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 New York, | ||
(Address of principal executive offices) | ||
(212) 588-0022 | ||
( |
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 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☒ | 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'sissuer’s classes of common stock, as of the latest practicable date:
| |
Common Stock, $0.001 par value | 145,094,531 shares |
(Class) | (Outstanding |
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.
Q BIOMED INC.
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Item 1. Condensed Consolidated Financial Statements (Unaudited) | | 1 | ||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 23 | ||
Item 3. Quantitative and Qualitative Disclosure About Market Risk | | 29 | ||
| 29 | |||
| 31 | |||
| 31 | |||
| 31 | |||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | | 31 | ||
| 32 | |||
| 32 | |||
| 32 | |||
| 33 | |||
| 34 |
PART I –- FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
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 |
August 31, 2017 | November 30, 2016 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 2,499,169 | $ | 1,468,724 | ||||
Prepaid expenses | 5,000 | - | ||||||
Total current assets | 2,504,169 | 1,468,724 | ||||||
Total Assets | $ | 2,504,169 | $ | 1,468,724 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIT | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 382,055 | $ | 497,936 | ||||
Accrued expenses - related party | 17,500 | 70,502 | ||||||
Accrued interest payable | 33,299 | 48,813 | ||||||
Convertible notes payable (See Note 5) | 1,922,474 | 2,394,849 | ||||||
Note payable | 138,856 | 100,152 | ||||||
Warrant liability | - | 168,070 | ||||||
Total current liabilities | 2,494,184 | 3,280,322 | ||||||
Long-term liabilities: | ||||||||
Convertible notes payable (See Note 5) | - | 231,517 | ||||||
Total long term liabilities | - | 231,517 | ||||||
Total Liabilities | 2,494,184 | 3,511,839 | ||||||
Commitments and Contingencies (Note 6) | ||||||||
Stockholders' Equity Deficit: | ||||||||
Preferred stock, $0.001 par value; 100,000,000 shares authorized; no shares issued and outstanding as of August 31, 2017 and November 30, 2016 | - | - | ||||||
Common stock, $0.001 par value; 250,000,000 shares authorized; 11,496,169 and 9,231,560 shares issued and outstanding as of August 31, 2017 and November 30, 2016, respectively | 11,496 | 9,231 | ||||||
Additional paid-in capital | 18,667,736 | 6,249,357 | ||||||
Accumulated deficit | (18,669,247 | ) | (8,301,703 | ) | ||||
Total Stockholders' Equity Deficit | 9,985 | (2,043,115 | ) | |||||
Total Liabilities and Stockholders' Equity Deficit | $ | 2,504,169 | $ | 1,468,724 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements |
For the three months ended August 31, | For the nine months ended August 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Operating expenses: | ||||||||||||||||
General and administrative expenses | $ | 3,038,018 | $ | 1,150,964 | $ | 6,122,565 | $ | 3,637,868 | ||||||||
Research and development expenses | 697,966 | 443,222 | 2,296,324 | 663,500 | ||||||||||||
Total operating expenses | 3,735,984 | 1,594,186 | 8,418,889 | 4,301,368 | ||||||||||||
Other income (expenses): | ||||||||||||||||
Interest expense | (202,160 | ) | (114,847 | ) | (635,267 | ) | (304,596 | ) | ||||||||
Interest income | 15 | - | 123 | - | ||||||||||||
Loss on conversion of debt | - | (29,032 | ) | (365,373 | ) | (89,210 | ) | |||||||||
Loss on extinguishment of debt | (76,251 | ) | - | (76,251 | ) | - | ||||||||||
Loss on issuance of convertible notes | - | (28,000 | ) | - | (481,000 | ) | ||||||||||
Change in fair value of embedded conversion option | 32,983 | 50,000 | (812,017 | ) | 362,000 | |||||||||||
Change in fair value of warrant liability | - | - | (59,870 | ) | - | |||||||||||
Total other expenses | (245,413 | ) | (121,879 | ) | (1,948,655 | ) | (512,806 | ) | ||||||||
Net loss | $ | (3,981,397 | ) | $ | (1,716,065 | ) | $ | (10,367,544 | ) | $ | (4,814,174 | ) | ||||
Net loss per share - basic and diluted | $ | (0.37 | ) | $ | (0.19 | ) | $ | (1.03 | ) | $ | (0.55 | ) | ||||
Weighted average shares outstanding, basic and diluted | 10,816,282 | 8,909,414 | 10,074,766 | 8,784,373 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
1
Q BIOMED INC.
Condensed Consolidated Statements of Cash FlowsOperations
(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 | |
For the nine months ended August 31, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (10,367,544 | ) | $ | (4,814,174 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
Issuance of common stock, warrants and options for services | 4,181,693 | 3,039,277 | ||||||
Issuance of common stock for acquired in-process research and development | 487,500 | - | ||||||
Change in fair value of embedded conversion option | 812,017 | (362,000 | ) | |||||
Change in fair value of warrant liability | 59,870 | - | ||||||
Accretion of debt discount | 525,864 | 261,672 | ||||||
Loss on conversion of debt | 365,373 | 89,210 | ||||||
Loss on extinguishment of debt | 76,251 | - | ||||||
Loss on issuance of convertible debt | - | 481,000 | ||||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses | (5,000 | ) | (10,000 | ) | ||||
Accounts payable and accrued expenses | (115,881 | ) | 363,593 | |||||
Accrued expenses - related party | (53,002 | ) | 40,000 | |||||
Accrued interest payable | 109,404 | 42,925 | ||||||
Net cash used in operating activities | (3,923,455 | ) | (868,497 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds received from issuance of convertible notes | 2,500,000 | 815,000 | ||||||
Proceeds received from exercise of warrants | 70,000 | - | ||||||
Proceeds received for issuance of common stock and warrants , net of offering costs | 2,383,900 | 60,075 | ||||||
Net cash provided by financing activities | 4,953,900 | 875,075 | ||||||
Net increase in cash | 1,030,445 | 6,578 | ||||||
Cash at beginning of period | 1,468,724 | 131,408 | ||||||
Cash at end of period | $ | 2,499,169 | $ | 137,986 | ||||
Non-cash financing activities: | ||||||||
Issuance of common stock upon conversion of convertible notes payable | $ | 3,540,838 | $ | 244,897 | ||||
Issuance of common stock and warrants in exchange for extinguishment of convertible notes payable | $ | 442,149 | $ | - | ||||
Issuance of warrants to settle accounts payable to related party | $ | - | $ | 30,000 | ||||
Reclassification of warrant liability to equity | $ | 227,940 | $ | - | ||||
Cash paid for interest | $ | - | $ | - | ||||
Cash paid for income taxes | $ | - | $ | - | ||||
The accompanying notes are an integral part of these 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
Note 1 - Organization of the Company and Description of the Business
Q BioMed Inc. (“Q BioMed” or), and its wholly owned subsidiaries Q BioMed Cayman SEZC and QBMG Q BioMed Germany UG (collectively, “the Company”), incorporated in the State of Nevada on November 22, 2013, is a biomedical acceleration and development company focused on licensing, acquiring and providing strategic resources to life sciences and healthcare companies. Q BioMed intends to mitigate risk by acquiring multiple assets over time and across a broad spectrum of healthcare related products, companies and sectors. The Company intends to develop these assets to provide returns via organic growth, revenue production, out-licensing, sale or the spinoff of new public companies.
The accompanying condensed consolidated financial statements include the accounts of the Company’s wholly-owned subsidiary.subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Note 2 - Basis of Presentation
Basis of Presentation
The accompanying interim period unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles 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"(“SEC”) regarding interim financial reporting. The Condensed Consolidated Balance Sheet as of August 31, 2017, the Condensed Consolidated Statements of Operations for the three and nine months ended August 31, 2017 and 2016, and the Condensed Consolidated Statements of Cash Flows for the nine months ended August 31, 2017 and 2016, 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, 2016 has been derived from audited financial statements included in the Company's Form 10-K, most recently filed with the SEC on February 28, 2017. The results for the three and nine months ended August 31, 2017 and 2016 are not necessarily indicative of the results expected for the full fiscal year or any other period.
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.
Management anticipates that the Company obtaining adequate capitalwill have to fund operating losses until it generates adequate cash flowsraise additional funds and/or generate revenue from operationsdrug sales within twelve months to fund its operating costscontinue 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 obligations.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 obtain adequate capital, it couldraise sufficient funds, management will be forced to futher scale back the Company’s operations or cease operations.
Management has determined that there is substantial doubt about the Company'sCompany’s ability to continue as a going concern within one year after the condensed consolidated financial statements are issued.
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
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 auditedunaudited financial statements for the year ended November 30, 20162022 included in the Company’s Form 10-K. Since
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 financial statements, there have been no changesinstruments 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 significant accounting policies.
Recent Accounting Standards
In January 2017, the FASB issued an ASU 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business. The amendments in this Update is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Update may be adopted early. The Company adopted the provisions of ASC 2017-01 effective December 1, 2016. Adoption did not have a material impact on the Company's financial position, results of operations, or cash flows.
6
Table of ASU 2017-11 will have on the Company’sContents
Q BIOMED INC.
Notes to Condensed Consolidated Financial Statements.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 sharesstock outstanding during the period. Diluted net loss per share was calculated by dividing net loss by the weighted-average shares of common sharesstock 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.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 |
Potentially dilutive securities | August 31, 2017 | August 31, 2016 | ||||||
Warrants (Note 10) | 3,033,995 | 976,500 | ||||||
Convertible debt (Note 5) | 567,407 | 506,757 |
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.
7
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.
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.
8
August 31, 2017 | November 30, 2016 | |||||||
Series A Notes: | ||||||||
Principal value of 10%, convertible at $2.00 at November 30, 2016. | $ | - | $ | 12,500 | ||||
Fair value of bifurcated embedded conversion option of Series A Notes | - | 12,000 | ||||||
Debt discount | - | (2,194 | ) | |||||
Carrying value of Series A Notes | - | 22,306 | ||||||
Series B Notes: | ||||||||
Principal value of 10%, convertible at $2.00 at November 30, 2016. | - | 55,000 | ||||||
Fair value of bifurcated embedded conversion option of Series B Notes | - | 55,000 | ||||||
Debt discount | - | (19,229 | ) | |||||
Carrying value of Series B Notes | - | 90,771 | ||||||
Series C Notes: | ||||||||
Principal value of 10%, convertible at $1.55 at November 30, 2016. | - | 576,383 | ||||||
Fair value of bifurcated embedded conversion option of Series C Notes | - | 838,000 | ||||||
Debt discount | - | (250,969 | ) | |||||
Carrying value of Series C Notes | - | 1,163,414 | ||||||
Series D Notes: | ||||||||
Principal value of 10%, convertible at $1.85 at November 30, 2016. | - | 160,000 | ||||||
Debt discount | - | (140,961 | ) | |||||
Carrying value of Series D Notes | - | 19,039 | ||||||
Series E Notes: | ||||||||
Principal value of 10%, convertible at $2.50 at August 31, 2017 and November 30, 2016. | 30,000 | 180,000 | ||||||
Debt discount | (4,062 | ) | (124,164 | ) | ||||
Carrying value of Series E Notes | 25,938 | 55,836 | ||||||
Convertible Debenture: | ||||||||
Principal value of 5%, convertible at $3.60 and $2.98 at August 31, 2017 and November 30, 2016, respectively. | 2,000,000 | 1,500,000 | ||||||
Fair value of bifurcated contingent put option of Secured Convertible Debenture | 2,000 | 72,000 | ||||||
Debt discount | (105,464 | ) | (297,000 | ) | ||||
Carrying value of Secured Convertible Debenture Note | 1,896,536 | 1,275,000 | ||||||
Total short-term carrying value of convertible notes | $ | 1,922,474 | $ | 2,394,849 | ||||
Total long-term carrying value of convertible notes | $ | - | $ | 231,517 | ||||
The Series A convertible notes payableJanuary 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 “Series A Notes”“Default Interest”) are. 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 18 months afterand 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 10%the rate of 22% per annum. Atannum from the electiondue 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 holder,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 and accrued but unpaid interest underamount of the Series A NotesDL Note may not be converted prior to the period beginning on the date that is convertible180 days following the Issue Date. Following the 180th day, DL may convert the DL Note into shares of the Company’s common stock at any time prior to maturity at a conversion price per share equal to the higher of: (i) forty percent (40%) discount to80% of the average closingof 3 lowest trading price for the ten (10) consecutive trading dayswith a 10-day look back immediately preceding the noticedate of conversion or (ii) $1.25 per share. At maturity,conversion.
9
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 remaining outstanding principal and accrued but unpaid interest outstanding undergiven payment with the Series A Notes will automatically convert intofollowing 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 the Company’s common stock underto convert approximately $120,000 of outstanding debt upon the same terms. Asconversion.
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 31, 2017,Note has a maturity date of February 6, 2023, and the Company has no Series A Notes outstanding.
| | | | |
|
| 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 subsequent changes in fair value recognized in current earnings.the Company’s Condensed Consolidated Statements of Operations until settled on August 24, 2022.
10
September 2022 Debenture
On September 30, 2016, the Company amended the Most Favored Nations Clause of the Series D Notes to restrict the Company from taking dilutive action without the Series D note holders’ consent, effectively removing the down-round price protection.
The September Debenture has a maturity date from November 30, 2017 to November 30, 2018 (see Note 11).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 initial closing occurred on November 30, 2016September Debenture carries an interest rate of 6% per annum, provided that any principal or interest which is not paid when the Company issued a Debenture for $1,500,000 (“Initial Debenture Note”). The second closing of $1 million was on March 10, 2017 (“Second Debenture Note”), when the registration statement to register for resale all of the shares of common stock into which the Debentures may be converted (the “Conversion Shares”) was filed with the SEC. The remaining balance of $1.5 million was received on April 6, 2017 (“Third Debenture Note”), the date the registration statement was declared effective by the SEC. The Debenturesdue shall bear interest at the rate of 5%22% per annum. In addition,annum from the due date until payment (the “Default Interest”). The Company must pay to an affiliate of the holder a fee equal to 5% of the amount ofmay prepay the Debenture at each closing.
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 $4.00$1.15 or 93% of the average of the four lowest daily VWAP of the Company’s common stockVWAPs during the ten10 consecutive trading days immediately preceding the conversion date, provided that as long as the Company iswe are not in default under the 2020 Debenture, the conversion price may never be less than $2.00.$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.
11
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 not convert any portionprepay the Debenture at 120% of the Debenture if such conversion would result inoutstanding aggregate principal amount within the holder beneficially owning more than 4.99%first 60 days of the Company’s then issued common stock, provided that such limitation may be waived by the holder.
The holder may convert the July Debenture in its sole discretion at any time on or prior to maturity at the lower 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%$1.00 or 85% of the average of the four (4) lowest dailyVWAPs 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’s common stock during theCompany shall be less than $0.35 for a total of ten consecutive Trading Days immediately preceding the duedays.
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 in respect of such monthly payment begin deferred, provided that such shares issued will be immediately freely tradable shares in the hands of the holder.
The contingent share-settled redemption feature and contingent prepayment provision within the Debentures is aJuly Debenture are all contingent put optionoptions that isare required to be separately measuredbifurcated as a single compound embedded derivative at fair value, with subsequent changes in fair value recognized in the Condensed Consolidated Statement of Operations during the nine months ended August 31, 2017. The Company estimated the fair value of the monthly payment provision, as of August 31, 2017 and November 30, 2016, using probability analysis of the occurrence of a Triggering Date applied to the discounted maximum redemption premium for any given payment. The probability analysis utilized the following 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.
12
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 Options
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 separately measureda 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 current operations. Management used a binomial valuation model, with fourteen stepsthe 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 binomial tree,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 | % |
13
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 the embedded conversion option at issuance of the Series A, B, C and D Notes with the following key inputs:
Embedded derivatives at inception and upon conversion | ||||||||
For the nine months ended August 31, | ||||||||
2017 | 2016 | |||||||
Stock price | $ | 4.93 - $7.05 | $ | 2.60 - $3.26 | ||||
Terms (years) | 0.11 - 0.85 | 1.5 | ||||||
Volatility | 144.26% - 157.35 | % | 116.77 | % | ||||
Risk-free rate | 0.53% - 0.76 | % | 0.51% - 0.76 | % | ||||
Dividend yield | 0.00 | % | 0.00 | % | ||||
Embedded derivatives at period end | ||||||||
August 31, 2017 | November 30, 2016 | |||||||
Stock price | - | $ | 3.43 | |||||
Term (years) | - | 0.25 - 1.05 | ||||||
Volatility | - | 156.74% - 163.49 | % | |||||
Risk-free rate | - | 0.48% - 0.80 | % | |||||
Dividend yield | - | 0.00 | % |
| | | |
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 |
Rollforward of Level 3 Fair Value Measurement for the Nine Months Ended August 31, 2017 | |||||||||||||||||||
Balance at November 30, 2016 | Issuance | Net unrealized gain/(loss) | Conversion | Balance at August 31, 2017 | |||||||||||||||
$ | 977,000 | 86,000 | 812,017 | (1,873,017 | ) | $ | 2,000 |
Debt Conversion
The following conversions of the convertible notes occurredtable summarizes debt conversion during the nine monthsperiod ended August 31, 2017:
Principal | Shares | |||||||
Series A conversions | 12,500 | 5,936 | ||||||
Series B conversions | 55,000 | 27,995 | ||||||
Series C conversions | 576,383 | 407,484 | ||||||
Series D conversions | 160,000 | 91,782 | ||||||
Series E conversions | 150,000 | 63,255 | ||||||
Secured Debenture conversions | 2,000,000 | 461,203 | ||||||
Total | $ | 2,953,883 | 1,057,655 | |||||
Debt Amendment
On October 26, 2021, the conversionCompany entered into an extension agreement with the holder of each noteSeptember 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 extinguishment of debt. The Company recognized a loss on conversion of debt of approximately $365,000 as the difference between the fair value of common stock issuedamendment agreement to the holders of approximately $2.7 million andsecurities purchase agreement with the aggregate net carrying valueHolder, pursuant to which, the floor price of the convertible notes, including2020 Debenture was reduced to $0.50 per share. Additionally, the bifurcated conversion options, of approximately $2.3 million.
Interest expense
Interest expense, included in the accompanying Condensed Consolidated Balance Sheets andStatements of Operations, is amortizedcomprised of the following for each period presented (amounts are rounded to interest expense over the note’s term.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.
14
Note 7 –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, the Subsidiaryone 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 endsended in December 2019, and can bethe Company has renewed its office lease agreement for another
15
three years.
Rent expenses wasexpense is classified within general and administrative expenses and was approximately $7,500 and $18,000 for the three and nine months ended August 31, 2017.
License Agreement
Mannin
On October 29, 2015, the Company entered into a Patent and Technology License and Purchase Option Agreement (“Exclusive License”) with a vendor whereby the Company was granted a worldwide, exclusive, license on, and option to, acquire certain intellectual property (“Mannin IP”) which initially focused on developing a first-in-class eye drop treatment for glaucoma within the four-year term of the Exclusive License.
On March 26, 2019, the Company entered into an amendment to the Patent and Technology License and Purchase Option Agreement that it initially entered into with Mannin Research Inc. on October 29, 2015 (the “Mannin Agreement”). Under such amendment, the term of the option granted under the Mannin Agreement was extended to October 29, 2021, in exchange for the Company issuing 100,000 shares to Mannin Research Inc. on April 9, 2019.
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 threeperiod ended February 28, 2023 and nine monthsyear ended August 31, 2017,November 30, 2022, the Company incurred approximately $525,000$0.0 and $1.4$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. Through August 31, 2017,
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 Company had funded an aggregatevalue of $2.15 million to Mannin undershares received and the Exclusive License.
Washington University
On September 6, 2016,March 9, 2019, the Company entered into an Exclusive License Agreement with Washington University for license of a diagnostic marker for determining the Patent and Technology License and Purchase Option Agreement (the “BNI Exclusive License”) with Bio-Nucleonics Inc. (“BNI”) wherebyseverity of glaucoma using the expression levels of Growth Differentiation Factor 15. The agreement calls for 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.
The first commercial sale of |
Initiation of |
PMA or 510(k) regulatory approval by the FDA or the foreign |
16
● | The first commercial sale of a |
In addition to the termsabove payments, royalty payments based upon sales of the Agreement, the Company will be in control of the development and commercialization of thea companion diagnostic product candidate andor diagnostic product are responsible for the costs of such development and commercialization. The Company has undertaken a good-faith commitment to (i) fund the Pre-Clinical Trials and (ii) to initiate a Phase II clinical trial within six years of the date of the Agreement. Failure to show a good-faith effort to meet those goals would mean that the RGCB License Agreement would revert to the Licensors.
Note 89 - Related Party Transactions
The Company entered into consulting agreements with certain management personnel and stockholders for consulting and legal services.
Consulting and legal expenses
| | | | | | |
| | For the Three Months Ended | ||||
|
| February 28, 2023 |
| February 28, 2022 | ||
Consulting and legal expenses | | $ | 106,000 | | $ | 105,000 |
For the three months ended August 31, | For the nine months ended August 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Related parties | $ | 102,500 | $ | 104,632 | $ | 322,500 | $ | 207,875 |
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 910 - Stockholders’ Equity Deficit
As of August 31, 2017,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 of $3.20 per Unit, for an aggregate cash proceeds of approximately $2.4 million, net of offering costs, and the retirementliquidation value per share, as of $0.5 million in principal and accrued interestFebruary 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 Debentures. A Unit consists of one common stock and one warrant exercisable for five years from the date of issuance into a share of the Company’s common stock at an exercise price of $4.50.
The Company had accumulated dividends payable on the Preferred Shares of 39,246 warrantsapproximately $105,000 as of February 28, 2023.
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Common Shares
Issuance of common shares for services
The Company recognized approximately $16,000 related to the placement agent as consideration. These warrants have the same terms with the warrants issued in the August Private Placement.
Issuance of common shares for cash
On February14, 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 10 –11 - Warrants and Options
Fair value of warrant liability at November 30, 2016 | $ | 168,070 | ||
Issuance of new warrant liability | - | |||
Change in fair value of warrant liability | 59,870 | |||
Reclassification of warrant liability to equity | (227,940 | ) | ||
Fair value of warrant liability at August 31, 2017 | $ | - |
Summary of warrants
The following represents a summary of all outstanding warrants to purchase the Company’s common stock, including warrants issued to vendors for services and warrants issued as part of the units sold in the private placements, at August 31, 2017February 28, 2023 and November 30, 2022 and the changes during the period then ended: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 | | $ | — |
Weighted Average | ||||||||||||||||
Weighted Average | Remaining Contractual | |||||||||||||||
Warrants | Exercise Price | Intrinsic Value | Life (years) | |||||||||||||
Outstanding at November 30, 2016 | 1,047,500 | $ | 2.54 | $ | 1,158,000 | 4.10 | ||||||||||
Issued | 2,006,495 | - | - | - | ||||||||||||
Exercised | (20,000 | ) | 3.50 | - | - | |||||||||||
Outstanding at August 31, 2017 | 3,033,995 | $ | 3.66 | $ | 1,659,285 | 4.29 | ||||||||||
Exercisable at August 31, 2017 | 2,245,995 | $ | 3.54 | $ | 1,617,235 | 4.19 | ||||||||||
Grant date fair value of all outstanding warrants was calculated withbased 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 | % |
18
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.
19
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 August 31, 2017February 28, 2023 and November 30, 2022 and the changes during the period then ended: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 | % |
Weighted Average | ||||||||||||||||
Weighted Average | Remaining Contractual | |||||||||||||||
Options | Exercise Price | Intrinsic Value | Life (years) | |||||||||||||
Outstanding at November 30, 2016 | - | $ | - | $ | - | - | ||||||||||
Issued | 450,000 | 4.00 | 26,100 | 4.76 | ||||||||||||
Exercised | - | - | - | - | ||||||||||||
Outstanding at August 31, 2017 | 450,000 | $ | 4.00 | $ | 26,100 | 4.76 | ||||||||||
Exercisable at August 31, 2017 | - | $ | - | $ | - | - | ||||||||||
Stock-based Compensation
The Company recognized general and administrative expenses of approximately $4.2 million and $3.0$0.02 million as a result of the shares, outstanding warrants and options issued to consultants and employees during the ninethree months ended February 28, 2022, respectively.
20
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 31, 2017Debenture 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 2016, respectively.
| | | | | | |
|
| 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 next 0.32 year.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
Note 1113 – Subsequent Events
On September 1, 2017,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 entered intofiled an annual report on Form 10-K and noted that that annual report does not meet fully the research agreement (“Research Agreement #1) with OMRF to have OMRF perform the research program for a maximum periodrequirements of six months. The Company agreed to pay OMRF a total cost of approximately $100,000 for the performance of the research program.
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Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operation
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"“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 intent is to monetize the current pipeline and build a platform for future growth. There are 4 areas of focus:.
Commercial Product
We believe that Strontium89 has great potential in the cancer Generic Strontium Chloride Sr-89 Injection USP (“SR89”).
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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 recently announcedidentified in anticipation of the commercial launch.
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 inat the date of our condensed consolidated financial statements. On an ongoing basis, we evaluatestatements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on 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 andon various other factors that we believe to beare reasonable under the circumstances, the results of which form the basis for making judgments about the carrying valuesvalue of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.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.
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Unaudited Results of Operations for the three months ended August 31, 2017February 28, 2023 and 2016:2022:
| | | | | | | | | |
|
| 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 |
For the three months ended August 31, | ||||||||
2017 | 2016 | |||||||
Operating expenses: | ||||||||
General and administrative expenses | $ | 3,038,018 | $ | 1,150,964 | ||||
Research and development expenses | 697,966 | 443,222 | ||||||
Total operating expenses | 3,735,984 | 1,594,186 | ||||||
Other income (expenses): | ||||||||
Interest expense | (202,160 | ) | (114,847 | ) | ||||
Interest income | 15 | - | ||||||
Loss on conversion of debt | - | (29,032 | ) | |||||
Loss on extinguishment of debt | (76,251 | ) | - | |||||
Loss on issuance of convertible notes | - | (28,000 | ) | |||||
Change in fair value of embedded conversion option | 32,983 | 50,000 | ||||||
Change in fair value of warrant liability | - | - | ||||||
Total other expenses | (245,413 | ) | (121,879 | ) | ||||
Net loss | $ | (3,981,397 | ) | $ | (1,716,065 | ) |
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 increasedecrease in operating expenses was mainly due to morea 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 fees incurred in connection with the license agreements with Mannin, BNI and Asdera as well as the issuance and conversion of convertible notes.
Interest expense
The following table summarizes interest expense a gainincurred 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 |
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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 options, approximately $76,000 inof outstanding debentures into shares of common stock during the three months ended February 28, 2022, respectively.
Net loss on the extinguishment of debt.
During the three months ended August 31, 2016, other expenses included approximately $115,000 in interest expense, a gain of $50,000 for the change in fair value of embedded conversion options, $28,000 in loss on the issuance of convertible debt,February 28, 2023 and $29,000 in loss on conversion of debt.
For the nine months ended August 31, | ||||||||
2017 | 2016 | |||||||
Operating expenses: | ||||||||
General and administrative expenses | $ | 6,122,565 | $ | 3,637,868 | ||||
Research and development expenses | 2,296,324 | 663,500 | ||||||
Total operating expenses | 8,418,889 | 4,301,368 | ||||||
Other income (expenses): | ||||||||
Interest expense | (635,267 | ) | (304,596 | ) | ||||
Interest income | 123 | - | ||||||
Loss on conversion of debt | (365,373 | ) | (89,210 | ) | ||||
Loss on extinguishment of debt | (76,251 | ) | - | |||||
Loss on issuance of convertible notes | - | (481,000 | ) | |||||
Change in fair value of embedded conversion option | (812,017 | ) | 362,000 | |||||
Change in fair value of warrant liability | (59,870 | ) | - | |||||
Total other expenses | (1,948,655 | ) | (512,806 | ) | ||||
Net loss | $ | (10,367,544 | ) | $ | (4,814,174 | ) | ||
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 ana significant ongoing source of revenues sufficient toand must cover our operating coststhrough debt and equity financings to allow us to continue as a going concern. We had approximately $2.5 million$23,000 in cash as of August 31, 2017.February 28, 2023. Our ability to continue as a going concern depends on theour ability to obtain adequate capital to fund operating losses until we generate adequate cash flows from operations to fund itsour 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 has determined that there iswas substantial doubt about our 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.
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) |
For the nine months ended August 31, | ||||||||
2017 | 2016 | |||||||
Net cash (used in) provided by: | ||||||||
Operating activities | $ | (3,923,455 | ) | $ | (868,497 | ) | ||
Financing acitivities | 4,953,900 | 875,075 | ||||||
Net (decrease) increase in cash | $ | 1,030,445 | $ | 6,578 | ||||
Net cash used inCash Provided by (Used in) Operating Activities
During the three months ended February 28, 2023, operating activities was approximately $4used $0.1 million for the nine months ended August 31, 2017 as compared to approximately $869,000 for the nine months ended August 31, 2016. The increase in netof cash, used in operating activities relates to theresulting from a net loss of approximately $10.4$0.7 million, for the nine months ended August 31, 2017, partially offset by aggregate$0.02 million of share-based compensation, and non-cash expensesinterest expense resulting from accretion of debt discounts of $0.02 million and changes in our operating assets and liabilities of approximately $6.4$0.4 million. The net cash used in
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During the three months ended February 28, 2022, operating activities for the nine months ended August 31, 2016 relates to theused $0.4 million of cash, resulting from a net loss of approximately $4.8$2.3 million, for the nine months ended August 31, 2016, partially offset by aggregate non-cash expenses$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 $3.5$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 was approximately $5 million for the ninethree months ended August 31, 2017, resulting mainly fromFebruary 28, 2023 was $0.1 million. The net cash provided in the 2023 period relates to proceeds received from the issuance of convertible notes payable and private placement. notes.
Net cash provided by financing activities was $875,000 for the ninethree months ended August 31, 2016, resulting mainly fromFebruary 28, 2022 was $0.2 million. The net cash provided in the 2022 period relates to proceeds received from the issuance of convertible notes payable.
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 disclosedof 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 Annual Form 10-K, filed withfuture capital commitments to Mannin R&D.
During the SEC onperiod ended February 28, 2017, during2023 and year ended November 30, 2022, the three and nine months ended August 31, 2017, weCompany incurred approximately $525,000$0.0 and $1.4$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 Patent and Technology License and Purchase Option Agreement (“Exclusive License”). Through August 31, 2017, we have funded an aggregate of $2.15 million to Mannin under the Exclusive License.
Washington University
On September 6, 2016, weMarch 9, 2019, the Company entered into the Patent and Technologyan Exclusive License and Purchase Option Agreement with Bio-Nucleonics Inc. (“BNI”) whereby we were grantedWashington University for license of a worldwide, exclusive, perpetual, license on, and optiondiagnostic marker for determining the severity of glaucoma using the expression levels of Growth Differentiation Factor 15. The agreement calls for the Company to acquire certain BNI intellectual property (“BNI IP”) within the three-year term of the Exclusive License.
The first commercial sale of |
Initiation of |
PMA or 510(k) regulatory approval by the FDA or the foreign |
● | The first commercial sale of a |
In addition to the termsabove payments, royalty payments based upon sales of the Agreement, we will be in control of the development and commercialization of thea companion diagnostic product candidate andor diagnostic product 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 OMRF License Agreement would revert to the Licensors.
Related Party Transactions
We entered into consulting agreements with certain management personnel and stockholders for consulting and legal services. Consulting and legal expenses resulting from such agreements were approximately $102,500 and $104,000 for the three months ended August 31, 2017 and 2016, respectively, and were approximately $322,500 and $207,875 for the nine months ended August 31, 2017 and 2016, respectively, included within general and administrative expenses in the accompanying Condensed Consolidated Statements of Operations.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.
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Item 3. Quantitative and Qualitative Disclosure About Market Risk
Item 4. Controls and Procedures
Management is required to maintain disclosure controls and procedures (as definedthat are designed to ensure that information required to be disclosed in Rule 13a-15(e)our reports, filed 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 theSecurities 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 principalchief executive officer and principalchief financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
As required by the SEC Rules 13a-15(b) and 15d-15(b), an Audit Committee; our board of directors currently acts as our Audit Committee. We do not have an independent director,evaluation is required to be carried out under the supervision and nonewith the participation of our directors is considered a “Financial Expert,” within the meaning of Section 407management, including our principal executive officer and principal financial officer, of the Sarbanes-Oxley Act. We have interviewed several potential independent directors, but haveeffectiveness 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 any.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 party to any material legal proceedings.
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 providesee 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 information.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On August 1, 2017,December 12, 2022 we issued an aggregate of 953,249 units to third-party investors in a private placement, with each unit consisting one common stock and one warrant exercisable for five years from the date of issuance into a share of the Company’s common stock at an exercise price of $4.50.
On December 2, 2022 we issued 3,564,832 shares of such note.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.
31
On January 13, 2023 we issued these3,174,603 shares in reliance on exemptions from registration under Section 4(2)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 Actmentioned above, if any, qualified for the exemption from registration continued in section 4(a) of 1933, as amended. We have previously reported all other salesthe securities act of unregistered securities otherwise required to be included in this section.
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
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Item 6. Exhibits
Exhibit | 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 |
34