 we issued 3,174,603 shares of common stock upon the conversion of $20,000 of convertible notes and accrued interest.

On January 20, 2023 we issued 4,679,501 shares of common stock upon the conversion of $32,288 of convertible notes and accrued interest.

On January 24, 2023 we issued 4,111,8429 shares of common stock upon the conversion of $25,082 of convertible notes and accrued interest.

On January 26, 2023 we issued 5,084,746 shares of common stock upon the conversion of $30,000 of convertible notes and accrued interest.

On February 3, 2023 we issued 4,540,772 shares of common stock upon the conversion of $25,882 of convertible notes and accrued interest.

On February 7, 2023 we issued 2,639,237 shares of common stock upon the conversion of $16,100 of convertible notes and accrued interest.

On February 13, 2023 we issued 5,869,163 shares of common stock upon the conversion of $27,000 of convertible notes and accrued interest.

On February 13, 2023 we issued 5,982,513 shares of common stock upon the conversion of $32,305 of convertible notes and accrued interest.

On February 14, 2023 we issued 5,212,174 shares of common stock upon the conversion of $24,000 of convertible notes and accrued interest.

On February 22, 2023 we issued 4,964,194 shares of common stock upon the conversion of $18,860 of convertible notes and accrued interest.

The issuance of the Securities mentioned above, if any, qualified for the exemption from registration continued in section 4(a) of the securities act of 1933.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

Exhibit 
Number

    

Name and/or Identification of Exhibit

101

 

Interactive Data File

101.INS

 

Inline XBRL Instance Document

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit)

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SIGNATURES

Pursuant to the requirements of the Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Q BIOMED INC.

Dated: June 16, 2023

By:

/s/ Denis Corin

 

 

Denis Corin

 

 

President, Chief Executive Officer, Acting Principal Accounting Officer, Principal Financial Officer

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