Q BIOMED INC. Forward-Looking Statements
This Quarterly Report contains forward-looking statements about our business, financial condition and prospects that reflect management's assumptions and beliefs based on information currently available. The expectations indicated by such forward-looking statements might not be realized. If any of our management's assumptions should prove incorrect, or if any of the risks and uncertainties underlying such expectations should materialize, our actual results may differ materially from those indicated by the forward-looking statements.
The key factors that are not within our control and that may have a direct bearing on operating results include, but are not limited to, acceptance of our services, our ability to create and expand our customer base, managements' ability to raise capital in the future, the retention of key employees and changes in the regulation of our industry.
There may be other risks and circumstances that management may be unable to predict. When used in this Quarterly Report, words such as, "believes," "expects," "intends," "plans," "anticipates," "estimates" and similar expressions are intended to identify forward-looking statements, although there may be certain forward-looking statements not accompanied by such expressions.
Overview
Q BioMed Inc. (or "the Company") was incorporated in theState of Nevada onNovember 22, 2013 and is a commercial stage biomedical acceleration and development company focused on licensing, acquiring and providing strategic resources to life sciences and healthcare companies. We intend to mitigate risk by acquiring multiple assets over time and across a broad spectrum of healthcare related products, companies and sectors. We intend to develop these assets to provide returns via organic growth, revenue production, out-licensing, sale or spin out. Our mission is to solve problems by accelerating the development of important therapies and availability of those therapies to patients.
The focus for 2022 is to monetize the current pipeline and build a platform for future growth. There are three areas of focus: commercial product revenue growth, partnerships or collaborations value and future development platform.
Commercial Product
Although, the Company is pleased with the ongoing adoption of Strontium in additional hospital systems and 2022 revenue is far exceeding that of 2021 year to date, the capital market conditions are making additional investment into the sales effort challenging. As a result, we continue to make efforts to broaden the penetration of the targeted market with minimal additional capital investments. We believe that Strontium89 has great potential in the cancer palliation space. As a result of a world in which opioids were a treatment of choice for those patients unlucky enough to be diagnosed with painful metastatic cancers in the bone, we felt that Strontium89 had become a neglected and forgotten drug. We have stayed committed to our belief that Strontium89 was a valuable treatment and have focused on advancing that asset from concept, a neglected drug, to a fully approved, reimbursed commercial product. Since we acquired Strontium89, we have built an infrastructure to commercialize the product, including manufacturing, branding, pharmacovigilance, reporting, federal supply contract, and entering into distribution agreements inthe United States and several other countries. We believe that our last remaining investment is now focused on a sales team to promote the drug both in federal and non-government institutions and clinics. Revenue has started to grow even without a sales force fully deployed. We have planned a top down marketing and sales program that we will implement once funded and believe this effort will yield the results we are
striving toward.
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Partnership or Collaboration Opportunities
UTTROSIDE B - Liver Cancer Chemotherapeutic
Along with our developmental partners, we are advancing an innovative treatment for liver cancer, a disease indication that currently has a high unmet need. This molecule was identified inIndia , traditionally used to treat liver ailments. Subsequent research on that isolated molecule showed promising data, indicating that the molecule was more cytotoxic, killing cancer cells more effectively, in liver cancer cells lines than the current first line liver cancer chemotherapeutic. We have advanced this from a naturally occurring unsustainable plant product to a commercially viable and scalable synthetic drug candidate. This provides an opportunity to partner this asset with a larger oncology focused institution. Currently, there are only two approved first-line liver cancer therapies. We have received Orphan Drug Designation, and we are now preparing to advance this toward clinical partnership. In the light of the recently announced data, the company has been approached and is assessing partnership opportunities for Uttroside B, its chemotherapeutic drug candidate for liver cancer. There are very few options for these patients and the company believes this is a very promising drug and looks forward to working with potential partners to bring it to the clinic.
Mannin
Our Mannin drug platform development program is making good progress and aims to have a clinical trial in ARDS (acute respiratory disease syndrome), one of three initial indications, completed in the next 8 months. Data from this trial will support the filings for further indications, including kidney disease and glaucoma. Combined, the addressable market for these therapies is over$150 billion . The Company has an agreement in principle to convert its current royalty agreement with Mannin into an equity position that will add significant asset value to the balance sheet. This amendment is expected during our fourth quarter of 2022. The Company expects this value to grow as the asset progresses through the near and mid-term milestones that it expects over the next 3 to 18 months requiring little capital from QBioMed. The Mannin programs are substantially supported now by non-dilutive funding from the governments ofCanada andGermany underpinning the value and importance of this platform to provide much needed drugs.
During the remaining months of 2022 we will focus our future development platform on the Rare Disease Space and other areas where no successful treatments are available. This focusses 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 or advance this asset toward the clinic in 2022 and will grow our development platform through in-licensing or acquisition as part of a strategic roll-up. We have several target transactions and look forward to updating our shareholders and other stakeholders in the near term.
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. SinceQ BioMed's inception 5 years ago, the Company has brought a product to market, started generating revenue, supported the development of a drug platform that addresses major therapeutic markets and developed a new liver cancer chemotherapeutic previously believed to be impossible to synthesize. We are now focused on monetizing our current portfolio and actively growing our asset value through joint venture and acquisition strategies that will roll-up into a high value asset portfolio addressing multi-billion-dollar markets. 23 Table of Contents 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 inthe United States of America ("U.S. GAAP"). The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities at the date of our condensed consolidated financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates. Other than as set out in Note 3 to our accompanying unaudited condensed consolidated financial statements, if anything, we believe there have been no significant changes in our critical accounting policies as described in the Form 10-K. Unaudited Results of Operations for the three months endedAugust 31, 2022 and 2021: For the three months ended August 31, 2022 August 31, 2021 Change Net Sales $ 26,271 $ 45,675$ (19,404) Cost of sales 66,442 73,770 (7,328) Gross loss (40,171) (28,095) (12,076) Operating expenses:
General and administrative expenses 720,075 1,371,676 (651,601) Research and development expenses 20,839
202,168 (181,329)
Total operating expenses 740,914 1,573,844 (832,930)
Loss from operations (781,085) (1,601,939) 820,854
Other (income) expenses:
Interest expense 239,638 99,418 140,221Change in fair value of derivatives (382,072) 101,247 (483,319) Gain on debt extinguishment 152,211 (15,212) 167,423 Loss on issuance of convertible note 4,250
- 4,250
Total other expenses 14,027 185,453 (171,425)
Net loss $ (795,112) $ (1,787,392) $ 992,279
Net Sales
During the three months ended
Cost of Sales
During the three months ended
The decrease in cost of sales was due to less handling cost during the three months endedAugust 31, 2022 compared to the same period in the prior year. However, the cost related to raw materials and fixed manufacturing cost were similar compared to the same period in the prior year, which resulted in an increase in negative gross margin. 24 Table of Contents Operating expenses We incur various costs and expenses in the execution of our business. The decrease in operating expenses was mainly due to a lower burn and scaled back operations due to lack of available capital. We had an approximate$372,000 less costs from marketing,$236,000 less costs from legal and other professional services during the three months endedAugust 31, 2022 compared to the same period in the prior year.
Interest expense
The following table summarizes interest expense incurred during the three months endedAugust 31, 2022 and 2021, respectively (amounts are rounded to nearest thousand): For the three months ended August 31, 2022 August 31, 2021 Interest expense based on the coupon interest rate of the outstanding debt $ 57,000 $ 21,000 Accretion of debt discount 178,000 78,000 Other 5,000 - Total interest expense $ 240,000 $ 99,000 We sold additional convertible debentures sinceSeptember 2021 , which resulted in the embedded derivative liabilities and corresponded debt discount increased during the three months endedAugust 31, 2022 . Due to the increased amount of debt discount, the change in the accretion of the debt discount was significantly increased as well during the three months endedAugust 31, 2022 compared to the same period in the prior year.
Change in fair value of derivatives
We recognized a gain and a loss of approximately$382,000 and$101,000 , resulting from the change in fair value of embedded contingent put options in convertible notes and derivative liabilities during the three months endedAugust 31, 2022 and 2021, respectively. The fluctuation is mainly due to the increased amount of outstanding convertible notes in 2022 and derivative liabilities due the sequencing policy, and change of our stock price during
the reporting periods. Net loss During the three months endedAugust 31, 2022 and 2021, we incurred net losses of approximately$0.8 million and$1.8 million , respectively. We expect to continue to incur net losses for the foreseeable future, due to our need to continue to establish a broader pipeline of assets, expenditure on R&D and to implement other aspects of our business plan. 25
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Unaudited Results of Operations for the nine months endedAugust 31, 2022 and 2021: For the Nine months ended August 31, 2022 August 31, 2021 Change Net Sales $ 271,817 $ 90,675$ 181,142 Cost of sales 213,138 160,763 52,375 Gross income (loss) 58,679 (70,088) 128,767 Operating expenses:
General and administrative expenses 2,835,543 5,028,668 (2,193,125) Research and development expenses 103,159
667,538 (564,379)
Total operating expenses 2,938,702 5,696,206 (2,757,504)
Loss from operations (2,880,023) (5,766,294) 2,886,271
Other expenses:
Interest expense 1,108,372 234,752 873,620Change in fair value of derivatives (264,267) 128,720 (392,987) Loss on debt extinguishment 384,311 40,910 343,401 Loss on issuance of convertible note 4,250 - 4,250 Settlement of registration liability 241,875
- 241,875
Total other expenses 1,474,541 404,382 1,070,159
Net loss $ (4,354,564) $ (6,170,676) $ 1,816,112
Net Sales
During the nine months ended
Cost of Sales
During the nine months ended
The increase in cost of sales was due to more production and sales during the
nine months ended
The gross margins increased dramatically due to the increased sales and less inventory written off during the nine months endedAugust 31, 2022 compared to the same period in the prior year. We expect our gross margins to remain robust in 2022 and 2023 but the net margin will continue to be affected by write offs due to the inherent short shelf life of radiopharmaceutical drugs.
Operating expenses
We incur various costs and expenses in the execution of our business. The decrease in operating expenses was mainly due to significantly less stock-based compensation recognized in the nine months endedAugust 31, 2022 compared to the same period in the prior year. We recognized approximately$0.8 million and$2.4 million of stock-based compensation in general and administrative expense during the nine months endedAugust 31, 2022 and 2021, respectively. Additionally, we incurred less costs from marketing, legal and other professional services during the nine months endedAugust 31, 2022 compared to the same period in the prior year. 26 Table of Contents Interest expense The following table summarizes interest expense incurred during the nine months endedAugust 31, 2022 and 2021, respectively (amounts are rounded to nearest thousand): For the nine months endedAugust 31, 2022
$ 177,000 $ 46,000 Accretion of debt discount 921,000
188,000
Other 10,000 -
Total interest expense $ 1,108,000 $ 234,000
The Company sold additional convertible debentures since September 2021 , which
resulted in the embedded derivative liabilities and corresponded debt discount
increased during the nine months ended August 31, 2022 . Due to the increased
amount of debt discount, the change in the accretion of the debt discount was
significantly increased as well during the nine months ended August 31, 2022
compared to the same period in the prior year.
Change in fair value of derivatives
We recognized a gain and loss of approximately$264,000 and$129,000 , resulting from the change in fair value of embedded contingent put options in convertible notes and warrant liability during the nine months endedAugust 31, 2022 and 2021, respectively. The fluctuation is mainly due to the increased amount of outstanding convertible notes in 2022 and derivative liabilities due the sequencing policy, and change of our stock price during the reporting periods.
Loss on debt extinguishment
We recognized a loss of approximately
Settlement of registration liability
During the nine months endedAugust 31, 2022 , we entered into a Mutual Release Agreement with a holder of our convertible note, pursuant to which, the holder agreed to add the$241,875 registration payment liability to the outstanding principal amount. We recognized a loss of$241,875 in settlement of the registration liability for the nine months endedAugust 31, 2022 .
Net loss
During the nine months endedAugust 31, 2022 and 2021, we incurred net losses of approximately$4.4 million and$6.2 million , respectively. We expect to continue to incur net losses for the foreseeable future, due to our need to continue to establish a broader pipeline of assets, expenditure on R&D and to implement other aspects of our business plan.
Liquidity and Capital Resources
We prepared the accompanying condensed consolidated financial statements assuming that we will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.
We have not yet established an ongoing source of significant revenues and must cover our operating costs through debt and equity financings to allow us to continue as a going concern. We had approximately$138,000 in cash as ofAugust 31, 2022 . Our ability to continue as a going concern depends on the ability to obtain adequate capital to fund operating losses until we generate adequate cash flows from operations to fund our operating costs and obligations. If we are unable to obtain adequate capital, we could be forced to cease operations. 27
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Our primary requirements for liquidity are to fund our working capital needs,
capital expenditures and general corporate needs. Our ongoing capital
expenditures are principally related to expanding revenue generating sales
efforts and ongoing research and development costs. We estimate our capital
expenditures will be approximately
We depend upon our ability, and will continue to attempt, to secure equity and/or debt financing. We cannot be certain that additional funding will be available on acceptable terms, or at all. Our management determined that there was substantial doubt about our ability to continue as a going concern within one year after the condensed consolidated financial statements were issued, and management's concerns about our ability to continue as a going concern within the year following this report persist. The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from
this uncertainty. Cash Flows
The following table sets forth the significant sources and uses of cash for the periods addressed in this report:
For the nine months ended
August 31, 2022 August 31, 2021
Net cash (used in) provided by:
Operating activities $ (726,212) $ (2,742,181)
Financing activities 520,030 2,716,250
Net decrease in cash $ (206,182) $ (25,931) During the nine months endedAugust 31, 2022 , operating activities used$0.7 million of cash, resulting from a net loss of$4.4 million and gain from change in fair value of derivatives of$0.3 million , partially offset by$0.8 million of share-based compensation, settlement on registration liability of approximately$0.2 million , loss on debt extinguishment of approximately$0.4 million , and non-cash interest expense resulting from accretion of debt discounts of$0.9 million and changes in our operating assets and liabilities of approximately$1.5 million . During the nine months endedAugust 31, 2021 , operating activities used$2.7 million of cash, resulting from a net loss of$6.2 million , partially offset by$2.2 million of share-based compensation, change in fair value of embedded conversion options of$128,000 , loss on debt extinguishment of$41,000 , and non-cash interest expense resulting from accretion of debt discounts of$188,000 and changes in our operating assets and liabilities of approximately$0.8 million .
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the nine months endedAugust 31, 2022 and 2021 was$0.5 million and$2.7 million , respectively. The net cash provided in the 2022 period relates to proceeds received from the issuance of common stock and warrant, debentures, warrants modification and cash advances. The net cash provided in the 2021 period relates to proceeds received from the issuance of common stock and debentures.
Commitments and Contingencies
Legal
Periodically, we review the status of significant matters, if any exist, and
assess their 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.
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As previously reported, on
OnJuly 19, 2022 , we received notice that theActivus Group ("Activus") filed a complaint for fees it alleges are due in the amount$129,600 plus fees and expenses for consulting services provided byActivus as a result of an agreement between the parties. We have not filed an answer and are currently determining our next steps in settlement. OnAugust 15, 2022 , we 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, we 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 us in the amount of$111,000 . We are 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
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.
OnMarch 11, 2022 , the Company entered into an engagement letter agreement ("Agreement") with EF Hutton, division ofBenchmark 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 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.
Lease Agreement
InDecember 2016 , we entered into a lease agreement for office space located inCayman Islands for$30,000 per annum. The initial term of the agreement ended inDecember 2019 and has been further renewed for another three years. 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.
Related Party Transactions
We entered into consulting agreements with certain management personnel and
stockholders for consulting and legal services. Consulting and legal expenses
resulting from such agreements were included within general and administrative
expenses in the accompanying Condensed Consolidated Statements of Operations as
follows (amounts are rounded to nearest thousand):
For the three months ended For the nine months ended
August 31, 2022 August
31, 2021
$ 117,500 $ 105,000 $ 327,500 $ 315,000
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