Q BioMed Inc. - FORM 10-Q - October 17, 2016

Attached files

file	filename
EX-32.1 - Q BioMed Inc.	exhibit32-1.htm
EX-31 - Q BioMed Inc.	exhibit31.htm
EX-10.2 - Q BioMed Inc.	exhibit10-2.htm
EX-10.1 - Q BioMed Inc.	exhibit10-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: August 31, 2016

Or

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________

Commission File Number: 000-55535

Q BIOMED INC.
(Exact name of registrant as specified in its charter)

Nevada		46-4013793
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

c/o Sanders Ortoli Vaughn-Flam Rosenstadt LLP 501 Madison Ave. 14th Floor New York, NY10022
(Address of principal executive offices)

(212) 588-0022
(Registrant's telephone number, including area code)

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)	Smaller reporting company ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒

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

Common Stock, $0.001 par value	9,084,253 shares
(Class)	(Outstanding as at [xx], 2016)

Q BIOMED INC.

Quarterly Report

Table of Contents


	Page
PART I – FINANCIAL INFORMATION	2
Item 1. Financial Statements	2
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation	12
Item 3. Quantitative and Qualitative Disclosure About Market Risk	16
Item 4. Controls and Procedures	17
PART II – OTHER INFORMATION	17
Item 1. Legal Proceedings	17
Item 1A. Risk Factors	17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3. Defaults Upon Senior Securities	18
Item 4. Mine Safety Disclosures	18
Item 5. Other Information	18
Item 6. Exhibits	18
SIGNATURES	19

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Q BIOMED INC.

Condensed Balance Sheets

(Unaudited)


	August 31, 2016			November 30, 2015
ASSETS
Current assets:
Cash	$	137,986		$	131,408
Prepaid expenses		10,000			-
Total current assets		147,986			131,408
Total Assets	$	147,986		$	131,408

LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIT
Current Liabilities:
Accounts payable and accrued expenses	$	422,395		$	58,802
Accrued expenses - related party		40,000			30,000
Accrued interest payable		27,925			2,511
Convertible notes payable (See Note 5)		787,378			-
Total current liabilities		1,277,698			91,313

Long-term Liabilities:
Convertible notes payable (See Note 5)		476,907			296,000
Total long term liabilities		476,907			296,000
Total Liabilities		1,754,605			387,313

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, 2016 and November 30, 2015		-			-
Common stock, $0.001 par value; 250,000,000 shares authorized; 8,996,753 and 8,597,131 shares issued and outstanding as of August 31, 2016 and November 30, 2015, respectively		8,997			8,597
Additional paid-in capital		4,328,750			865,690
Accumulated deficit		(5,944,366	)		(1,130,192	)
Total Stockholders' Equity Deficit		(1,606,619	)		(255,905	)
Total Liabilities and Stockholders' Equity Deficit	$	147,986		$	131,408

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

Q BIOMED INC.

Condensed Statements of Operations

(Unaudited)



	For the three months ended August 31,						For the nine months ended August 31,
	2016			2015			2016			2015
Operating expenses:
General and administrative expenses	$	1,150,964		$	33,202		$	3,637,868		$	45,184
Research and development expenses		443,222			-			663,500			-
Total operating expenses		1,594,186			33,202			4,301,368			45,184

Other (income) expense:
Interest expense		114,847			-			304,596			-
Loss on conversion of debt		29,032			-			89,210			-
Loss on issuance of convertible debt		28,000			-			481,000			-
Change in fair value of embedded conversion option		(50,000	)		-			(362,000	)		-
Total other expenses		121,879			-			512,806			-

Net loss	$	(1,716,065	)	$	(33,202	)	$	(4,814,174	)	$	(45,184	)

Net loss per share - basic and diluted	$	(0.19	)	$	(0.00	)	$	(0.55	)	$	(0.00	)

Weighted average shares outstanding, basic and diluted		8,909,414			9,801,630			8,784,373			9,062,044

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

Q BIOMED INC.

Condensed Statements of Cash Flows

(Unaudited)


	For the nine months ended August 31,
	2016			2015
Cash flows from operating activities:
Net loss	$	(4,814,174	)	$	(45,184	)
Adjustments to reconcile net loss to net cash used in operating activities
Issuance of common stock and warrants for services		3,039,277			32,000
Change in fair value of embedded conversion option		(362,000	)		-
Accretion of debt discount		261,672			-
Loss on conversion of debt		89,210			-
Loss on issuance of convertible debt		481,000			-
Changes in operating assets and liabilities:
Accounts payable and accrued expenses		363,593			484
Accrued expenses - related party		40,000			-
Accrued interest payable		42,925			-
Prepaid expenses		(10,000	)		-
Net cash used in operating activities		(868,497	)		(12,700	)

Cash flows from financing activities:
Contributed capital		-			151
Proceeds received from issuance of convertible notes		815,000			-
Proceeds received from issuance of common stock and warrants		60,075			-
Net cash provided by financing activities		875,075			151

Net increase (decrease) in cash		6,578			(12,549	)

Cash at beginning of period		131,408			12,649
Cash at end of period	$	137,986		$	100

Non-cash financing activities:
Issuance of common stock upon conversion of convertible notes payable	$	244,897		$	-
Issuance of warrants to settle accounts payable to related party	$	30,000		$	-

Cash paid for interest	$	-		$	-
Cash paid for income taxes	$	-		$	-

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

Q BIOMED INC.

Notes to Financial Statements

(Unaudited)

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

Q BioMed Inc. (“Q BioMed” or “the Company”) (formerly ISMO Tech Solutions, Inc.), 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 spinoff new public companies.

Note 2 - Basis of Presentation

The accompanying interim period unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting. The Condensed Balance Sheet as of August 31, 2016, the Condensed Statements of Operations for the three and nine months ended August 31, 2016 and 2015, and the Condensed Statements of Cash Flows for the nine months ended August 31, 2016 and 2015, 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 Balance Sheet at November 30, 2015 has been derived from audited financial statements included in the Company's Form 10-K, most recently filed with the SEC on March 11, 2016 (as amended on March 15, 2016 solely to include interactive data files, the “Form 10-K”). The results for the three and nine months ended August 31, 2016 are not necessarily indicative of the results expected for the full fiscal year or any other period.

The accompanying interim period unaudited condensed financial statements and related financial information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Form 10-K.

The Company currently operates in one business segment focusing on licensing, acquiring and providing strategic resources to life sciences and healthcare companies. The Company is not organized by market and is managed and operated as one business. A single management team reports to the chief operating decision maker, the Chief Executive Officer, who comprehensively manages the entire business. The Company does not currently operate any separate lines of business or separate business entities.

Going Concern

The Company had a working capital deficit of approximately $1.1 million as of August 31, 2016. The accompanying condensed financial statements are prepared using U.S. GAAP applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company had a net loss of approximately $1.7 million and $4.8 million during the three and nine months ended August 31, 2016, respectively, and had net cash used in operating activities of approximately $870,000 during the nine months ended August 31, 2016. These matters, among others, raise substantial doubts about the Company’s ability to continue as a going concern.

The ability of the Company to continue as a going concern depends on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.

The Company depends upon its ability, and will continue to attempt, to secure equity and/or debt financing. The Company might not be successful, and without sufficient financing it would be unlikely for the Company to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.

Note 3 – Summary of Significant Accounting Policies

The Company’s significant accounting policies are disclosed in the audited financial statements for the year ended November 30, 2015 included in the Company’s Form 10-K. Since the date of such financial statements, there have been no changes to the Company’s significant accounting policies.

Recent accounting pronouncements

Management does not believe that any recently issued, but not yet effective or adopted, accounting standards if currently adopted would have a material effect on the accompanying financial statements.

Note 4 – Loss per share

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

Potentially dilutive securities	August 31, 2016	August 31, 2015
Warrants (Note 8)	976,500	-
Convertible debt (Note 4)	506,757	-

Note 5 – Convertible Notes

	August 31, 2016			November 30, 2015
Series A Notes:
Principal value of 10%, convertible at $1.91 and $1.92 at August 31, 2016 and November 30, 2015, repectively.	$	37,500		$	50,000
Fair value of bifurcated embedded conversion option of Series A Notes		30,000			64,000
Debt discount		(10,101	)		(28,832	)
Carrying value of Series A Notes		57,399			85,168

Series B Notes:
Principal value of 10%, convertible at $1.91 and $1.92 at August 31, 2016 and November 30, 2015, repectively.	$	55,000		$	50,000
Fair value of bifurcated embedded conversion option of Series B Notes		44,000			64,000
Debt discount		(28,362	)		(34,744	)
Carrying value of Series B Notes		70,638			79,256

Series C Notes:
Principal value of 10%, convertible at $1.55 at August 31, 2016 and November 30, 2015.		576,383		$	85,000
Fair value of bifurcated embedded conversion option of Series C Notes		725,000			101,000
Debt discount		(343,447	)		(54,424	)
Carrying value of Series C Notes		957,936			131,576

Series D Notes:
Principal value of 10%, convertible at $1.85 at August 31, 2016.	$	160,000		$	-
Fair value of bifurcated embedded conversion option of Series D Notes		177,000			-
Debt discount		(158,688	)		-
Carrying value of Series D Notes		178,312			-
Total short-term carrying value of convertible notes	$	787,378		$	-
Total long-term carrying value of convertible notes	$	476,907		$	296,000

Series A Notes

The Series A convertible notes payable (the “Series A Notes”) are due and payable 18 months after issuance and bear interest at 10% per annum. At the election of the holder, outstanding principal and accrued but unpaid interest under the Series A Notes is convertible 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 to the average closing price for the ten (10) consecutive trading days immediately preceding the notice of conversion or (ii) $1.25 per share. At maturity, any remaining outstanding principal and accrued but unpaid interest outstanding under the Series A Notes will automatically convert into shares of the Company’s common stock under the same terms.

Series B Notes

The Series B convertible notes payable (the “Series B Notes”) have the same terms as the Series A Notes. During the nine months ended August 31, 2016, the Company issued an additional of $105,000 in principal of Series B notes to third party investors.

Series C Notes

The Series C convertible notes payable (the “Series C Notes”) are due and payable 18 months after issuance and bear interest at 10% per annum. At the election of the holder, outstanding principal and accrued but unpaid interest under the Series C Notes is convertible into shares of the Company’s common stock at a conversion price per share equal to the lesser of a 40% discount to the average closing price for the 10 consecutive trading days immediately preceding the notice of conversion or $1.55, but in no event shall the conversion price be lower than $1.25 per share. If the average VWAP, as defined in the agreement, for the ten trading days immediately preceding the maturity date $5.00 or more, any remaining outstanding principal and accrued but unpaid interest outstanding under the Series C Notes will automatically convert into shares of the Company’s common stock under the same terms. At no point since issuance has the conversion rate fallen below $1.25 per share.

During the nine months ended August 31, 2016, the Company issued an additional of $550,000 in principal of Series C notes to third party investors.

Series D Notes

The Series D convertible notes payable (the “Series D Notes”) are due and payable 18 months after issuance and bear interest at 10% per annum. At the election of the holder, outstanding principal and accrued but unpaid interest under the Series D Notes is convertible into shares of the Company’s common stock at a fixed conversion price per share equal to $1.85. The Series D Notes automatically convert upon maturity at $1.85 per share if the ten trading days VWAP immediately preceding maturity is $5.00 or greater. Additionally, if the Company’s common shares are up-listed to a senior exchange such as the AMEX or NASDAQ, all monies due under the Series D Notes will automatically convert at $1.85 per share.

The terms of the Series D Note also provided that up until maturity date, the Company cannot enter into any additional, or modify any existing, agreements with any existing or future investors that is more favorable to such investor in relation to the Series D note holders, unless, the Series D note holders has been provided with such rights and benefits.

On September 30, 2016, the Company amended the terms of the Series D Note agreement to restrict the Company from taking dilutive action without the Series D note holder’ consent.

During the nine months ended August 31, 2016, the Company issued $160,000 in principal of Series D notes to third party investors.

Debt Discount

Series A, B and C, D Notes

In connection with the issuance of the Series A, B, C and D Notes during the nine months ended August 31, 2016, the Company recognized a debt discount of approximately $750,000, and a loss on issuance of $481,000, which represents the excess of the fair value of the embedded conversion at initial issuance of $1.2 million over the principal amount of convertible debt issued. The embedded conversion feature is separately measured at fair value, with changes in fair value recognized in current operations. Management used a binomial valuation model, with fourteen steps of the binomial tree, to estimate the fair value of the embedded conversion option at issuance of the convertible note issued during the nine months ended August 31, 2016, with the following key inputs:

Embedded derivatives at inception
	For the nine months ended August 31, 2016			For the year ended November 30, 2015
Stock price	$	2.60 - $3.26		$	2.02 - $3.55
Terms (years)		1.5			1.25 - 1.5
Volatility		116.77	%		108.40% - 162.89	%
Risk-free rate		0.51% - 0.76	%		0.66% - 0.85	%
Dividend yield		0.00	%		0.00	%

During the nine months ended August 31, 2016, the Company recognized interest expense of approximately $262,000 resulting from amortization of the debt discount for Series A, B, C and D Notes.

Embedded conversion options

As of August 31, 2016, the embedded conversion options have an aggregate fair value of approximately $976,000 and are presented on a combined basis with the related loan host in the Company’s Condensed Balance Sheets. The table below presents changes in fair value for the embedded conversion options, which is a Level 3 fair value measurement:

Rollforward of Level 3 Fair Value Measurement for the Nine Months Ended August 31, 2016

Balance at November 30, 2015	Issuance	Net unrealized gain/(loss)	Settlements	Balance at August 31, 2016
229,000	1,231,000	(362,000)	(122,000)	976,000

Management used a binomial valuation model, with fourteen steps of the binomial tree, to estimate the fair value of the embedded conversion option at August 31, 2016, with the following key inputs:

Embedded derivatives at period end
	As of
	August 31, 2016			November 30, 2015
Stock price	$	3.15		$	3.55
Term (years)		0.68 - 1.3			1.26 - 1.49
Volatility		115.76	%		108.4% - 121.62	%
Risk-free rate		0.61% - 0.80	%		0.94	%
Dividend yield		0.00	%		0.00	%

Conversions of debt

The following conversions of convertible notes occurred during the nine months ended August 31, 2106:

Conversion of debt

	Principal		Shares
Series A conversions	$	12,500		5,734
Series B conversions		100,000		51,111
Series C conversions		58,617		44,869
Series D conversions		-		-
Total	$	171,117		101,714

As the embedded conversion option had been separately measured at fair value, the conversion of the loan host was recognized as an extinguishment of debt. The Company recorded a loss on conversion of debt of approximately $89,000 as the difference between the carrying value of the debt and the bifurcated conversion option with the fair value of the common stock issued on each conversion date.

Events of default

The Company will be in default of the convertible notes payable, and all amounts outstanding will become immediately due and payable upon: (i) maturity, (ii) any bankruptcy, insolvency, reorganization, cessation of operation, or liquidation events, (iii) if any money judgement, writ or similar process filed against the Company for more than $150,000 remains unvacated, unbonded or unstayed for a period of twenty (20) days, (iv) the Company fails to maintain the listing of the common stock on at least one of the OTC markets or the equivalent replacement exchange, (v) the Company’s failure to maintain any material intellectual property rights, personal, real property or other assets that are necessary to conduct its business, (vi) the restatement of any financial statements filed with the U.S. Securities and Exchange Commission (“SEC”) for any period from two years prior to the notes issuance date and until the notes are no longer outstanding, if the restatement would have constituted a material adverse effect of the rights of the holders of the notes, (vii) the Company effectuates a reverse stock split of its common stock without twenty (20) days prior written notice to the notes’ holders, (viii) in the event that the Company replaces its transfer agent but fails to provide, prior to the effective date, a fully executed irrevocable transfer agent instructions signed by the successor transfer agent and the Company, (ix) in the event that the Company depletes the share reserve and fails to increase the number of shares within three (3) business days, (x) if the Company fails to remain current in its filings with the SEC for more than 30 days after the filing deadline, (xi) after 12 months following the date the Company no longer deems itself a shell company as reflected in a ’34 Act filing, the Lenders are unable to convert the notes into free trading shares, and (xii) upon fundamental change of management.

The Company is currently not in default for any convertible notes issued.

Note 6 – Commitments and Contingencies

Advisory Agreements

The Company entered into customary consulting arrangements with various counterparties to provide consulting services, business development and investor relations services, pursuant to which the Company agreed to issue shares of common stock as services are received. The Company expects to issue an aggregate of approximately 136,000 shares of common stock from September 1, 2016 through the term of arrangements.

License Agreement

Mannin

Pursuant to the license agreement with Mannin as disclosed in the Form 10-K, the Company has an option to purchase the IP within the next four years upon: (i) investing a minimum of $4,000,000 into the development of the intellectual property and (ii) possibly issuing additional shares of the Company’s common stock based on meeting pre-determined valuation and market conditions. The purchase price for the IP is $30,000,000 less the amount of cash paid by the Company for development and the value of the common stock issued to the vendor.

During the three and nine months ended August 31, 2016, the Company incurred approximately $443,000 and $664,000 in research and development expenses to fund the costs of development of the eye drop treatment for glaucoma pursuant to the Exclusive License. As of August 31, 2016, the Company has funded an aggregate of approximately $1.26 million under the Exclusive License.

In the event that: (i) the Company does not exercise the option to purchase the IP; (ii) the Company fails to invest the $4,000,000 within four years from the date of the Exclusive License; or (iii) the Company fails to make a diligent, good faith and commercially reasonable effort to progress the IP, all IP shall revert to the vendor and the Company will be granted the right to collect twice the monies invested through that date of reversion by way of a royalty along with other consideration which may be perpetual.

Legal

The Company is not currently involved in any legal matters arising in the normal course of business. From time to time, the Company could become involved in disputes and various litigation matters that arise in the normal course of business. These may include disputes and lawsuits related to intellectual property, licensing, contract law and employee relations matters. Periodically, 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.

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 approximately $200,000 and $27,000 for the nine months ended August 31, 2016 and 2015, respectively, and were included within general and administrative expenses in the accompanying Condensed Consolidated Statements of Operations.

Note 8 - Stockholders’ Equity Deficit

As of August 31, 2016, 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.

Issued for services

During the nine months ended August 31, 2016, the Company issued an aggregate of 259,150 shares of common stock in connection with the advisory agreements as described in Note 6, and five-year warrants to purchase 550,000 shares of common stock at exercise prices ranging from of $1.45 to $3.00 per share for other services. The warrants vest 25% per quarter over the next year and were valued at $650,000 using the Black-Scholes option-valuation model with inputs described in Note 9. The Company recognized the value of the warrants over the vesting period.

In addition, the Company issued fully-vested five-year warrants to a director and general counsel of the Company to purchase an aggregate of 300,000 shares of common stock at strike prices ranging from $1.45 to $4.15 per share. The warrants were valued at $860,000 using the Black-Scholes option-valuation model with inputs described in Note 9. The warrants were issued for services and settlement of a $30,000 in accounts payable.

The Company recognized general and administrative expenses of approximately $3 million and $32,000, as a result of these transactions, of which approximately $860,000 and $29,000 resulted from related party transactions, during the nine months ended August 31, 2016 and 2015, respectively.

The estimated unrecognized stock-based compensation associated with these agreements is approximately $994,000 and will be recognized over the next 0.3 year.

Private Placement

In May 2016, the Company entered into a subscription agreement with an investor in connection with the Company’s private placement (“May Private Placement”), generating gross proceeds of $50,000 by selling 20,000 units (each, Unit A”) at a price per Unit A of $2.50, with each Unit A consisting of one share of common stock and a two-year warrant to purchase one share of the Company’s common stock at an exercise price of $3.50 per share.

The subscription agreement requires the Company to issue such investor (“May investor”) additional common shares if the Company were to issue common stock or issue securities convertible or exercisable into shares of common stock at a price below $2.50 per share within 90 days from the closing of the Private Placement. The additional shares are calculated as the difference between the common stock that would have been issued in the May Private Placement using the new price per unit less shares of common stock already issued pursuant to the May Private Placement.

In August 2016, the Company consummated another private placement, for gross proceeds of approximately $10,000 by selling 6,500 Units at a purchase price of $1.55 per Unit. As a result, the Company issued the May investor an additional 12,258 shares of common stock according to the agreement.

Note 9 - Warrants

The following represents a summary of outstanding warrants to purchase the Company’s common stock at August 31, 2016 and changes during the period then ended:

					Weighted Average
			Weighted Average		Remaning Contractual
	Warrants		Exercise Price		Life (years)
Outstanding at November 30, 2015		100,000	$	2.18		4.80
Issued		876,500		2.46		4.56
Expired		-		-		-
Outstanding at August 31, 2016		976,500	$	2.43		4.51
Exercisable at August 31, 2016		564,000	$	2.98		4.33

Fair value of the warrants was calculated using the Black-Scholes option-valuation model, with the following key inputs:


	For the nine months ended August 31, 2016
Stock price		$1.60 - $4.15
Term (years)		2 - 5
Volatility		101.13% - 147.36	%
Risk-free rate		0.76% - 1.76	%
Dividend yield		0.00	%

Note 10 – Subsequent Events

Bio-Nucleonics

On September 6, 2016, the Company entered into the Patent and Technology License and Purchase Option Agreement (“Patent and Technology License and Purchase Option Agreement”) with Bio-Nucleonics Inc. (“BNI”) whereby the Company was granted a worldwide, exclusive, perpetual, license on, and option to, acquire certain BNI intellectual property (“BNI IP”) within the three-year term of the Exclusive License.

In exchange for the consideration, the Company agreed to, upon reaching various milestones, issue to BNI an aggregate of 110,000 shares of common stock that are subject to restriction from trading until commercialization of the product (approximately 12 months) and subsequent leak-out conditions, and pay to BNI the total cash payment of $850,000, of which the Company has paid $10,000 as of August 31, 2016. Once the Company has paid the aggregate cash payment, the Company may exercise its option to acquire the BNI IP at no additional charge. The Company issued 50,000 shares of common stock to BNI pursuant to the Patent and Technology License and Purchase Option Agreement in September 2016.

In the event that: (i) the Company does not exercise the option to purchase the BNI IP; (ii) the Company fails to make the aggregate cash payment within three years from the date of the Exclusive License; or (iii) the Company fails to make a diligent, good faith and commercially reasonable effort to progress the BNI IP, all BNI IP shall revert to BNI and we shall be granted the right to collect twice the monies invested through that date of reversion by way of a royalty along with other consideration which may be perpetual.

Series E Notes

The Series E convertible notes payable (the “Series E Notes”) have the same terms as the Series D Notes, except that at the election of the holder, outstanding principal and accrued but unpaid interest under the Series E Notes is convertible into shares of the Company’s common stock at a fixed conversion price per share equal to $2.50. Subsequent to August 31, 2016, the Company issued $150,000 in principal of Series E notes to third party investors.

Private Placement

In September 2016, the Company entered into a subscription agreement with certain investors in connection with the Company’s private placement (“September Private Placement”), generating gross proceeds of $112,500 by selling 37,500 units (each, “Unit B”) at a price per Unit B of $3.00, with each Unit B consisting of one share of common stock and a two-year warrant to purchase one share of the Company’s common stock at an exercise price of $5.00 per share.

Finder’s Agreement

In October 2016, the Company entered into two agreements to engage two financial advisors to assist the Company on its search for potential investors, vendors or partners to engage in a license, merger, joint venture or other business arrangement. As a compensation for their efforts, the Company agreed to pay the financial advisors a fee equal to 7% and 8% in cash, and to pay one of the financial advisors an additional fee equal to 7% in warrants of all consideration received by the Company. The Company has not incurred any finders’ fees pursuant to the agreement to-date.

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 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”) (formerly ISMO Tech Solutions, Inc.) was incorporated in the State of Nevada on November 22, 2013 and is a biomedical acceleration and development company focused on licensing, acquiring and providing strategic resources to life sciences and healthcare companies. We intend to mitigate risk by acquiring multiple assets over time and across a broad spectrum of healthcare related products, companies and sectors. We intend to develop these assets to provide returns via organic growth, revenue production, out-licensing, sale or spin out.

Recent Developments

Acquisition of license right

On September 6, 2016, we announced the closing of a definitive agreement to exclusively license worldwide and ultimately acquire all the assets from a private company related to an FDA approved generic drug for the treatment of pain associated with metastatic bone cancer, Strontium Chloride (“SR89”).

This licensed radiopharmaceutical agent is indicated for the treatment of pain associated with metastatic bone cancer. SR89 provides long lasting relief for patients suffering from bone pain due to metastatic cancer, typically caused by advanced-stage breast, prostate or lung cancer. The drug is preferentially absorbed in bone metastases, it has been proven to provide a long-term effect resulting in non-narcotic cancer pain relief and enhanced quality of life.

Our immediate efforts and resources will focus on the material procurement and manufacturing process as well as preparing the marketing plan and distribution strategy. This drug is expected to be revenue ready within a short time frame and we aim to generate sales within the first year.

We will make every effort to make this drug as widely available as possible and ensure that the drug will be priced competitively at a cost to patients that is lower than what they are currently paying. In the current environment of skyrocketing drug and medical costs, we believe this is a welcome deviation from the recent headlines.

There are approximately 300,000 new cases of bone metastases in patients with breast and lung cancer per year in the U.S. alone. Approximately 80% of patients using SR89 have reported experiencing a substantial decrease in pain, an increase in physical activity and a reduction in the need for opiate analgesics, such as morphine.

Further, we believe there is an opportunity to invest additional resources into the program to grow the revenue potential significantly. We look forward to making additional details available as soon as practical.

Mannin License Update

Additionally, Mannin Research Inc. our technology partner company focused on drug candidate MAN-01 for treatment of Primary Open Angle Glaucoma (POAG), has initiated pre-clinical lead candidate optimization of a small molecule for topical application. Lead candidate selection is progressing on-time and on-budget. The topical application in the form of an easy to administer eye drop is a key differentiator for Mannin and aims to solve the compliance problems and invasive procedures currently available to patients suffering from glaucoma.

Mannin is continuing its focus on research and discovery on the biology of Tie2/TEK signaling and its relationship with Schlemm’s Canal function and regulation of intra-ocular pressure. Additional data sets and IP have been developed around this novel mechanism of action. Mannin is evaluating strategic partnerships opportunities to grow its intellectual property portfolio within the Tie2/TEK signaling market, and is seeking complementary technologies to strengthen its product pipeline. We are pleased with the progress Mannin research teams have achieved over the past three months. Recent work in the lab underscores the essential role of the Mannin platform in the development of the anterior chamber of the eye – which contain the structures needed to maintain safe levels of intraocular pressure.

Mannin and Q BioMed executives attended the BIO International Convention (BIO 2016) in June 2016. BIO 2016 attracts over 15,000 biotechnology and pharma leaders where we explored co-development opportunities and promising partnerships with prominent players in the ophthalmology space as well as new technology and product opportunities that may fit within the Q BioMed pipeline.

Over the past 12 months and into this quarter, we have been conducting due diligence on several potential assets that we feel will potentially deliver significant value to our pipeline and ultimately benefit the patients we aim to treat.

Financial Overview

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

This management’s discussion and analysis of our financial condition and results of operations is based on our 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 financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to fair value of financial instruments, research and development costs, accrued expenses and stock-based compensation. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Other than as set out in Note 3 to our accompanying unaudited condensed financial statements we believe there have been no significant changes in our critical accounting policies as described in the Form 10-K.

Unaudited Results of Operations for the three months ended August 31, 2016 and 2015:

	For the three months ended August 31,
	2016			2015
Operating expenses:
General and administrative expenses	$	1,150,964		$	33,202
Research and development expenses		443,222			-
Total operating expenses		1,594,186			33,202

Other (income) expense:
Interest expense		114,847			-
Loss on conversion of debt		29,032			-
Loss on issuance of convertible debt		28,000			-
Change in fair value of embedded conversion option		(50,000	)		-
Total other expenses		121,879			-

Net loss	$	(1,716,065	)	$	(33,202	)

Operating expenses

We incur various costs and expenses in the execution of our business. During the three months ended August 31, 2016, we incurred approximately $1.6 million in total operating expenses, including approximately $1.2 million in general and administrative expenses and approximately $443,000 in research and development expenses. During the three months ended August 31, 2015, we were still a shell company and had minimal operating activities, and thus incurred approximately $33,000 in total operating expenses all of which were general and administrative.

Other expenses

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, approximately $29,000 in loss on the conversion of debt, and $28,000 in loss on the issuance of convertible debts.

We had no other expenses during the three months ended August 31, 2015.

Net loss

In the three months ended August 31, 2016 and 2015, we incurred net losses of approximately $1.7 million and $33,000, 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.

Unaudited Results of Operations for the nine months ended August 31, 2016 and 2015:

	For the nine months ended August 31,
	2016			2015
Operating expenses:
General and administrative expenses	$	3,637,868		$	45,184
Research and development expenses		663,500			-
Total operating expenses		4,301,368			45,184

Other (income) expense:
Interest expense		304,596			-
Loss on conversion of debt		89,210			-
Loss on issuance of convertible debt		481,000			-
Change in fair value of embedded conversion option		(362,000	)		-
Total other expenses		512,806			-

Net loss	$	(4,814,174	)	$	(45,184	)

Operating expenses

We incur various costs and expenses in the execution of our business. During the nine months ended August 31, 2016, we incurred approximately $4.3 million in total operating expenses, including approximately $3.6 million in general and administrative expenses and approximately $664,000 in research and development expenses. During the nine months ended August 31, 2015, we were still a shell company and had minimal operating activities, and thus incurred approximately $45,000 in total operating expenses all of which were general and administrative.

Other expenses

During the nine months ended August 31, 2016, other expenses included approximately $305,000 in interest expense, a gain of $362,000 for the change in fair value of embedded conversion options, $481,000 in loss on the issuance of convertible debts, and approximately $89,000 in loss on conversion of debt.

We had no other expenses during the nine months ended August 31, 2015.

Net loss

In the nine months ended August 31, 2016 and 2015, we incurred net losses of approximately $4.8 million and $45,000, respectively. Our management expects to continue to incur net losses for the foreseeable future, due to our need to continue to fund our R&D, manufacturing and implement other aspects of our business plan.

Liquidity and Capital Resources

We have not yet established an ongoing source of revenues sufficient to cover our operating costs and allow us to continue as a going concern. We had a working capital deficit of approximately $1.1 million as of August 31, 2016. During the three and nine months ended August 31, 2016, we had a net loss of approximately $1.7 million and $4.8 million, respectively, and had net cash used in operating activities of approximately $868,000 during the nine months ended August 31, 2016. The report of our independent registered public accounting firm, on our financial statements, included in the Form 10-K, raised substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern depends on our ability to raise additional capital. If we are unable to obtain necessary financing, we will likely be required to curtail our development plans which could cause us to become dormant. Any additional equity financing may involve substantial dilution to our then existing stockholders.

Since inception, operations have been funded through the sale of common stock, warrants, and the issuance of convertible notes. As of November 30, 2015, we had an aggregate of $185,000 outstanding in principal of Series A, B, and C Notes. During the nine months ended August 31, 2016, we issued an additional of $105,000, $550,000, and $160,000 in principal of Series B, C and D Notes, respectively. Subsequent to August 31, 2016, we issued $150,000 in principal of Series E notes to third party investors.

In addition, in May and August 2016, we entered into subscription agreements with two investors in connection with our private placement, generating gross proceeds of $50,000 and approximately $10,000 by selling 20,000 and 6,500 Units at a price per unit of $2.50 and $1.55, respectively. Each Unit consists of one share of common stock and a two-year warrant to purchase one share of our common stock at an exercise price of $3.50 per share (See Note 8 in our unaudited condensed financial statements). In September 2016, we entered into another subscription agreement with certain investors in connection with our September Private Placement, generating gross proceeds of $112,500 by selling 37,500 Units B at a price per Unit B of $3.00, with each Unit B consisting of one share of common stock and a two-year warrant to purchase one share of common stock at an exercise price of $5.00 per share.

Our primary uses of cash are to fund our operations and research and development activities as we continue to grow our business. We expect to continue to incur operating losses in the near term as we expect to increase our operating expenses as well as research and development expenses to support the growth of our business. To continue as a going concern, we will need, among other things, additional capital resources. We depend upon our ability to secure equity and/or debt financing. We might not be successful, and without sufficient financing it would be unlikely for us to continue as a going concern.

Our ability to continue as a going concern depends upon our ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. These 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,
	2016			2015

Net cash provided by (used in):
Operating activities	$	(868,497	)	$	(12,700	)
Financing acitivities		875,075			151
Net increase (decrease) in cash	$	6,578		$	(12,549	)

Net cash used in operating activities was approximately $869,000 for the nine months ended August 31, 2016 as compared to approximately $13,000 for the nine months ended August 31, 2015. The increase in net cash used in operating activities results from the net loss of approximately $4.8 million for the nine months ended August 31, 2016, partially offset by aggregate non-cash expenses of approximately $3.5 million. The net cash used in operating activities for the nine months ended August 31, 2015 results primarily from to the net loss of approximately $45,000, partially offset by a non-cash expense of $32,000.

Net cash provided by financing activities was approximately $875,000 for the nine months ended August 31, 2016, resulting mainly from proceeds received from the issuance of convertible notes payable and issuance of common stock and warrants through the private placement. We had minimal cash provided by financing activities for the nine months ended August 31, 2015.

Commitments and Contingencies

Advisory Agreement

We entered into customary consulting arrangements with various counterparties to provide consulting services, business development and investor relations services, pursuant to which we agreed to issue shares of common stock as services are received. We expect to issue an aggregate of approximately 136,000 shares of common stock from September 1, 2016 through the term of arrangements.

License Agreement

Mannin

Pursuant to the license agreement with Mannin as disclosed in our Annual Form 10-K, most recently filed with the SEC on March 11, 2016 (as amended on March 15, 2016 solely to include interactive data files, the “Form 10-K”), we have an option to purchase the IP within the next four years upon: (i) investing a minimum of $4,000,000 into the development of the intellectual property and (ii) possibly issuing additional shares of our common stock based on meeting pre-determined valuation and market conditions. The purchase price for the IP is $30,000,000 less the amount of cash paid by us for development and the value of the common stock issued to the vendor. During the three and nine months ended August 31, 2016, we incurred approximately $443,000 and $664,000 in research and development expenses to fund the costs of development of the eye drop treatment for glaucoma pursuant to the Exclusive License. As of August 31, 2016, we have funded an aggregate of approximately $1.26 million under the Exclusive License.

In the event that: (i) we do not exercise the option to purchase the IP; (ii) we fail to invest the $4,000,000 within four years from the date of the Exclusive License; or (iii) we fail to make a diligent, good faith and commercially reasonable effort to progress the IP, all IP shall revert to the vendor and we will be granted the right to collect twice the monies invested through that date of reversion by way of a royalty along with other consideration which may be perpetual.

Bio-Nucleonics

On September 6, 2016, we entered into the Patent and Technology License and Purchase Option Agreement with Bio-Nucleonics Inc. (“BNI”) whereby we were granted a worldwide, exclusive, perpetual, license on, and option to, acquire certain BNI intellectual property (“BNI IP”) within the three-year term of the Exclusive License.

In exchange for the consideration, we agreed to, upon reaching various milestones, issue to BNI an aggregate of 110,000 shares of common stock that are subject to restriction from trading until commercialization of the product (approximately 12 months) and subsequent leak-out conditions, and pay to BNI the total cash payment of $850,000. Once we have paid the aggregate cash payment, we may exercise our option to acquire the BNI IP at no additional charge. We issued 50,000 shares of common stock to BNI pursuant to the Exclusion License in September 2016.

In the event that: (i) we do not exercise the option to purchase the BNI IP; (ii) we fail to make the aggregate cash payment within three years from the date of the Exclusive License; or (iii) we fail to make a diligent, good faith and commercially reasonable effort to progress the BNI IP, all BNI IP shall revert to BNI and we shall be granted the right to collect twice the monies invested through that date of reversion by way of a royalty along with other consideration which may be perpetual.

Finder’s Agreement

In October 2016, we entered into two agreements to engage two financial advisors to assist us on our search for potential investors, vendors or partners to engage in a license, merger, joint venture or other business arrangement. As a compensation for their efforts, we agreed to pay the financial advisors a fee equal to 7% and 8% in cash, and to pay one of the financial advisors an additional fee equals to 7% in warrants of all consideration received by us. We have not incurred any finders’ fees pursuant to the agreement to-date.

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 $200,000 and $27,000 for the nine months ended August 31, 2016 and 2015, respectively, and were included within general and administrative expenses in the accompanying Condensed Consolidated Statements of Operations.

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. We do not have an independent director, and none of our directors is considered a “Financial Expert,” within the meaning of Section 407 of the Sarbanes-Oxley Act.

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.

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

We are not a party to any material legal proceedings.

Item 1A. Risk Factors

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

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

Since we filed our last Quarterly Report on Form 10-Q, we have issued 214,268 shares of common stock as set out below:

In June 2016, we issued an aggregate of 38,710 common shares upon receipt of conversion notices from Series C holders.

In August 2016, we issued an aggregate of 53,000 common shares to two vendors for introductory, and media and investor relations services;

On August 9, 2016, we issued 16,300 common shares upon receipt of conversion notices from Series B holders.

On August 10, 2016, we issued (i) 6,500 units, with each unit consisting of a share of common stock and a warrant to purchase a share of common stock at $3.50 for aggregate consideration of approximately $10,000, and (ii) 12,258 common shares to an investor to compensate for the difference in purchase prices pursuant to an anti-dilution right;

On September 7, 2016, we issued 50,000 common shares to BNI pursuant to the Patent and Technology License and Purchase Option Agreement.

In September and October 2016, we issued (i) 37,500 units, with each unit consisting of a share of common stock and a warrant to purchase a share of common stock at $5.00 for aggregate consideration of approximately $112,500.

We have made the issuances of unregistered securities discussed above in reliance on the registration exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit Number	Name and/or Identification of Exhibit


31	Rule 13a-14(a)/15d-14(a) Certifications

32	Certification under Section 906 of the Sarbanes-Oxley Act (18 U.S.C. Section 1350)

101	Interactive Data File

	(INS) XBRL Instance Document
	(SCH) XBRL Taxonomy Extension Schema Document
	(CAL) XBRL Taxonomy Extension Calculation Linkbase Document
	(DEF) XBRL Taxonomy Extension Definition Linkbase Document
	(LAB) XBRL Taxonomy Extension Label Linkbase Document
	(PRE) XBRL Taxonomy Extension Presentation Linkbase Document

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.
(Registrant)

Signature	Title	Date


/s/ Denis Corin	President, Chief Executive Officer, Acting Principal Accounting Officer,	October 17, 2016
Denis Corin	Principal Financial Officer

Attached files

Q BioMed Inc. Reports

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