Blueprint
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
[X]
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For the quarterly period ended: August 31, 2018
|
|
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
|
46-4013793
|
(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)
|
|
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 and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes ☒
No ☐
Indicate by check mark 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
|
☐
|
(Do not check if smaller reporting
company)
|
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
|
14,240,361 shares
|
(Class)
|
(Outstanding as at October 12, 2018)
|
Q BIOMED INC.
Table of Contents
|
Page
|
PART I – FINANCIAL INFORMATION
|
2
|
Item
1. Condensed Consolidated Financial Statements
|
2
|
Item
2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
|
11
|
Item
3. Quantitative and Qualitative Disclosure About Market
Risk
|
15
|
Item
4. Controls and Procedures
|
15
|
PART II – OTHER INFORMATION
|
16
|
Item
1. Legal Proceedings
|
16
|
Item
1A. Risk Factors
|
16
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
16
|
Item
3. Defaults Upon Senior Securities
|
16
|
Item
4. Mine Safety Disclosures
|
16
|
Item
5. Other Information
|
16
|
Item
6. Exhibits
|
16
|
SIGNATURES
|
17
|
1
PART I – FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Q BIOMED INC.
Condensed Consolidated Balance Sheets
|
|
|
|
|
|
ASSETS
|
|
|
Current
assets:
|
|
|
Cash
|
$786,852
|
$824,783
|
Prepaid
expenses
|
2,500
|
2,500
|
Total current
assets
|
789,352
|
827,283
|
Total
Assets
|
$789,352
|
$827,283
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
Current
liabilities:
|
|
|
Accounts payable
and accrued expenses
|
$699,554
|
$463,539
|
Accrued expenses -
related party
|
7,500
|
7,500
|
Total current
liabilities
|
707,054
|
471,039
|
Total
Liabilities
|
707,054
|
471,039
|
|
|
|
Commitments
and Contingencies (Note 5)
|
|
|
|
|
|
Stockholders' Equity:
|
|
|
Preferred
stock, $0.001 par value; 100,000,000 shares authorized; no shares
issued and outstanding as of August 31, 2018 and November 30,
2017
|
-
|
-
|
Common
Stock, $0.001 par value; 250,000,000 shares authorized; 14,077,312
and 12,206,409 shares issued and outstanding as of August 31, 2018
and November 30, 2017, respectively
|
14,077
|
12,206
|
Additional
paid-in capital
|
30,084,105
|
23,187,408
|
Accumulated
deficit
|
(30,015,884)
|
(22,843,370)
|
Total Stockholders' Equity
|
82,298
|
356,244
|
Total
Liabilities and Stockholders' Equity
|
$789,352
|
$827,283
|
|
|
|
The accompanying notes are an integral part of these
condensed consolidated financial statements
2
Q BioMed Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
|
For
the three months ended August 31,
|
For
the nine months ended August 31,
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
General and
administrative expenses
|
$1,996,391
|
$3,038,018
|
$4,547,761
|
$6,122,565
|
Research and
development expenses
|
989,140
|
697,966
|
2,624,753
|
2,296,324
|
Total operating
expenses
|
2,985,531
|
3,735,984
|
$7,172,514
|
8,418,889
|
|
|
|
|
|
Other
income (expenses):
|
|
|
|
|
Interest
expense
|
-
|
(202,160)
|
-
|
(635,267)
|
Interest
income
|
-
|
15
|
-
|
123
|
Loss on conversion
of debt
|
-
|
-
|
-
|
(365,373)
|
Loss on
extinguishment of debt
|
-
|
(76,251)
|
-
|
(76,251)
|
Change in fair
value of embedded conversion option
|
-
|
32,983
|
-
|
(812,017)
|
Change in fair
value of warrant liability
|
-
|
-
|
-
|
(59,870)
|
Total other income
(expenses)
|
-
|
(245,413)
|
-
|
(1,948,655)
|
|
|
|
|
|
Net
loss
|
$(2,985,531)
|
$(3,981,397)
|
$(7,172,514)
|
$(10,367,544)
|
|
|
|
|
|
Net loss per share - basic and diluted
|
$(0.21)
|
$(0.37)
|
$(0.53)
|
$(1.03)
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
14,019,683
|
10,816,282
|
13,579,917
|
10,074,766
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements
3
Q BIOMED INC.
Condensed Consolidated Statement of Changes in Shareholders’
Equity (Deficit)
(Unaudited)
|
|
|
|
|
|
|
|
|
Additional Paid
In Capital
|
|
|
Total
Stockholders' Equity (Deficit)
|
Balance
as of November 30, 2017
|
12,206,409
|
$12,206
|
$23,187,408
|
$(22,843,370)
|
$-
|
$(356,244)
|
Issuance of common
stock, warrants and options for services
|
159,028
|
159
|
1,953,158
|
-
|
|
1,953,317
|
Issuance of common
stock and warrants for cash, net of offering costs
|
1,711,875
|
1,712
|
4,943,539
|
-
|
|
4,945,251
|
Net
loss
|
-
|
-
|
-
|
(7,172,514)
|
|
(7,172,514)
|
Balance
as of August 31, 2018
|
14,077,312
|
$14,077
|
$30,084,105
|
$(30,015,884)
|
$-
|
$82,298
|
|
|
|
|
|
|
|
4
Q BIOMED INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
For
the nine months ended August 31,
|
|
|
|
Cash
flows from operating activities:
|
|
|
Net
loss
|
$(7,172,514)
|
$(10,367,544)
|
Adjustments to
reconcile net loss to net cash used in operating
activities
|
|
|
Issuance of common
stock, warrants and options for services
|
1,953,317
|
4,181,693
|
Issuance of common
stock for acquired in-process research and development
|
-
|
487,500
|
Change in fair
value of embedded conversion option
|
-
|
812,017
|
Change in fair
value of warrant liability
|
-
|
59,870
|
Accretion of debt
discount
|
-
|
525,864
|
Loss on conversion
of debt
|
-
|
365,373
|
Loss on
extinguishment of debt
|
-
|
76,251
|
Changes in
operating assets and liabilities:
|
|
|
Prepaid
expenses
|
-
|
(5,000)
|
Accounts payable
and accrued expenses
|
236,015
|
(115,881)
|
Accrued expenses -
related party
|
-
|
(53,002)
|
Accrued interest
payable
|
-
|
109,404
|
Net
cash used in operating activities
|
(4,983,182)
|
(3,923,455)
|
|
|
|
Cash
flows from financing activities:
|
|
|
Proceeds
from issuance of convertible notes
|
-
|
2,500,000
|
Proceeds
received from exercise of warrants
|
-
|
70,000
|
Proceeds
received for issuance of common stock and warrants, net of offering
costs
|
4,945,251
|
2,383,900
|
Net
cash provided by financing activities
|
4,945,251
|
4,953,900
|
|
|
|
Net increase (decrease) in cash
|
(37,931)
|
1,030,445
|
|
|
|
Cash at beginning of period
|
824,783
|
1,468,724
|
Cash at end of period
|
$786,852
|
$2,499,169
|
|
|
|
Non-cash financing activities:
|
|
|
Issuance
of common stock upon conversion of convertible notes
payable
|
$-
|
$3,540,838
|
Issuance
of common stock and warrants in exchange for extinguishment of
convertible notes payable
|
$-
|
$442,149
|
Reclassification
of warrant liability to equity
|
$-
|
$227,940
|
|
|
|
Supplemental disclosures:
|
|
|
Cash paid for
interest
|
$-
|
$-
|
Cash paid for
income taxes
|
$-
|
$-
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements
5
Note 1 - Organization of the Company and Description of the
Business
Q BioMed Inc. (“Q BioMed” or “the
Company”), incorporated in the State of Nevada on November
22, 2013, is a biomedical acceleration and development company
focused on licensing, acquiring and providing strategic resources
to life sciences and healthcare companies. Q BioMed intends to
mitigate risk by acquiring multiple assets over time and across a
broad spectrum of healthcare related products, companies and
sectors. The Company intends to develop these assets to
provide returns via organic growth, revenue production,
out-licensing, sell or spinoff new public companies.
On December 7, 2016, the Company formed its wholly-owned subsidiary
in Cayman Islands, “Q BioMed Cayman SEZC” (the
“Subsidiary”). The accompanying condensed consolidated
financial statements include the accounts of the Company’s
wholly-owned subsidiary. All intercompany balances and
transactions have been eliminated in consolidation.
Note 2 - Basis of Presentation
The accompanying interim period unaudited condensed consolidated
financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of
America (“U.S. GAAP”) and applicable rules and
regulations of the Securities and Exchange Commission ("SEC")
regarding interim financial reporting. The Condensed Consolidated
Balance Sheet as of August 31, 2018, the Condensed Consolidated
Statements of Operations for the three and nine months ended August
31, 2018 and 2017, and the Condensed Consolidated Statements of
Cash Flows for the nine months ended August 31, 2018 and 2017, are
unaudited, but include all adjustments, consisting only of normal
recurring adjustments, which the Company considers necessary for a
fair presentation of its financial position, operating results and
cash flows for the periods presented. The Condensed Consolidated
Balance Sheet at November 30, 2017 has been derived from audited
financial statements included in the Company's Form 10-K, most
recently filed with the SEC on February 28, 2018. The results for
the three and nine months ended August 31, 2018 and 2017 are not
necessarily indicative of the results expected for the full fiscal
year or any other period.
The accompanying interim period unaudited condensed consolidated
financial statements and related financial information included in
this Quarterly Report on Form 10-Q should be read in conjunction
with the audited financial statements and notes thereto included in
the Company’s Form 10-K.
The Company currently operates in one business segment focusing on
licensing, acquiring and providing strategic resources to life
sciences and healthcare companies. The Company is not organized by
market and is managed and operated as one business. A single
management team reports to the chief operating decision maker, the
Chief Executive Officer, who comprehensively manages the entire
business. The Company does not currently operate any separate lines
of business.
Going Concern
The accompanying condensed consolidated financial statements are
prepared assuming the Company will continue as a going concern,
which contemplates the realization of assets and liquidation of
liabilities in the normal course of business.
The Company had a net loss and net cash used in operating
activities of approximately $7.2 million and $5.0 million,
respectively, during the nine months ended August 31, 2018. These
matters, amongst others, raise doubt about the Company’s
ability to continue as a going concern.
As of August 31, 2018, the Company has raised operating
funds through contacts, high net-worth individuals and
strategic investors. The Company has not generated any revenue from
operations since inception and has limited assets upon which to
commence its business operations. At August 31, 2018,
the Company had cash of approximately $787,000. The Company’s
expected monthly burn rate is approximately 682,000. As such,
management anticipates that the Company will have to raise
additional funds and/or generate revenue from drug sales within
twelve months to continue operations. Additional funding will be
needed to implement the Company’s business plan that includes
various expenses such as fulfilling our obligations under licensing
agreements, legal, operational set-up, general and administrative,
marketing, employee salaries and other related start-up expenses.
Obtaining additional funding will be subject to a number of
factors, including general market conditions, investor acceptance
of our business plan and initial results from our business
operations. These factors may impact the timing, amount, terms or
conditions of additional financing available to us. If the Company
is unable to raise sufficient funds, management we will be forced
to scale back the Company’s operations or cease our
operations.
Management has determined that there is substantial doubt about the
Company's ability to continue as a going concern within one year
after the condensed consolidated financial statements are
issued. The accompanying condensed consolidated financial
statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or
amounts and classification of liabilities that might result from
this uncertainty.
Note 3 – Summary of Significant Accounting
Policies
The Company’s significant accounting policies are disclosed
in the audited financial statements for the year ended November 30,
2017 included in the Company’s Form 10-K. Since the date of
such financial statements, there have been no changes to the
Company’s significant accounting policies.
Income Taxes
Deferred tax assets and liabilities are computed based upon the
difference between the financial statement and income tax basis of
assets and liabilities using the enacted marginal tax rate
applicable when the related asset or liability is expected to be
realized or settled. Deferred income tax expenses or benefits
are based on the changes in the asset or liability each period.
If available evidence suggests that it is more likely than
not that some portion or all of the deferred tax assets will not be
realized, a valuation allowance is required to reduce the deferred
tax assets to the amount that is more likely than not to be
realized. Future changes in such valuation allowance are
included in the provision for deferred income taxes in the period
of change.
6
In its interim consolidated financial statements, the Company
utilizes an expected annual effective tax rate in determining its
income tax provisions for the interim periods. That rate differs
from U.S. statutory rates primarily as a result of valuation
allowance related to the Company’s net operating loss
carryforward as a result of the historical losses of the
Company.
On December 22, 2017, the United States enacted new tax
legislation, the Tax Cuts and Jobs Act (the “Tax
Act”). The Tax Act includes significant changes to
corporate taxation, including reduction of the U.S. corporate tax
rate from 35% to 21%, effective January 1, 2018, limitation of the
tax deduction for interest expense to 30% of earnings (except for
certain small businesses), limitation of the deduction for net
operating losses to 80% of current year taxable income and
elimination of net operating loss carrybacks. The Tax Act
states that the 21% U.S. federal corporate tax rate is effective
for tax years beginning on or after January 1, 2018. However,
existing tax law, which was not amended under the Tax Act, governs
when a change in tax rate is effective. Existing tax law provides
that if the taxable year includes the effective date of any rate
change (unless the change is the first date of the taxable year),
taxes should be calculated by applying a blended rate to the
taxable income for the year. Management has not yet determined the
impact the rate reduction will have on the Company's gross deferred
tax asset and liabilities and offsetting valuation allowance.
However, the Company has a full allowance against the deferred
tax asset and as a result there was no impact to income tax expense
for the nine months ended August 31, 2018.
In conjunction with the tax law changes, the SEC staff issued Staff
Accounting Bulletin No. 118 (“SAB 118”) to address the
application of U.S. GAAP in situations when a registrant does not
have the necessary information available, prepared, or analyzed
(including computations) in reasonable detail to complete the
accounting for certain income tax effects of the Tax Act. The
ultimate impact, which is expected to be recorded by November 30,
2018, may differ from any provisional amounts, due to, among other
things, additional analysis, changes in interpretations and
assumptions we have made, additional regulatory guidance that may
be issued, and actions we may take as a result of the tax Act, and
the fact that we cannot definitively predict what our deferred tax
balance will ultimately be as of November 30, 2018.
Recent accounting pronouncements
On February 2016, the FASB issued ASU
No. 2016-02, Leases (Topic
842). Under the new
guidance, lessees will be required to recognize
all leases (with the exception of
short-term leases) on the balance sheet as a lease
liability, which is a lessee’s obligation to make lease
payments arising from a lease, measured on a discounted basis and a
right-of-use asset, which is an asset that represents the
lessee¹s right to use, or control the use of, a specified
asset for the lease term. The new standard is effective for
the Company on December 1, 2019. The Company is
currently evaluating the effect the guidance will have on its
Consolidated Financial Statements.
In August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash
Flows (Topic 230): Classification of Certain Cash Receipts and Cash
Payments. This new standard
clarifies certain aspects of the statement of cash flows, including
the classification of debt prepayment or debt extinguishment costs
or other debt instruments with coupon interest rates that are
insignificant in relation to the effective interest rate of the
borrowing, contingent consideration payments made after a business
combination, proceeds from the settlement of insurance claims,
proceeds from the settlement of corporate-owned life insurance
policies, distributions received from equity method investees and
beneficial interests in securitization transactions. This new
standard also clarifies that an entity should determine each
separately identifiable source of use within the cash receipts and
payments on the basis of the nature of the underlying cash flows.
In situations in which cash receipts and payments have aspects of
more than one class of cash flows and cannot be separated by source
or use, the appropriate classification should depend on the
activity that is likely to be the predominant source or use of cash
flows for the item. This new standard will be effective for the
Company on December 1, 2018. The Company is currently
evaluating the impact of the new standard on its consolidated
financial statements.
In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic
260); Distinguishing Liabilities from Equity (Topic 480);
Derivatives and Hedging (Topic 815): (Part I) Accounting for
Certain Financial Instruments with Down Round Features, (Part II)
Replacement of the Indefinite Deferral for Mandatorily Redeemable
Financial Instruments of Certain Nonpublic Entities and Certain
Mandatorily Redeemable Noncontrolling Interests with a Scope
Exception. The
ASU allows companies to exclude a down round feature when
determining whether a financial instrument (or embedded conversion
feature) is considered indexed to the entity’s own stock. As
a result, financial instruments (or embedded conversion features)
with down round features may no longer be required to be accounted
classified as liabilities. A company will recognize the value of a
down round feature only when it is triggered and the strike price
has been adjusted downward. For equity-classified freestanding
financial instruments, such as warrants, an entity will treat the
value of the effect of the down round, when triggered, as a
dividend and a reduction of income available to common shareholders
in computing basic earnings per share. For convertible instruments
with embedded conversion features containing down round provisions,
entities will recognize the value of the down round as a beneficial
conversion discount to be amortized to earnings. The guidance in
ASU 2017-11 is effective for the Company on December 1, 2019. Early
adoption is permitted, and the guidance is to be applied using a
full or modified retrospective approach. The Company is currently
evaluating the impact of the new standard on its consolidated
financial statements.
In June 2018, the FASB issued ASU 2018-07, Compensation – Stock
Compensation (Topic 718), Improvements to Nonemployee Share-Based
Payment
Accounting. This ASU is intended to simplify aspects of
share-based compensation issued to non-employees by making the
guidance consistent with the accounting for employee share-based
compensation. It is effective for the Company on December 1, 2019.
The Company is currently evaluating the impact of the new standard
on its consolidated financial statements.
Recent adopted pronouncements
In May 2017, the FASB issued ASU 2017-09, Compensation – Stock
Compensation (Topic 718): Scope of Modification
Accounting. The new standard
provides guidance about which changes to the terms or conditions of
a share-based payment award require an entity to apply modification
accounting in Topic 718. Early adoption is permitted, including
adoption in any interim period. The Company adopted ASU 2017-09 as
of December 1, 2017. The adoption of this standard did not impact
the Company’s consolidated financial
statements.
7
Note 4 – Loss per share
Basic net loss per share was calculated by dividing net loss by the
weighted-average common shares outstanding during the
period. Diluted net loss per share was calculated by
dividing net loss by the weighted-average common shares outstanding
during the period using the treasury stock method or the two-class
method, whichever is more dilutive. The table below
summarizes potentially dilutive securities that were not
considered in the computation of diluted net loss per share because
they would be anti-dilutive.
|
For
the nine months ended August 31,
|
Potentially dilutive securities
|
|
|
Warrants
(Note 8)
|
4,955,058
|
3,033,995
|
Convertible
debt
|
-
|
567,407
|
Options (Note
8)
|
900,000 -
|
-
|
Note 5 – Commitments and Contingencies
Advisory Agreements
The Company entered into customary consulting arrangements with
various counterparties to provide consulting services, business
development and investor relations services, pursuant to which the
Company agreed to issue shares of common stock as services are
received. The Company issued an aggregate of
approximately 159,028 shares of common stock during the nine months
ended August 31, 2018.
Master Service Agreement
On March 1, 2018, the Company entered into the master service
agreement (“Master Service Agreement”) with Chedwick
Marketing Group to have it perform the consulting services for a
maximum period of six months, which may be renewed after term at
the sole option of the Company. On March 1, 2018, the Company
entered into the Statement of Work No. 1 (“Statement of
Work”) with Chedwick Marketing Group. The Company agreed to
issue Chedwick Marketing Group 20,000 fully paid restricted common
shares on signing. The Company agreed to pay additional cash for
media spend as invoiced by Chedwick or other service providers. The
company agreed to issue 7,000 shares to Chedwick on execution of
the agreement and on the first day of each month until the
termination or renewal of the contract.
Lease Agreement
In December 2016, the Subsidiary entered into a lease agreement for
its office space located in Cayman Islands for $30,000 per
annum. The initial term of the agreement ends in December
2019 and can be renewed for another three years.
Rent expense is classified within general and administrative
expenses on a straight-line basis and included in the accompanying
Condensed Consolidated Statements of Operations as
follows:
|
For
the three months ended August 31,
|
For
the nine months ended August 31,
|
|
|
|
|
|
Rent
expense
|
$7,500
|
$5,000
|
$23,000
|
$17,000
|
License Agreement
Mannin
On October 29, 2015, the Company entered into a Patent and
Technology License and Purchase Option Agreement (“Exclusive
License”) with a vendor whereby the Company was granted a
worldwide, exclusive, license on, and option to, acquire certain
intellectual property (“Mannin IP”) which initially
focused on developing a first-in-class eye drop treatment for
glaucoma within the four-year term of the Exclusive
License.
During the three months ended August 31, 2018 and 2017, the Company
incurred approximately $520,000 and $525,000, respectively, in
research and development expenses to fund the costs of development
of the eye drop treatment for glaucoma pursuant to the Exclusive
License.
During the nine months ended August 31, 2018 and 2017, the Company
incurred approximately $1.7 million and $1.4 million, respectively,
in research and development expenses to fund the costs of
development of the eye drop treatment for glaucoma pursuant to the
Exclusive License. Pursuant to the exclusive license from
Mannin, we may purchase the Mannin IP within the next four years in
exchange for investing a minimum of $4,000,000 into the development
of the Mannin IP. Through August 31, 2018, the Company has funded
an aggregate of $4.6 million to Mannin under the Exclusive License
and has not purchased the Mannin IP. The purchase price for the
Mannin IP is $30,000,000 less the amount of cash paid by the
Company for development and the value of the common stock issued to
the vendor.
Bio-Nucleonics
On September 6, 2016, the Company entered into the Patent and
Technology License and Purchase Option Agreement (the “BNI
Exclusive License”) with Bio-Nucleonics Inc.
(“BNI”) whereby the Company was granted a worldwide,
exclusive, perpetual, license on, and option to, acquire certain
BNI intellectual property (“BNI IP”) within the
three-year term of the BNI Exclusive License.
During the three months ended August 31, 2018 and 2017, the Company
incurred approximately $290,000 and $144,000, respectively, in
research and development expenses pursuant to the BNI Exclusive
License.
During the nine months ended August 31, 2018 and 2017, the Company
incurred approximately $573,000 and $352,500, respectively, in
research and development expenses pursuant to the BNI Exclusive
License. As of August 31, 2018, the Company has funded
approximately $838,000 to BNI out of the maximum $850,000 cash
funding requirement.
8
Note 6 - Related Party Transactions
The Company entered into consulting agreements with certain
management personnel and stockholders for consulting and legal
services. Consulting and legal expenses resulting from
such agreements were included within general and administrative
expenses in the accompanying Condensed Consolidated Statements of
Operations as follows:
|
For
the three months ended August 31,
|
For
the nine months ended August 31,
|
|
|
|
|
|
Consulting and
legal expenses
|
$60,000
|
$102,500
|
$180,000
|
$322,500
|
|
|
|
|
|
Note 7 - Stockholders’ Equity Deficit
As of August 31, 2018, the Company is authorized to issue up to
250,000,000 shares of its $0.001 par value common stock and up to
100,000,000 shares of its $0.001 par value preferred
stock.
Registered public financing
On February 1, 2018, the Company sold an aggregate of 1,711,875
shares of common stock, and 1,711,875 warrants to purchase shares
of common stock, in a registered public offering for gross proceeds
of approximately $5,478,000. The warrants are exercisable for
five years at $3.20 per share. The Company paid placement
agent commissions of approximately $438,000 and issued the
placement agent five-year warrants to purchase 81,688 shares of
common stock at $3.84 per share. After the placement agents’
commissions and other offering expenses, the Company netted
approximately $4,945,000 of proceeds.
The Company intends to use the net proceeds from the offering to:
i) complete FDA manufacturing approval and launch our non-opioid
FDA approved Strontium Chloride 89 USP Injection (SR89), a
therapeutic drug for the treatment of skeletal pain associated with
metastatic cancers; ii) focus on the clinical planning and IND
filing for a Phase 4 post-marketing study to expand the indication
of the approved SR89; iii) complete pre-IND studies and the filing
of an IND for a phase II/III clinical program to test the efficacy
of QBM-001, our product candidate for the treatment of young
children with a rare autistic spectrum disorder that severely
inhibits their ability to communicate; iv) continue development
work on our novel chemotherapeutic drug for liver cancer; and v)
further the optimization and pre-clinical testing of our glaucoma
drug Man-01 for the treatment of open angle glaucoma.
Note 8 – Warrants and Options
Summary of warrants
The following represents a summary of all outstanding warrants to
purchase the Company’s common stock, including warrants
issued to vendors for services and warrants issued as part of the
units sold in the private placements, at August 31, 2018 and
changes during the period then ended:
|
|
Weighted
AverageExercise Price
|
Weighted
Average Remaining Contractual Life (years)
|
|
Outstanding
at November 30, 2017
|
3,083,995
|
$3.67
|
4.02
|
$2,539,185
|
Issued
|
1,877,563
|
$3.25
|
4.35
|
$-
|
Expired
|
(6,500)
|
$3.50
|
-
|
$-
|
Outstanding
at August 31, 2018
|
4,955,058
|
$3.51
|
3.68
|
$656,000
|
Exercisable
at August 31, 2018
|
4,885,058
|
$3.51
|
3.70
|
$656,000
|
|
|
|
|
|
Fair value of all outstanding warrants issued to non-employees for
services was calculated with the following key inputs:
|
For
the nine months ended August 31,
|
|
|
|
Stock
price
|
$2.14 - $3.61
|
$3.50 - $7.87
|
Term
(years)
|
3.0 - 5.0
|
1.75 - 5.0
|
Volatility
|
123.00% - 128.49%
|
129.81% - 142.93%
|
Risk-free
rate
|
2.47% - 2.78%
|
1.17% - 1.74%
|
Dividend
yield
|
0.00%
|
0.00%
|
Options issued for services
The following represents a summary of all outstanding options to
purchase the Company’s common stock at August 31, 2018 and
changes during the nine-month period then ended:
|
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Contractual Life (years)
|
|
Outstanding
at November 30, 2017
|
450,000
|
$4.00
|
4.51
|
$220,500
|
Issued
|
450,000
|
$3.37
|
4.72
|
$-
|
Outstanding
at August 31, 2018
|
900,000
|
$3.68
|
4.24
|
$-
|
Exercisable
at August 31, 2018
|
575,000
|
$3.85
|
3.97
|
$-
|
9
Fair value of all outstanding options was calculated with the
following key inputs:
|
For
the nine months ended August 31,
|
|
|
|
Exercise
price
|
$3.00 - $3.61
|
$4.00
|
Expected
term (years)
|
5.0
|
5
|
Volatility
|
128.00% - 130.00%
|
130.00%
|
Risk-free
rate
|
2.52% - 2.71%
|
1.71%
|
Dividend
yield
|
0.00%
|
0.00%
|
|
|
|
Stock-based Compensation
The Company recognized general and administrative expenses of
approximately $946,000 and $2.3 million as a result of the shares,
outstanding warrants and options issued to consultants and
employees during the three months ended August 31, 2018 and 2017,
respectively. The Company recognized general and administrative
expenses of approximately $1.5 million and $4.2 million as a result
of the shares, outstanding warrants and options issued to
consultants and employees during the nine months ended August 31,
2018 and 2017, respectively.
As of August 31, 2018, the estimated unrecognized stock-based
compensation associate with these agreements is approximately
$454,000 and will be recognized over the next 0.3
year.
Note 11 – Subsequent Events
On September 21, 2018, the Company entered into a securities
purchase agreement with an accredited investor to place Convertible
Debentures (the “Debentures”) with a maturity date of
eighteen months after the issuance thereof in the aggregate
principal amount of up to $4,000,000, provided that in case of an
event of default, the Debentures may become at the holder’s
election immediately due and payable. The initial closing of the
Transaction occurred on September 21, 2018 when the Company issued
a Debenture for $2,000,000. The second closing is scheduled for
within three days of the date on which the Company files a
registration statement with the SEC for the resale of up to
2,000,000 shares of common stock into which the Debentures may be
converted. The Debentures bear interest at the rate of 5.5% per
annum. In addition, the Company must pay to the holder a
fee equal to 2.5% of the amount of the
Debentures.
The Debenture may be converted at any time on or prior to maturity
at the lower of $4.00 or 93% of the average of the four lowest
daily VWAPs during the 10 consecutive trading days immediately
preceding the conversion date, provided that as long as we are not
in default under the Debenture, the conversion price may never be
less than $2.00. The Company may not convert any portion of a
Debenture if such conversion would result in the holder
beneficially owning more than 4.99% of the Company’s then
issued and common stock, provided that such limitation may be
waived by the holder with 65 days’ notice.
Any time after the six-month anniversary of the issuance of a
Debenture that the daily VWAP is less than $2.00 for a period of
twenty consecutive trading days (the “Triggering Date”)
and only for so long as such conditions exist after a Triggering
Date, the Company shall make monthly payments beginning on the last
calendar day of the month when the Triggering Date occurred. Each
monthly payment shall be in an amount equal to the sum of (i) the
principal amount outstanding as of the Triggering Date divided by
the number of such monthly payments until maturity, (ii) a
redemption premium of 20% in respect of such principal amount and
(iii) accrued and unpaid interest hereunder as of each payment
date. The Company may, no more than twice, obtain a thirty-day
deferral of a monthly payment due as a result of a Triggering Date
through the payment of a deferral fee in the amount equal to 10% of
the total amount of such monthly payment. Each deferral payment may
be paid by the issuance of such number of shares as is equal to the
applicable deferral payment divided by a price per share equal to
93% of the average of the four lowest daily VWAPs during the 10
consecutive Trading Days immediately preceding the due date in
respect of such monthly payment being deferred, provided that such
shares issued will be immediately freely tradable shares in the
hands of the holder.
On September 21, 2018, the Company issued 25,000 shares in
connection with the waiver of a right of first refusal for the sale
of the Debentures.
On September 21, 2018, the Company issued 25,000 shares of common
stock for advisory services in connection with the sale of the
September 2018 convertible debentures mentioned above.
On September 21, 2018, the Company issued 25,000 shares of common
stock in connection with legal services provided to the
Company.
On September 21, 2018, the Company issued 38,049 shares of common
stock to four consultants, including a member of the
Company’s board and two members of the Company’s board
of advisors, for consulting services.
In October, 2018, we issued 50,000 shares of common stock to BNI as
a milestone payment.
10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation
Forward-Looking Statements
This Quarterly Report contains forward-looking statements about our
business, financial condition and prospects that reflect
management’s assumptions and beliefs based on information
currently available. The expectations indicated by such
forward-looking statements might not be realized. If any of
our management’s assumptions should prove incorrect, or if
any of the risks and uncertainties underlying such expectations
should materialize, our actual results may differ materially from
those indicated by the forward-looking statements.
The key factors that are not within our control and that may have a
direct bearing on operating results include, but are not limited
to, acceptance of our services, our ability to create and expand
our customer base, managements’ ability to raise capital in
the future, the retention of key employees and changes in the
regulation of our industry.
There may be other risks and circumstances that management may be
unable to predict. When used in this Quarterly Report, words
such as, “believes," "expects,"
"intends," "plans," "anticipates," "estimates" and similar expressions are intended to identify
forward-looking statements, although there may be certain
forward-looking statements not accompanied by such
expressions.
Overview
Q BioMed Inc. (or “the Company”) was incorporated in
the State of Nevada on November 22, 2013 and is a biomedical
acceleration and development company focused on licensing,
acquiring and providing strategic resources to life sciences and
healthcare companies. We intend to mitigate risk by acquiring
multiple assets over time and across a broad spectrum of healthcare
related products, companies and sectors. We intend to
develop these assets to provide returns via organic growth, revenue
production, out-licensing, sale or spin out.
Recent Developments
Capital Raising
On February 1, 2018, we sold an aggregate of 1,711,875 shares of
common stock, and 1,711,875 warrants to purchase shares of common
stock, in a registered public offering for gross proceeds of
approximately $5,478,000. The warrants are exercisable for
five years at $3.20 per share. We paid placement agent
commissions of approximately $438,000 and issued the placement
agent five-year warrants to purchase 81,688 shares of common stock
at $3.84 per share.
On September 21, 2018, we sold $2,000,000 worth of convertible
notes to an investor, and pursuant to a securities purchase
agreement that we entered into on the same day, we will sell an
additional $2,000,000 within three days of filing of a registration
statement registering the shares underlying the notes for resale
with the U.S. Securities and Exchange Commission. The conversion
price for the convertible notes is the lesser of (i) $4.00
and (ii) 93% of the four
lowest VWAPs during the last ten trading days immediately preceding
the date of such conversion, but in no event will
the conversion price be less than $2.00. The convertibles notes
have a term of eighteen months and bear interest at the rate of
5.5% per annum
Pipeline Update
Strontium Chloride 89
On September 6, 2016, we entered into the Patent and Technology
License and Purchase Option Agreement with BioNucleonics Inc.
whereby we were granted a worldwide, exclusive, perpetual, license
on, and option to, acquire all of BNI’s assets related to an
FDA approved generic drug for the treatment of pain associated with
metastatic bone cancer, Strontium Chloride, within the three-year
term of the exclusive license. Once we have funded up
to $850,000 in cash, we may exercise our option to acquire the BNI
IP at no additional charge.
In the event that: (i) we do not exercise the option to purchase
the BNI IP; (ii) we fail to make the aggregate cash payment within
three years from the date of the exclusive license; or (iii) we
fail to make a diligent, good faith and commercially reasonable
effort to progress the BNI IP, all BNI IP shall revert to BNI and
we shall be granted the right to collect twice the monies invested
through that date of reversion by way of a royalty along with other
consideration which may be perpetual.
After the damaging 2017 hurricanes compromised our Texas-based
contract manufacturing facility, we along with BNI elected to move
our manufacturing to another facility. The FDA requires a Prior
Approval Supplement (PAS) to be filed to approve this new facility
to manufacture SR89. This was a lengthy process and required a
significant paper filing and validation process and possible
inspection by the FDA. This filing has been completed, and as a
result additional fees have been paid to BNI. We have agreed to pay
them an additional $125,000 and 100,000 shares in milestone
payments on completion of the PAS process and approval of the
facility. In addition, we will take assignment of the
ANDA.
QBM-001 – Pediatric Autistic Spectrum Disorder
On April 25, 2017, we entered into a licensing agreement that
provides us with the worldwide exclusive rights to ASDERA’s
ASD-002 (now annotated as QBM-001). QBM-001 is being developed to
treat a rare pediatric nonverbal disorder. Under the terms of the
agreement, we receive global rights to develop and commercialize
the drug in the rare pediatric disease market.
Given that we are developing an analogue of a well-known approved
drug that regulates these channels, we expect to advance this
clinically through a 505(b)2 pathway expected to start in mid 2019.
This single pivotal trial, which, if successful, could have the
drug ready for market in less than two years from trial initiation.
We are now developing novel composition and formulations of QBM-001
and plan to commence a pivotal trial with QBM-001 in
2019.
On June 29, 2017 we entered into a services agreement with Sphaera
Pharma Pte. Ltd to jointly develop a novel formulation for QBM001.
We have agreed not to continue with that
collaboration.
11
Uttroside-B Liver Cancer Therapeutic
On June 15, 2017, we entered into a Technology License Agreement
with RGCB and OMRF whereby they granted us the exclusive license
for Uttroside on intellectual property related to
Uttroside-B. Uttroside-B is a chemical compound that
we
seek to use to create a chemotherapeutic agent against liver
cancer.
Subject to the terms of the Uttroside exclusive license, we will be
in control of the development and commercialization of the product
candidate and are responsible for the costs of such development and
commercialization. We have undertaken a good-faith commitment
to (i) fund the pre-clinical trials and (ii) to initiate a Phase II
clinical trial within six years of the date of the Agreement.
Failure to show a good-faith effort to meet those goals would mean
that the Uttroside exclusive license would revert to the
licensors.
Over the last year, a total synthesis of Uttroside B has been
achieved and currently we are in the final stages of purification.
We expect to initiate the final scale-up by the end of the
year.
Mannin and MAN01 Topical Eye Drop for Glaucoma
Mannin is utilizing a proprietary research platform technology to
develop best-in-class drugs to treat vascular disease. Our lead
compound is a first-in-class small molecule therapeutic for the
treatment of Primary Open Angle Glaucoma.
The biological focus of our lead program is the Schlemm's canal and
its role in regulating interocular eye pressure, one of the leading
causes of glaucoma. We are unaware of any other glaucoma company
targeting the Schlemm's canal, and we believe this pathway to be a
causative pathway in glaucoma pathology. We are in late lead
optimization and aim to initiate IND enabling studies in
2019.
We believe that a deep pipeline of novel therapeutics can be
developed from our research platform approach, and we evaluate
opportunities to treat other vascular diseases such as acute kidney
injury, cardiovascular ischemic damage, pediatric glaucoma and
influenza.
Recently, there have been a number of significant deals and
announcements have been made in the ophthalmology
space:
●
Aerie
Pharmaceuticals, Inc. announced its newly approved drug Rhopressa,
also known as netarsudil, for patients with open-angle glaucoma or
ocular hypertension is a Rho kinase (ROCK) inhibitor combined with
a norepinephrine transport (NET) inhibitor. Rhopressa relaxes the
trabecular meshwork of the eye to increase the aqueous humor
outflow, thereby reducing the episcleral venous
pressure.
●
Bausch
and Lomb announce a new ophthalmic drug for reduction of
intraocular pressure in patients with open-angle glaucoma or ocular
hypertension is a modified prostaglandin analog called Vyzulta
(latanoprostene bunod). Vyzulta, a latanoprost prodrug, is the
first prostaglandin F2-alpha agonist linked to a nitric oxide
(NO)-donating moiety. Just like Rhopressa, latanoprostene bunod is
a monotherapy with a dual mechanism of action. The latanoprost
prodrug lowers intraocular pressure by metabolizing into two
moieties, latanoprost acid, which primarily works within the
uveoscleral pathway to increase aqueous humor outflow, and
butanediol mononitrate, which releases NO to increase outflow
through the trabecular meshwork and Schlemm's canal.
Financial Overview
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
This management’s discussion and analysis of our financial
condition and results of operations is based on our condensed
consolidated financial statements, which have been prepared in
accordance with generally accepted accounting principles in the
United States of America (“U.S. GAAP”). The preparation
of these condensed consolidated financial statements requires us to
make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and the disclosure of
contingent assets and liabilities in our condensed consolidated
financial statements. On an ongoing basis, we evaluate our
estimates and judgments, including those related to fair value of
financial instruments, research and development costs, accrued
expenses and stock-based compensation. We base our estimates on
historical experience, known trends and events and various other
factors that we believe to be reasonable under the circumstances,
the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. Other than as
set out in Note 3 to our accompanying unaudited condensed
consolidated financial statements, we believe there have been no
significant changes in our critical accounting policies as
described in the Form 10-K.
Unaudited Results of Operations for the three months ended August
31, 2018 and 2017:
|
For
the three months ended August 31,
|
|
|
|
Operating
expenses:
|
|
|
General and
administrative expenses
|
$1,996,391
|
$3,038,018
|
Research and
development expenses
|
989,140
|
697,966
|
Total operating
expenses
|
2,985,531
|
3,735,984
|
|
|
|
Other
income (expenses):
|
|
|
Interest
expense
|
-
|
(202,160)
|
Interest
income
|
-
|
15
|
Loss on conversion
of debt
|
-
|
-
|
Loss on
extinguishment of debt
|
-
|
(76,251)
|
Change in fair
value of embedded conversion option
|
-
|
32,983
|
Change in fair
value of warrant liability
|
-
|
-
|
Total other income
(expenses)
|
-
|
(245,413)
|
|
|
|
Net
loss
|
$(2,985,531)
|
$(3,981,397)
|
|
|
|
Operating expenses
We incur various costs and expenses in the execution of our
business. Our operating expenses decreased to $3.0 million for the
three months ended August 31, 2018 from $3.7 million for the
corresponding period in 2017. The decrease in operating expenses
was mainly due to a decrease in stock-based
compensation.
Other expenses
During the three months ended August 31, 2018, there were no
activities. During the three months ended August 31, 2017, other
expenses included approximately $202,000 in interest expense, a
gain of $33,000 for the change in fair value of embedded conversion
options, and approximately $76,000 in loss on the extinguishment of
debt.
Net loss
In the three months ended August 31, 2018 and 2017, we incurred net
losses of approximately $3.0 million and $4.0 million,
respectively. Our management expects to continue to incur net
losses for the foreseeable future, due to our need to continue to
establish a broader pipeline of assets, expenditure on R&D and
implement other aspects of our business plan.
12
Unaudited Results of Operations for the nine months ended August
31, 2018 and 2017:
|
For
the nine months ended August 31,
|
|
|
|
Operating
expenses:
|
|
|
General and
administrative expenses
|
$4,547,761
|
$6,122,565
|
Research and
development expenses
|
2,624,753
|
2,296,324
|
Total operating
expenses
|
$7,172,514
|
8,418,889
|
|
|
|
Other
income (expenses):
|
|
|
Interest
expense
|
-
|
(635,267)
|
Interest
income
|
-
|
123
|
Loss on conversion
of debt
|
-
|
(365,373)
|
Loss on
extinguishment of debt
|
-
|
(76,251)
|
Change in fair
value of embedded conversion option
|
-
|
(812,017)
|
Change in fair
value of warrant liability
|
-
|
(59,870)
|
Total other income
(expenses)
|
-
|
(1,948,655)
|
|
|
|
Net
loss
|
$(7,172,514)
|
$(10,367,544)
|
|
|
|
Operating expenses
We incur various costs and expenses in the execution of our
business. Our operating expenses decreased to $7.2 million for the
nine months ended August 31, 2018 from $8.4 million for the
corresponding period in 2017. The decrease in operating expenses
was mainly due to less stock-based compensation.
Other expenses
During the nine months ended August 31, 2018, there were no
activities. During the nine months ended August 31, 2017, other
expenses included approximately $635,000 in interest expense,
$76,000 in loss on extinguishment of debt, approximately $365,000
in loss on the conversion of debt, a loss of $812,000 for the
change in fair value of embedded conversion options, and
approximately $60,000 for the change in fair value of warrant
liability.
Net loss
In the nine months ended August 31, 2018 and 2017, we incurred net
losses of approximately $7.2 million and $10.4 million,
respectively. Our management expects to continue to incur net
losses for the foreseeable future, due to our need to continue to
establish a broader pipeline of assets, expenditure on R&D and
implement other aspects of our business plan.
Liquidity and Capital Resources
We prepared the accompanying condensed consolidated financial
statements assuming that we will continue as a going concern, which
contemplates the realization of assets and liquidation of
liabilities in the normal course of business.
We have not yet established an ongoing source of revenues and must
cover our operating through debt and equity financings to allow us
to continue as a going concern. We had approximately $787,000 in
cash as of August 31, 2018. Our ability to continue as a
going concern depends on the ability to obtain adequate capital to
fund operating losses until we generate adequate cash flows from
operations to fund our operating costs and obligations. If we are
unable to obtain adequate capital, we could be forced to cease
operations.
We depend upon our ability, and will continue to attempt, to secure
equity and/or debt financing. We cannot be certain that additional
funding will be available on acceptable terms, or at all. Our
management determined that there was substantial doubt about our
ability to continue as a going concern within one year after the
condensed consolidated financial statements were issued, and
management’s concerns about our ability to continue as a
going concern within the year following this report
persist.
The accompanying condensed consolidated financial statements do not
include any adjustments relating to the recoverability and
classification of recorded asset amounts or amounts and
classification of liabilities that might result from this
uncertainty.
Cash Flows
The following table sets forth the significant sources and uses of
cash for the periods addressed in this report:
|
For
the nine months ended August 31,
|
|
|
|
|
|
|
Net
cash (used in) provided by:
|
|
|
Operating
activities
|
$(4,983,182)
|
$(3,923,455)
|
Financing
activities
|
4,945,251
|
4,953,900
|
Net (decrease)
increase in cash
|
$(37,931)
|
$1,030,445
|
|
|
|
Net cash used in operating activities was approximately $5.0
million for the nine months ended August 31, 2018 as compared to
approximately $3.9 million for the nine months ended August 31,
2017. The increase in net cash used in operating
activities relates to the net loss of approximately $7.2 million
for the nine months ended August 31, 2018, partially offset by
aggregate non-cash expenses of approximately $2.0
million. The net cash used in operating activities of
approximately $3.9 million for the nine months ended August 31,
2017 results from the net loss of approximately $10.4 million,
partially offset by aggregate non-cash expenses of approximately
$6.4 million.
Net cash provided by financing activities was approximately $4.9
million for the nine months ended August 31, 2018, resulting from
proceeds received from the issuance of common stock and warrants of
approximately $5.4 million, offset by offering costs of
approximately $0.5 million. Net cash provided by
financing activities was $5.0 million for the nine months ended
August 31, 2017, resulting mainly from the issuance of convertible
notes payable and private placement.
13
Commitments and Contingencies
Legal
We are not currently involved in any legal matters arising in the
normal course of business. From time to time, we could become
involved in disputes and various litigation matters that arise in
the normal course of business. These may include disputes and
lawsuits related to intellectual property, licensing, contract law
and employee relations matters. Periodically, we review the
status of significant matters, if any exist, and assesses its
potential financial exposure. If the potential loss from any claim
or legal claim is considered probable and the amount can be
estimated, we accrue a liability for the estimated loss.
Legal proceedings are subject to uncertainties, and the outcomes
are difficult to predict. Because of such uncertainties,
accruals are based on the best information available at the
time. As additional information becomes available, we
reassess the potential liability related to pending claims and
litigation.
Advisory Agreements
We entered into customary consulting arrangements with various
counterparties to provide consulting services, business development
and investor relations services, pursuant to which we agreed to
issue shares of common stock as services are received.
We issued an aggregate of approximately 159,028 shares of common
stock during the nine months ended August 31, 2018.
Lease Agreement
In December 2016, we entered into a lease agreement for its office
space located in Cayman Islands for $30,000 per annum. The
initial term of the agreement ends in December 2019 and can be
renewed for another three years.
Rent expense is classified within general and administrative
expenses on a straight-line basis and included in the accompanying
Condensed Consolidated Statements of Operations as
follows:
|
For
the three months ended August 31,
|
For
the nine months ended August 31,
|
|
|
|
|
|
Rent
expense
|
$7,500
|
$5,000
|
$23,000
|
$17,000
|
License Agreement
Mannin
On October 29, 2015, we entered into a Patent and Technology
License and Purchase Option Agreement (“Mannin 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.
During the three months ended August 31, 2018 and 2017, we incurred
approximately $520,000 and $525,000, respectively, in research and
development expenses to fund the costs of development of the eye
drop treatment for glaucoma pursuant to the Mannin Exclusive
License.
During the nine months ended August 31, 2018 and 2017, we incurred
approximately $1.7 million and $1.4 million, respectively, in
research and development expenses to fund the costs of development
of the eye drop treatment for glaucoma pursuant to the Exclusive
License. Pursuant to the Mannin Exclusive License, we may
purchase the Mannin IP within the next four years in exchange for
investing a minimum of $4,000,000 into the development of the
Mannin IP. Through August 31, 2018, we have funded an aggregate of
$4.6 million to Mannin under the Mannin Exclusive License. The
purchase price for the Mannin IP is $30,000,000 less the amount of
cash paid by the Company for development and the value of the
common stock issued to the vendor.
Bio-Nucleonics
On September 6, 2016, we entered into the Patent and Technology
License and Purchase Option Agreement (the “BNI Exclusive
License”) with Bio-Nucleonics Inc. (“BNI”)
whereby we were granted a worldwide, exclusive, perpetual, license
on, and option to, acquire certain BNI intellectual property
(“BNI IP”) within the three-year term of the BNI
Exclusive License.
During the three months ended August 31, 2018 and 2017, we incurred
approximately $290,000 and $144,000, respectively, in research and
development expenses pursuant to the BNI Exclusive
License.
During the nine months ended August 31, 2018 and 2017, we incurred
approximately $573,000 and $352,500, respectively, in research and
development expenses pursuant to the BNI Exclusive License.
As of August 31, 2018, we had funded approximately $838,000 to BNI
out of the maximum $850,000 cash funding requirement.
Asdera
On April 21, 2017, we entered into a License Agreement on Patent
& Know-How Technology (“Asdera License”) with
Asdera LLC (“Asdera”) whereby we were granted a
worldwide, exclusive, license on certain Asdera intellectual
property (“Asdera IP”). The initial cost to acquire the
Asdera License is $50,000 and the issuance of 125,000 shares of our
common stock, with a fair value of $487,500, of which we had fully
paid and issued as of November 30, 2017 and recorded in research
and development expenses in the accompanying Consolidated
Statements of Operations. In addition to royalties based upon net
sales of the product candidate, if any, we are required to make
certain additional payments upon additional
milestones.
Subject to the terms of the Agreement, we will be in control of the
development and commercialization of the product candidate and are
responsible for the costs of such development and
commercialization. We have undertaken a good-faith commitment
to (i) initiate a Phase II/III clinical trial at the earlier of the
two-year anniversary of the agreement or one year from the
FDA’s approval of the IND and (ii) to make the first
commercial sale by the fifth-anniversary of the agreement.
Failure to show a good-faith effort to meet those goals would mean
that the Asdera IP would revert to Asdera. Upon such
reversion, Asdera would be obligated to pay us royalties on any
sales of products derived from the Asdera IP until such time that
Asdera has paid us twice the sum that we had provided Asdera prior
to the reversion.
14
OMRF
OMRF License Agreement
On June 15, 2017, we entered into a Technology License Agreement
(“OMRF License Agreement”) with the Rajiv Gandhi Centre
for Biotechnology, an autonomous research institute under the
Government of India (“RGCB”), and the Oklahoma Medical
Research Foundation (“OMRF” and together with RGCB, the
“Licensors”), whereby the Licensors granted us a
worldwide, exclusive, license on intellectual property related to
Uttroside B (the “Uttroside B IP”). Uttroside B
is a chemical compound derived from the plant Solanum nigrum
Linn, also known as Black Nightshade or Makoi. We seek to use
the Uttroside B IP to create a chemotherapeutic agent
against liver cancer.
The initial cost to acquire the OMRF License Agreement is $10,000,
which will be payable upon reaching certain agreed
conditions. In addition to royalties based upon net sales of
the product candidate, if any, we are required to make additional
payments upon additional milestones.
Subject to the terms of the Agreement, we will be in control of the
development and commercialization of the product candidate and are
responsible for the costs of such development and
commercialization. We have undertaken a good-faith commitment
to (i) fund the Pre-Clinical Trials and (ii) to initiate a Phase II
clinical trial within six years of the date of the Agreement.
Failure to show a good-faith effort to meet those goals would mean
that the RGCB License Agreement would revert to the
Licensors.
No milestones have been reached to date on these license
agreements.
Related Party Transactions
We entered into consulting agreements with certain management
personnel and stockholders for consulting and legal
services. Consulting and legal expenses resulting from
such agreements were included within general and administrative
expenses in the accompanying Condensed Consolidated Statements of
Operations as follows:
|
For
the three months ended August 31,
|
For
the nine months ended August 31,
|
|
|
|
|
|
Consulting and
legal expenses
|
$60,000
|
$102,500
|
$180,000
|
$322,500
|
|
|
|
|
|
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosure About Market
Risk
This item is not applicable as we are currently considered a
smaller reporting company.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Principal Executive Officer and Chief Financial Officer
evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Exchange Act) as
of the period covered by this Report. Based on that evaluation, it
was concluded that our disclosure controls and procedures are not
effective to reasonably assure that information we are required to
disclose in the reports that we file or submit under the Exchange
Act 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 principal executive and principal financial officer,
or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.
We do not have an Audit Committee; our board of directors currently
acts as our Audit Committee. Only one of our three
directors is an independent director, and none of our directors is
considered a “Financial Expert,” within the meaning of
Section 407 of the Sarbanes-Oxley Act. We have interviewed
additional potential independent directors, but have not engaged
any.
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 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.
15
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any material legal proceedings.
Item 1A. Risk Factors
As a Smaller Reporting Company, we are not required to provide this
information.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
On September 21, 2018, we issued 25,000 shares in connection with
the waiver of a right of first refusal for the sale of $2,000,0000
in convertible debentures in September 2018 and the agreement to
sell an additional $2,000,000 in convertible debentures upon the
filing of a registration statement for the resale of the shares of
common stock underlying the convertible debentures. The conversion
price for the convertible notes is the lesser of (i) $4.00
and (ii) 93% of the four
lowest VWAPs during the last ten trading days immediately preceding
the date of such conversion, but in no event will
the conversion price be less than $2.00.
On September 21, 2018, we issued 25,000 shares of common stock for
advisory services in connection with the sale of the September 2018
convertible debentures mentioned above.
On September 21, 2018, we issued 25,000 shares of common stock in
connection with legal services provided to us.
On September 21, 2018, we issued 38,049 shares of common stock to
four consultants, including a member of our board and two members
of our board of advisors, for consulting services.
In October, 2018, we issued 50,000 shares of common stock to BNI as
a milestone payment.
The issuances of the securities mentioned above qualified for the
exemption from registration contained in Section 4(2) 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.
Item 6. Exhibits
Exhibit Number
|
Name and/or Identification of Exhibit
|
|
|
31.1
|
Rule 13a-14(a)/15d-14(a) Certifications
|
|
32.1
|
Certification under Section 906 of the Sarbanes-Oxley Act (18
U.S.C. Section 1350)
|
|
101
|
Interactive Data File
|
|
101.INS
|
XBRL Instance Document*
|
101.SCH
|
XBRL Taxonomy Extension Schema Document*
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document*
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document*
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document*
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase
Document*
|
* In accordance with the temporary hardship exemption provided by
Rule 201 of Regulation S-T, the date by which the interactive data
file is required to be submitted has been extended by six business
days.
16
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.
|
|
|
|
October 15, 2018
|
By:
|
/s/ Denis Corin
|
|
|
Denis Corin
|
|
|
President, Chief Executive Officer, Acting Principal Accounting
Officer, Principal Financial Officer
|
17