Q BioMed Inc. - Quarter Report: 2021 February (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended: February 28, 2021

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

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

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 x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x 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.

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 x

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

Q BIOMED INC.

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Q BIOMED INC.
Condensed Consolidated Balance Sheets
(Unaudited)

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

Q BioMed Inc.
Condensed Consolidated Statements of Operations
(Unaudited)

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

Q BIOMED INC.
Condensed Consolidated Statements of Changes in Shareholders’ Deficit
(Unaudited)

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

Q BIOMED INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

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

Q BIOMED INC.

Notes to Condensed Consolidated Financial Statements

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

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

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

Note 2 – Basis of Presentation and Going Concern

Basis of Presentation

The accompanying interim period unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. These condensed consolidated financial statements are unaudited and should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended November 30, 2020. Certain disclosures included in the annual financial statements have been condensed or omitted from these financial statements as they are not required for interim financial statements under U.S. GAAP and the rules of the SEC. These unaudited condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. These adjustments are of a normal, recurring nature. Interim period operating results may not be indicative of the operating results for a full year.

Going Concern

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

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

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

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, 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.

Q BIOMED INC.

Notes to Condensed Consolidated Financial Statements

Note 3 - Summary of Significant Accounting Policies

The Company’s significant accounting policies are disclosed in the audited financial statements for the year ended November 30, 2020 included in the Company’s Form 10-K.

Note 4 - Loss per share

Basic net loss per share was calculated by dividing net loss by the weighted-average shares of common stock outstanding during the period. Diluted net loss per share was calculated by dividing net loss by the weighted-average shares of common stock outstanding during the period using the treasury stock method or the two-class method, whichever is more dilutive. The table below summarizes potentially dilutive securities that were not considered in the computation of diluted net loss per share because they would be anti-dilutive (amounts are rounded to nearest thousand).

Q BIOMED INC.

Notes to Condensed Consolidated Financial Statements

Note 5 –Convertible Notes

The table below summarizes outstanding convertible notes as of February 28, 2021 and November 30, 2020 (amounts are rounded to nearest thousand):

On December 23, 2020, the Company issued a debenture for $0.5 million (the “2020 Debenture”) pursuant to a securities purchase agreement with an accredited investor. The debenture has a maturity date of the earlier of (a) June 23, 2021, or (b) the closing of the next financing transaction, or series or transactions, pursuant to which the Company raises net proceeds of at least $1.0 million, or as may be extended at the option of the Holder. The 2020 Debenture may be converted at any time on or prior to maturity at the lower of $2.70 or 93% of the average of the four lowest daily VWAPs during the 10 consecutive trading days immediately preceding the conversion date, provided that as long as we are not in default under the 2020 Debenture, the conversion price may never be less than $1.00. The debenture 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.

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

Upon issuance of the 2020 Debenture and 2021 Debenture, the Company recognized a debt discount of approximately $216,000, resulting from the recognition of issuance costs of $95,000, beneficial conversion feature of $65,000, and bifurcated embedded derivatives of $55,000. The contingent share-settled redemption feature and contingent prepayment provision within the 2020 Debenture and the 2021 Debenture are both contingent put option that are required to be separately measured 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 the prepayment provision by estimating the probability of the occurrence of a Triggering Date and applying the probability to the discounted maximum redemption premium for any given payment with the following key inputs:

Q BIOMED INC.

Notes to Condensed Consolidated Financial Statements

The fair value of the contingent put option in all outstanding debentures with the feature are revalued as of February 28, 2021 based on the following weighted average key inputs:

Interest expense

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

Note 6 - Commitments and Contingencies

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.

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.

Q BIOMED INC.

Notes to Condensed Consolidated Financial Statements

Lease Agreement

In December 2016, one of our subsidiaries entered into a lease agreement for its office space located in Cayman Islands for $30,000 per annum. The initial term of the agreement ended in December 2019, and the Company has renewed its office lease agreement for another three years with the same terms. This agreement does not identify a specific asset and does not convey the use of substantially all of the shared office capacity. As such, this agreement does not contain a lease under ASC 842. The Company recognizes monthly license payments as incurred over the term of the arrangement.

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

Note 7 - Related Party Transactions

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

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 approximate $35,000, which was recorded as part of debt issuance cost to the 2020 Debenture (see note 5).

Note 8 - Stockholders’ Deficit

Preferred Shares

The original issue price and the liquidation value per share, as of February 28, 2021, of each class of preferred stock is as follows:

The Company had accumulated dividends payable on the Preferred Shares of approximately $0.1 million as of February 28, 2021.

Common Shares

On December 18, 2020, the Company issued approximately 135,000 shares of common stock as dividend payment on Series A and Series B preferred stock.

Between January and February 2021, the Company issued approximately 1,245,000 shares of common stock to convert approximately 103,000 shares of Series B preferred stock.

On February 8, 2021, the Company issued approximately 168,000 shares of common stock to convert $0.1 million outstanding debt and interest.

On February 26, 2021, the Company issued 100,000 shares of common stock for cash proceeds of $0.1 million.

Q BIOMED INC.

Notes to Condensed Consolidated Financial Statements

During the three months ended February 29, 2020, the Company issued an aggregate of approximately 503,000 shares of the Company common stock to various vendors for advisory services, valued at approximately $0.5 million based on the estimated fair market value of the stock on the date of grant and was recognized within general and administrative expenses in the accompanying Condensed Consolidated Statements of Operations.

Note 9 - Warrants and Options

Summary of warrants

The following represents a summary of all outstanding warrants to purchase the Company’s common stock, including warrants issued to vendors for services and warrants issued as part of the units sold in the private placements, at February 28, 2021:

Options Issued for Services

The following represents a summary of all outstanding options to purchase the Company’s common stock at February 28, 2021:

Stock-based Compensation

The Company recognized general and administrative expenses of approximately $1.4 million and $4.5 million as a result of the shares, outstanding warrants and options issued to consultants and employees during the three months ended February 28, 2021 and February 29, 2020, respectively.

As of February 28, 2021, the estimated unrecognized stock-based compensation associate with these agreements is approximately $0.7 million and will be fully recognized over the next 9 months.

Note 10 - Subsequent Events

On March 4, 2021, the Company issued 119,619 shares of common stock as dividend payment on Series A and Series B preferred stock.

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

Forward-Looking Statements

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

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

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

Overview

Q BioMed Inc. (or “the Company”) was incorporated in the State of Nevada on November 22, 2013 and is a 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.

Since our inception in 2013, we have been building value ranging from blockbuster potential drugs to our revenue producing product. Our mission is to solve problems by accelerating the development of important therapies and availability of those therapies to patients.

Strontium-89 - FDA Approved Drug Launched

In January 2021, we announced that treatment with Strontium-89 in the hospital out-patient setting is fully reimbursed by Medicare. In March, we were approved as a federal supplier which will allow us to sell into federal hospital systems, notably the U.S. Department of Veteran Affairs and the U.S. Department of Defense. We are preparing to launch a contract sales force to increase our presence and uptake in both government and non-government hospitals and clinics in the second half of 2021.

We have been working with large regional and national oncology organizations to bring Strontium89 to all of their radionuclide qualified clinics. Agreements and contracting are ongoing. We have continued to deploy a multi-channel marketing campaign, driving awareness among our target audiences, both on the physician and the patient side. We plan to exhibit Strontium-89 at several conferences including ASTRO (American Society of Therapeutic Radiation Oncology) and will begin speaker programs in the first half of 2021. Virtual and live sales calls have been ongoing since June 2020 within the confines of COVID-19 access, and we intend to expand our field force efforts in 2021 with the addition of a contract sales organization once funding is in place.

In mid-2020, we began the regulatory registration process for full commercial access in the European Union, with pan-EU approval expected by the second half of 2021. In parallel, we are midway through the registration process in many other countries, with approvals expected to be obtained in the next few months and to continue throughout 2021.

We anticipate revenues from Strontium-89 to continue to ramp up in our 2021 fiscal year as we build capacity and demand worldwide. We are assessing several potential clinical trial programs that may expand the indication beyond palliation into a therapeutic use that may increase utilization in years to come.

Launching Strontium-89 distinguishes us from publicly traded biotech companies that have yet to launch a regulatory approved commercial product and generate revenues.

Mannin Technology Collaboration – COVID-19, Glaucoma and Others – More Government Funding

In March 2021, our technology partner Mannin Research Inc. (Mannin) was granted an additional CAD$1.7 million from the Canadian governments covid response budget, adding to the approximate $7.7 million granted in Europe, which together will fund 65-75 percent of every dollar incurred to advance the Acute Respiratory Distress Syndrome therapy for COVID patients as well as a portfolio of therapeutic assets for vascular diseases currently in development at Mannin, including: glaucoma, cardiovascular diseases, acute kidney disease, and other infectious diseases.

Given the urgent need for therapeutics to treat COVID-19, Mannin is rapidly accelerating the time to the first clinical milestone for MAN-19. Even as vaccines for COVID-19 are being rolled out, the infection numbers continue to grow around the world. Together with Mannin Research Inc., our technology partner, we are pursuing a treatment for Acute Respiratory Distress Syndrome, the condition that causes the most severe symptoms in COVID-19 patients usually resulting in hospitalizations and worse. It is important to note that we believe the MAN-19 therapeutic is virus-agnostic, which makes it relevant to other viral diseases today like influenza and future viral pandemic outbreaks. Therefore, a successful infectious disease application in COVID-19 would position MAN-19 as a potential government stockpile drug for possible future pandemics. Furthermore, a successful proof-of-concept clinical trial with MAN-19 in COVID-19 patients would provide the clinical dataset to support the development of therapeutics for other vascular diseases such as sepsis, acute kidney injury and glaucoma. All of these are large markets with significant potential.

We continue to support the development of Mannin’s MAN-01 and MAN-11 therapeutics, a novel small-molecule, and novel biologic therapeutic for glaucoma, respectively. There are over 60 million patients worldwide with primary open-angle glaucoma. The MAN-01 program is developing topical drops designed to reduce pressure build-up in the eye by assisting with, and correcting, drainage problems in tiny vessels in the eye. We have advanced this asset from ‘concept to compound’, and the preliminary data that we have reviewed has convinced us to continue pursuing these product candidates.

Our next steps for the MAN-01 and MAN-11 programs are to initiate toxicology studies in 2021, with the goal of initiating a Phase 1 proof of concept trial in late 2021.

GDF 15 Diagnostic for Glaucoma - In Clinical Trial and Product Development and FDA approval anticipated early 2022

In early 2019, we licensed a diagnostic biomarker known as GDF-15 for determining the severity of glaucoma from Washington University in St. Louis. GDF-15 is a perfect companion diagnostic for the MAN-01 and MAN-11 drugs, as well as a novel tool for practicing ophthalmologists and drug developers, because it is designed to assess the efficacy of the treatment or disease progression in their practice. This product represents a unique opportunity, and we believe that current clinical trials are yielding promising results. In partnership with Mannin Research Inc. and McMaster University, we are nearing the completion of development of an in-vitro-diagnostic (IVD) with both point-of-care (detection in a doctor’s office) as well as an external laboratory-based detection (i.e. for use in existing CLIA laboratories using existing diagnostic equipment). With appropriate funding, we anticipate completion of the IVD device by the end of June 2021 with submission to the FDA (510K) for in vitro diagnostic approval in late 2021.

Uttroside-B - Liver Cancer Chemotherapeutic

We are developing an innovative treatment for liver cancer, a disease indication that currently has a high unmet need. Currently, there are only two approved first-line therapies. We licensed and have advanced Uttroside-B, a new molecule that showed ten times the potency of the current standard of care in early pre-clinical investigation. Uttroside-B was discovered in the leaf of the Black Nightshade plant in India. As it is not feasible to use the plant as the source for a drug, we successfully synthesized the molecule thereby creating an exact replica of the naturally occurring chemical compound. We are now preparing to advance this into a pre-clinical program and have recently been awarded Orphan Drug designation. Manufacturing and scale-up of the drug for use in preclinical testing and IND application has begun. Testing is expected to begin in May 2021.

QBM-001 - Early-Stage Treatment for young minimally verbal children on the Autism Spectrum

While our immediate focus is on the above-mentioned assets, we are also developing a new drug candidate to treat young children with pediatric minimally verbal autism. The advancement of this program will depend on the availability of funds and resources as we prioritize our clinical development milestones. There is no effective treatment available to help an estimated 250,000 children born with the condition worldwide each year, 20,000 of them in the United States. We are working on a discovery and development program to address this highly unmet need.

Corporate Strategic Goals

Our mission is to solve problems by accelerating the development of important therapies and availability of those therapies to patients. We believe we are creating value for our shareholders as we approach some milestones and catalysts. We have raised an additional $1.1 million since December 1, 2020 and our expected funding in conjunction with any uplist to a national securities exchange will result in an enhanced valuation as a larger group of investors and institutions can participate in our equity.

Financial Overview

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities at the date of our condensed consolidated financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. Other than as set out in Note 3 to our accompanying unaudited condensed consolidated financial statements, if anything, we believe there have been no significant changes in our critical accounting policies as described in the Form 10-K.

Unaudited Results of Operations for the three months ended February 28, 2021 and February 29, 2020:

Cost of Sales

During the three months ended February 28, 2021, we recognized approximately $41,000 in cost of sales. These costs were related to raw materials cost, manufacturing cost, distribution cost and write-offs of expired inventory.

Operating expenses

We incur various costs and expenses in the execution of our business. The decrease in operating expenses was mainly due to a reduced charge in stock-based compensation compared to last year. We recorded approximately $1.4 million and $4.6 million of stock-based compensation under general and administrative expense during the three months ended February 28, 2021 and February 29, 2020, respectively.

Interest expense

During the three months ended February 29, 2020, interest expense decreased to approximately $50,000 from $0.2 million in the prior year.

The following table summarizes interest expense incurred during the three months ended February 28, 2021 and February 29, 2020, respectively (amounts are rounded to nearest thousand):

Change in fair value of embedded derivatives

We recognized approximately $17,000 loss and $89,000 gain resulting from the change in fair value of embedded contingent put options in convertible notes during the three months ended February 28, 2021 and February 29, 2020 respectively. The fluctuation is mainly due the change of stock price during the reporting periods.

Loss on debt extinguishment

We recognized a loss of approximately $56,000 due to the exchange of outstanding debentures for shares of common stock during the three months ended February 28, 2021.

Net loss

During the three months ended February 28, 2021 and February 29, 2020, we incurred net losses of approximately $2.5 million and $5.9 million, respectively. Our management expects to continue to incur net losses for the foreseeable future, due to our need to continue to establish a broader pipeline of assets, expenditure on R&D and implement other aspects of our business plan.

Liquidity and Capital Resources

We prepared the accompanying condensed consolidated financial statements assuming that we will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.

We have not yet established an ongoing source of significant revenues and must cover our operating through debt and equity financings to allow us to continue as a going concern. We had approximately $0.4 million in cash as of February 28, 2021. Our ability to continue as a going concern depends on the ability to obtain adequate capital to fund operating losses until we generate adequate cash flows from operations to fund our operating costs and obligations. If we are unable to obtain adequate capital, we could be forced to cease operations.

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

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

Cash Flows

The following table sets forth the significant sources and uses of cash for the periods addressed in this report (amounts are rounded to nearest thousand):

Net Cash Used in Operating Activities

During the three months ended February 28, 2021, operating activities used $0.8 million of cash, resulting from a net loss of $2.5 million, partially offset by $1.4 million of share-based compensation, change in fair value of embedded conversion options of $17,000, loss on debt extinguishment of $56,000, and non-cash interest expense resulting from accretion of debt discounts of $40,000 and changes in our operating assets and liabilities of approximately $0.1 million. During the three months ended February 29, 2020, operating activities used $1.4 million of cash, resulting from a net loss of $5.9 million, partially offset by $4.6 million of share-based compensation.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the three months ended February 28, 2021 and February 29, 2020 was $1.1 million and $2.0 million, respectively. The net cash provided in the 2021 period relates to proceeds received from the issuance of common stock and debentures. The net cash provided in the 2020 period relates to proceeds received from the issuance of convertible notes.

Commitments and Contingencies

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 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 Consolidated Statements of Operations as follows (amounts are rounded to nearest thousand):

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

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

This item is not applicable as we are currently considered a smaller reporting company.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our Principal Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the period covered by this Report. Based on that evaluation, it was concluded that our disclosure controls and procedures are not effective to reasonably assure that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

We do not have an Audit Committee; our board of directors currently acts as our Audit Committee. Only one of our three directors is an independent director, and none of our directors is considered a “Financial Expert,” within the meaning of Section 407 of the Sarbanes-Oxley Act. We have interviewed additional potential independent directors, but have not engaged any.

Changes in internal controls over financial reporting

There were no changes in our internal controls over financial reporting that occurred during the period covered by this report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. We have engaged accounting and compliance consultants to review our internal controls over financial reporting and other compliance requirements.

Limitations on Effectiveness of Controls and Procedures

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

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

As a Smaller Reporting Company, we are not required to provide this information.

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

On February 26, 2021, we issued 32,225 shares of Common Stock in exchange for services rendered by third parties.

On February 28, 2021, we issued 11,103 shares of Common Stock in exchange for services rendered by third parties.

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

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

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.