Filed Pursuant to Rule 424(b)(5)
Registration
No. 333-233567
PROSPECTUS SUPPLEMENT
(to Prospectus dated September 12,
2019)
EDESA
BIOTECH, INC.
1,355,380
Common Shares
We are
offering 1,355,380 of our common shares, no par value
(“Common Shares”), directly to the investors pursuant
to this prospectus supplement and the accompanying prospectus at a
price of (i) $3.20 for investors other than investors that are
officers, directors, employees or consultants of the company and
(ii) $4.11 for each investor that is an officer, director, employee
or consultant of the company. In a concurrent private placement, we
are also selling to purchasers of Common Shares in this offering
(i) Class A Purchase Warrants to purchase an aggregate of 1,016,553
of our Common Shares (the “Class A Purchase Warrants”)
and (ii) Class B Purchase Warrants to purchase an aggregate of
677,703 of our Common Shares (the “Class B Purchase
Warrants,” and together with the Class A Purchase Warrants,
the “Purchase Warrants”). The Class A Purchase Warrants
will be exercisable at any time on or after the six (6) month
anniversary the date of issuance (the “Class A Purchase
Warrant Initial Exercise Date”), at an exercise price of
$4.80 per share and will expire on the third anniversary of the
Class A Purchase Warrant Initial Exercise Date. The Class B
Purchase Warrants will be exercisable at any time on or after the
six (6) month anniversary the date of issuance (the “Class B
Purchase Warrant Initial Exercise Date”), at an exercise
price of $4.00 per share and will expire on the four month
anniversary of the Class B Purchase Warrant Initial Exercise Date.
The Purchase Warrants and the Common Shares issuable upon the
exercise of the Purchase Warrants (the “Warrant
Shares”), are not being registered under the Securities Act
of 1933, as amended, or the Securities Act, pursuant to the
registration statement of which this prospectus supplement and the
accompanying base prospectus form a part and are not being offered
pursuant to this prospectus supplement and the accompanying
prospectus. The Purchase Warrants and Warrant Shares are being
offered pursuant to an exemption from the registration requirement
of the Securities Act provided in Section 4(a)(2) of the Securities
Act and/or Regulation D Rule 506(b). With respect to non-U.S.
investors, the Common Shares offered pursuant to this prospectus
supplement and the accompanying prospectus as well as the Purchase
Warrants and Warrant Shares will be subject to restrictions on
resale in accordance with applicable foreign laws.
Our
Common Shares trade on The Nasdaq Capital Market under the symbol
“EDSA.” The last reported sale price on January 3, 2020
was $3.99 per Common Share.
The
aggregate market value of our outstanding Common Shares held by
non-affiliates, as computed within sixty (60) days prior to the
date of this prospectus supplement, was approximately $13,989,385
based on 7,504,468 shares of outstanding Common Shares, of which
approximately 2,753,816 shares were held by non-affiliates, and a
reported closing price of $5.08 per Common Share on The Nasdaq
Capital Market on November 20, 2019. Under the registration
statement to which this prospectus supplement forms a part, we may
not sell our securities in a primary offering with a value
exceeding one-third of our public float in any 12-month period
(unless our public float rises to $75.0 million or more). As of the
date of this prospectus supplement, we have not sold any securities
pursuant to General Instruction I.B.6. of Form S-3 during the prior
12 calendar month period that ends on, and includes, the date of
this prospectus supplement and accordingly, we may sell up to
$4,663,128 of Common Shares hereunder.
We have
retained Brookline Capital Markets, a division of Arcadia
Securities, LLC, to act as the placement agent in the United States
in connection with this offering. The placement agent is not
purchasing or selling any of our Common Shares offered pursuant to
this prospectus supplement or the accompanying prospectus. See
“Plan of Distribution” beginning on page S-41 of this
prospectus supplement for more information regarding these
arrangements. Outside of the United States, we are directly
soliciting offers to purchase our Common Shares from non-U.S.
investors.
Investing in our Common Shares involves risks, including those
described in the "Risk Factors" section beginning on page S-4
of this prospectus supplement and the section captioned
"Item 1A—Risk Factors" in our most recently filed Annual
Report on Form 10-K, which is incorporated by reference into
this prospectus supplement and the accompanying
prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus supplement or the
accompanying prospectus is truthful or complete. Any representation
to the contrary is a criminal offense.
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Per Common
Share
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Total
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Public Offering
Price (1)
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$3.20
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$4,244,980
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Public Offering
Price (2)
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$4.11
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$115,500
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Placement
Agent’s Fees (3)
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$0.15
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$207,475
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Proceeds to Us
(Before Expenses)
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$3.06
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$4,153,005
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(1) For
investors other than investors that are officers, directors,
employees or consultants of the company.
(2) For
each investor that is an officer, director, employee or consultant
of the company.
(3) We
have agreed to pay the placement agent an aggregate cash placement
fee equal to 6.5% of the gross proceeds in this offering from sales
arranged by the placement agent (or 3.5% in the case of sales to
U.S. investors introduced by the company). The placement agent will
not receive any cash placement fee with respect to non-U.S.
investors introduced by the Company. We have also agreed to
reimburse the placement agent for certain expenses incurred by the
placement agent up to an amount not to exceed $55,000 and to issue
to the placement agent warrants with a term of five years to
purchase up to 12,364 of our Common Shares at an exercise price of
$3.20 per share. For additional information on the placement
agent’s fees, compensation and expense reimbursement, see
“Plan of Distribution” beginning on page S-41 of this
prospectus supplement.
We
anticipate that delivery of the Common Shares will be made on or
about January 8, 2020.
Placement Agent
Brookline Capital Markets, a division of Arcadia
Securities
The date of this
prospectus supplement is January 6, 2020
TABLE OF CONTENTS
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Page
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Prospectus Supplement
Prospectus
S-i
ABOUT THIS PROSPECTUS
SUPPLEMENT
This prospectus supplement is a supplement to the accompanying
prospectus that is also a part of this document. This prospectus
supplement and the accompanying prospectus are part of a
registration statement on Form S-3 (File No. 333-233567)
that we filed with the Securities and Exchange Commission, or the
SEC, using a “shelf” registration process. Under this
“shelf” registration process, we may from time to time
sell any combination of securities described in the accompanying
prospectus in one or more offerings up to a total of
$50.0 million.
This prospectus supplement and the accompanying prospectus do not
constitute an offer to sell or a solicitation of an offer to buy
the shares offered hereby in any jurisdiction where, or to any
person to whom, it is unlawful to make such offer or solicitation.
Persons outside the United States who come into possession of this
prospectus supplement must inform themselves about, and observe any
restrictions relating to, the offering of the Common Shares and the
distribution of this prospectus supplement outside the United
States.
This document is in two parts. The first part is this prospectus
supplement, which describes the terms of the offering of common
shares and also adds to and updates information contained in the
accompanying prospectus and the documents incorporated by reference
into the accompanying prospectus. The second part is the
accompanying prospectus, which provides more general information,
some of which may not apply to the Common Shares. To the extent
there is a conflict between the information contained in this
prospectus supplement, on the one hand, and the information
contained in the accompanying prospectus or any document
incorporated by reference therein, on the other hand, you should
rely on the information in this prospectus supplement.
You should rely only on the information contained in or
incorporated by reference into this prospectus supplement and the
accompanying prospectus or any free writing prospectus. We have
not, and the placement agent has not, authorized any other person
to provide you with different information. If anyone provides you
with different or inconsistent information, you should not rely on
it. The information contained in or incorporated by reference into
this prospectus supplement and the accompanying prospectus is
current as of the date such information is presented, regardless of
the time of delivery of this prospectus supplement or of any sale
of the shares. Our business, financial condition, results of
operations and prospects may have changed since those dates. It is
important for you to read and consider all information contained in
this prospectus supplement and the accompanying prospectus,
including the documents incorporated by reference herein and
therein, in making your investment decision. You should also read
and consider the information in the documents we have referred you
to in the sections entitled “Where You Can Find More
Information” and “Incorporation of Certain Information
By Reference” below.
This prospectus supplement, the accompanying prospectus and the
information incorporated herein and therein by reference include
trademarks, services marks and trade names owned by us or other
companies. All trademarks, service marks and trade names included
or incorporated by reference into this prospectus supplement, the
accompanying prospectus or any related free writing prospectuses
are the property of their respective owners.
Unless the context otherwise requires, the terms “we,”
“our,” “us,” the “company,” and
“Edesa” refer to Edesa Biotech, Inc. and its
subsidiaries.
S-ii
S-1
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Our
business strategy is to develop and commercialize innovative drug
products that address unmet medical needs for large, underserved
markets where there is limited competition. Key elements of our
strategy include:
●
Establish EB01 as the leading
treatment for chronic ACD. Our
primary goal is to obtain regulatory approval for EB01 and
commercialize EB01 for use in the treatment of ACD. Based on
promising clinical trial results in which patients treated with
EB01 experienced statistically significant improvements of their
symptoms with minimal side effects, we initiated a Phase 2B
clinical study evaluating EB01 in the United
States.
●
Selectively targeting
additional indications within the areas of dermatology and
gastroenterology. In addition
to our ACD program, we plan to efficiently generate
proof-of-concept data for other programs where the inhibition of
sPLA2
activity may have a therapeutic
benefit. For example, given sufficient funding, we are planning a
clinical study to evaluate EB02 for internal
hemorrhoids.
●
In-license promising product
candidates. We are applying our
cost-effective development approach to advance and expand our
pipeline. Our current product candidates are in-licensed from
academic institutions or other pharmaceutical companies, and we
plan to continue to identify, evaluate and potentially obtain
rights to and develop additional assets. Our objective is to
maintain a well-balanced portfolio with product candidates across
various stages of development. In general, we seek to identify
product candidates and technology that represent a novel
therapeutic approach to dermatological and gastrointestinal
diseases, are supported by compelling science, target an unmet
medical need, and provide a meaningful commercial opportunity. We
do not currently intend to invest significant capital in basic
research, which can be expensive and
time-consuming.
●
Capture the full commercial
potential of our product candidates. If our product candidates are successfully
developed and approved, we may build commercial infrastructure
capable of directly marketing the products in North America and
potentially other major geographies of strategic interest. We also
plan to evaluate strategic licensing arrangements with
pharmaceutical companies for the commercialization of our drugs,
where applicable, such as in territories where a partner may
contribute additional resources, infrastructure and
expertise.
Corporate Information
We were incorporated in British Columbia, Canada in 2007 and we
operate through our wholly-owned subsidiaries, Edesa Biotech
Research, Inc., an Ontario corporation incorporated in 2015,
formerly known as Edesa Biotech, Inc., which we acquired on June 7,
2019, and Stellar Biotechnologies, Inc., a California corporation
organized September 9, 1999 and acquired on April 12, 2010. Our
Common Shares are traded on The Nasdaq Capital Market under the
symbol “EDSA”. Our principal executive offices are
located at 100 Spy Court, Markham, Ontario L3R 5H6 Canada and our
telephone number at this location is (289) 800-9600. Our website
address is www.edesabiotech.com. The information contained on, or
that can be accessed through, our website is not a part of this
prospectus supplement or the accompanying base prospectus. Our
trademarks and trade names include, but may not be limited to,
“Edesa Biotech” and the Edesa logo.
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S-2
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The Offering
The following summary contains basic information about this
offering. The summary is not intended to be complete. You should
read the full text and more specific details contained elsewhere in
this prospectus supplement.
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Issuer
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Edesa
Biotech, Inc.
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Common
Shares offered by us in this offering
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1,355,380
shares
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Public
offering price per Common Share
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(i) $3.20 for
investors other than investors that are officers, directors,
employees or consultants of the company and (ii) $4.11 for each
investor that is an officer, director, employee or consultant of
the company.
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Common
Shares outstanding prior to this offering
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7,504,468
shares
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Common
Shares to be outstanding after
this offering
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8,859,848
shares
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Use
of proceeds
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We currently anticipate that the net proceeds from
the sale of our Common Shares will be used for general
corporate purposes, which may include working capital, capital
expenditures and research and development expenses. See “Use of Proceeds” on
page S-28.
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Risk
factors
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See “Risk Factors” beginning on page S-4 for a
discussion of factors you should carefully consider before deciding
to invest in our securities.
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NASDAQ
Capital Market symbol
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EDSA
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Concurrent
private placement
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In a concurrent private placement, we are
selling to the purchasers of Common Shares in this offering (i)
Class A Purchase Warrants to purchase an aggregate of 1,016,553 of
our Common Shares, or 0.75 of a Common Share for each share
purchased in the offering, and (ii) Class B Purchase Warrants to
purchase an aggregate of 677,703 of our Common Shares, or 0.50 of a
Common Share for each share purchased in the offering. The Class A
Purchase Warrants will be exercisable at any time on or after the
six (6) month anniversary the date of issuance (the “Class A
Purchase Warrant Initial Exercise Date”), at an exercise
price of $4.80 per share and will expire on the third anniversary
of the Class A Purchase Warrant Initial Exercise Date. The Class B
Purchase Warrants will be exercisable at any time on or after the
six (6) month anniversary the date of issuance (the “Class B
Purchase Warrant Initial Exercise Date”), at an exercise
price of $4.00 per share and will expire on the four month
anniversary of the Class B Purchase Warrant Initial Exercise Date.
The Purchase Warrants and the Warrant Shares are not being
registered under the Securities Act of 1933, as amended, or the
Securities Act, pursuant to the registration statement of which
this prospectus supplement and the accompanying base prospectus
form a part and are not being offered pursuant to this prospectus
supplement and the accompanying prospectus. The Purchase Warrants
and Warrant Shares are being offered pursuant to an exemption from
the registration requirement of the Securities Act provided in
Section 4(a)(2) of the Securities Act and/or Regulation D Rule
506(b). With respect to non-U.S. investors, the Common Shares
offered pursuant to this prospectus supplement and the accompanying
prospectus as well as the Purchase Warrants and Warrant Shares will
be subject to restrictions on resale in accordance with applicable
foreigh laws. See “Private Placement Transaction and
Warrants” on page S-31 of this prospectus
supplement.
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The number of our Common Shares to be outstanding after the
offering is based on 7,504,468 of our Common Shares outstanding as
of January 6, 2020 and
excludes:
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319,526
of our Common Shares issuable upon exercise of outstanding options
granted under our equity incentive plans at a weighted average
exercise price of $3.36 per share;
●
833,621 of our Common Shares available
for issuance or future grant pursuant to our equity incentive
plan;
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48,914
of our Common Shares issuable upon exercise of outstanding warrants
at a weighted average exercise price of $11.19 per
share;
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the
1,694,256 Common Shares issuable upon exercise of the Purchase
Warrants being offered by us in the concurrent private placement;
and
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the
12,364 Common Shares issuable upon exercise of warrants being
issued by us to the placement agent in connection with the
offering.
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S-3
RISK FACTORS
Investors should carefully consider the risks described below and
in the filings incorporated by reference including our Annual
Report on Form 10-K for the transition period from January 1, 2019
to September 30, 2019 before deciding whether to invest in our
securities. We expect to update the risk factors from time to time
in the periodic and current reports that we file with the SEC after
the date of this prospectus supplement. These updated risk factors
will be incorporated by reference in this prospectus supplement and
the accompanying prospectus. The risks described below and those
described in our filings incorporated by reference are not the only
ones we face. If any of the following risks actually occurs, our
business, financial condition or results of operations could be
adversely affected. In such case, the trading price of our Common
Shares could decline and you could lose all or part of your
investment. Our actual results could differ materially from those
anticipated in the forward-looking statements made throughout this
prospectus supplement and in the documents incorporated by
reference as a result of different factors, including the risks we
face described below and those described in the filings
incorporated by reference.
Risks Relating to Our Business
We have incurred significant losses since our inception and expect
to continue to incur losses and may never generate profits from
operations or maintain profitability.
Since
inception, we have incurred significant operating losses. As of
September 30, 2019, we have an accumulated deficit of $6.73
million. We have historically financed operations primarily through
issuances of preferred shares that were converted into common
shares, loans that were converted into common shares and government
grants. We have devoted substantially all of our efforts to
research and development, including clinical trials, and have not
completed the development of any of our drug
candidates.
We
expect to continue to incur significant expenses and operating
losses for the foreseeable future as we continue the development
of, and seek marketing approvals for our product candidates,
prepare for and begin the commercialization of any approved
products, and add infrastructure and personnel to support our
product development efforts and operations as a public company in
the United States and Canada. The net losses we incur may fluctuate
significantly from quarter to quarter and year to
year.
Our
ability to generate profits from operations and thereafter to
remain profitable depends heavily on, among other
things:
●
the scope, number,
progress, duration, cost, results and timing of clinical trials and
nonclinical studies of our current or future product
candidates;
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our ability to
raise sufficient funds to support the development and potential
commercialization of our product candidates;
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the outcomes and
timing of regulatory reviews, approvals or other
actions;
●
our ability to
obtain marketing approval for our product candidates;
●
our ability to
establish and maintain licensing, collaboration or similar
arrangements on favorable terms and whether and to what extent we
retain development or commercialization responsibilities under any
new licensing, collaboration or similar arrangement;
●
the success of any
other business, product or technology that we acquire or in which
we invest;
●
our ability to
maintain, expand and defend the scope of our intellectual property
portfolio;
●
our ability to
manufacture any approved products on commercially reasonable
terms;
●
our ability to
establish a sales and marketing organization or suitable
third-party alternatives for any approved product; and
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the number and
characteristics of product candidates and programs that we
pursue.
S-4
Based
on our current plans, we do not expect to generate significant
revenue unless and until we or a current or potential future
licensee obtains marketing approval for, and commercializes, one or
more of our product candidates, which may require several years.
Neither we nor a licensee may ever succeed in obtaining marketing
approval for, or commercializing our product candidates and, even
if marketing approval is obtained, we may never generate revenues
that are significant enough to generate profits from operations.
Even if we do generate profits from operations, we may not be able
to sustain or increase profitability on a quarterly or annual
basis. Our failure to generate profits from operations and remain
profitable would decrease the value of the company and could impair
our ability to raise capital, expand our business, maintain our
research and development efforts, diversify our product offerings
or continue our operations. A decline in the value of the company
could also cause you to lose all or part of your
investment.
We will need substantial additional funding to finance our
operations through regulatory approval of one or more of our
product candidates. If we are unable to raise capital when needed,
we could be forced to delay, reduce or eliminate our product
development programs or commercialization efforts.
We
expect our research and development expenses to increase
substantially in the future, particularly if we advance any drug
candidates beyond Phase 2 clinical development or expand the number
of drug candidates in clinical studies. In addition, if we obtain
marketing approval for any of our product candidates that are not
then subject to licensing, collaboration or similar arrangements
with third parties, we expect to incur significant
commercialization expenses related to product sales, marketing,
distribution and manufacturing. If we are unable to raise capital
when needed, or on attractive terms, we could be forced to delay,
reduce or eliminate research and development programs or future
commercialization efforts.
We depend heavily on the success of our lead product candidate,
EB01, which we are developing for the treatment of chronic ACD. If
we are unable to obtain regulatory approval or commercialize EB01,
or experience significant delays in doing so, our business will be
materially harmed.
EB01 is
in Phase 2B clinical development. Our ability to generate product
revenues, which may not occur for multiple years, if at all, will
depend heavily on the successful development and commercialization
of EB01 as a treatment for chronic ACD. The success of our product
candidates, including EB01, will depend on a number of factors,
including the following:
●
our ability to
obtain additional capital from potential future licensing,
collaboration or similar arrangements or from any future offering
of our debt or equity securities;
●
our ability to
identify and enter into potential future licenses or other
collaboration arrangements with third parties and the terms of the
arrangements;
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successful
completion of clinical development;
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the ability to
provide acceptable evidence demonstrating a product
candidates’ safety and efficacy;
●
receipt of
marketing approvals from applicable regulatory authorities and
similar foreign regulatory authorities;
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the availability of
raw materials to produce our product candidates;
S-5
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obtaining and
maintaining commercial manufacturing arrangements with third-party
manufacturers or establishing commercial-scale manufacturing
capabilities;
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obtaining and
maintaining patent and trade secret protection and regulatory
exclusivity;
●
establishing sales,
marketing and distribution capabilities;
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generating
commercial sales of the product candidate, if and when approved,
whether alone or in collaboration with others;
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acceptance of the
product candidate, if and when approved, by patients, the medical
community and third-party payors;
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effectively
competing with other therapies; and
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maintaining an
acceptable safety profile of the product candidate following
approval.
If we
do not achieve one or more of these factors in a timely manner or
at all, we could experience significant delays or an inability to
successfully commercialize EB01 or any of our other product
candidates, which would materially harm our business. Many of these
factors are beyond our control. Accordingly, we may never be able
to generate revenues through the license or sale of any of our
product candidates.
Our limited operating history may
make it difficult for you to evaluate the success of our business
to date and to assess our future viability.
Our
primarily operating entity, Edesa Biotech Research, Inc. was formed
in July 2015. To date, our operations have been limited to
organization and staffing, developing and securing our technology,
entering into licensing arrangements, raising capital and
undertaking preclinical studies and clinical trials of our product
candidates. We have not yet demonstrated our ability to
successfully complete development of any product candidate, obtain
marketing approval, manufacture a commercial scale product, or
arrange for a third-party to do so on our behalf, or conduct sales
and marketing activities necessary for successful product
commercialization. Assuming we obtain marketing approval for any of
our product candidates, we will need to transition from a company
with a research and development focus to a company capable of
supporting commercial activities. We may encounter unforeseen
expenses, difficulties, complications and delays and may not be
successful in such a transition. Any predictions made about our
future success or viability may not be as accurate as they could be
if we had a longer operating history.
We may not be successful in our efforts to identify and acquire or
in-license additional product candidates.
Part of
our strategy involves diversifying our product development risk by
identifying and acquiring or in-licensing novel product candidates.
We may fail to identify and acquire or in-license promising product
candidates. The competition to acquire or in-license promising
product candidates is fierce, especially from large multinational
companies that have greater resources and experience than we have.
If we are unable to identify and acquire or in-license suitable
product candidates, we will be unable to diversify our product
risk. We believe that any such failure could have a significant
negative impact on our prospects because the risk of failure of any
particular development program in the pharmaceutical field is
high.
S-6
We may expend our limited resources to pursue a particular product
candidate and fail to capitalize on product candidates that may be
more profitable or for which there is a greater likelihood of
success.
Because
we have limited financial and managerial resources, we focus on
specific product candidates. As a result, we may forego or delay
pursuit of opportunities with other product candidates that later
could prove to have greater commercial potential. Our resource
allocation decisions may cause us to fail to capitalize on viable
commercial products or profitable market opportunities. If we do
not accurately evaluate the commercial potential or target market
for a particular product candidate, our business may be negatively
impacted.
Our future success depends on our ability to retain key executives
and to attract, retain and motivate qualified
personnel.
We are
highly dependent on Dr. Pardeep Nijhawan, our Chief Executive
Officer and Secretary; and Michael Brooks, our President; as well
as other principal members of our management and scientific teams.
Although we have employment agreements with each of our executive
officers, these agreements do not prevent our executives from
terminating their employment with the company at any time. The
unplanned loss of the services of any of these persons could
materially impact the achievement of our research, development,
financial and commercialization objectives. Recruiting and
retaining qualified personnel, including in the United States and
Canada, will also be critical to our success. We may not be able to
attract and retain these personnel on acceptable terms given the
competition among numerous biotechnology and pharmaceutical
companies for similar personnel. In addition, we rely on
consultants and advisors, including scientific and clinical
advisors, to assist us in formulating our research and development
and commercialization strategy. Our consultants and advisors may
have commitments with other entities that may limit their
availability to us.
We expect to expand our capabilities, and as a result, we may
encounter difficulties in managing our growth, which could disrupt
our operations.
We
expect to experience growth in the number of our employees and the
scope of our operations, particularly in the areas of drug
development, regulatory affairs, finance and administration and,
potentially, sales and marketing. To manage our anticipated future
growth, we must continue to implement and improve our managerial,
operational and financial systems, expand our facilities and
continue to recruit and train additional qualified personnel. We
may not be able to effectively manage the expansion of our
operations or recruit and train additional qualified personnel. The
physical expansion of our operations may lead to significant costs
and may divert our management and business development resources.
Any inability to manage growth could delay the execution of our
business plans or disrupt our operations.
We are exposed to risks related to currency exchange
rates.
We
conduct a significant portion of our operations outside of the
United States. Because our financial statements are presented in
U.S. dollars, changes in currency exchange rates have had and could
have in the future a significant effect on our operating results
when our operating results are translated into U.S.
dollars.
S-7
We are subject to anti-corruption laws, as well as export control
laws, customs laws, sanctions laws and other laws governing our
operations. If we fail to comply with these laws, it could be
subject to civil or criminal penalties, other remedial measures and
legal expenses, which could adversely affect our business, results
of operations and financial condition.
Our
operations are subject to anti-corruption laws, including the U.S.
Foreign Corrupt Practices Act, or the FCPA, and other
anti-corruption laws that apply in countries where we do business
and may do business in the future. The FCPA and these other laws
generally prohibit us, our officers, and our employees and
intermediaries from bribing, being bribed or making other
prohibited payments to government officials or other persons to
obtain or retain business or gain some other business advantage. We
may in the future operate in jurisdictions that pose a high risk of
potential FCPA violations, and we may participate in collaborations
and relationships with third parties whose actions could
potentially subject us to liability under the FCPA or local
anti-corruption laws. We are also subject to other laws and
regulations governing our international operations, including
regulations administered by the government of the United States and
authorities in the European Union, including applicable export
control regulations, economic sanctions on countries and persons,
customs requirements and currency exchange regulations,
collectively referred to as the Trade Control laws. There is no
assurance that we will be completely effective in ensuring our
compliance with all applicable anti-corruption laws, including the
FCPA or other legal requirements, including Trade Control laws. If
we are not in compliance with the FCPA and other anti-corruption
laws or Trade Control laws, it may be subject to criminal and civil
penalties, disgorgement and other sanctions and remedial measures,
and legal expenses, which could have an adverse impact on our
business, financial condition, results of operations and liquidity.
Likewise, any investigation of any potential violations of the
FCPA, other anti-corruption laws or Trade Control laws by U.S. or
other authorities could also have an adverse impact on our
reputation, our business, results of operations and financial
condition.
Our employees, principal investigators, consultants and commercial
partners may engage in misconduct or other improper activities,
including noncompliance with regulatory standards and requirements
and insider trading, which could cause significant liability for us
and harm our reputation.
We are
exposed to the risk of fraud or other misconduct by our employees,
principal investigators, consultants and collaborators, including
intentional failures to comply with FDA or Office of Inspector
General regulations or similar regulations of comparable non-U.S.
regulatory authorities, provide accurate information to the FDA or
comparable non-U.S. regulatory authorities, comply with
manufacturing standards we have established, comply with federal
and state healthcare fraud and abuse laws and regulations and
similar laws and regulations established and enforced by comparable
non-U.S. regulatory authorities, report financial information or
data accurately or disclose unauthorized activities to us.
Misconduct by these parties could also involve the improper use of
information obtained in the course of clinical trials, which could
result in regulatory sanctions and serious harm to our reputation.
It is not always possible to identify and deter employee
misconduct, and the precautions we take to detect and prevent this
activity may not be effective in controlling unknown or unmanaged
risks or losses or in protecting us from governmental
investigations or other actions or lawsuits stemming from a failure
to be in compliance with such laws, standards or regulations. If
any such actions are instituted against us, and we are not
successful in defending ourselves or asserting our rights, those
actions could have a significant impact on our business and results
of operations, including the imposition of significant fines or
other sanctions.
S-8
We rely significantly on information technology and any failure,
inadequacy, interruption or security lapse of that technology,
including any cyber security incidents, could harm our ability to
operate our business effectively.
Despite
the implementation of security measures, our internal computer
systems and those of third parties with which we contract are
vulnerable to damage from cyber-attacks, computer viruses,
unauthorized access, natural disasters, terrorism, war and
telecommunication and electrical failures. System failures,
accidents or security breaches could cause interruptions in our
operations, and could result in a material disruption of ours
clinical and commercialization activities and business operations,
in addition to possibly requiring substantial expenditures of
resources to remedy. The loss of clinical trial data could result
in delays in our regulatory approval efforts and significantly
increase our costs to recover or reproduce the data. To the extent
that any disruption or security breach were to result in a loss of,
or damage to, our data or applications, or inappropriate disclosure
of confidential or proprietary information, we could incur
liability and our product research, development and
commercialization efforts could be delayed.
The wind down or spinoff of our Stellar subsidiary’s legacy
business may not deliver the expected results.
Following
the business combination with Edesa Biotech Research, Inc.,
formerly known as Edesa Biotech Inc., we refocused our primary
business on the development of innovative therapeutics for
dermatological and gastrointestinal indications with clear unmet
medical needs. Over the course of the next 12 months, we intend to
sell or wind down the principal assets and operations of our
Stellar subsidiary’s legacy business, which includes leased
aquaculture facilities, equipment and office space located in Port
Hueneme, California. The sale or wind down of the legacy business
operations may require additional time, may interfere with our
ability to achieve our business objectives and may be difficult to
manage. In addition, we cannot be sure that the sale and wind down
will be as successful in providing meaningful cash proceeds, if at
all; reducing or eliminating costs related to the legacy business;
or result in any unplanned expenditures or unknown, contingent or
other liabilities, including litigation arising in connection with
the wind down or sale of the legacy business assets and operations.
If our plans do not achieve the expected results, our business and
results of operations will be adversely impacted.
Risks Related to Clinical Development, Regulatory Approval and
Commercialization
If clinical trials of our product candidates fail to demonstrate
safety and efficacy to the satisfaction of the FDA, Health Canada
(HC) or the European Medicines Agency (EMA), or do not otherwise
produce favorable results, we may incur additional costs or
experience delays in completing, or ultimately be unable to
complete, the development and commercialization our product
candidates.
In
connection with obtaining marketing approval from regulatory
authorities for the sale of any product candidate, we must complete
preclinical development and then conduct extensive clinical trials
to demonstrate the safety and efficacy of our product candidates in
humans. Clinical trials are expensive, difficult to design and
implement, can take many years to complete and are uncertain as to
outcome. A failure of one or more clinical trials can occur at any
stage of testing. The outcome of preclinical testing and early
clinical trials may not be predictive of the success of later
clinical trials. In particular, the small number of subjects and
patients in early clinical trials of our product candidates may
make the results of these clinical trials less predictive of the
outcome of later clinical trials. The design of a clinical trial
can determine whether our results will support approval of a
product, and flaws in the design of a clinical trial may not become
apparent until the clinical trial is well advanced or completed.
There is no assurance that we will be able to design and execute a
clinical trial to support marketing approval. Moreover, preclinical
and clinical data are often susceptible to varying interpretations
and analyses, and many companies that have believed their product
candidates performed satisfactorily in preclinical studies and
clinical trials have nonetheless failed to obtain marketing
approval of their products.
S-9
Positive
results in pre-clinical studies of a product candidate may not be
predictive of similar results in humans during clinical trials, and
promising results from early clinical trials of a product candidate
may not be replicated in later clinical trials. A number of
companies in the pharmaceutical and biotechnology industries have
suffered significant setbacks in late-stage clinical trials even
after achieving promising results in early-stage development.
Accordingly, the results from completed pre-clinical studies and
clinical trials for our product candidates may not be predictive of
the results we may obtain in later stage trials or studies.
Pre-clinical studies or clinical trials may produce negative or
inconclusive results, and we may decide, or regulators may require
us, to conduct additional pre-clinical studies or clinical trials,
or to discontinue clinical trials altogether. Ultimately, we may be
unable to complete the development and commercialization of any of
our product candidates.
Interim results, top-line, initial data may not accurately reflect
the complete results of a particular study or trial.
We may
publicly disclose interim, top-line or initial data from time to
time that is based on a preliminary analysis of then-available
efficacy and safety data, and the results and related findings and
conclusions are subject to change following a more comprehensive
review of the data related to the particular study or trial. We
also make assumptions, estimates, calculations and conclusions as
part of our analyses of data, and we may not have received or had
the opportunity to fully evaluate all data. Interim, top-line and
initial data should be viewed with caution until the final data are
available. In addition, the information we may publicly disclose
regarding a particular preclinical or clinical study is based on
what is typically extensive information, and you or others may not
agree with what we determine is the material or otherwise
appropriate information to include in our disclosure, and any
information we determine not to disclose may ultimately be deemed
significant with respect to future decisions, conclusions, views,
activities or otherwise regarding a particular drug, drug candidate
or our business. If the interim, top-line or initial data that we
report differ from actual results, or if others, including
regulatory authorities, disagree with the conclusions reached, our
ability to obtain approval for, and commercialize, our product
candidates may be harmed or delayed, which could harm our business,
financial condition, operating results or prospects.
If clinical trials for our product candidates are prolonged or
delayed, we may be unable to commercialize our product candidates
on a timely basis, which would require us to incur additional costs
and delay our receipt of any revenue from potential product
sales.
We
cannot predict whether we will encounter problems with any of our
ongoing or planned clinical trials that will cause us or any
regulatory authority to delay or suspend those clinical trials. A
number of events, including any of the following, could delay the
completion of our ongoing and planned clinical trials and
negatively impact our ability to obtain regulatory approval for,
and to market and sell, a particular product
candidate:
●
conditions imposed
by the FDA or any foreign regulatory authority regarding the scope
or design of our clinical trials;
●
delays in
obtaining, or the inability to obtain, required approvals from
institutional review boards, or IRBs, or other reviewing entities
at clinical sites selected for participation in our clinical
trials;
●
insufficient supply
or deficient quality of product candidates supply or materials to
produce our product candidates or other materials necessary to
conduct our clinical trials;
●
delays in obtaining
regulatory agreement for the conduct of the clinical
trials;
S-10
●
lower than
anticipated enrollment and retention rate of subjects in clinical
trials for a variety of reasons, including size of patient
population, nature of trial protocol, the availability of approved
effective treatments for the relevant disease and competition from
other clinical trial programs for similar indications;
●
serious and
unexpected drug-related side effects experienced by patients in
clinical trials;
●
failure of
third-party contractors to meet their contractual obligations in a
timely manner;
●
pre-clinical or
clinical trials may produce negative or inconclusive results, which
may require us or any potential future collaborators to conduct
additional pre-clinical or clinical testing or to abandon projects
that we expect to be promising;
●
even if
pre-clinical or clinical trial results are positive, the FDA or
foreign regulatory authorities could nonetheless require
unanticipated additional clinical trials;
●
regulators or
institutional review boards may suspend or terminate clinical
research for various reasons, including noncompliance with
regulatory requirements;
●
product candidates
may not have the desired effects; and
●
the lack of
adequate funding to continue clinical trials.
Additionally,
changes in standard of care or regulatory requirements and guidance
may occur and we may need to amend clinical trial protocols to
reflect these changes. Such amendments may require us to resubmit
our clinical trial protocols to IRBs for re-examination, which may
impact the cost, timing or successful completion of a clinical
trial. Such changes may also require us to reassess the viability
of the program in question.
We do
not know whether our clinical trials will begin as planned, will
need to be restructured or will be completed on schedule, if at
all. Delays in clinical trials will result in increased development
costs for our product candidates. In addition, if we experience
delays in completion of, or if we terminate, any of our clinical
trials, the commercial prospects for our product candidates may be
affected and our ability to generate product revenues will be
delayed. Furthermore, many of the factors that cause, or lead to, a
delay in the commencement or completion of clinical trials may also
ultimately lead to the denial of regulatory approval of a product
candidate.
The clinical trial designs, endpoints and outcomes that will be
required to obtain marketing approval of a drug to treat chronic
ACD or any other indication are uncertain. We may never receive
marketing approval for EB01 as a treatment for chronic
ACD.
To our
knowledge, there are currently no FDA-approved treatment options
specifically indicated for chronic ACD. Accordingly, there is not a
well-established development path that, with positive outcomes in
clinical trials, would be reasonably assured of receiving marketing
approval for chronic ACD. In particular, if our Phase 2B clinical
trial of EB01 in individuals with chronic ACD is successful, we
plan to use the trial to support pivotal clinical trials designed
to establish the efficacy of EB01 to support, together with
additional long-term safety data, an application for regulatory
approval as a treatment for chronic ACD. The FDA or any regulatory
authority outside of the United States may determine that the
designs or endpoints of any potentially pivotal trial that we
conduct, or that the outcome shown on any particular endpoint in
any potentially pivotal trial that we conduct, are not sufficient
to establish a clinically meaningful benefit for EB01 in the
treatment of chronic ACD or otherwise to support approval, even if
the primary endpoint or endpoints of the trial is or are met with
statistical significance. If this occurs, our business could be
materially harmed. Moreover, if the FDA requires us to conduct
additional clinical trials beyond the ones that we currently
contemplate in order to support regulatory approval in the United
States of EB01 for the treatment of chronic ACD, our finances and
results from operations will be adversely impacted.
S-11
Likewise,
if we conduct any future clinical trials designed to support
marketing approval of EB02 as a treatment for HD or clinical trials
designed to support marketing approval of any other of our product
candidates, the FDA or any regulatory authority outside of the
United States may determine that the designs or endpoints of the
trial, or that the outcomes shown on any particular endpoint in the
trial, are not sufficient to establish a clinically meaningful
benefit or otherwise to support approval, even if the primary
endpoint of the trial is met with statistical
significance.
Our Phase 2B clinical trial of EB01 in individuals with chronic ACD
will not be sufficient to be considered a pivotal trial to support
an application for marketing approval of EB01. Even if our Phase 2B
study meets our primary endpoints, it is not certain that
additional pivotal Phase 3 studies, together with additional
long-term safety data will have positive outcomes and or will be
sufficient to enable EB01 to gain regulatory approval as a
treatment for chronic ACD.
If our
Phase 2B clinical trial of EB01 in individuals with chronic ACD
meets our primary endpoints, we plan to request an end of Phase 2
meeting with the FDA and regulatory authorities outside the United
States to seek guidance on the requirements for a new drug
application. We cannot predict the requirements for each of these
regulatory agencies and the requirements set forth by the agencies
could delay and/or negatively impact our ability to obtain
regulatory approval for, and to market and sell a particular
product candidate. We expect to be required by the FDA to conduct
two Phase 3 pivotal clinical trials in patients with chronic ACD to
establish the efficacy of EB01 to support, together with additional
long-term safety data, an application for regulatory approval of
EB01 as a treatment for chronic ACD. The likelihood that the FDA or
any regulatory authority outside the United States will concur with
our plan is uncertain. The FDA or any other regulatory authority
may instead determine that additional clinical and/or non-clinical
trials are required to establish the efficacy of EB01 as a
treatment for chronic ACD, even if the outcome of our Phase 2B
study in individuals is favorable. The risk that the FDA or any
other regulatory authority will determine that additional clinical
and/or non-clinical trials are required to establish the efficacy
of EB01 as a treatment for chronic ACD may be even higher if we
select a primary endpoint for our planned pivotal Phase 3 trials in
chronic ACD for which there is only limited data generated in our
Phase 2 studies. In addition, we intend to enroll in our study
individuals with chronic ACD caused by any of a number of different
conditions (allergens). This may also increase the risk of the FDA
or another regulatory authority determining that additional
clinical and/or non-clinical trials are required to establish the
efficacy of EB01 as a treatment for chronic ACD. If the FDA or a
regulatory authority outside of the United States makes the
determination that additional clinical and/or non-clinical trials
are required, it would result in a more expensive and potentially
longer development program for EB01 than we currently contemplate,
which could delay our ability to generate product revenues with
EB01, interfere with our ability to enter into any potential
licensing or collaboration arrangements with respect to this
program, cause the value of the company to decline, and limit our
ability to obtain additional financing.
If we experience new or additional delays or difficulties in the
enrollment of patients in our clinical trial of EB01 or any other
product candidate, our application and or receipt of marketing
approvals could be delayed or prevented.
Recruiting
patients with moderate to severe chronic ACD may be challenging as
there have not been recent clinical studies conducted with this
patient population. If we are unable to locate and enroll a
sufficient number of eligible patients to participate in clinical
trials of our product candidates including, in particular, our
ongoing trial of EB01 and our planned pivotal trials of EB01 as a
treatment for ACD, we may not be able to initiate or complete the
clinical trials.
S-12
Enrollment
delays in our ongoing or planned clinical trials may result in
increased development costs for our product candidates, which would
cause the value of the company to decline and limit our ability to
obtain additional financing. Our inability to enroll a sufficient
number of patients in our ongoing or planned clinical trials of
EB01, or any other Edesa product candidate, would result in
significant delays or may require us to abandon one or more
clinical trials altogether.
If the commercial opportunity in chronic ACD is smaller than we
anticipate, or if we elect to develop EB01 to treat only a specific
subpopulation of patients with chronic ACD, our future revenue from
EB01 will be adversely affected and our business will
suffer.
It is
critical to our ability to grow and become profitable that we
successfully identify patients with chronic ACD. Our projections of
the number of people who have chronic ACD as well as the subset who
have the potential to benefit from treatment with EB01, are based
on a variety of sources, including third-party estimates and
analyses in the scientific literature, and may prove to be
incorrect. Further, new information may emerge that changes our
estimate of the prevalence of these diseases or the number of
patient candidates for EB01. The effort to identify patients with
chronic ACD or our other potential target indications is at an
early stage, and we cannot accurately predict the number of
patients for whom treatment might be possible. Additionally, the
potentially addressable patient population for EB01 may be limited
or may not be amenable to treatment with EB01, and new patients may
become increasingly difficult to identify or access. If the
commercial opportunity in chronic ACD is smaller than we
anticipate, or if we elect to develop EB01 to treat only a specific
subpopulation of patients with chronic ACD, our future financial
performance may be adversely impacted.
While we have chosen to test our product candidates in specific
clinical indications based in part on our understanding of their
mechanisms of action, our understanding may be incorrect or
incomplete and, therefore, our product candidates may not be
effective against the diseases tested in our clinical
trials.
Our
rationale for selecting the particular therapeutic indications for
each of our product candidates is based in part on our
understanding of the mechanism of action of these product
candidates. However, our understanding of the product
candidates’ mechanism of action may be incomplete or
incorrect, or the mechanism may not be clinically relevant to the
diseases treated. In such cases, our product candidates may prove
to be ineffective in the clinical trials for treating those
diseases, and adverse clinical trial results would likely
negatively impact our business and results from
operations.
A successful sPLA2
drug has not been developed to date and we can provide no
assurances that we will be successful or that there will be no
adverse side effects.
Our
unique lead product candidates are first-in-class, novel,
non-steroidal, synthetic anti-inflammatory products that address
the need to target sPLA2
in a broad-ranged manner while avoiding any interference with the
homeostatic cPLA2 family. To date
no drug companies have successfully commercialized an sPLA2
inhibitor and as a result the efficacy and long-term side effects
are not known. There is no guarantee that we will successfully
develop and/or commercialize an sPLA2
inhibitor and/or that our product candidates will have no adverse
side effects.
S-13
Even if one of our product candidates receives marketing approval,
it may fail to achieve the degree of market acceptance by
physicians, patients, third-party payors and others in the medical
community necessary for commercial success.
If any
product candidate receives marketing approval, the approved product
may nonetheless fail to gain sufficient market acceptance by
physicians, patients, third-party payors and others in the medical
community. If an approved product does not achieve an adequate
level of acceptance, we may not generate significant product
revenues or any profits from operations. Our ability to negotiate,
secure and maintain third-party coverage and reimbursement for our
product candidates may be affected by political, economic and
regulatory developments in the United States, Canada, the European
Union and other jurisdictions. Governments continue to impose cost
containment measures, and third-party payors are increasingly
challenging prices charged for medicines and examining their cost
effectiveness, in addition to their safety and efficacy. These and
other similar developments could significantly limit the degree of
market acceptance of any of our future product candidates that
receive marketing approval.
If we are unable to establish
sales and marketing capabilities or enter into agreements with
third parties to market and any of our other current or future
product candidates, we may not be successful in commercializing the
applicable product candidate if it receives marketing
approval.
We do
not have a sales or marketing infrastructure and have no experience
as a company in the sale or marketing of pharmaceutical products.
To achieve commercial success for any approved product, we must
either develop a sales and marketing organization or outsource
these functions to third parties. There are risks involved with
establishing our own sales and marketing capabilities and entering
into arrangements with third parties to perform these services. For
example, recruiting and training a sales force is expensive and
time consuming and could delay any product launch. If the
commercial launch of a product candidate for which we recruit a
sales force and establish marketing capabilities is delayed or does
not occur for any reason, we would have prematurely or
unnecessarily incurred these commercialization expenses. This may
be costly, and our investment would be lost if we cannot retain or
reposition our sales and marketing personnel. If we enter into
arrangements with third parties to perform sales and marketing
services, our product revenues or the profitability of these
product revenues to us could be lower than if we were to market and
sell any products that we develop ourselves. In addition, we may
not be successful in entering into arrangements with third parties
to sell and market our product candidates or may be unable to do so
on terms that are acceptable to us. We likely will have little
control over such third parties, and any of them may fail to devote
the necessary resources and attention to sell and market our
products effectively. If we do not establish sales and marketing
capabilities successfully, either on our own or in collaboration
with third parties, we will not be successful in commercializing
our product candidates.
We face substantial competition, which may result in others
discovering, developing or commercializing products to treat our
target indications or markets before or more successfully than we
do.
The
development and commercialization of new drug products is highly
competitive. We face competition with respect to our current
product candidates and any products we may seek to develop or
commercialize in the future from major pharmaceutical companies,
specialty pharmaceutical companies and biotechnology companies
worldwide.
Competitors
may also include academic institutions, government agencies and
other public and private research organizations that conduct
research, seek patent protection and establish collaborative
arrangements for research, development, manufacturing and
commercialization. Many of our competitors have significantly
greater financial resources and expertise in research and
development, manufacturing, preclinical testing, conducting
clinical trials, obtaining approvals from regulatory authorities
and marketing approved products than we do. Mergers and
acquisitions in the pharmaceutical and biotechnology industries may
result in even more resources being concentrated among a smaller
number of our competitors. Smaller and other early-stage companies
may also prove to be significant competitors, particularly through
collaborative arrangements with large and established companies.
These third parties compete with us in recruiting and retaining
qualified scientific and management personnel, establishing
clinical trial sites and patient registration for clinical trials,
as well as in acquiring technologies that may be complementary to
or necessary for our programs. Our commercial opportunities could
be reduced or eliminated if our competitors develop and
commercialize products that are more effective, safer, have fewer
or less severe side effects, are approved for broader indications
or patient populations, or are more convenient or less expensive
than any products that we develop and commercializes. Our
competitors may also obtain marketing approval for their products
more rapidly than we may obtain approval for our products, which
could result in our competitors establishing a strong market
position before we are able to enter the market. If approved, our
product candidates will compete for a share of the existing market
with numerous other products being used to treat ACD.
S-14
Even if we are able to commercialize one of our product candidates
, the product may become subject to unfavorable pricing
regulations, third-party reimbursement practices or healthcare
reform initiatives, which would harm our business.
The
regulations that govern marketing approvals, pricing, coverage and
reimbursement for new drug products vary widely from country to
country. Current and future legislation may significantly change
the approval requirements in ways that could involve additional
costs and cause delays in obtaining approvals. Some countries
require approval of the sale price of a drug before it can be
marketed. In many countries, the pricing review period begins after
marketing or product licensing approval is granted and, in some
markets, prescription pharmaceutical pricing remains subject to
continuing governmental control even after initial approval is
granted. As a result, we might obtain marketing approval for a
product in a particular country, but then be subject to price
regulations that delay our commercial launch of the product,
possibly for lengthy time periods, and negatively impact the
revenues we are able to generate from the sale of the product in
that country. Adverse pricing limitations may hinder our ability to
recoup our investment in one or more product candidates, even if
our product candidates obtain marketing approval.
Our
ability to commercialize EB01 or any other product candidate
successfully also will depend in part on the extent to which
coverage and adequate reimbursement for these products and related
treatments will be available from government health administration
authorities, private health insurers and other organizations.
Government authorities and other third-party payors, such as
private health insurers and health maintenance organizations,
decide which medications they will pay for and establish
reimbursement levels. Our inability to promptly obtain coverage and
adequate reimbursement rates from both government-funded and
private payors for any approved products that we develop could have
a material adverse effect on our operating results, our ability to
raise capital needed to commercialize products and our overall
financial condition.
Product liability lawsuits against us could cause us to incur
substantial liabilities and to limit commercialization of any
products that we may develop.
We face
an inherent risk of product liability exposure related to the
testing of our product candidates in human clinical trials and will
face an even greater risk if we commercially sell any products that
we may develop. If we cannot successfully defend ourselves against
claims that our product candidates or products caused injuries, we
will incur substantial liabilities.
We have
separate liability insurance policies that cover each of our
ongoing clinical trials, which provide coverage in varying amounts.
The amount of insurance that we currently hold may not be adequate
to cover all liabilities that we may incur. We will need to
increase our insurance coverage when and if we begin conducting
more expansive clinical development of our product candidates.
Insurance coverage is increasingly expensive. We may not be able to
maintain insurance coverage at a reasonable cost or in an amount
adequate to satisfy any liability that may arise.
We will be dependent on third parties for the synthesis,
formulation, and manufacturing, including optimization, technology
transfers and scaling up of clinical scale quantities of all of our
product candidates.
We have
no direct experience in synthesizing, formulating and manufacturing
any of our product candidates, and currently lack the resources or
capability to synthesize, formulate and manufacture any of our
product candidates on a clinical or commercial scale. As a result,
we will be dependent on third parties for the synthesis,
formulation, and manufacturing, including optimization, technology
transfers and scaling up of clinical scale quantities of all our
product candidates. We believe that this strategy will enable us to
direct operational and financial resources to the development of
our product candidates rather than diverting resources to
establishing manufacturing infrastructure; however our use of third
parties to manufacture our product candidates may increase the risk
that we will not have sufficient quantities of our product
candidates or products or such quantities at an acceptable cost,
which could delay, prevent or impair our development or
commercialization efforts.
S-15
We do
not currently have any agreements with third-party manufacturers
for the long-term clinical or commercial supply of any of our
product candidates and may in the future be unable to scale-up
and/or conclude agreements for commercial supply with commercial
third-party manufacturers on acceptable terms, or at all. Even if
we are able to establish and maintain arrangements with third-party
manufacturers, they may encounter difficulties in achieving volume
production, laboratory testing, quality control or quality
assurance or suffer shortages of qualified personnel, any of which
could result in our inability to manufacture sufficient quantities
to meet clinical timelines for a particular product candidate, to
obtain marketing approval for the product candidate or to
commercialize the product candidate. In addition, third-party
manufacturers may not be able to comply with current good
manufacturing practice, or GMP, regulations or similar regulatory
requirements outside the United States. Our failure, or the failure
of our third-party manufacturers, to comply with applicable
regulations could result in sanctions being imposed on us,
including fines, injunctions, civil penalties, delays, suspension
or withdrawal of approvals, license revocation, seizures or recalls
of product candidates or products, operating restrictions and
criminal prosecutions, any of which could significantly and
adversely affect supplies of our product candidates.
Our
product candidates and any products that we may develop may compete
with other product candidates and products for access to
manufacturing facilities. There are a limited number of
manufacturers that operate under cGMP regulations and that might be
capable of manufacturing for us. If the third parties that we
contract to manufacture product for our preclinical tests and
clinical trials cease to continue to do so for any reason or if we
elect to change suppliers, we likely would experience delays in
advancing these clinical trials while we identify and qualify
replacement suppliers and we may be unable to obtain replacement
supplies on terms that are favorable to us. In addition, if we are
not able to obtain adequate supplies of our product candidates or
the drug substances used to manufacture them, it will be more
difficult for us to develop our product candidates and compete
effectively. Our current and anticipated future dependence upon
others for the manufacture of our product candidates may adversely
affect our future profit margins and our ability to develop product
candidates and commercialize any products that receive marketing
approval on a timely and competitive basis.
We depend on third-party suppliers for key raw materials used in
our manufacturing processes, and the loss of these third-party
suppliers or their inability to supply us with adequate raw
materials could harm our business.
We rely
on third-party suppliers for the raw materials required for the
production of our product candidates. Our dependence on these
third-party suppliers and the challenges we may face in obtaining
adequate supplies of raw materials involve several risks, including
limited control over pricing, availability, quality, and delivery
schedules. We cannot be certain that our current suppliers will
continue to provide us with the quantities of these raw materials
that we require to satisfy our anticipated specifications and
quality requirements. Any supply interruption in limited or sole
sourced raw materials could materially harm our ability to
manufacture our products until a new source of supply, if any, can
be identified and qualified. Although we believe there are several
other suppliers of these raw materials, we may be unable to find a
sufficient alternative supply channel in a reasonable time or on
commercially reasonable terms. Any performance failure on the part
of our suppliers could delay the development and commercialization
of our product candidates, including limiting supplies necessary
for clinical trials and regulatory approvals, or interrupt
production of the existing products that are already marketed,
which would have a material adverse effect on our
business.
S-16
We rely on third parties to conduct our clinical trials and those
third parties may not perform satisfactorily, including failing to
meet deadlines for the completion of such clinical
trials.
We do
not independently conduct clinical trials for our product
candidates. We rely on third parties, such as contract research
organizations, clinical data management organizations, medical
institutions, drug distributers, clinical investigators and
government agencies, to perform this function. Any of these third
parties may terminate their engagements with us at any time. If we
need to enter into alternative arrangements, it would delay our
product development activities. If these third parties do not
successfully carry out their contractual duties, meet expected
deadlines or conduct our clinical trials in accordance with
regulatory requirements or our stated protocols, we will not be
able to obtain, or may be delayed in obtaining, marketing approvals
for our product candidates and will not be able to, or may be
delayed in our efforts to, successfully commercialize our product
candidates. Our product development costs will increase if we
experience delays in testing or obtaining marketing
approvals.
Our
reliance on these third parties for clinical development activities
reduces our control over these activities but does not relieve us
of our responsibilities. For example, we remain responsible for
ensuring that each of our clinical trials is conducted in
accordance with the general investigational plan and protocols for
the clinical trial. Moreover, the FDA and foreign regulatory
authorities require us to comply with standards, commonly referred
to as Good Clinical Practice, or GCP, for conducting, recording and
reporting the results of clinical trials to assure that data and
reported results are credible and accurate and that the rights,
integrity of data and confidentiality of clinical trial
participants are protected.
We may depend on additional collaborations, licenses or similar
arrangements with third parties for the development and
commercialization of some of our product candidates. If those
collaborations are not successful, we may not be able to capitalize
on the market potential of these product candidates.
We may
in the future enter into other licensing, collaboration or similar
arrangements for the development and commercialization of our
product candidates for any or all indications and for any or all
territories. Our likely counterparties for any licensing,
collaboration or similar arrangement include large and mid-size
pharmaceutical companies, regional and national pharmaceutical
companies and biotechnology companies. However, if we do enter into
any such arrangements with any third parties in the future, we will
likely have limited control over the amount and timing of resources
that our collaborators dedicate to the development or
commercialization of the applicable product candidate. Our ability
to generate revenues from these arrangements will depend on our
collaborators’ abilities and efforts to successfully perform
the functions assigned to them in these arrangements. Collaboration
agreements may not lead to development or commercialization of
product candidates in the most efficient manner or at all. If a
collaborator of ours were to be involved in a business combination,
the continued pursuit and emphasis on our product development or
commercialization program could be delayed, diminished or
terminated.
If we are not able to establish additional collaborations, we may
have to alter our development and commercialization
plans.
We may
decide to collaborate with pharmaceutical and biotechnology
companies for the development and potential commercialization of
EB01 or other product candidates. Collaborations are complex and
time-consuming to negotiate and document and we face significant
competition in seeking appropriate collaborators. In addition,
there have been a significant number of business combinations among
large pharmaceutical companies that have resulted in a reduced
number of potential future collaborators. We may not be able to
negotiate collaborations on a timely basis, on acceptable terms, or
at all. If we are unable to do so, we may have to curtail the
development of a product candidate, reduce or delay our development
program or one or more of our other development programs, delay our
potential commercialization or reduce the scope of any sales or
marketing activities, or increase our expenditures and undertake
development or commercialization activities at our own expense. If
we elect to increase our expenditures to fund development or
commercialization activities on our own, we would likely need to
obtain additional capital, which may not be available to us on
acceptable terms, or at all. If we do not have sufficient funds, we
may not be able to further develop our product candidates or bring
them to market and generate product revenue.
S-17
Even if we complete the necessary clinical trials, the marketing
approval process is expensive, time consuming and uncertain and may
prevent us from obtaining approvals for the commercialization of
some or all of our product candidates. If we are not able to
obtain, or if there are delays in obtaining, required marketing
approvals, we will not be able to commercialize our product
candidates, and our ability to generate revenue will be materially
impaired.
Our
product candidates and the activities associated with their
development and commercialization, including their design, testing,
manufacture, safety, efficacy, recordkeeping, labeling, storage,
approval, advertising, promotion, sale and distribution, are
subject to comprehensive regulation by the FDA and by comparable
authorities in other countries. Failure to obtain marketing
approval for a product candidate will prevent us from
commercializing the product candidate. We have not received
approval to market EB01 or any other Edesa product candidate from
regulatory authorities in any jurisdiction.
We have
only limited experience in filing and supporting the applications
necessary to obtain marketing approvals for product candidates and
expect to rely on third-party contract research organizations to
assist us in this process. Securing marketing approval requires the
submission of extensive preclinical and clinical data and
supporting information to regulatory authorities for each
therapeutic indication to establish the product candidate’s
safety and effectiveness. Securing marketing approval also requires
the submission of information about the product manufacturing
process to, and inspection of manufacturing facilities by, the
regulatory authorities. Regulatory authorities may determine that
EB01, or any of our other product candidates is not effective, is
only moderately effective or has undesirable or unintended side
effects, toxicities, safety profiles or other characteristics that
preclude us from obtaining marketing approval or that prevent or
limit commercial use.
The
process of obtaining marketing approvals is expensive, may take
many years, if approval is obtained at all, and can vary
substantially based upon a variety of factors, including the type,
complexity and novelty of the product candidates involved. Changes
in marketing approval policies during the development period,
changes in or the enactment of additional statutes or regulations,
or changes in regulatory review for each submitted product
application, may cause delays in the approval or rejection of an
application. Regulatory authorities have substantial discretion in
the approval process and may refuse to accept any application or
may decide that our data are insufficient for approval and require
additional preclinical studies, clinical trials or other trials. In
addition, varying interpretations of the data obtained from
preclinical and clinical testing could delay, limit or prevent
marketing approval of a product candidate. Any marketing approval
we ultimately obtain may be limited or subject to restrictions or
post-approval commitments that render the approved product not
commercially viable. If we experience delays in obtaining approval
or if we fail to obtain approval of our product candidates, the
commercial prospects for our product candidates may be harmed and
our ability to generate revenues will be materially
impaired.
Even if we obtain marketing approval for our product candidates,
the terms of approvals and ongoing regulation of our products may
limit how we manufacture and market our products, and compliance
with such requirements may involve substantial resources, which
could materially impair our ability to generate
revenue.
Even if
marketing approval of a product candidate is granted, an approved
product and our manufacturer and marketer are subject to ongoing
review and extensive regulation, including the possible requirement
to implement a risk evaluation and mitigation strategy or to
conduct costly post-marketing studies or clinical trials and
surveillance to monitor the safety or efficacy of the product. We
must also comply with requirements concerning advertising and
promotion for any of our product candidates for which we obtain
marketing approval. Promotional communications with respect to
prescription drugs are subject to a variety of legal and regulatory
restrictions and must be consistent with the information in the
product’s approved labeling. Thus, we will not be able to
promote any products we develop for indications or uses for which
they are not approved. In addition, manufacturers of approved
products and those manufacturers’ facilities are required to
ensure that quality control and manufacturing procedures conform to
cGMP, which include requirements relating to quality control and
quality assurance as well as the corresponding maintenance of
records and documentation and reporting requirements. We and our
contract manufacturers could be subject to periodic unannounced
inspections by the FDA to monitor and ensure compliance with
cGMP.
S-18
Accordingly,
assuming we receive marketing approval for one or more of our
product candidates, we and our contract manufacturers will continue
to expend time, money and effort in all areas of regulatory
compliance, including manufacturing, production, product
surveillance and quality control. If we are not able to comply with
post-approval regulatory requirements, we could have the marketing
approvals for our products withdrawn by regulatory authorities and
our ability to market any future products could be limited, which
could adversely affect our ability to achieve or sustain
profitability. Thus, the cost of compliance with post-approval
regulations may have a negative effect on our operating results and
financial condition.
Our relationships with customers, healthcare providers and
professionals and third-party payors will be subject to applicable
anti-kickback, fraud and abuse and other healthcare laws and
regulations, which could expose us to criminal sanctions, civil
penalties, contractual damages, reputational harm and diminished
profits and future earnings.
Healthcare
providers, physicians and third-party payors play a primary role in
the recommendation and prescription of any product candidate for
which we may obtain marketing approval. Our future arrangements
with customers, healthcare providers and professionals, and
third-party payors may expose us to broadly applicable federal
anti-kickback, federal and state fraud and abuse and other
healthcare laws and regulations that may constrain the business or
financial arrangements and relationships through which we market,
sell and distribute any product candidate for which we obtain
marketing approval.
Efforts
to ensure that our business arrangements with third parties will
comply with applicable healthcare laws and regulations will involve
substantial costs. It is possible that governmental authorities
will conclude that our business practices may not comply with
current or future statutes, regulations or case law involving
applicable fraud and abuse or other healthcare laws and
regulations. If our operations are found to be in violation of any
of these laws or any other governmental regulations that may apply
to us, we may be subject to significant civil, criminal and
administrative penalties, damages, fines, exclusion from government
funded healthcare programs, such as Medicare and Medicaid, and the
curtailment or restructuring of our operations. Violation of
certain of these laws could also result in exclusion, suspension
and debarment from government funded healthcare programs.
Exclusion, suspension or debarment would significantly impact our
ability to commercialize, sell or distribute any product candidate
for which we obtain regulatory approval. If any of the physicians
or other providers or entities with whom we expect to do business
are found to be not in compliance with applicable laws, they may be
subject to criminal, civil or administrative sanctions, including
exclusions from government funded healthcare programs.
Use of social media platforms presents new risks.
We
believe that our potential patient population is active on social
media. Social media practices in the pharmaceutical and
biotechnology industries are evolving, which creates uncertainty
and risk of noncompliance with regulations applicable to our
business. For example, patients may use social media platforms to
comment on the effectiveness of, or adverse experiences with, a
product candidate, which could result in reporting obligations. In
addition, there is a risk of inappropriate disclosure of sensitive
information or negative or inaccurate posts or comments about us or
our product candidates on any social networking website. If any of
these events were to occur or we otherwise fail to comply with
applicable regulations, we could incur liability, face restrictive
regulatory actions or incur other harm to our
business.
S-19
Risks Related to Our Intellectual Property
We are dependent on a license relationship with Yissum for our EB01
and EB02 programs
In
2016, we entered into an exclusive license agreement with Yissum
Research Development Company of the Hebrew University of Jerusalem
to obtain exclusive rights to certain know-how, patents and data
relating to a pharmaceutical product. We are using the exclusive
rights to develop the product for therapeutic, prophylactic and
diagnostic uses in topical dermal applications and anorectal
applications, including for the development of EB01 to treat ACD
and EB02 to treat HD. Concurrently, we also entered into a
consulting agreement with an individual associated with Yissum for
the development of the product. If we default or fail to perform
any of the terms, covenants, provisions or our obligations under
the License Agreement, Yissum has the option to terminate the
License Agreement, subject to advance notice to cure such default.
Any termination of this license agreement would have a materially
adverse impact on our business and results from
operations.
If we are unable to obtain and maintain patent protection for our
licensed technology and products, or if the scope of the patent
protection is not sufficiently broad, our competitors could develop
and commercialize technology and products similar or identical to
ours, and our ability to successfully commercialize our licensed
technology and products may be adversely affected.
Our
success will partially depend on our ability to obtain and maintain
patent protection in the United States and other countries with
respect to our proprietary technology and products. We intend to
protect our proprietary position by filing patent applications in
the United States, in Europe and in certain additional
jurisdictions related to our novel technologies and product
candidates that are important to our business. This process is
expensive and time-consuming, and we may not be able to file and
prosecute all necessary or desirable patent applications at a
reasonable cost or in a timely manner. It is also possible that we
will fail to identify patentable aspects of our research and
development output before it is too late to obtain patent
protection. Moreover, if we license technology or product
candidates from third parties in the future, these license
agreements may not permit us to control the preparation, filing and
prosecution of patent applications, or to maintain or enforce the
patents, covering the licensed technology or product candidates.
These agreements could also give our licensors the right to enforce
the licensed patents without our involvement, or to decide not to
enforce the patents at all. Therefore, in these circumstances,
these patents and applications may not be prosecuted or enforced in
a manner consistent with the best interests of our
business.
The
patent position of biotechnology and pharmaceutical companies
generally is highly uncertain, involves complex legal and factual
questions and has been the subject of much litigation. As a result,
the issuance, scope, validity, enforceability and commercial value
of any patents issued to us will likely be highly uncertain. Patent
applications that we file may not result in patents being issued
which protect our technology or products, in whole or in part, or
which effectively prevent others from commercializing competitive
technologies and products. Changes in either the patent laws or
interpretation of the patent laws in the United States and other
countries may also diminish the value of patents issued to us,
narrow the scope of our patent protection or make enforcement more
difficult or uncertain.
We may become involved in lawsuits or other enforcement proceedings
to protect or enforce our patents or other intellectual property,
which could be expensive, time consuming and potentially
unsuccessful.
Competitors
may infringe our patents, trademarks, copyrights or other
intellectual property. To counter infringement or unauthorized use,
we may be required to file claims, which can be expensive and time
consuming to prosecute. Any claims we assert against perceived
infringers could provoke these parties to assert counterclaims
against us alleging that we infringe their intellectual property or
that our patent and other intellectual property rights are invalid
or unenforceable, including for antitrust reasons. As a result, in
a patent infringement proceeding, a court or administrative body
may decide that a patent of ours is invalid or unenforceable, in
whole or in part, or may construe the patent’s claims
narrowly and so refuse to stop the other party from using the
technology at issue on the grounds that our patents do not cover
the competitor technology in question. Even if we are successful in
a patent infringement action, the unsuccessful party may
subsequently raise antitrust issues and bring a follow-on action
thereon. Antitrust issues may also provide a bar to settlement or
constrain the permissible settlement terms.
S-20
Third parties may initiate legal proceedings alleging that we are
infringing their intellectual property rights, the outcome of which
would be uncertain and could have a material adverse effect on the
success of our business.
Our
commercial success depends upon our ability and the ability of our
collaborators to develop, manufacture, market and sell our product
candidates and use our proprietary technologies without infringing
the intellectual property and other proprietary rights of third
parties. There is considerable intellectual property litigation in
the biotechnology and pharmaceutical industries, and we may become
party to, or threatened with, future adversarial proceedings or
litigation regarding intellectual property rights with respect to
our products and technology, including interference,
derivation, inter partes
review, reexamination, reissue or post-grant review proceedings
before the USPTO. The risks of being involved in such litigation
and office proceedings may also increase as our product candidates
approach commercialization, and as our business gains greater
visibility operating as a publicly traded company in the United
States. Third parties may assert infringement claims against us
based on existing or future intellectual property rights and to
restrict our freedom to operate. Third parties may also seek
injunctive relief against us, whereby they would attempt to prevent
us from practicing our technologies altogether pending outcome of
any litigation against us. We may not be aware of all such
intellectual property rights potentially relating to our product
candidates prior to their assertion against us. For example, we
have not conducted an in-depth freedom-to-operate search or
analysis of any of our product candidates. Any freedom-to-operate
search or analysis previously conducted may not have uncovered all
relevant patents and pending patent applications, and there may be
pending or future patent applications that, if issued, would block
us from commercializing any of our product candidates. Thus, we do
not know with certainty whether our product candidates or our
commercialization thereof, does not and will not infringe any third
party’s intellectual property.
If we
are found to infringe a third party’s intellectual property
rights, to avoid or settle litigation, we could be required to
obtain a license to enable us to continue developing and marketing
our products and technology. However, we may not be able to obtain
any required license on commercially reasonable terms, or at all.
Even if we were able to obtain a license, it could be nonexclusive,
thereby giving our competitors access to the same technologies as
are licensed to us, and could require us to make substantial
payments. Absent a license, we could be forced, including by court
order, to cease commercializing the infringing technology or
product. In addition, we could be found liable for monetary
damages, including treble damages and attorneys’ fees if we
are found to have willfully infringed a patent or other
intellectual property right. A finding of infringement could
prevent us from commercializing our product candidates or force us
to cease some of our business operations, which could materially
harm our business.
We may be subject to claims by third parties asserting that the
company or our employees have misappropriated their intellectual
property, or claiming ownership of what we regard as our own
intellectual property.
Many of
our employees were previously employed at universities or other
biotechnology or pharmaceutical companies. Although we try to
ensure that our employees do not use the proprietary or otherwise
confidential information or know-how of others in their work for
us, we may be subject to claims that the company or these employees
have without authorization used or disclosed intellectual property,
including trade secrets or other proprietary or confidential
information, of any such employee’s former employer.
Litigation may be necessary to defend against these
claims.
In
addition, while we typically require our employees and contractors
who may be involved in the development of intellectual property to
execute agreements assigning such intellectual property to us and
agree to cooperate and assist us with securing and defending our
intellectual property, we may be unsuccessful in executing such an
agreement with each party who in fact develops intellectual
property that we regard as our own. These assignment agreements may
not be self-executing or may be breached, and we may be forced to
bring claims against third parties, or defend claims they may bring
against us, to determine the ownership of what we regard as our
intellectual property.
S-21
If we
fail in prosecuting or defending any such claims, in addition to
paying monetary damages, we may lose valuable intellectual property
rights or personnel. Even if we are successful in prosecuting or
defending against such claims, litigation could result in
substantial costs and be a distraction to management.
Intellectual property litigation could cause us to spend
substantial resources and could distract our personnel from their
normal responsibilities.
Even if
resolved in our favor, litigation or other legal proceedings
relating to intellectual property claims may cause us to incur
significant expenses and likely would distract our technical and
management personnel from their normal responsibilities. In
addition, there could be public announcements of the results of
hearings, motions or other interim proceedings or developments that
could have a substantial adverse effect on the price of our common
shares. Such litigation or proceedings could substantially increase
our operating losses and reduce the resources available for
development, sales, marketing or distribution activities. We may
not have sufficient financial or other resources to adequately
conduct such litigation or proceedings. Some of our competitors may
be able to sustain the costs of such litigation or proceedings more
effectively than we can because of their greater financial
resources. Accordingly, costs and lost management time, as well as
uncertainties resulting from the initiation and continuation of
patent litigation or other proceedings, could have a material
adverse effect on our ability to compete in the
marketplace.
If we are unable to protect the confidentiality of our trade
secrets, our business and competitive position would be
harmed.
We
partially rely on trade secrets and know-how, including unpatented
know-how, technology and other proprietary and confidential
information, to maintain our competitive position. We seek to
protect these trade secrets, in part, by entering into
nondisclosure and confidentiality agreements with parties who have
access to them, such as our employees, corporate collaborators,
outside scientific collaborators, contract manufacturers,
consultants, advisors and other third parties. However, we cannot
guarantee that we have executed these agreements with each party
that may have or have had access to our trade secrets or that the
agreements we have executed will provide adequate protection. Any
party with whom we have executed such an agreement may breach that
agreement and disclose our proprietary or confidential information,
including our trade secrets, and we may not be able to obtain
adequate remedies for such breaches. Enforcing a claim that a party
illegally disclosed or misappropriated a trade secret is difficult,
expensive and time-consuming, and the outcome is unpredictable. In
addition, some courts inside and outside the United States are less
willing or unwilling to protect trade secrets. If any of our trade
secrets were to be lawfully obtained or independently developed by
a competitor, we would have no right to prevent them, or those to
whom they communicate it, from using that technology or information
to compete with us. If any of our trade secrets, particularly
unpatented know-how, were to be obtained or independently developed
by a competitor, our competitive position would be
harmed.
Risks Relating to this Offering, the Securities Markets and
Ownership of Our Common Shares
Purchasers in this offering will experience immediate dilution in
the net tangible book value of their investment.
Purchasers of our Common Shares in this offering will experience an
immediate dilution in the net tangible book value of the Common
Shares purchased in this offering because the price per share of
Common Shares in this offering is substantially higher than the net
tangible book value of each Common Share outstanding immediately
after this offering. Our net tangible book value as of September
30, 2019 was approximately $5,256,130, or approximately $0.70 per
Common Share. See “Dilution” in this prospectus
supplement for a more detailed discussion of the dilution you will
incur if you purchase shares in this offering.
S-22
Our management will have broad discretion over the use of the
proceeds we receive in this offering and might not apply the
proceeds in ways that increase the value of your
investment.
Our management will have broad discretion to use our net proceeds
from this offering and you will be relying on the judgment of our
management regarding the application of these proceeds. Our
management might not apply our net proceeds of this offering in
ways that increase the value of your investment. You will not have
the opportunity to influence our decisions on how to use our net
proceeds from this offering.
Raising additional capital may cause dilution to our investors,
restrict our operations or require us to relinquish rights to our
technologies or product candidates.
Any issuance of equity we may undertake in the future to raise
additional capital could cause the price of our Common Shares to
decline, or require us to issue shares at a price that is lower
than that paid by holders of our Common Shares in the past, which
would result in those newly issued shares being dilutive. If we
obtain funds through a credit facility or through the issuance of
debt or preferred securities, these securities would likely have
rights senior to your rights as a common shareholder, which could
impair the value of our Common Shares.
If we
raise additional funds through licensing, collaboration or similar
arrangements, we may have to relinquish valuable rights to our
technologies, future revenue streams, research and development
programs or product candidates or to grant licenses on terms that
may not be favorable to us. If we are unable to raise additional
funds through equity or debt financings or other arrangements when
needed, we may be required to delay, limit, reduce or terminate our
product development or future commercialization efforts or grant
rights to develop and market product candidates that we would
otherwise prefer to develop and market ourselves.
The price of our Common Shares may continue to be
volatile.
Market
prices for securities of early stage pharmaceutical, biotechnology
and other life sciences companies have historically been
particularly volatile, and the market price of our Common Shares
has been subject to significant fluctuations. This volatility can
be exacerbated by low trading volume. Some of the factors that may
cause the market price of our shares to fluctuate
include:
●
sales or potential
sales of substantial amounts of our Common Shares;
●
announcements about
us or our competitors, including funding announcements, corporate
or business updates, updates on manufacturing of our products,
clinical trial results, regulatory approvals or new product
introductions;
●
developments
concerning our product manufacturers;
●
litigation and
other developments relating to our licensed patents or other
proprietary rights or those of our competitors;
●
governmental
regulation and legislation;
●
change in
securities analysts’ estimates of our performance, or failure
to meet analysts’ expectations;
●
the terms and
timing of any future collaborative, licensing or other arrangements
that we may establish;
S-23
●
our ability to
raise additional capital to carry through with our development
plans and current and future operations;
●
the timing of
achievement of, or failure to achieve, our manufacturing,
pre-clinical, clinical, regulatory and other milestones, such as
the commencement of clinical development, the completion of a
clinical trial or the receipt of regulatory approval;
●
actions taken by
regulatory agencies with respect to our product
candidates;
●
uncontemplated
problems in the supply of the raw materials used to produce our
product candidates;
●
introductions or
announcements of technological innovations or new products
candidates by us, our potential future collaborators, or our
competitors, and the timing of these introductions or
announcements;
●
market conditions
for equity investments in general, or the biotechnology or
pharmaceutical industries in particular;
●
we may have limited
or very low trading volume that may increase the volatility of the
market price of our common shares;
●
actual or
anticipated fluctuations in our results of operations;
●
hedging or
arbitrage trading activity that may develop regarding our common
shares;
●
regional or
worldwide recession;
●
sales of large
blocks of our common shares;
●
sales of our common
shares by our executive officers, directors and significant
shareholders;
●
managerial costs
and expenses;
●
changes in
accounting principles; and
●
the loss of any of
our key scientific or management personnel.
Moreover,
the stock markets in general have experienced substantial
volatility that has often been unrelated to the operating
performance of individual companies. These broad market
fluctuations may also adversely affect the trading price of our
common shares. In the past, following periods of volatility in the
market price of a company’s securities, shareholders have
often instituted class action securities litigation. Such
litigation, if instituted, could result in substantial costs and
diversion of management attention and resources, which could
significantly harm our profitability and reputation.
S-24
We have not paid and do not intend to pay dividends on our Common
Shares. Investors in this offering may never obtain a return on
their investment.
We have
not paid dividends on our Common Shares since inception, and do not
intend to pay any dividends on our Common Shares in the foreseeable
future. We intend to reinvest earnings, if any, in the development
and expansion of our business. Accordingly, you will need to rely
on sales of your Common Shares after price appreciation, which may
never occur, in order to realize a return on your
investment.
If we fail to meet all applicable Nasdaq Capital Market
requirements and Nasdaq determines to delist our Common Shares, the
delisting could adversely affect the market liquidity of our Common
Shares and the market price of our Common Shares could
decrease.
Our
Common Shares are listed on The Nasdaq Capital Market. To maintain
our listing, we must meet minimum financial, operating and other
requirements, including requirements for a minimum amount of
capital, a minimum price per share, and active operations. If we
are unable to comply with Nasdaq’s listing standards, Nasdaq
may determine to delist our Common Shares. If our Common Shares are
delisted for any reason, it could reduce the value of our Common
Shares and their liquidity. Delisting could also adversely affect
our ability to obtain financing for the continuation of our
operations, or to use our Common Shares in acquisitions. Delisting
may also result in the loss of confidence by suppliers, investors
and employees.
Failure to maintain effective internal control over financial
reporting in accordance with Section 404 of the Sarbanes-Oxley Act
of 2002 could have a material adverse effect on our share
price.
Section
404 of the Sarbanes-Oxley Act of 2002 and the related rules and
regulations of the SEC require an annual management assessment of
the effectiveness of our internal control over financial reporting.
If we fail to maintain the adequacy of our internal control over
financial reporting, we may not be able to ensure that we can
conclude on an ongoing basis that we have effective internal
control over financial reporting in accordance with Section 404 of
the Sarbanes-Oxley Act of 2002 and the related rules and
regulations of the SEC. If we cannot in the future favorably assess
the effectiveness of our internal control over financial reporting,
investor confidence in the reliability of our financial reports may
be adversely affected, which could have a material adverse effect
on our share price.
The ownership of our Common Shares is highly concentrated, which
may prevent you and other shareholders from influencing significant
corporate decisions and may result in conflicts of interest that
could cause our Common Shares price to decline.
The
ownership of our Common Shares is highly concentrated among
insiders and affiliates. Accordingly, these shareholders will have
substantial influence over the outcome of corporate actions
requiring shareholder approval, including the election of
directors, any merger, consolidation or sale of all or
substantially all of the company’s assets or any other
significant corporate transaction. These shareholders may also
delay or prevent a change of control of the company, even if such a
change of control would benefit the other shareholders of the
company. The significant concentration of share ownership may
adversely affect the trading price of our common shares due to
investors’ perception that conflicts of interest may exist or
arise.
We may qualify as a foreign private issuer, and as a result,
shareholders may receive less information and be afforded less
protection under the U.S. federal securities laws.
We
believe we qualify as a foreign private issuer within the meaning
of rules promulgated under the Securities and Exchange Act of 1934,
as amended. If we qualify as a foreign private issuer, we may be
exempt from certain Exchange Act rules and requirements that apply
to U.S. public companies, including: (i) the requirement to file
with the SEC quarterly reports on Form 10-Q and current reports on
Form 8-K; (ii) rules regulating the solicitation of proxies in
connection with shareholder meetings; (iii) Regulation FD
prohibiting selective disclosures of material information; and (iv)
rules requiring insiders to disclose stock ownership and trading
activities and establishing liability for profits realized from
“short-swing” trading transactions (i.e., a purchase
and sale, or sale and purchase, of the issuer’s equity
securities within less than six months). If in the future we elect
to be treated as a foreign private issuer, shareholders will
receive less information about the company and trading in our
shares by our affiliates, and will be afforded less protection
under the U.S. federal securities laws than would be afforded to
shareholders of a domestic U.S. company.
S-25
We may be deemed a passive foreign investment company, and as a
result, shareholders may be subject to special taxation rules that
restrict capital gains treatment, unless the shareholders make a
timely tax election to treat the company as a qualified electing
fund.
A
special set of U.S. federal income tax rules applies to a foreign
corporation that is deemed a passive foreign investment company
(“PFIC”) for U.S. federal income tax purposes. The PFIC
rules apply to US Shareholders of a foreign corporation at least
75% of whose income is passive, meaning not generated in the active
conduct of a trade or business, or at least 50% of whose assets
produce such passive income. Based on our audited financial
statements, income tax returns, and relevant market data, we
believe that we likely will not be classified as a PFIC in the
September 30, 2019 taxable year. There can be no assurance,
however, that we will not be considered to be a PFIC for any
particular year in the future because PFIC status is factual in
nature, depends upon factors not wholly within our control,
generally cannot be determined until the close of the taxable year
in question, and is determined annually. (See "Passive Foreign
Investment Company Rules" below under "CERTAIN TAX
MATTERS".)
If we
are deemed to be a PFIC during the current or any future taxable
year, U.S. shareholders would be subject to special taxation rules
related to gain on sale or disposition of our shares and excess
distributions unless they make a timely election to treat our
shares as a qualified electing fund (“QEF election”). A
QEF election cannot be made unless we provide U.S.
shareholders the information and computations needed to report
income and gains pursuant to a QEF election. Without a QEF
election, U.S. shareholders may not be able to use capital gains
tax treatment and may be subject to potentially adverse tax
consequences. Given the complexities of the PFIC and QEF election
rules, U.S. shareholders may need to incur the time and expense of
consulting a tax adviser about these rules.
S-26
FORWARD-LOOKING
STATEMENTS
This
prospectus supplement, the accompanying prospectus and the
documents incorporated by reference in this prospectus supplement
and the accompanying prospectus contain certain statements that
constitute forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, or Securities Act,
and Section 21E of the Securities Exchange Act of 1934, as amended,
or Exchange Act. These statements involve known and unknown risks,
uncertainties and other important factors that may cause our actual
results, performance or achievements to be materially different
from any future results, performances or achievements expressed or
implied by the forward looking statements. These forward looking
statements include, but are not limited to, those concerning the
following:
●
our ability to fund
our planned operations and implement our business
plan;
●
the scope, number,
progress, duration, cost, results and timing of clinical trials and
nonclinical studies of our current or future product
candidates;
●
our ability to
raise sufficient funds to support the development and potential
commercialization of our product candidates;
●
the outcomes and
timing of regulatory reviews, approvals or other
actions;
●
our ability to
obtain marketing approval for our product candidates and otherwise
execute our business plan;
●
our ability to
establish and maintain licensing, collaboration or similar
arrangements on favorable terms and whether and to what extent we
retain development or commercialization responsibilities under any
new licensing, collaboration or similar arrangement;
●
the success of any
other business, product or technology that we acquire or in which
we invest;
●
our ability to
maintain, expand and defend the scope of our intellectual property
portfolio;
●
our ability to
manufacture any approved products on commercially reasonable
terms;
●
our ability to
establish a sales and marketing organization or suitable
third-party alternatives for any approved product;
●
the number and
characteristics of product candidates and programs that we
pursue;
●
our business
strategy;
●
the attraction and
retention of qualified employees and personnel;
●
future acquisitions
or investments in complementary companies or technologies;
and
●
our ability to
comply with evolving legal standards and regulations pertaining to
our industry.
S-27
In some cases, you can identify forward-looking statements by terms
such as “anticipates,” “believes”,
“could”, “estimates”,
“expects”, “intends”, “may”,
“plans”, “potential”,
“predicts”, “projects”,
“should”, “will”, “would” as
well as similar expressions. Forward-looking statements reflect our
current views with respect to future events, are based on
assumptions and are subject to risks, uncertainties and other
important factors. We discuss many of these risks, uncertainties
and other important factors in greater detail under the heading
“Risk Factors” contained in this prospectus supplement,
the accompanying prospectus and any related free writing
prospectus, and in our most recent annual report on Form 10-K, as
well as any amendments thereto reflected in subsequent filings with
the SEC. Given these risks, uncertainties and other important
factors, you should not place undue reliance on these
forward-looking statements. Also, these forward-looking statements
represent our estimates and assumptions only as of the date such
forward-looking statements are made. Except as required by law, we
assume no obligation to update any forward-looking statements
publicly, or to reflect facts and circumstances after the date of
this prospectus supplement. Before deciding to purchase our
securities, you should carefully read both this prospectus
supplement, the accompanying prospectus and any related free
writing prospectus, together with the information incorporated
herein by reference as described under the heading
“Incorporation of Certain Information by Reference,”
completely and with the understanding that our actual future
results may be materially different from what we
expect.
This
prospectus supplement and the accompanying prospectus and the
documents incorporated by reference in
this prospectus supplement and the accompanying
prospectus also refer to
estimates and other statistical data made by independent parties
and by us relating to market size and growth and other data about
our industry. This data involves a number of assumptions and
limitations, and you are cautioned not to give undue weight to such
estimates. In addition, projections, assumptions and estimates of
our future performance and the future performance of the markets in
which we operate are necessarily subject to a high degree of
uncertainty and risk.
USE OF PROCEEDS
We
estimate that the net proceeds from the sale of the Common Shares
we are offering will be approximately $3.88 million. Net proceeds
are what we expect to receive after deducting placement agent fees
and other expenses related to the offering. We will only receive
additional proceeds from the exercise of the Purchase Warrants
issuable in the concurrent private placement if and to the extent
that the Purchase Warrants are exercised and the holders of such
warrants pay the exercise price in cash upon such
exercise.
We plan
to use the net proceeds of this offering for general corporate
purposes, which may include working capital, capital expenditures
and research and development expenses. We cannot specify with
certainty all of the particular uses for the net proceeds to be
received from this offering. Accordingly, our management will have
significant discretion and flexibility in applying the net proceeds
from the sale of these securities.
DIVIDENDS
We have never declared or paid cash dividends on our Common Shares.
We currently intend to retain all available funds and any future
earnings for use in the operation of our business and do not
anticipate paying any dividends on our Common Shares in the
foreseeable future, if at all. Any future determination to declare
dividends will be made at the discretion of our board of directors
and will depend on our financial condition, results of operations,
capital requirements, general business conditions and other factors
that our board of directors may deem relevant.
DESCRIPTION OF
SECURITIES
We are
offering 1,355,380 Common Shares pursuant to this prospectus
supplement and the accompanying prospectus. The material terms and
provisions of our Common Shares are described under the caption
“Description of Capital Stock -Common Shares” beginning
on page 9 of the accompanying prospectus.
S-28
DILUTION
The net tangible book value of our Common Shares as of September
30, 2019 was approximately $5,256,130, or approximately $0.70 per
share. Net tangible book value per share is equal to the amount of
our total tangible assets, less total liabilities, divided by the
number of Common Shares outstanding. Dilution in net tangible book
value per share represents the difference between the amount per
share paid by purchasers of Common Shares in this offering and the
net tangible book value per share of our Common Shares immediately
afterwards. After giving effect to the sale by us of
1,355,380 Common Shares in this
offering at the average public offering price of $3.22
per share and after deducting
estimated commissions and estimated offering expenses payable by
us, our net tangible book value as of September 30, 2019 would have
been approximately $9,131,635,
or $1.03 per share. This
represents an immediate increase in net tangible book value of
$0.33 per share to existing
shareholders and an immediate dilution of $2.19 per share to new investors purchasing Common
Shares in this offering. The following table illustrates this
dilution:
|
Public
offering price per share (1)
|
|
$3.22
|
|
Net
tangible book value per share as of September 30, 2019
|
$0.70
|
|
|
Increase
per share attributable to new investors after giving effect to the
offering
|
0.33
|
|
|
Net
tangible book value per share after giving effect to the
offering
|
|
$1.03
|
|
Dilution
in net tangible book value per share to new investors
|
|
$2.19
|
(1) This
is an average public offering price per share based on 1,329,684
shares sold at $3.20 and 25,696 shares sold at
$4.11.
The foregoing table does not take into effect further dilution to
new investors that could occur upon the exercise of outstanding
options and warrants having a per share exercise price less than
the offering price per share in this offering.
The foregoing table is based on 7,504,468 of our Common Shares
outstanding as of September 30, 2019, and excludes the
following:
●
319,526
of our Common Shares issuable upon exercise of outstanding options
granted under our equity incentive plans at a weighted average
exercise price of $3.36 per share;
●
833,621 of our Common Shares available
for issuance or future grant pursuant to our equity incentive
plan;
●
48,914
of our Common Shares issuable upon exercise of outstanding warrants
at a weighted average exercise price of $11.19 per
share;
●
the
1,694,256 Common Shares issuable upon exercise of the Purchase
Warrants being offered by us in the concurrent private placement;
and
●
the
12,364 Common Shares issuable upon exercise of warrants being
issued by us to the placement agent in connection with the
offering.
S-29
CAPITALIZATION
The following table sets forth the Company's capitalization as of
September 30, 2019:
●
on
an actual basis; and
●
on an as adjusted basis to give effect to the sale
of 1,355,380 Common Shares in
this offering, after deducting estimated commissions and estimated
offering expenses payable by us.
You should read this table in conjunction with other sections of
this prospectus supplement, the accompanying prospectus and any
documents that they incorporate by reference, including our
consolidated financial statements and the related
notes.
|
|
Actual
|
As Adjusted
|
|
Cash and cash equivalents
|
$5,030,583
|
$8,906,088
|
|
Stockholders’
Equity:
|
|
|
|
Common
shares, no par value: unlimited shares authorized; 7,504,468 shares
outstanding
|
12,005,051
|
15,880,556
|
|
Preferred
stock, no par value: unlimited shares authorized; no shares
outstanding
|
--
|
--
|
|
Additional
paid-in-capital*
|
327,768
|
327,768
|
|
Accumulated other comprehensive loss
|
(342,074)
|
(342,074)
|
|
Accumulated deficit
|
(6,734,615)
|
(6,734,615)
|
|
Total stockholders’
equity
|
5,256,130
|
9,131,635
|
|
Total capitalization
|
$5,256,130
|
$9,131,635
|
*
Does not include any potential proceeds from the exercise of the
Placement Warrants issued in the concurrent private
placement.
The number of issued and outstanding Common Shares as of September
30, 2019 in the table excludes the following:
●
319,526
of our Common Shares issuable upon exercise of outstanding options
granted under our equity incentive plans at a weighted average
exercise price of $3.36 per share;
●
833,621 of our Common Shares available
for issuance or future grant pursuant to our equity incentive plan;
and
●
48,914
of our Common Shares issuable upon exercise of outstanding warrants
at a weighted average exercise price of $11.19 per
share;
●
the
1,694,256 Common Shares issuable upon exercise of the Purchase
Warrants being offered by us in the concurrent private placement;
and
●
the
12,364 Common Shares issuable upon exercise of warrants being
issued by us to the placement agent in connection with the
offering.
S-30
PRIVATE PLACEMENT TRANSACTION
AND WARRANTS
In a
concurrent private placement, or the Private Placement Transaction,
we are selling to purchasers of our Common Shares in this offering
(i) Class A Purchase Warrants to purchase an aggregate of up to
1,016,553 of our Common Shares, or 0.75 of a Common Share for each
share purchased in the offering, and (ii) Class B Purchase Warrants
to purchase an aggregate of up to 677,703 of our Common Shares, or
0.50 of a Common Share for each share purchased in the
offering.
The
Purchase Warrants and the Common Shares issuable upon the exercise
of the Purchase Warrants are not being registered under the
Securities Act, are not being offered pursuant to this prospectus
supplement and the accompanying prospectus and are being offered
pursuant to the exemption provided in Section 4(a)(2) under the
Securities Act and Rule 506(b) promulgated thereunder. Accordingly,
purchasers may only sell Common Shares issued upon exercise of the
Purchase Warrants pursuant to an effective registration statement
under the Securities Act covering the resale of those shares, an
exemption under Rule 144 under the Securities Act or another
applicable exemption under the Securities Act.
With
respect to non-U.S. investors, the Common Shares offered pursuant
to this prospectus supplement and the accompanying prospectus as
well as the Purchase Warrants and Warrant Shares will be subject to
restrictions on resale in accordance with applicable foreign laws.
A form of the subscription agreement with non-U.S. investors is
included as an exhibit to our Current Report on Form 8-K that was
previously filed with the SEC and incorporated by reference into
the Registration Statement of which this prospectus supplement
forms a part. See “Where You Can Find More Information”
below.
Exercisability. The Class A Purchase Warrants will be
exercisable at any time on or after the six (6) month anniversary
the date of issuance (the “Class A Purchase Warrant Initial
Exercise Date”), at an exercise price of $4.80 per share and
will expire and cease to be exercisable on the third anniversary of
the Class A Purchase Warrant Initial Exercise Date. The Class B
Purchase Warrants will be exercisable at any time on or after the
six (6) month anniversary the date of issuance (the “Class B
Purchase Warrant Initial Exercise Date”), at an exercise
price of $4.00 per share and will expire and cease to be
exercisable on the four month anniversary of the Class B Purchase
Warrant Initial Exercise Date. The Purchase Warrants will be
exercisable, at the option of each holder, in whole or in part by
delivering to us a duly executed exercise notice and, at any time a
registration statement registering the issuance of Common Shares
underlying the Purchase Warrants under the Securities Act is
effective and available for the issuance of such shares, or an
exemption from registration under the Securities Act is available
for the issuance of such shares, by payment in full in immediately
available funds for the number of Common Shares purchased upon such
exercise. If a registration statement registering the issuance of
the Common Shares underlying the Purchase Warrants under the
Securities Act is not effective or available and an exemption from
registration under the Securities Act is not available for the
issuance of such shares, the holder may, in its sole discretion,
elect to exercise the Purchase Warrant through a cashless exercise,
in which case the holder would receive upon such exercise the net
number of Common Shares determined according to the formula set
forth in the Purchase Warrant. No fractional Common Shares will be
issued in connection with the exercise of a Purchase Warrant. In
lieu of fractional shares, we shall, at our election, either pay a
cash adjustment in respect of such final fraction in an amount
equal to such fraction multiplied by the exercise price or round up
to the next whole share.
Exercise Limitation. A holder will not have the right to
exercise any portion of a Purchase Warrant if the holder (together
with its affiliates) would beneficially own in excess of 9.99% of
the number of Common
S-31
Shares
outstanding immediately after giving effect to the exercise, as
such percentage ownership is determined in accordance with the
terms of the Purchase Warrants. However, any holder may increase or
decrease such percentage, provided that any increase will not be
effective until the 61st day after such election.
Exercise Price Adjustment. The exercise prices of the
Purchase Warrants are subject to appropriate adjustment in the
event of certain stock dividends and distributions, stock splits,
stock combinations, reclassifications or similar events affecting
our Common Shares.
Transferability. Subject to applicable laws, the Purchase
Warrants may be offered for sale, sold, transferred or assigned
without our consent.
Exchange Listing. There is no established trading market for
the Purchase Warrants and we do not expect a market to develop. In
addition, we do not intend to apply for the listing of the Purchase
Warrants on any national securities exchange or other trading
market. Without an active trading market, the liquidity of the
Purchase Warrants will be limited.
Fundamental Transactions. If, at any time while the Purchase
Warrants are outstanding, (1) we consolidate or merge with or into
another entity in which we are not the surviving entity; (2) we
sell, lease, assign, convey or otherwise transfer all or
substantially all of our assets; (3) any tender offer or exchange
offer (whether completed by us or a third party) is completed
pursuant to which holders of a majority of our outstanding Common
Shares tender or exchange their shares for securities, cash or
other property; (4) we effect any reclassification of our Common
Shares or compulsory share exchange pursuant to which outstanding
Common Shares are effectively converted or exchange for other
securities, cash or property or (5) any transaction is consummated
whereby any person or entity acquires more than 50% of our
outstanding Common Shares (each, a “Fundamental
Transaction”), then upon any subsequent exercise of a
Purchase Warrant, the holder thereof will have the right to receive
the same amount and kind of securities, cash or other property as
it would have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such
Fundamental Transaction, the holder of the number of Common Shares
then issuable upon exercise of the Purchase Warrant. If a
Fundamental Transaction occurs, then the successor entity will
succeed to, and be substituted for us, and may exercise every right
and power that we may exercise and will assume all of our
obligations under the Purchase Warrants with the same effect as if
such successor entity had been named in the Purchase Warrant
itself.
Rights as a Stockholder. Except as otherwise provided in the
Purchase Warrants or by virtue of such holder’s ownership of
our Common Shares, the holder of a Purchase Warrant does not have
the rights or privileges of a holder of our Common Shares,
including any voting rights, until the holder exercises the
Purchase Warrant.
Resale/Registration Rights. We are required within 45
calendar days of the offering to file a registration statement
providing for the resale of the Common Shares issued and issuable
upon the exercise of the Purchase Warrants. We are required to use
commercially reasonable efforts to cause such registration to
become effective within 75 days of the closing of the offering,
subject to certain exceptions, and to keep such registration
statement effective at all times until no investor owns any
Purchase Warrants or shares issuable upon exercise
thereof.
S-32
CERTAIN TAX MATTERS
Certain U.S. Federal Income Tax Considerations
The
following discussion is a summary of certain U.S. federal income
tax issues that may be relevant to a U.S. Holder (as defined
herein) and non-U.S. Holder (as defined herein), holding and
disposing of the Common Shares. Additional tax issues may exist
that are not addressed in this discussion and that could affect the
U.S. federal income tax treatment of the acquisition, holding and
disposition of the Common Shares.
This
section is based on the U.S. Tax Code, its legislative history,
existing and proposed regulations, published rulings by the United
States Internal Revenue Service (IRS) and court decisions, all as
currently in effect. These authorities are subject to change,
possibly on a retroactive basis. The discussion applies, unless
indicated otherwise, only to U.S. Holders and certain non-U.S.
Holders who hold Common Shares as capital assets within the meaning
of Section 1221 of the U.S. Tax Code (generally, as property held
for investment) and use the U.S. dollar as their functional
currency. It does not address special classes of holders that may
be subject to different treatment under the U.S. Tax Code, such
as:
●
financial institutions, insurance
companies, underwriters, real estate
investment trusts, or regulated investment
companies;
●
controlled
foreign corporations or passive foreign investment companies under
the U.S. Tax Code;
●
dealers
and traders in securities;
●
persons
holding Common Shares as part of a hedge, straddle, conversion or
other integrated transaction;
●
persons
that acquired Common Shares as compensation for
services;
●
partnerships
or other entities classified as partnerships for U.S. federal
income tax purposes;
●
persons
liable for the alternative minimum tax;
●
tax-exempt
organizations, qualified retirement plans, individual retirement
accounts, or other tax-deferred accounts;
●
certain
U.S. expatriates or former long-term residents of the United
States;
●
persons
that are required to accelerate the recognition of any item of
gross income with respect to the Common Shares as a result of such
income being recognized on an applicable financial statement;
or
●
persons
holding Common Shares that own or are deemed to own 10 per cent or
more (by vote or value) of the company’s shares.
United States Federal Income Taxation
As used
below, a “U.S. Holder” is a beneficial owner of Common
Shares that is, for U.S. federal income tax purposes, (i) a citizen
or resident alien individual of the United States, (ii) a
corporation (or an entity treated as a corporation) created or
organized under the law of the United States, any State thereof or
the District of Columbia, (iii) an estate the income of which is
subject to U.S. federal income tax without regard to its source or
(iv) a trust if (1) a court within the United States is able to
exercise primary supervision over the administration of the trust,
and one or more United States persons have the authority to control
all substantial decisions of the trust, or (2) the trust has a
valid election in effect under applicable U.S. Treasury Regulations
to be treated as a United States person. For purposes of this
discussion, a “non-U.S. Holder” is a beneficial owner
of Common Shares that is (i) a nonresident alien individual, (ii) a
corporation (or an entity treated as a corporation) created or
organized in or under the law of a country other than the United
States or a political subdivision thereof or (iii) an estate or
trust that is not a U.S. Holder. If a partnership (including for
this purpose any entity treated as a partnership for U.S. federal
tax purposes) is a beneficial owner of Common Shares, the U.S.
federal tax treatment of a partner in the partnership generally
will depend on the status of the partner and the activities of the
partnership. A holder of Common Shares that is a partnership and
partners in that partnership should consult their own tax advisers
regarding the U.S. federal income tax consequences of holding and
disposing of Common Shares. We have not sought a ruling from the
IRS or an opinion of counsel as to any U.S. federal income tax
consequence described herein. The IRS may disagree with the
description herein, and its determination may be upheld by a court.
This discussion does not address U.S. federal tax laws other than
those pertaining to U.S. federal income taxation (such as estate or
gift tax laws), nor does it address any aspects of U.S. state or
local or non-U.S. taxation.
S-33
This
summary is based upon certain understandings and assumptions with
respect to the business, assets and holders, including that the
company is not, does not expect to become, nor at any time has been
a controlled foreign corporation as defined in Section 957 of the
U.S. Tax Code (“CFC”). The company believes that it is
not and has never been a CFC, and does not expect to become a CFC.
In the event that one or more of such understandings and
assumptions proves to be inaccurate, the following summary may not
apply and material adverse U.S. federal income tax consequences may
result to U.S. Holders.
GIVEN
THE COMPLEXITY OF THE TAX LAWS AND BECAUSE THE TAX CONSEQUENCES TO
ANY PARTICULAR SHAREHOLDER MAY BE AFFECTED BY MATTERS NOT DISCUSSED
HEREIN, SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE ACQUISITION,
OWNERSHIP AND DISPOSITION OF COMMON SHARES, INCLUDING THE
APPLICABILITY AND EFFECT OF STATE, LOCAL AND NON-U.S. TAX LAWS, AS
WELL AS U.S. FEDERAL TAX LAWS.
Taxation of Dividends
U.S. Holders
In
general, subject to the passive foreign investment company (PFIC)
rules discussed below, a distribution on the Common Shares will
constitute a dividend for U.S. federal income tax purposes to the
extent that it is made from the company’s current or
accumulated earnings and profits as determined under U.S. federal
income tax principles. If a distribution exceeds the current and
accumulated earnings and profits of the company, it will generally
be treated as a non-taxable reduction of basis to the extent of the
U.S. Holder’s tax basis in the Common Shares on which it is
paid, and to the extent it exceeds that basis it will be treated as
capital gain. The company has not and does not plan to maintain
calculations of earnings and profits under U.S. federal income tax
principles. Accordingly, it is unlikely that U.S. Holders will be
able to establish that a distribution by the company is in excess
of its current and accumulated earnings and profits (as computed
under U.S. federal income tax principles). Therefore, a U.S. Holder
should expect that a distribution by the company will generally be
taxable in its entirety as a dividend to U.S. Holders for U.S.
federal income tax purposes even though the distribution may be
treated in whole or in part as a non-taxable distribution for
Canadian tax purposes.
The
gross amount of any dividend on the Common Shares (which will
include the amount of any Canadian taxes withheld with respect to
such dividend) generally will be subject to U.S. federal income tax
as foreign source dividend income, and will not be eligible for the
corporate dividends received deduction. The amount of a dividend
paid in Canadian dollars will be its value in U.S. dollars based on
the prevailing spot market exchange rate in effect on the day the
U.S. Holder receives the dividend. A U.S. Holder will have a tax
basis in any distributed Canadian dollars equal to their U.S.
dollar value on the date of receipt, and any gain or loss realized
on a subsequent conversion or other disposition of such Canadian
dollars generally will be treated as U.S. source ordinary income or
loss. If dividends paid in Canadian dollars are converted into U.S.
dollars on the date they are received by a U.S. Holder, the U.S.
Holder generally should not be required to recognize foreign
currency gain or loss in respect of the dividend
income.
S-34
Subject
to certain exceptions for short-term and hedged positions, as well
as the PFIC rules, a dividend that a non-corporate U.S. Holder
receives on the Common Shares will generally be subject to a
maximum federal income tax rate of 20% if the dividend is a
“qualified dividend.” A dividend on the Common Shares
will be a qualified dividend if (i) either (a) the Common Shares
are readily tradable on an established market in the United States
or (b) we are eligible for the benefits of a comprehensive income
tax treaty with the United States that the Secretary of the
Treasury determines is satisfactory for purposes of these rules and
that includes an exchange of information program, and (ii) we were
not, in the year prior to the year the dividend was paid, and are
not, in the year the dividend is paid, a PFIC. The Common Shares
are listed on The Nasdaq Capital Market, which should be treated as
an established securities market in the United States. In any
event, the U.S.-Canada Income Convention (the Treaty) satisfies the
requirements of clause (i)(b), we are incorporated in and tax
resident of Canada and should be entitled to the benefits of the
Treaty. Based on our audited financial statements, income tax
returns and relevant market and shareholder data, we believe that
we likely will not be classified as a PFIC in the September 30,
2019 taxable year. There can be no assurance, however, that the
company has not been classified as a PFIC in any prior taxable year
or that the company will not be considered to be a PFIC for any
particular year in the future because PFIC status is factual in
nature, depends upon factors not wholly within the company’s
control, generally cannot be determined until the close of the
taxable year in question, and is determined annually. Accordingly,
no assurance can be made that a dividend paid, if any, would be a
“qualified dividend.” In addition, as described in the
section below entitled “Passive Foreign Investment Company
Rules,” if we were a PFIC in a year while a U.S. Holder held
Common Shares, and if the U.S. Holder has not made a qualified
electing fund election effective for the first year the U.S. Holder
held the Common Shares, such Common Shares remain an interest in a
PFIC for all future years or until such an election is made. The
IRS takes the position that such rule will apply for purposes of
determining whether the Common Shares are an interest in a PFIC in
the year a dividend is paid or in the prior year, even if we do not
satisfy the tests to be a PFIC in either of those years. Even if
dividends on the Common Shares would otherwise be eligible for
qualified dividend treatment, in order to qualify for the reduced
qualified dividend tax rates, a non-corporate U.S. Holder must hold
the Common Shares on which a dividend is paid for more than 60 days
during the 120-day period beginning 60 days before the ex-dividend
date, disregarding for this purpose any period during which the
non-corporate U.S. Holder has an option to sell, is under a
contractual obligation to sell or has made (and not closed) a short
sale of substantially identical stock or securities, is the grantor
of an option to buy substantially identical stock or securities or,
pursuant to U.S. Treasury regulations, has diminished such
holder’s risk of loss by holding one or more other positions
with respect to substantially similar or related property. In
addition, to qualify for the reduced qualified dividend tax rates,
the non-corporate U.S. Holder must not be obligated to make related
payments with respect to positions in substantially similar or
related property. Payments in lieu of dividends from short sales or
other similar transactions will not qualify for the reduced
qualified dividend tax rates.
A
non-corporate U.S. Holder that receives an extraordinary dividend
(generally, any dividend that is in excess of 10% of the holder's
adjusted basis in the Common Shares on which the dividend is paid)
that is eligible for the reduced qualified dividend rates must
treat any loss on the sale of the Common Shares as a long-term
capital loss to the extent of the dividend. For purposes of
determining the amount of a non-corporate U.S Holder’s
deductible investment interest expense, a dividend is treated as
investment income only if the non-corporate U.S. Holder elects to
treat the dividend as not eligible for the reduced qualified
dividend tax rates. Special limitations on foreign tax credits with
respect to dividends subject to the reduced qualified dividend tax
rates apply to reflect the reduced rates of tax.
The
U.S. Treasury has announced its intention to promulgate rules
pursuant to which non-corporate U.S. Holders of stock of non-U.S.
corporations, and intermediaries through which the stock is held,
will be permitted to rely on certifications from issuers to
establish that dividends are treated as qualified dividends.
Because those procedures have not yet been issued, it is not clear
whether we will be able to comply with them.
S-35
Non-corporate
U.S. Holders of Common Shares are urged to consult their own tax
advisers regarding the availability of the reduced qualified
dividend tax rates with respect to dividends, if any, received on
the Common Shares in the light of their own particular
circumstances.
Any
Canadian withholding tax imposed on dividends received with respect
to the Common Shares will be treated as a foreign income tax
eligible for credit against a U.S. Holder’s U.S. federal
income tax liability, subject to generally applicable limitations
under U.S. federal income tax law. For purposes of computing those
limitations under current law, which must be calculated separately
for specific categories of income, a dividend generally will
constitute foreign source “passive category income” or,
in the case of certain holders, “general category
income.” A U.S. Holder will be denied a foreign tax credit
with respect to Canadian income tax withheld from dividends
received with respect to the Common Shares to the extent the U.S.
Holder has not held the Common Shares for at least 16 days of the
30-day period beginning on the date which is 15 days before the
ex-dividend date or to the extent the U.S. Holder is under an
obligation to make related payments with respect to substantially
similar or related property. Any days during which a U.S. Holder
has substantially diminished its risk of loss on the Common Shares
are not counted toward meeting the 16-day holding period required
by the statute. The rules relating to the determination of the
foreign tax credit are complex, and U.S. Holders are urged to
consult with their own tax advisers to determine whether and to
what extent they will be entitled to foreign tax credits as well as
with respect to the determination of the foreign tax credit
limitation. Alternatively, any Canadian withholding tax may be
taken as a deduction against taxable income, provided the U.S.
Holder takes a deduction and not a credit for all foreign income
taxes paid or accrued in the same taxable year. In general, special
rules will apply to the calculation of foreign tax credits in
respect of dividend income that is subject to preferential rates of
U.S. federal income tax.
Non-U.S. Holders
A
dividend paid to a non-U.S. Holder of the Common Shares will
generally not be subject to U.S. federal income tax unless the
dividend is effectively connected with the conduct of trade or
business by the non-U.S. Holder within the United States (and is
attributable to a permanent establishment or fixed base the
non-U.S. Holder maintains in the United States if an applicable
income tax treaty so requires as a condition for the non-U.S.
Holder to be subject to U.S. taxation on a net income basis on
income from the Common Shares). A non-U.S. Holder generally will be
subject to tax on an effectively connected dividend in the same
manner as a U.S. Holder. A corporate non-U.S. Holder under certain
circumstances may also be subject to an additional “branch
profits tax,” the rate of which may be reduced pursuant to an
applicable income tax treaty.
Taxation of Capital Gains
U.S. Holders
Subject
to the PFIC rules discussed below, on a sale or other taxable
disposition of the Common Shares, a U.S. Holder will recognize
capital gain or loss in an amount equal to the difference between
the U.S. Holder’s adjusted basis in the Common Shares and the
amount realized on the sale or other disposition, each determined
in U.S. dollars. Such capital gain or loss will be long-term
capital gain or loss if at the time of the sale or other taxable
disposition the Common Shares have been held for more than one
year. In general, any adjusted net capital gain of an individual is
subject to a maximum federal income tax rate of 20%. Capital gains
recognized by corporate U.S. Holders generally are subject to U.S.
federal income tax at the same rate as ordinary income. The
deductibility of capital losses is subject to
limitations.
Any
gain a U.S. Holder recognizes generally will be U.S. source income
for U.S. foreign tax credit purposes, and, subject to certain
exceptions, any loss will generally be a U.S. source loss. If a
Canadian tax is paid on a sale or other disposition of the Common
Shares, the amount realized will include the gross amount of the
proceeds of that sale or disposition before deduction of the
Canadian tax. The generally applicable limitations under U.S.
federal income tax law on crediting foreign income taxes may
preclude a U.S. Holder from obtaining a foreign tax credit for any
Canadian tax paid on a sale or other disposition of the Common
Shares. The rules relating to the determination of the foreign tax
credit are complex, and U.S. Holders are urged to consult with
their own tax advisers regarding the application of such rules.
Alternatively, any Canadian tax paid on the sale or other
disposition of the Common Shares may be taken as a deduction
against taxable income, provided the U.S. Holder takes a deduction
and not a credit for all foreign income taxes paid or accrued in
the same taxable year.
S-36
Non-U.S. Holders
A
non-U.S. Holder will not be subject to U.S. federal income tax on
gain recognized on a sale or other disposition of Common Shares
unless (i) the gain is effectively connected with the conduct of
trade or business by the non-U.S. Holder within the United States
(and is attributable to a permanent establishment or fixed base the
non-U.S. Holder maintains in the United States if an applicable
income tax treaty so requires as a condition for the non-U.S.
Holder to be subject to U.S. taxation on a net income basis on
income from the Common Shares), or (ii) in the case of a non-U.S.
Holder who is an individual, the holder is deemed present in the
United States for 183 or more days in the taxable year of the sale
or other disposition and certain other conditions apply. Any
effectively connected gain of a corporate non-U.S. Holder may also
be subject under certain circumstances to an additional
“branch profits tax,” the rate of which may be reduced
pursuant to an applicable income tax treaty.
Passive Foreign Investment Company Rules
A
special set of U.S. federal income tax rules applies to a foreign
corporation that is a PFIC for U.S. federal income tax purposes. As
noted above, based on our audited financial statements, income tax
returns, and relevant market data, we believe that we likely will
not be classified as a PFIC in the September 30, 2019 taxable year.
There can be no assurance, however, that the company has not been
classified as a PFIC in any prior taxable year or that the company
will not be considered to be a PFIC for any particular year in the
future because PFIC status is factual in nature, depends upon
factors not wholly within the company’s control, generally
cannot be determined until the close of the taxable year in
question, and is determined annually.
In
general, a non-US corporation is a PFIC if in any taxable year
either (i) at least 75% of its gross income is “passive
income” or (ii) at least 50% of the quarterly average value
of its assets is attributable to assets that produce or are held to
produce “passive income.” In applying these tests, the
company generally is treated as holding its proportionate share of
the assets and receiving its proportionate share of the income of
any other corporation in which the company owns at least 25% by
value of the shares. Passive income for this purpose generally
includes dividends, interest, royalties, rent and capital gains,
but generally does not include certain rents and royalties derived
in an active business. Passive assets are those assets that are
held for production of passive income or do not produce income at
all. Thus, cash will be a passive asset. Interest, including
interest on working capital, is treated as passive income for
purposes of the income test. Without taking into account the value
of its goodwill, more than 50% of the company’s assets by
value would be passive so that the company would be a PFIC under
the asset test. Based upon its current operations, its goodwill
(the value of which is based on our belief of the estimated fair
market value of the company in excess of book value) will likely be
attributable to its activities that will generate active income
and, to such extent, should be treated as an active asset. The
determination of whether a foreign corporation is a PFIC is a
factual determination made annually and is therefore subject to
change. Subject to exceptions pursuant to certain elections that
generally require the payment of tax, once stock in a foreign
corporation is stock in a PFIC in the hands of a particular
shareholder that is a United States person, it remains stock in a
PFIC in the hands of that shareholder.
If we
are treated as a PFIC, contrary to the tax consequences described
in “Taxation of Dividends” and “Taxation of
Capital Gains” above, a U.S. Holder that does not make an
election described in the succeeding two paragraphs would be
subject to special rules with respect to (i) any gain realized on a
sale or other disposition of Common Shares (for purposes of these
rules, a disposition of Common Shares includes many transactions on
which gain or loss is not realized under general U.S. federal
income tax rules) and (ii) any “excess distribution” by
the company to the U.S. Holder (generally, any distribution during
a taxable year in which distributions to the U.S. Holder on the
Common Shares exceed 125% of the average annual taxable
distributions (whether actual or constructive and whether or not
out of earnings and profits) the U.S. Holder received on the Common
Shares during the preceding three taxable years or, if shorter, the
U.S. Holder’s holding period for the Common Shares). Under
those rules, (i) the gain or excess distribution would be allocated
ratably over the U.S. Holder’s holding period for the Common
Shares, (ii) the amount allocated to the taxable year in which the
gain or excess distribution is realized would be taxable as
ordinary income in its entirety and not as capital gain, would be
ineligible for the reduced qualified dividend rates, and could not
be offset by any deductions or losses, and (iii) the amount
allocated to each prior year, with certain exceptions, would be
subject to tax at the highest tax rate in effect for that year, and
the interest charge generally applicable to underpayments of tax
would be imposed in respect of the tax attributable to each of
those years.
S-37
The
special PFIC rules described above will not apply to a U.S. Holder
if the U.S. Holder makes a timely election, which remains in
effect, to treat the company as a “qualified electing
fund” (QEF) in the first taxable year in which the U.S.
Holder owns Common Shares and the company is a PFIC and if the
company complies with certain requirements. Instead, a shareholder
of a QEF generally is currently taxable on a pro rata share of the
company’s ordinary earnings and net capital gain as ordinary
income and long-term capital gain, respectively. Neither that
ordinary income nor any actual dividend from the company would
qualify for the 20% maximum federal income tax rate on dividends
described above if the company is a PFIC in the taxable year the
ordinary income is realized or the dividend is paid or in the
preceding taxable year. A QEF election cannot be made unless the
company provides U.S. Holders the information and computations
needed to report income and gains pursuant to a QEF election. The
company expects that it will not provide this information. It is,
therefore, likely that U.S. Holders would not be able to make a QEF
election in any year the company is a PFIC.
In lieu
of a QEF election, a U.S. Holder of stock in a PFIC that is
considered marketable stock could elect to mark the stock to market
annually, recognizing as ordinary income or loss each year an
amount equal to the difference as of the close of the taxable year
between the fair market value of the stock and the U.S.
Holder’s adjusted basis in the stock. Losses would be allowed
only to the extent of net mark-to-market gain previously included
in income by the U.S. Holder under the election for prior taxable
years. A U.S. Holder’s adjusted basis in Common Shares will
be adjusted to reflect the amounts included or deducted with
respect to the mark-to-market election. If the mark-to-market
election were made, the rules set forth in the second preceding
paragraph would not apply for periods covered by the election. A
mark-to-market election will not apply during any later taxable
year in which the company does not satisfy the tests to be a PFIC.
In general, the Common Shares will be marketable stock if the
Common Shares are traded, other than in de minimis quantities, on
at least 15 days during each calendar quarter on a national
securities exchange that is registered with the SEC or on a
designated national market system or on any exchange or market that
the Treasury Department determines to have rules sufficient to
ensure that the market price accurately represents the fair market
value of the stock. Under current law, the mark-to-market election
may be available to U.S. Holders of Common Shares because the
Common Shares are listed on The Nasdaq Capital Market, which should
constitute a qualified exchange for this purpose, although there
can be no assurance that the Common Shares will be “regularly
traded” for purposes of the mark-to-market
election.
If we
are treated as a PFIC, each U.S. Holder generally will be required
to file a separate annual information return with the IRS with
respect to the company (and any lower-tier PFICs). A failure to
file this return will suspend the statute of limitations with
respect to any tax return, event, or period to which such report
relates (potentially including with respect to items that do not
relate to a U.S. Holder’s investment in the Common Shares).
Given the complexities of the PFIC rules and their potentially
adverse tax consequences, U.S. Holders of Common Shares are urged
to consult their tax advisers about the PFIC rules.
Medicare Surtax on Net Investment Income
Non-corporate
U.S. Holders whose income exceeds certain thresholds generally will
be subject to 3.8% surtax on their “net investment
income” (which generally includes, among other things,
dividends on, and capital gain from the sale or other taxable
disposition of, the Common Shares). Absent an election to the
contrary, if a QEF election is available and made, QEF inclusions
will not be included in net investment income at the time a U.S.
Holder includes such amounts in income, but rather will be included
at the time distributions are received or gains are recognized.
Non-corporate U.S. Holders should consult their own tax advisors
regarding the possible effect of such tax on their ownership and
disposition of the Common Shares, in particular the applicability
of this surtax with respect to a non-corporate U.S. Holder that
makes a QEF or mark-to-market election in respect of their Common
Shares.
S-38
Information Reporting and Backup Withholding
Dividends
paid on, and proceeds from the sale or other disposition of, Common
Shares to a U.S. Holder generally will be subject to information
reporting requirements and may be subject to backup withholding
unless the U.S. Holder provides an accurate taxpayer identification
number or otherwise establishes an exemption. The amount of any
backup withholding collected from a payment to a U.S. Holder will
be allowed as a credit against the U.S. Holder’s U.S. federal
income tax liability and may entitle the U.S. Holder to a refund,
provided certain required information is furnished to the Internal
Revenue Service on a timely basis. A non-U.S. Holder generally will
be exempt from these information reporting requirements and backup
withholding tax but may be required to comply with certain
certification and identification procedures in order to establish
its eligibility for exemption.
Under
U.S. federal income tax law and U.S. Treasury Regulations, certain
categories of U.S. Holders must file information returns with
respect to their investment in, or involvement in, a foreign
corporation. U.S. Holders are urged to consult with their own tax
advisors concerning such reporting requirements.
Reporting Obligations of Individual Owners of Foreign Financial
Assets
Section
6038D of the U.S. Internal Revenue Code generally requires U.S.
individuals (and possibly certain entities that have U.S.
individual owners) to file IRS Form 8938 if they hold certain
“specified foreign financial assets,” the aggregate
value of which exceeds $50,000 on the last day of the year or
$75,000 at any time during the year. The definition of specified
foreign financial assets includes not only financial accounts
maintained in foreign financial institutions, but also, unless held
in accounts maintained by a financial institution, any stock or
security issued by a non-US. person, any financial instrument or
contract held for investment that has an issuer or counterparty
other than a U.S. person and any interest in a foreign entity.
Persons who are required to report foreign financial assets and
fail to do so may be subject to substantial penalties.
Foreign Account Tax Compliance Act
Under
certain circumstances, the company or its paying agent may be
required, pursuant to the Foreign Account Tax Compliance Act and
the regulations promulgated thereunder (“FATCA”), to
withhold U.S. tax at a rate of 30% on all or a portion of payments
of dividends or other corporate distributions to U.S. Holders which
are treated as “foreign pass-thru payments” made on or
after the date that is two years after the issuance of final
treasury regulations providing a definition of foreign pass-thru
payments are published, if such payments are not in compliance with
FATCA. Such regulations have not yet been issued. The rules
regarding FATCA and “foreign pass-thru payments,
“including the treatment of proceeds from the disposition of
the Ordinary Shares, are not completely clear, and further guidance
is expected from the IRS that would clarify how FATCA might apply
to dividends or other amounts paid on or with respect to the Common
Shares.
Canadian Federal Income Tax Consequences
The
following summary of the material Canadian federal income tax
consequences is stated in general terms and is not intended to be
legal or tax advice to any particular shareholder. Each shareholder
or prospective shareholder is urged to consult his or her own tax
advisor regarding the tax consequences of his or her purchase,
ownership and disposition of common shares. The tax consequences to
any particular holder of common shares will vary according to the
status of that holder as an individual, trust, corporation or
member of a partnership, the jurisdiction in which that holder is
subject to taxation, the place where that holder is resident and,
generally, according to that holder’s particular
circumstances.
S-39
This
summary is applicable only to holders who are resident in the
United States for income tax purposes, have never been resident in
Canada for income tax purposes, deal at arm’s length with the
company, hold their common shares as capital property and who will
not use or hold the common shares in carrying on business in
Canada. Special rules, which are not discussed in this summary, may
apply to a United States holder that is an issuer that carries on
business in Canada and elsewhere.
This
summary is based upon the provisions of the Income Tax Act (Canada)
and the regulations thereunder (collectively, the Tax Act or ITA)
and the Canada-United States Tax Convention (the Tax Convention) at
the date of this prospectus supplement and the current
administrative practices of the Canada Revenue Agency. This summary
does not take into account provincial income tax consequences. The
comments in this summary that are based on the Tax Convention are
applicable to U.S. Holders only if they qualify for benefits under
the Tax Convention. Management urges each holder to consult his own
tax advisor with respect to the income tax consequences applicable
to him in his own particular circumstances.
Non-Resident Holders
The
summary below is restricted to the case of a holder (a Holder) of
one or more common shares who for the purposes of the Tax Act is a
non- resident of Canada, holds his common shares as capital
property and deals at arm’s length with the
company.
Dividends
A
Holder will be subject to Canadian withholding tax (Part XIII Tax)
equal to 25%, or such lower rates as may be available under an
applicable tax treaty, of the gross amount of any dividend paid or
deemed to be paid on his common shares. The company will be
required to withhold the applicable amount of Part XIII Tax from
each dividend so paid and remit the withheld amount directly to the
Receiver General for Canada for the account of the
Holder.
Disposition of Common Shares
A
Holder who disposes of common shares, including by deemed
disposition on death, will not be subject to Canadian tax on any
capital gain thereby realized unless the common share constituted
“taxable Canadian property” as defined by the Tax Act.
Generally, a common share of a public corporation will not
constitute taxable Canadian property of a Holder unless he held the
common share as capital property used by him carrying on a business
in Canada, or he, persons with whom he did not deal at arm’s
length or partnerships in which he or persons with whom he did not
deal at arm’s length held an interest, alone or together held
or held options to acquire, at any time within the 60 months
preceding the disposition, 25% or more of the issued shares of any
class of the capital shares of the company and at any time during
the 60 months preceding the disposition more than 50% of the value
of the common shares is derived from, or from an interest in,
Canadian real estate, including Canadian resource or timber
resource properties.
Holders Resident in the United States
A
Holder who is a resident of the United States and realizes a
capital gain on disposition of common shares that was taxable
Canadian property will, if qualified for benefits under the Tax
Convention, generally be exempt from Canadian tax thereon unless
(a) more than 50% of the value of the common shares is derived
from, or from an interest in, Canadian real estate, including
Canadian natural resource properties, (b) the common shares formed
part of the business property of a permanent establishment that the
Holder has or had in Canada within the 12 months preceding
disposition, or (c) the Holder (i) was a resident of Canada at any
time within the ten years immediately preceding the disposition,
and for a total of 120 months during any period of 20 consecutive
years, preceding the disposition, (ii) owned the common shares when
he ceased to be resident in Canada, and (iii) the common shares
were not subject to a deemed disposition on the Holder’s
departure from Canada.
S-40
Inclusion in Taxable Income
A
Holder who is subject to Canadian tax in respect of a capital gain
realized on disposition of common shares must include one half of
the capital gain (“taxable capital gain”) in computing
his taxable income earned in Canada. The Holder may, subject to
certain limitations, deduct one half of any capital loss
(“allowable capital loss”) arising on disposition of
taxable Canadian property from taxable capital gains realized in
the year of disposition in respect to taxable Canadian property
and, to the extent not so deductible, from such taxable capital
gains of any of the three preceding years or any subsequent
year.
Subject
to certain exceptions, a non-resident person who disposes of
taxable Canadian property must notify the Canada Revenue Agency
either before or after the disposition (within ten days of the
disposition).
PLAN OF
DISTRIBUTION
Pursuant
to a Financial Advisory Agreement between us and Brookline Capital
Markets, a division of Arcadia Securities, LLC
(“Brookline”), dated November 5, 2019, as amended, we
have engaged Brookline to act as the placement agent in connection
with this offering with respect to investors resident in the United
States. The placement agent is not purchasing or selling any of the
Common Shares we are offering by this prospectus supplement, and is
not required to arrange the purchase or sale of any specific number
of Common Shares or dollar amount.
The
placement agent proposes to arrange for the sale of the Common
Shares we are offering pursuant to this prospectus supplement to
one or more investors resident in the United States through a
securities purchase agreement directly between the purchasers and
us. We established the price for investors (other than investors
that are officers, directors, employees and consultants of the
company, who are required to purchase Common Shares at a per share
price no less than the consolidated closing bid price immediately
preceding the time we enter into the purchase agreement) following
negotiations with prospective investors and with reference to the
prevailing market price of our Common Shares, recent trends in such
price and other factors. It is possible that not all of the Common
Shares we are offering pursuant to this prospectus supplement will
be sold at the closing, in which case our net proceeds would be
reduced. We expect that the sale of the Common Shares will be
completed on or around the date indicated on the cover page of this
prospectus supplement.
Outside
of the United States, we are directly soliciting offers to purchase
our Common Shares from investors. The sale of the Common Shares we
are offering pursuant to this prospectus supplement to one or more
investors outside of the United States will be made through
subscription agreements directly between the purchasers and
us.
Commissions and Expenses
We have
agreed to pay the placement agent an aggregate cash placement fee
equal to 6.5% of the gross proceeds in this offering and the
concurrent private placement of Purchase Warrants from sales
arranged for by the placement agent to investors resident in the
United States. In the event any U.S. investor is introduced by the
company, which we refer to as a Company Investor, the placement
agent’s cash placement fee with respect to proceeds received
from a Company Investor will be reduced to 3.5%. The placement
agent will not receive any cash placement fee with respect to
non-U.S. investors introduced by the company. The following table
shows the per share and total placement agent fee we will pay to
the placement agent in connection with the sale of the Common
Shares offered hereby, assuming the purchase of all of the
securities we are offering.
|
Per Common
Share
|
$0.15
|
|
Total
|
$207,475
|
S-41
We have
agreed to pay the placement agent’s out-of-pocket accountable
expenses, including reasonable fees, costs and expenses of the
placement agent’s counsel, up to a maximum amount of $55,000.
We estimate the total expenses of this offering, which will be
payable by us, excluding the placement agent fee, will be
approximately $277,500. After deducting the placement agent fee due
to the placement agent and our estimated offering expenses, we
expect the net proceeds from this offering to be approximately
$3.88 million.
As
additional compensation, we will issue to the placement agent
warrants to purchase an aggregate number of Common Shares equal to
1.25% of the Common Shares sold in the offering through investors
the placement agent introduces to the company. The warrants issued
to the placement agent will have a term of five years from the
effective date of this offering and be exercisable at a price of
$3.20 per share. The placement agent will not be entitled to any
warrant compensation for securities issued to non-U.S. investors.
The placement agent warrants provide for unlimited
“piggyback” registration rights at our expense with
respect to the underlying Common Shares during the seven year
period commencing from the effective date of the offering. The
placement agent warrants and the Common Shares underlying the
placement agent warrants, have been deemed compensation by FINRA
and are therefore subject to a 180-day lock-up pursuant to Rule
5110(g)(1) of FINRA. The placement agent (or permitted assignees
under the Rule) may not sell, transfer, assign, pledge or
hypothecate the placement agent warrants or the securities
underlying the placement agent warrants, nor will they engage in
any hedging, short sale, derivative, put or call transaction that
would result in the effective economic disposition of the placement
agent warrants or the underlying securities for a period of
180-days from the effective date of this offering, except to any
FINRA member participating in the offering and their bona fide
officers or partners. The placement agent warrants will provide for
cashless exercise and proportional adjustments for stock splits and
similar recapitalization events and other customary
provisions.
We have
agreed to indemnify the placement agent against certain
liabilities, including liabilities under the Securities Act of
1933. We have also agreed to contribute to payments the placement
agent may be required to make in respect to such
liabilities.
Right of First Refusal
We have
agreed to grant the placement agent, for the nine (9) month period
following the effective date of this offering, a right of first
refusal to act as a co-manager for any financing of the company or
any of the company’s subsidiaries by means of a fully
marketed public offering on a Form S-1, with no less than 20% of
the total fees paid to the underwriters. In the event that the
placement agent or one of its affiliates decides to accept any such
engagement, the engagement governing such engagement will contain,
among other things, provisions for customary fees for transactions
of similar size and nature and other provisions which are
appropriate to such a transaction.
Other Terms
Under
the securities purchase agreement entered into with purchasers of
our Common Shares and the Purchase Warrants in the United States,
we have agreed that for a period of six months following the
closing of the offering, we will not effect or enter into an
agreement to effect a “Variable Rate Transaction” as
defined in the securities purchase agreement.
S-42
Listing
Our
Common Shares are listed on The Nasdaq Capital Market under the
symbol “EDSA”.
Electronic Distribution
This
prospectus supplement and the accompanying prospectus may be made
available in electronic format on websites or through other online
services maintained by the placement agent, or by their respective
affiliates. Other than this prospectus supplement and the
accompanying prospectus in electronic format, the information on
the placement agent’s websites and any information contained
in any other websites maintained by the placement agent is not part
of this prospectus supplement or the accompanying prospectus or the
registration statement of which this prospectus supplement and the
accompanying prospectus forms a part, has not been approved and/or
endorsed by us or the placement agent and should not be relied upon
by investors.
The
foregoing does not purport to be a complete statement of the terms
and conditions of the financial advisory agreement, securities
purchase agreement, subscription agreements with investors outside
the United States and warrant issuable to the placement agent. A
copy of the financial advisory agreement, the form of securities
purchase agreement, the form of securities subscription agreement
and the form of placement agent warrant are included as exhibits to
our Current Report on Form 8-K that was previously filed with the
SEC and incorporated by reference into the Registration Statement
of which this prospectus supplement forms a part. See “Where
You Can Find More Information” below.
Regulation M Restrictions
The
placement agent may be deemed to be an underwriter within the
meaning of Section 2(a)(11) of the Securities Act, and any
commissions received by it and any profit realized on the resale of
the securities sold by it while acting as principal might be deemed
to be underwriting discounts or commissions under the Securities
Act. As an underwriter, the placement agent would be required to
comply with the requirements of the Securities Act and the Exchange
Act, including, without limitation, Rule 415(a)(4) under the
Securities Act and Rule 10b-5 and Regulation M under the Exchange
Act. These rules and regulations may limit the timing of purchases
and sales of securities by the placement agent acting as a
principal. Under these rules and regulations, the placement
agent:
●
must not engage in
any stabilization activity in connection with our securities;
and
●
must not bid for or
purchase any of our securities or attempt to induce any person to
purchase any of our securities, other than as permitted under the
Exchange Act, until it has completed their participation in the
distribution.
S-43
LEGAL MATTERS
The
validity of the securities offered hereby will be passed upon for
us by Fasken Martineau DuMoulin, LLP, Toronto, Ontario, Canada
and certain
other matters related to the laws of the United States
will be
passed upon for us by Stubbs Alderton & Markiles, LLP, Sherman
Oaks, California. Certain matters will be passed upon for
Brookline by Loeb & Loeb, LLP, New York, New York.
EXPERTS
The
balance sheets of Edesa Biotech, Inc. as of September 30, 2019 and
December 31, 2018 and the related consolidated statements of
operations and comprehensive loss, changes in shareholders’
equity and cash flows for the nine-month period ended September 30,
2019 and year ended December 31, 2018 incorporated in this
prospectus supplement by reference to the Annual Report on
Form 10-K for the year ended September 30, 2019 have been so incorporated in
reliance on the report of MNP LLP, an independent registered public
accounting firm, given on the authority of said firm as experts in
auditing and accounting.
WHERE YOU CAN FIND MORE
INFORMATION
This
prospectus supplement is part of the registration statement on
Form S-3 we filed with the SEC under the Securities Act and
does not contain all the information set forth in the registration
statement. Whenever a reference is made in this prospectus
supplement to any of our contracts, agreements or other documents,
the reference may not be complete and you should refer to the
exhibits that are a part of the registration statement or the
exhibits to the reports or other documents incorporated by
reference into this prospectus supplement for a copy of such
contract, agreement or other document. Because we are subject to
the information and reporting requirements of the Exchange Act, we
file annual, quarterly and current reports, proxy statements and
other information with the SEC. Our SEC filings are available to
the public over the Internet at the SEC’s website at
http://www.sec.gov. You may also read and copy any document we file
at the SEC’s Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the operation of the Public Reference
Room.
You
should rely only on the information provided in, and incorporated
by reference in, this prospectus supplement and the accompanying
prospectus and the registration statement. We have not authorized
anyone else to provide you with different information. Our
securities are not being offered in any state where the offer is
not permitted. The information contained in documents that are
incorporated by reference in this prospectus supplement is accurate
only as of the dates of those documents. Our business, financial
condition, results of operations and prospects may have changed
since those dates.
INCORPORATION OF
CERTAIN INFORMATION BY REFERENCE
The SEC allows us to incorporate by reference the information we
file with it, which means that we can disclose important
information to you by referring you to another document that we
have filed separately with the SEC. You should read the information
incorporated by reference because it is an important part of this
prospectus. We incorporate by reference the following information
or documents that we have filed with the SEC (Commission File No.
001-37619):
●
Our
Annual Report on Form 10-K for the nine-month period ended
September 30, 2019 (filed on December 12, 2019);
●
Our
Current Report on Form 8-K, dated January 6, 2020 (filed on January
6, 2020); and
●
The description of
our Common Shares contained in Amendment No. 2 to our Registration
Statement on Form 20-F/A, filed with the SEC on July 5, 2012,
including any amendment or report filed for the purpose of updating
such description.
S-44
Any information in any of the foregoing documents will
automatically be deemed to be modified or superseded to the extent
that information in this prospectus supplement or in a later filed
document that is incorporated or deemed to be incorporated herein
by reference modifies or replaces such information.
We also incorporate by reference any future filings (other than
current reports furnished under Item 2.02 or Item 7.01 of
Form 8-K and exhibits filed on such form that are related to
such items) made with the SEC pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act, including all such
reports filed after the date of this prospectus supplement until
the completion or termination of the offering of the securities
made by this prospectus supplement. Information in such future
filings updates and supplements the information provided in this
prospectus supplement. Any statements in any such future filings
will automatically be deemed to modify and supersede any
information in any document we previously filed with the SEC that
is incorporated or deemed to be incorporated herein by reference to
the extent that statements in the later filed document modify or
replace such earlier statements.
We will furnish without charge to each person, including any
beneficial owner, to whom a copy of this prospectus supplement is
delivered, upon written or oral request, a copy of the documents
that have been incorporated by reference into this prospectus
supplement, including exhibits to these documents. You should
direct any requests for copies to: Investor Relations,
Edesa Biotech, Inc., 100 Spy Court,
Markham, Ontario L3R 5H6 Canada; telephone number (289)
800-9600.
S-45
PROSPECTUS
$50,000,000
Common
Shares
Preferred Shares
Warrants
Units
From time to time, Edesa Biotech, Inc.
may offer and sell up to $50,000,000
of any combination of the securities described in this prospectus,
either individually or in combination with other securities. We may
also offer common shares upon conversion of preferred shares, or
common shares or preferred shares upon the exercise of
warrants.
We
will provide the specific terms of these offerings and securities
in one or more supplements to this prospectus. We may also
authorize one or more free writing prospectuses to be provided to
you in connection with these offerings. The prospectus supplement
and any related free writing prospectus may also add, update or
change information contained in this prospectus. You should
carefully read this prospectus, the applicable prospectus
supplement and any related free writing prospectus, as well as any
documents incorporated by reference, before buying any of the
securities being offered.
Our
common shares are traded on The Nasdaq Capital Market under the
symbol “EDSA.” On August 29, 2019, the last reported
sale price of our common shares on The Nasdaq Capital Market
was $3.64. The applicable prospectus supplement will contain
information, where applicable, as to other listings, if any, on The
Nasdaq Capital Market or other securities exchange of the
securities covered by the applicable prospectus
supplement.
Investing in our securities involves risks. You should review
carefully the risks and uncertainties described under the heading
“Risk Factors” contained in the applicable prospectus
supplement and any related free writing prospectus, and under
similar headings in the other documents that are incorporated by
reference into this prospectus.
This
prospectus may not be used to offer or sell any securities unless
accompanied by a prospectus supplement.
The
securities may be sold directly by us to investors, through agents
designated from time to time or to or through underwriters or
dealers, on a continuous or delayed basis. For additional
information on the methods of sale, you should refer to the section
titled “Plan of Distribution” in this prospectus. If
any agents or underwriters are involved in the sale of any
securities with respect to which this prospectus is being
delivered, the names of such agents or underwriters and any
applicable fees, commissions, discounts and over-allotment options
will be set forth in a prospectus supplement. The price to the
public of such securities and the net proceeds we expect to receive
from such sale will also be set forth in a prospectus
supplement.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The
date of this prospectus is September 12, 2019
TABLE OF CONTENTS
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You
should rely only on the information that we have provided or
incorporated by reference in this prospectus, any applicable
prospectus supplement and any related free writing prospectus that
we may authorize to be provided to you. We have not authorized
anyone to provide you with different information. No dealer,
salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus, any
applicable prospectus supplement or any related free writing
prospectus that we may authorize to be provided to you. You must
not rely on any unauthorized information or representation. This
prospectus is an offer to sell only the securities offered hereby,
but only under circumstances and in jurisdictions where it is
lawful to do so. You should assume that the information in this
prospectus, any applicable prospectus supplement or any related
free writing prospectus is accurate only as of the date on the
front of the document and that any information we have incorporated
by reference is accurate only as of the date of the document
incorporated by reference, regardless of the time of delivery of
this prospectus, any applicable prospectus supplement or any
related free writing prospectus, or any sale of a
security.
2
ABOUT THIS PROSPECTUS
This
prospectus is part of a registration statement on Form S-3
that we filed with the Securities and Exchange Commission utilizing
a “shelf” registration process. Under this shelf
registration process, we may offer our common shares and preferred
shares and/or warrants to purchase any of such securities, either
individually or in combination with other securities in one or more
offerings, up to a total dollar amount of $50,000,000. This
prospectus provides you with a general description of the
securities we may offer.
Each
time we offer a type or series of securities under this prospectus,
we will provide a prospectus supplement that will contain more
specific information about the terms of those securities. We may
also authorize one or more free writing prospectuses to be provided
to you that may contain material information relating to these
offerings. We may also add, update or change in the prospectus
supplement (and in any related free writing prospectus that we may
authorize to be provided to you) any of the information contained
in this prospectus or in the documents that we have incorporated by
reference into this prospectus. We urge you to carefully read this
prospectus, any applicable prospectus supplement and any related
free writing prospectus, together with the information incorporated
herein by reference as described under the heading
“Incorporation of Certain Information by Reference,”
before buying any of the securities being offered.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE A SALE OF SECURITIES
UNLESS IT IS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
The
information appearing in this prospectus, any applicable prospectus
supplement or any related free writing prospectus is accurate only
as of the date on the front of the document and any information we
have incorporated by reference is accurate only as of the date of
the document incorporated by reference, regardless of the time of
delivery of this prospectus, any applicable prospectus supplement
or any related free writing prospectus, or any sale of a security.
Our business, financial condition, results of operations and
prospects may have changed since those dates.
This
prospectus contains summaries of certain provisions contained in
some of the documents described herein, but reference is made to
the actual documents for complete information. All of the summaries
are qualified in their entirety by the actual documents. Copies of
some of the documents referred to herein have been filed, will be
filed or will be incorporated by reference as exhibits to the
registration statement of which this prospectus is a part, and you
may obtain copies of those documents as described below under the
heading “Where You Can Find More
Information.”
This
prospectus and the information incorporated herein by reference
include trademarks, services marks and trade names owned by us or
other companies. All trademarks, service marks and trade names
included or incorporated by reference into this prospectus, any
applicable prospectus supplement or any related free writing
prospectuses are the property of their respective
owners.
Unless
the context otherwise requires, the terms “we,”
“our,” “us,” “our company,” and
“Edesa” refer to Edesa Biotech, Inc. and its
subsidiaries.
3
EDESA BIOTECH INC.
Edesa
Biotech, Inc. is a biopharmaceutical company focused on acquiring,
developing and commercializing innovative drugs for dermatological
and gastrointestinal indications with clear unmet medical needs.
Our lead product candidate, referred to as “EB01,” is a
novel soluble phospholipase A2 (“sPLA2”) inhibitor
for the topical treatment of chronic allergic contact dermatitis
(“ACD”). EB01 employs a novel mechanism of action and
in two clinical studies has demonstrated statistically significant
improvement of multiple symptoms in contact dermatitis
patients. The company’s IND application for EB01 was accepted
by the U.S. Food and Drug Administration (FDA) in November 2018 and
we are planning to initiate a Phase 2B clinical study evaluating
EB01 in the third calendar quarter of 2019.
We also
intend to expand the utility of our sPLA2 inhibitor
technology, which forms the basis for EB01, across multiple
indications, which could include other inflammatory disorders. For
example, “EB02” is a sPLA2 inhibitor for the
potential treatment of hemorrhoids, and we are planning to evaluate
EB02 in a proof-of-concept study beginning in the second half of
2019. In addition to EB01 and EB02, we have licensed technology to
treat other indications and are in discussions with third parties
to expand our portfolio with assets to treat other serious skin and
gastrointestinal conditions.
Our
business strategy is to develop and commercialize innovative drug
products that address unmet medical needs for large, underserved
markets with limited competition. Key elements of our strategy
include:
·
Establish EB01 as the leading treatment for
chronic ACD. Our primary goal is to obtain regulatory
approval for EB01 and commercialize EB01 for use in the treatment
of ACD. The utility of EB01 in treatment of ACD has been
demonstrated in two proof of concept clinical studies. Based on
these promising clinical trial results, we plan to initiate a Phase
2B clinical study evaluating EB01 for treatment of chronic ACD. We
expect the first patient to be enrolled in the study in the third
calendar quarter of 2019.
·
Selectively targeting additional indications
within the areas of dermatology and gastroenterology. In
addition to our ACD program, we plan to efficiently generate
proof-of-concept data for other programs where the inhibition of
sPLA2 may have a therapeutic benefit. For example, EB02, a
therapeutic expansion of EB01, is indicated for hemorrhoids, and we
are currently planning to evaluate EB02 in a proof-of-concept study
beginning in the second half of 2019. We believe there are other
indications where the inhibition of sPLA2 activity may result in
clinical benefit to patients.
·
In-license promising product
candidates. We are applying our cost-effective development
approach to advance and expand our pipeline. The company’s
current product candidates are in-licensed from academic
institutions or other pharmaceutical companies, and we plan to
continue to evaluate and in-license assets and technology that can
drive long-term growth potential. Edesa does not currently intend
to invest significant capital in basic research, which can be
expensive and time-consuming.
·
Capture the full commercial potential of our
product candidates. If our product candidates are
successfully developed and approved, we may build commercial
infrastructure capable of directly marketing the products in North
America and potentially other major geographies of strategic
interest. We also plans to evaluate strategic licensing
arrangements with pharmaceutical companies for the
commercialization of our drugs, where applicable, such as in
territories where a partner may contribute additional resources,
infrastructure and expertise.
4
We were
incorporated in Canada in 2007 and we operate through our
wholly-owned subsidiaries, Edesa Biotech Research, Inc., an Ontario
corporation incorporated in 2015, formerly known as Edesa Biotech
Inc., which we acquired on
June 7, 2019, and Stellar Biotechnologies, Inc., a California
corporation organized September 9, 1999 and acquired on April 12,
2010. Our common shares are traded on The Nasdaq Capital Market
under the symbol “EDSA”. Our executive offices are
located at 100 Spy Court, Markham, Ontario L3R 5H6 Canada and our
telephone number at this location is (905) 475-1234. Our website
address is www.edesabiotech.com. The information contained on, or
that can be accessed through, our website is not a part of this
prospectus. Our trademarks and trade names include, but may not be
limited to, “Edesa Biotech,” and the Edesa
logo.
RISK FACTORS
Investing in our
securities involves a high degree of risk. Before deciding whether
to invest in our securities, you should consider carefully the
risks and uncertainties described under the heading “Risk
Factors” contained in the applicable prospectus supplement
and any related free writing prospectus, and discussed under the
section titled “Risk Factors” contained in our most
recent Annual Report on Form 10-K and in our most recent Quarterly
Report on Form 10-Q, as well as any amendments thereto reflected in
subsequent filings with the SEC, which are incorporated by
reference into this prospectus in their entirety, together with
other information in this prospectus, the documents incorporated by
reference, including our Definitive
Proxy Statement on Schedule 14A filed with the SEC on April 18,
2019, and any free writing prospectus that we may authorize
for use in connection with a specific offering. The risks described
in these documents are not the only ones we face, but those that we
consider to be material. There may be other unknown or
unpredictable economic, business, competitive, regulatory or other
factors that could have material adverse effects on our future
results. Past financial performance may not be a reliable indicator
of future performance, and historical trends should not be used to
anticipate results or trends in future periods. If any of these
risks actually occurs, our business, financial condition, results
of operations or cash flow could be seriously harmed. This could
cause the trading price of our securities to decline, resulting in
a loss of all or part of your investment. Please also read
carefully the section below titled “Forward-Looking
Statements.”
FORWARD-LOOKING STATEMENTS
This
prospectus and the documents incorporated by reference contain
forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, or Securities Act, and
Section 21E of the Securities Exchange Act of 1934, or
Exchange Act. These statements involve known and unknown risks,
uncertainties and other important factors that may cause our actual
results, performance or achievements to be materially different
from any future results, performances or achievements expressed or
implied by the forward looking statements. These forward looking
statements include, but are not limited to, those concerning the
following:
●
the scope, number,
progress, duration, cost, results and timing of clinical trials and
nonclinical studies of our current or future product
candidates;
●
our ability to
raise sufficient funds to support the development and potential
commercialization of our product candidates;
●
the outcomes and
timing of regulatory reviews, approvals or other
actions;
●
our ability to
obtain marketing approval for our product candidates and otherwise
execute our business plan;
5
●
our ability to
establish and maintain licensing, collaboration or similar
arrangements on favorable terms and whether and to what extent we
retain development or commercialization responsibilities under any
new licensing, collaboration or similar arrangement;
●
the success of any
other business, product or technology that we acquire or in which
we invest;
●
our ability to
maintain, expand and defend the scope of our intellectual property
portfolio;
●
our ability to
manufacture any approved products on commercially reasonable
terms;
●
our ability to
establish a sales and marketing organization or suitable
third-party alternatives for any approved product;
●
the number and
characteristics of product candidates and programs that we
pursue;
●
our business
strategy;
●
the attraction and
retention of qualified employees and personnel;
●
future acquisitions
or investments in complementary companies or technologies;
and
●
our ability to
comply with evolving legal standards and regulations pertaining to
our industry.
In
some cases, you can identify forward-looking statements by terms
such as “anticipates,” “believes”,
“could”, “estimates”,
“expects”, “intends”, “may”,
“plans”, “potential”,
“predicts”, “projects”,
“should”, “will”, “would” as
well as similar expressions. Forward-looking statements reflect our
current views with respect to future events, are based on
assumptions and are subject to risks, uncertainties and other
important factors. We discuss many of these risks, uncertainties
and other important factors in greater detail under the heading
“Risk Factors” contained in the applicable prospectus
supplement and any related free writing prospectus, and in our most
recent annual report on Form 10-K and in our most recent
quarterly report on Form 10-Q, as well as any amendments
thereto reflected in subsequent filings with the SEC. Given these
risks, uncertainties and other important factors, you should not
place undue reliance on these forward-looking statements. Also,
these forward-looking statements represent our estimates and
assumptions only as of the date such forward-looking statements are
made. Except as required by law, we assume no obligation to update
any forward-looking statements publicly, or to reflect facts and
circumstances after the date of this prospectus. Before deciding to
purchase our securities, you should carefully read both this
prospectus, the applicable prospectus supplement and any related
free writing prospectus, together with the information incorporated
herein by reference as described under the heading
“Incorporation of Certain Information by Reference,”
completely and with the understanding that our actual future
results may be materially different from what we
expect.
THE SECURITIES WE MAY OFFER
We
may offer our common shares and preferred shares and/or warrants to
purchase any of such securities, either individually or in
combination with other securities, with a total value of up to
$50,000,000 from time to time under this prospectus, together with
the applicable prospectus supplement and any related free writing
prospectus, at prices and on terms to be determined by market
conditions at the time of any offering. We may also offer common
shares and/or preferred shares upon the exercise of warrants. This
prospectus provides you with a general description of the
securities we may offer. Each time we offer a type or series of
securities under this prospectus, we will provide a prospectus
supplement that will describe the specific amounts, prices and
other important terms of the securities, including, to the extent
applicable:
6
●
designation
or classification;
●
aggregate
offering price;
●
rates
and times of payment of dividends, if any;
●
redemption,
conversion, exercise, exchange or sinking fund terms, if
any;
●
ranking;
●
restrictive
covenants, if any;
●
voting
or other rights, if any;
●
conversion
prices, if any; and
●
important
Canadian and/or United States federal income tax
considerations.
The
prospectus supplement and any related free writing prospectus that
we may authorize to be provided to you may also add, update or
change information contained in this prospectus or in documents we
have incorporated by reference. However, no prospectus supplement
or free writing prospectus will offer a security that is not
registered and described in this prospectus at the time of the
effectiveness of the registration statement of which this
prospectus is a part.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE A SALE OF SECURITIES
UNLESS IT IS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
We
may sell the securities directly to investors or to or through
agents, underwriters or dealers. We, and our agents or
underwriters, reserve the right to accept or reject all or part of
any proposed purchase of securities. If we do offer securities to
or through agents or underwriters, we will include in the
applicable prospectus supplement:
●
the
names of those agents or underwriters;
●
applicable
fees, discounts and commissions to be paid to them;
●
details
regarding over-allotment options, if any; and
●
the
net proceeds to us.
Common
Shares. We may issue our common
shares from time to time. The holders of our common shares are
entitled to one vote for each share held of record on all matters
submitted to a vote of shareholders. Subject to preferences that
may be applicable to any of our outstanding preferred shares, the
holders of our common shares are entitled to receive ratably such
dividends as may be declared by our board of directors out of
legally available funds. Upon our liquidation, dissolution or
winding up, holders of our common shares are entitled to share
ratably in all assets legally available for distribution to
shareholders remaining after payment of liabilities and the
liquidation preferences of any outstanding preferred shares.
Holders of common shares have no preemptive rights and no right to
convert their common shares into any other securities. There are no
redemption or sinking fund provisions applicable to our common
shares. When we issue common shares under this prospectus, the
shares will be fully paid and non-assessable. The rights,
preferences and privileges of the holders of common shares are
subject to, and may be adversely affected by, the rights of the
holders of any series of preferred shares which we may designate in
the future. In this prospectus, we have summarized certain general
features of the common shares under “Description of Capital
Stock—Common Shares.” We urge you, however, to read the
applicable prospectus supplement (and any related free writing
prospectus that we may authorize to be provided to you) related to
any common shares being offered.
7
Preferred
Shares. We may issue preferred
shares from time to time, in one or more series. The board of
directors has the authority to approve the issuance of any number
of preferred shares in one or more series at any time and from time
to time, to determine the number of shares constituting any series,
and to determine any voting powers, conversion rights, dividend
rights, and other designations, preferences, limitations,
restrictions and rights relating to such shares without any further
prior approval of the shareholders. Convertible preferred shares
can be convertible into our common shares or exchangeable for our
other securities. Conversion may be mandatory or at a
shareholder’s option and would be at prescribed conversion
rates. Upon any such issuance, the designations, preferences,
limitations, restrictions and rights of any series of preferred
shares designated by the board of directors will be set forth in an
alteration to the Articles and a further Notice of Alteration to
the Notice of Articles of the Company will be filed in accordance
with British Columbia law.
If
we sell any series of preferred shares under this prospectus, we
will file as an exhibit to the registration statement of which this
prospectus is a part, or will incorporate by reference from reports
that we file with the SEC, the alteration to the Articles and a
Notice of Alteration to the Notice of Articles of the Company filed
in accordance with British Columbia law which shall set forth the
designations, preferences, limitations, restrictions and rights of
any series of preferred shares designated by the board of
directors.
In
this prospectus, we have summarized certain general features of the
preferred shares under “Description of Capital
Stock—Preferred Shares.” We urge you, however, to read
the applicable prospectus supplement (and any free writing
prospectus that we may authorize to be provided to you) related to
the series of preferred shares being offered which will contain the
terms of the applicable series of preferred shares.
Warrants. We may issue warrants for the purchase of common
shares and/or preferred shares in one or more series. We may issue
warrants independently or in combination with common shares and/or
preferred shares. In this prospectus, we have summarized certain
general features of the warrants under “Description of
Warrants.” We urge you, however, to read the applicable
prospectus supplement (and any related free writing prospectus that
we may authorize to be provided to you) related to the particular
series of warrants being offered, as well as the form of warrant
and/or the warrant agreement and warrant certificate, as
applicable, that contain the terms of the warrants. We will file as
exhibits to the registration statement of which this prospectus is
a part, or will incorporate by reference from reports that we file
with the SEC, the form of warrant and/or the warrant agreement and
warrant certificate, as applicable, that contain the terms of the
particular series of warrants we are offering, and any supplemental
agreements, before the issuance of such
warrants.
Warrants
may be issued under a warrant agreement that we enter into with a
warrant agent. We will indicate the name and address of the warrant
agent, if any, in the applicable prospectus supplement relating to
a particular series of warrants.
Units. We may issue units consisting of common shares,
preferred shares and/or warrants to purchase any of such securities
in one or more series. In this prospectus, we have summarized
certain general features of the units under “Description of
Units.” We urge you, however, to read the prospectus
supplements and any free writing prospectus that we may authorize
to be provided to you related to the series of units being offered,
as well as the unit agreements that contain the terms of the units.
We will file as exhibits to the registration statement of which
this prospectus is a part, or will incorporate by reference from a
current report on Form 8-K that we file with the SEC, the form of
unit agreement and any supplemental agreements that describe the
terms of the series of units we are offering before the issuance of
such units.
8
USE OF PROCEEDS
Unless
otherwise provided in the applicable prospectus supplement or in
any related free writing prospectus that we may authorize to be
provided to you, we intend to use the net proceeds from the sale of
the securities offered hereby for general corporate purposes,
including capital expenditures, research and development, and
working capital. We may use a portion of our net proceeds to
in-license, acquire or invest in complementary businesses,
technologies, products or assets. However, we have no current
commitments or obligations to do so. We may set forth additional
information on the use of proceeds from the sale or the securities
we offer under this prospectus in a prospectus supplement relating
to the specific offering or in any related free writing prospectus
that we may authorize to be provided to you. We cannot currently
allocate specific percentages of the net proceeds that we may use
for the purposes specified above. As a result, our management will
have broad discretion in the allocation of the net proceeds.
Pending the application of the net proceeds, we intend to invest
the net proceeds in short- and intermediate-term, interest-bearing
obligations, investment-grade instruments, certificates of deposit
or direct or guaranteed obligations of the U.S.
government.
DESCRIPTION OF CAPITAL
STOCK
We are authorized to issue an unlimited number of
common shares and preferred shares, no par value.
As of August 29, 2019, there were
7,504,468 common shares outstanding and no preferred shares
outstanding.
The following summary description of our capital
shares is based on the provisions of our Notice of Articles and
Articles. This information is qualified entirely by reference to
the applicable provisions of our Articles and the British
Columbia Business Corporations
Act. For information on how to
obtain copies of our Notice of Articles and Articles, which are
exhibits to the registration statement of which this prospectus is
a part, see “Where You Can Find More
Information.”
Common Shares
The
holders of our common shares are entitled to one vote for each
share held of record on all matters submitted to a vote of the
shareholders. Our shareholders do not have cumulative voting rights
in the election of directors. Subject to preferences that may be
applicable to any outstanding preferred shares, the holders of
common shares are entitled to receive ratably only those dividends
as may be declared by our board of directors out of legally
available funds. Upon our liquidation, dissolution or winding up,
holders of our common shares are entitled to share ratably in all
assets remaining after payment of liabilities and the liquidation
preferences of any outstanding preferred shares. Holders of common
shares have no preemptive or other subscription or conversion
rights. There are no redemption or sinking fund provisions
applicable to our common shares. Common shares outstanding, and to
be issued, are, and will be, fully paid and non-assessable.
Additional shares of authorized common shares may be issued, as
authorized by our board of directors from time to time, without
shareholder approval, except as may be required by applicable stock
exchange requirements.
Preferred Shares
Pursuant to our Notice of Articles and Articles,
and the provisions of the British Columbia Business Corporations
Act, our board of directors has the
authority, without further action by the shareholders (unless such
shareholder action is required by applicable law or the rules of
The Nasdaq Stock Market), to designate and issue an unlimited
number of preferred shares in one of more series, to establish from
time to time the number of shares to be included in each such
series, to fix the designations, powers, preferences and rights of
the shares of each wholly unissued series, and any qualifications,
limitations or restrictions thereon, and to increase or decrease
the number of shares of any such series, but not below the number
of shares of such series then outstanding. Preferred shares, if
issued, will be fully paid and non-assessable.
9
The
board of directors’ authority to determine the terms of any
such preferred shares include, without limitation: (i) the
designation of each series and the number of preferred shares that
will constitute each such series; (ii) the dividend rate or amount,
if any, for each series; (iii) the price at which, and the terms
and conditions on which, the preferred shares of each series may be
redeemed, if such shares are redeemable; (iv) the terms and
conditions, if any, upon which preferred shares of such series may
be converted into shares of other classes or series of shares of
the Company, or other securities; and (v) the maturity date, if
any, for each such series; but no such special rights or
restriction shall contravene any other provision of Part 26 of the
Articles of the Company.
We
will file as an exhibit to the registration statement of which this
prospectus is a part, or will incorporate by reference from reports
that we file with the SEC, a Notice of Alteration to the Notice of
Articles of the Company, which will be filed in accordance with
British Columbia law and which shall describe the designations,
preferences, limitations, restrictions and rights of the series of
preferred shares that we are offering before the issuance of that
series of preferred shares. This description will
include:
●
the
title and stated value;
●
the
number of shares we are offering;
●
the
liquidation preference per share;
●
the
purchase price;
●
the
rate and amount of dividends (whether cumulative, non-cumulative or
partially cumulative), the dates and places of payment
thereof;
●
the
consideration for, and the terms and conditions of, any purchase
for cancellation or redemption thereof (including redemption after
a fixed term or at a premium);
●
the
conversion or exchange rights;
●
the
terms and conditions of any share purchase plan or sinking
fund;
●
the
restrictions respecting payment of dividends on, or the repayment
of capital in respect of, any other share of the
Company;
●
the
voting rights and restrictions, if any;
●
any
listing of the preferred shares on any securities exchange or
market;
●
whether
the preferred shares will be convertible into our common shares,
and, if applicable, the conversion price, or how it will be
calculated, and the conversion period;
●
preemptive
rights, if any;
●
restrictions
on transfer, sale or other assignment, if any;
●
whether
interests in the preferred shares will be represented by depositary
shares;
●
a
discussion of any material Canadian or United States federal income
tax considerations applicable to the preferred shares;
●
the
relative ranking and preferences of the preferred shares as to
dividend rights and rights if we liquidate, dissolve or wind up our
affairs;
●
any
limitations on the issuance of any class or series of preferred
shares ranking senior to or on a parity with the series of
preferred shares as to dividend rights and rights if we liquidate,
dissolve or wind up our affairs; and
●
any
other specific terms, preferences, rights or limitations of, or
restrictions on, the preferred shares.
10
The issuance of preferred shares may or may
not have a dilutive effect on the voting rights of shareholders
owning common shares, depending on the rights and preferences set
by the board of directors. Preferred shares may be issued quickly
with terms designed to delay or prevent a change in control of our
company or make removal of management more difficult. However,
except for such rights relating to the election of directors on a
default in payment of dividends as may be attached to any series of
the preferred shares by the board of directors or in connection
with convertible preferred shares, the holders of preferred shares
shall not be entitled, as such, to receive notice of, or to attend
or vote at, any general meeting of shareholders of the Company.
Section 61 of the British Columbia Business
Corporations Act provides that
the special rights attached to preferred shares may not be
prejudiced or interfered with unless the shareholders holding such
class of shares consent to such matter by a special resolution of
such holders of preferred shares. Additionally, the issuance of
preferred shares may have the effect of decreasing the market price
of our common shares.
CERTAIN PROVISIONS OF OUR CHARTER DOCUMENTS AND
BRITISH COLUMBIA LAW
Anti-takeover Provisions of our Articles of
Incorporation
In
addition to the board of directors’ ability to issue
preferred shares, our Articles, as amended, contain other
provisions that are intended to enhance the likelihood of
continuity and stability in the composition of our board of
directors and which may have the effect of delaying, deferring or
preventing a future takeover or change in control of our Company
unless such takeover or change in control is approved by our board
of directors. These provisions include advance notice procedures
for shareholder proposals and a supermajority vote requirement for
business combinations.
Advance Notice Procedures for Shareholder Proposals
Effective October
31, 2013, our board of directors adopted an advance notice policy
(the “Advance Notice Policy”) with immediate effect for
the purpose of providing our shareholders, directors and management
with a clear framework for nominating our directors in connection
with any annual or special meeting of shareholders. The Advance
Notice Policy was approved by the shareholders at our annual
meeting on February 13, 2014.
Purpose of the Advance Notice Policy.
Our directors are committed to: (i) facilitating an orderly and
efficient annual general or, where the need arises, special
meeting, process; (ii) ensuring that all shareholders receive
adequate notice of the director nominations and sufficient
information with respect to all nominees; and (iii) allowing
shareholders to register an informed vote having been afforded
reasonable time for appropriate deliberation. The purpose of the
Advance Notice Policy is to provide our shareholders, directors and
management with a clear framework for nominating directors. The
Advance Notice Policy fixes a deadline by which holders of record
of our common shares must submit director nominations to the
Company prior to any annual or special meeting of shareholders and
sets forth the information that a shareholder must include in the
notice to the Company for the notice to be in proper written form
in order for any director nominee to be eligible for election at
any annual or special meeting of shareholders.
Terms of the Advance Notice Policy. The
Advance Notice Policy provides that advance notice to the Company
must be made in circumstances where nominations of persons for
election to our board of directors are made by shareholders of the
Company other than pursuant to: (i) a "proposal" made in accordance
with Division 7 of Part 5 of the British Columbia Business
Corporations Act, or the Act; or (ii) a requisition of the
shareholders made in accordance with section 167 of the Act. Among
other things, the Advance Notice Policy fixes a deadline by which
holders of record of our common shares must submit director
nominations to the secretary of the Company prior to any annual or
special meeting of shareholders and sets forth the specific
information that a shareholder must include in the written notice
to the secretary of the Company for an effective nomination to
occur. No person will be eligible for election as a director of the
Company unless nominated in accordance with the provisions of the
Advance Notice Policy.
11
In the
case of an annual meeting of shareholders, notice to the Company
must be made not less than 30 nor more than 65 days prior to the
date of the annual meeting; provided, however, that in the event
that the annual meeting is to be held on a date that is less than
50 days after the date on which the first public announcement of
the date of the annual meeting was made, notice may be made not
later than the close of business on the 10th day following such
public announcement.
In the
case of a special meeting of shareholders (which is not also an
annual meeting), notice to the Company must be made not later than
the close of business on the 15th day following the day on which
the first public announcement of the date of the special meeting
was made.
Our
board of directors may, in its sole discretion, waive any
requirement of the Advance Notice Policy.
Provisions of British Columbia Law Governing Business
Combinations
All
provinces of Canada have adopted National Instrument 62-104
entitled “Take-Over Bids and
Issuer Bids” and related forms to harmonize and
consolidate take-over bid and issuer bid regimes nationally
(“NI 62-104”). The Canadian Securities Administrators,
or CSA, have also issued National Policy 62-203 entitled
“Take-Over Bids and Issuer
Bids” (the “National Policy”) which
contains regulatory guidance on the interpretation and application
of NI 62-104 and on the conduct of parties involved in a bid. The
National Policy and NI 62-104 are collectively referred to as the
“Bid Regime.” The National Policy does not have the
force of law, but is an indication by the CSA of what the
intentions and desires of the regulators are in the areas covered
by their policies. Unlike some regimes where the take-over bid
rules are primarily policy-driven, in Canada the regulatory
framework for take-over bids is primarily rules-based, which rules
are supported by policy.
A
“take-over bid” or “bid” is an offer to
acquire outstanding voting or equity securities of a class made to
any person who is in one of the provinces of Canada or to any
securityholder of an offeree issuer whose last address as shown on
the books of a target is in such province, where the securities
subject to the offer to acquire, together with the securities
“beneficially owned” by the offeror, constitute in the
aggregate 20% or more of the outstanding securities of that class
of securities at the date of the offer to acquire. For the purposes
of the Bid Regime, a security is deemed to be “beneficially
owned” by an offeror as of a specific date if the offeror is
the beneficial owner of a security convertible into the security
within 60 days following that date, or has a right or obligation
permitting or requiring the offeror, whether or not on conditions,
to acquire beneficial ownership of the security within 60 days by a
single transaction or a series of linked transactions. Offerors are
also subject to early warning requirements, where an offeror who
acquires “beneficial ownership of”, or control or
direction over, voting or equity securities of any class of a
reporting issuer or securities convertible into, voting or equity
securities of any class of a target that, together with the
offeror’s securities, would constitute 10% or more of the
outstanding securities of that class must promptly publicly issue
and file a news release containing certain prescribed information,
and, within two business days, file an early warning report
containing substantially the same information as is contained in
the news release.
12
In
addition, where an offeror is required to file an early warning
report or a further report as described and the offeror acquires or
disposes of beneficial ownership of, or the power to exercise
control or direction over, an additional 2% or more of the
outstanding securities of the class, or disposes of beneficial
ownership of outstanding securities of the class below 10%, the
offeror must issue an additional press release and file a new early
warning report. Any material change in a previously filed early
warning report also triggers the issuance and filing of a new press
release and early warning report. During the period commencing on
the occurrence of an event in respect of which an early warning
report is required and terminating on the expiry of one business
day from the date that the early warning report is filed, the
offeror may not acquire or offer to acquire beneficial ownership of
any securities of the class in respect of which the early warning
report was required to be filed or any securities convertible into
securities of that class. This requirement does not apply to an
offeror that has beneficial ownership of, or control or direction
over, securities that comprise 20% of more of the outstanding
securities of the class.
Related
party transactions, issuer bids and insider bids are subject to
additional regulation that may differ depending on the particular
jurisdiction of Canada in which it occurs.
Transfer Agent and Registrar
The
transfer agent and registrar for our common shares is Computershare
Investor Services Inc. located at 100 University Avenue, 8th Floor,
Toronto, Ontario M5J 2Y1, and its telephone number is
1-800-564-6253. The transfer agent for any series of preferred
shares that we may offer under this prospectus will be named and
described in the prospectus supplement for that
series.
Listing on The Nasdaq Capital Market
Our
common shares are listed on The Nasdaq Capital Market under the
symbol “EDSA.”
DESCRIPTION OF WARRANTS
The
following description, together with the additional information we
may include in any applicable prospectus supplement and free
writing prospectus, summarizes the material terms and provisions of
the warrants that we may offer under this prospectus, which may
consist of warrants to purchase common shares or preferred shares
and may be issued in one or more series. Warrants may be offered
independently or in combination with common shares and/or preferred
shares offered by any prospectus supplement. While the terms we
have summarized below will apply generally to any warrants that we
may offer under this prospectus, we will describe the particular
terms of any series of warrants in more detail in the applicable
prospectus supplement. The following description of warrants will
apply to the warrants offered by this prospectus unless we provide
otherwise in the applicable prospectus supplement. The applicable
prospectus supplement for a particular series of warrants may
specify different or additional terms.
We
will file as exhibits to the registration statement of which this
prospectus is a part, or will incorporate by reference from reports
that we file with the SEC, the form of warrant and/or the warrant
agreement and warrant certificate, as applicable, that contain the
terms of the particular series of warrants we are offering, and any
supplemental agreements, before the issuance of such warrants. The
following summaries of material terms and provisions of the
warrants are subject to, and qualified in their entirety by
reference to, all the provisions of the form of warrant and/or the
warrant agreement and warrant certificate, as applicable, and any
supplemental agreements applicable to a particular series of
warrants that we may offer under this prospectus. We urge you to
read the applicable prospectus supplement related to the particular
series of warrants that we may offer under this prospectus, as well
as any related free writing prospectus, and the complete form of
warrant and/or the warrant agreement and warrant certificate, as
applicable, and any supplemental agreements, that contain the terms
of the warrants.
General
We
will describe in the applicable prospectus supplement the terms of
the series of warrants being offered, including:
●
the
offering price and aggregate number of warrants
offered;
●
the
currency for which the warrants may be purchased;
13
●
if
applicable, the designation and terms of the securities with which
the warrants are issued and the number of warrants issued with each
such security or each principal amount of such
security;
●
in
the case of warrants to purchase common shares or preferred shares,
the number of common shares or preferred shares, as the case may
be, purchasable upon the exercise of one warrant and the price at
which these shares may be purchased upon such
exercise;
●
the
effect of any merger, consolidation, sale or other disposition of
our business on the warrant agreements and the
warrants;
●
the
terms of any rights to redeem or call the warrants;
●
any
provisions for changes to or adjustments in the exercise price or
number of securities issuable upon exercise of the
warrants;
●
the
dates on which the right to exercise the warrants will commence and
expire;
●
the
manner in which the warrant agreements and warrants may be
modified;
●
a
discussion of material or special Canadian and U.S. federal income
tax considerations, if any, of holding or exercising the
warrants;
●
the
terms of the securities issuable upon exercise of the warrants;
and
●
any
other specific terms, preferences, rights or limitations of or
restrictions on the warrants.
Before
exercising their warrants, holders of warrants will not have any of
the rights of holders of the securities purchasable upon such
exercise, including:
●
in
the case of warrants to purchase common shares or preferred shares,
the right to receive dividends, if any, or payments upon our
liquidation, dissolution or winding up or to exercise voting
rights, if any.
Exercise of Warrants
Each
warrant will entitle the holder to purchase the securities that we
specify in the applicable prospectus supplement at the exercise
price that we describe in the applicable prospectus supplement. The
warrants may be exercised as set forth in the prospectus supplement
relating to the warrants offered. Unless we otherwise specify in
the applicable prospectus supplement, warrants may be exercised at
any time up to the close of business on the expiration date set
forth in the prospectus supplement relating to the warrants offered
thereby. After the close of business on the expiration date,
unexercised warrants will become void.
Upon
receipt of payment and the warrant or warrant certificate, as
applicable, properly completed and duly executed at the corporate
trust office of the warrant agent, if any, or any other office,
including ours, indicated in the prospectus supplement, we will, as
soon as practicable, issue and deliver the securities purchasable
upon such exercise. If less than all of the warrants (or the
warrants represented by such warrant certificate) are exercised, a
new warrant or a new warrant certificate, as applicable, will be
issued for the remaining warrants.
Governing Law
Unless
we provide otherwise in the applicable prospectus supplement, the
warrants and any warrant agreements will be governed by and
construed in accordance with the laws of the Province of British
Columbia, Canada.
14
Enforceability of Rights by Holders of Warrants
Each
warrant agent, if any, will act solely as our agent under the
applicable warrant agreement and will not assume any obligation or
relationship of agency or trust with any holder of any warrant. A
single bank or trust company may act as warrant agent for more than
one issue of warrants. A warrant agent will have no duty or
responsibility in case of any default by us under the applicable
warrant agreement or warrant, including any duty or responsibility
to initiate any proceedings at law or otherwise, or to make any
demand upon us. Any holder of a warrant may, without the consent of
the related warrant agent or the holder of any other warrant,
enforce by appropriate legal action its right to exercise, and
receive the securities purchasable upon exercise of, its
warrants.
Outstanding Warrants
As
of August 29, 2019, there were 48,914 common shares issuable upon
exercise of outstanding warrants at a weighted-average exercise
price of $11.19 per share. The warrants may be exercised for cash
or, under certain circumstances, on a cashless basis, in which case
we will deliver, upon exercise, the number of shares with respect
to which the warrant is being exercised reduced by a number of
shares having a value (as determined in accordance with the terms
of the applicable warrant) equal to the aggregate exercise price of
the shares with respect to which the warrant is being
exercised.
DESCRIPTION OF UNITS
The
following description, together with the additional information we
may include in any applicable prospectus supplements and free
writing prospectuses, summarizes the material terms and provisions
of the units that we may offer under this prospectus. While the
terms we have summarized below will apply generally to any units
that we may offer under this prospectus, we will describe the
particular terms of any series of units in more detail in the
applicable prospectus supplement. The terms of any units offered
under a prospectus supplement may differ from the terms described
below. However, no prospectus supplement will fundamentally change
the terms that are set forth in this prospectus or offer a security
that is not registered and described in this prospectus at the time
of its effectiveness.
We
will file as exhibits to the registration statement of which this
prospectus is a part, or will incorporate by reference from a
current report on Form 8-K that we file with the SEC, the form of
unit agreement that describes the terms of the series of units we
are offering, and any supplemental agreements, before the issuance
of the related series of units. The following summaries of material
terms and provisions of the units are subject to, and qualified in
their entirety by reference to, all the provisions of the unit
agreement and any supplemental agreements applicable to a
particular series of units. We urge you to read the applicable
prospectus supplements related to the particular series of units
that we sell under this prospectus, as well as the complete unit
agreement and any supplemental agreements that contain the terms of
the units.
General
We
will describe in the applicable prospectus supplement the terms of
the series of units being offered, including:
●
the
offering price and aggregate number of units offered;
●
the
currency for which the units may be purchased;
●
if
applicable, the designation and terms of the units and of the
securities comprising the units, including whether and under what
circumstances those securities may be held or transferred
separately;
●
a
discussion of material or special Canadian and U.S. federal income
tax considerations, if any, of holding the units; and
●
any
other specific terms, preferences, rights or limitations of or
restrictions on the units.
15
The
provisions described in this section, as well as those described
under “Description of Capital Stock” and
“Description of Warrants” will apply to each unit and
to any common shares, preferred shares or warrant included in each
unit, respectively.
Governing Law
Unless
we provide otherwise in the applicable prospectus supplement, the
units and any unit agreements will be governed by and construed in
accordance with the laws of the Province of British Columbia,
Canada.
Enforceability of Rights by Holders of Units
Each
unit agent, if any, will act solely as our agent under the
applicable unit agreement and will not assume any obligation or
relationship of agency or trust with any holder of any unit. A
single bank or trust company may act as unit agent for more than
one series of units. A unit agent will have no duty or
responsibility in case of any default by us under the applicable
unit agreement or unit, including any duty or responsibility to
initiate any proceedings at law or otherwise, or to make any demand
upon us. Any holder of a unit may, without the consent of the
related unit agent or the holder of any other unit, enforce by
appropriate legal action its rights as holder under any security
included in the unit.
LEGAL OWNERSHIP OF
SECURITIES
We
can issue securities in registered form or in the form of one or
more global securities. We describe global securities in greater
detail below. We refer to those persons who have securities
registered in their own names on the books that we or any
applicable trustee, depositary or warrant agent maintain for this
purpose as the “holders” of those securities. These
persons are the legal holders of the securities. We refer to those
persons who, indirectly through others, own beneficial interests in
securities that are not registered in their own names, as
“indirect holders” of those securities. As we discuss
below, indirect holders are not legal holders, and investors in
securities issued in book-entry form or in street name will be
indirect holders.
Book-Entry Holders
We
may issue securities in book-entry form only, as we will specify in
the applicable prospectus supplement. This means securities may be
represented by one or more global securities registered in the name
of a financial institution that holds them as depositary on behalf
of other financial institutions that participate in the
depositary’s book-entry system. These participating
institutions, which are referred to as participants, in turn, hold
beneficial interests in the securities on behalf of themselves or
their customers.
Only
the person in whose name a security is registered is recognized as
the holder of that security. Securities issued in global form will
be registered in the name of the depositary or its participants.
Consequently, for securities issued in global form, we will
recognize only the depositary as the holder of the securities, and
we will make all payments on the securities to the depositary. The
depositary passes along the payments it receives to its
participants, which in turn pass the payments along to their
customers who are the beneficial owners. The depositary and its
participants do so under agreements they have made with one another
or with their customers; they are not obligated to do so under the
terms of the securities.
As
a result, investors in a book-entry security will not own
securities directly. Instead, they will own beneficial interests in
a global security, through a bank, broker or other financial
institution that participates in the depositary’s book-entry
system or holds an interest through a participant. As long as the
securities are issued in global form, investors will be indirect
holders, and not holders, of the securities.
16
Street Name Holders
We
may terminate a global security or issue securities in non-global
form. In these cases, investors may choose to hold their securities
in their own names or in “street name.” Securities held
by an investor in street name would be registered in the name of a
bank, broker or other financial institution that the investor
chooses, and the investor would hold only a beneficial interest in
those securities through an account he or she maintains at that
institution.
For
securities held in street name, we will recognize only the
intermediary banks, brokers and other financial institutions in
whose names the securities are registered as the holders of those
securities, and we will make all payments on those securities to
them. These institutions pass along the payments they receive to
their customers who are the beneficial owners, but only because
they agree to do so in their customer agreements or because they
are legally required to do so. Investors who hold securities in
street name will be indirect holders, not holders, of those
securities.
Legal Holders
Our
obligations, as well as the obligations of any applicable trustee
and of any third parties employed by us or a trustee, run only to
the legal holders of the securities. We do not have obligations to
investors who hold beneficial interests in global securities, in
street name or by any other indirect means. This will be the case
whether an investor chooses to be an indirect holder of a security
or has no choice because we are issuing the securities only in
global form. For example, once we make a payment or give a notice
to the holder, we have no further responsibility for the payment or
notice even if that holder is required, under agreements with
depositary participants or customers or by law, to pass it along to
the indirect holders but does not do so.
Special Considerations For Indirect Holders
If
you hold securities through a bank, broker or other financial
institution, either in book-entry form or in street name, you
should check with your own institution to find out:
●
how
it handles securities payments and notices;
●
whether
it imposes fees or charges;
●
how
it would handle a request for the holders’ consent, if ever
required;
●
whether
and how you can instruct it to send you securities registered in
your own name so you can be a holder, if that is permitted in the
future;
●
how
it would exercise rights under the securities if there were a
default or other event triggering the need for holders to act to
protect their interests; and
●
if
the securities are in book-entry form, how the depositary’s
rules and procedures will affect these matters.
Global Securities
A
global security is a security that represents one or any other
number of individual securities held by a depositary. Generally,
all securities represented by the same global securities will have
the same terms.
Each
security issued in book-entry form will be represented by a global
security that we deposit with and register in the name of a
financial institution or its nominee that we select. The financial
institution that we select for this purpose is called the
depositary. Unless we specify otherwise in the applicable
prospectus supplement, The Depository Trust Company, New York,
New York, known as DTC, will be the depositary for all securities
issued in book-entry form.
17
A
global security may not be transferred to or registered in the name
of anyone other than the depositary, its nominee or a successor
depositary, unless special termination situations arise. We
describe those situations below under “Special Situations
When a Global Security Will Be Terminated.” As a result of
these arrangements, the depositary, or its nominee, will be the
sole registered owner and holder of all securities represented by a
global security, and investors will be permitted to own only
beneficial interests in a global security. Beneficial interests
must be held by means of an account with a broker, bank or other
financial institution that in turn has an account with the
depositary or with another institution that does. Thus, an investor
whose security is represented by a global security will not be a
holder of the security, but only an indirect holder of a beneficial
interest in the global security.
If
the prospectus supplement for a particular security indicates that
the security will be issued in global form only, then the security
will be represented by a global security at all times unless and
until the global security is terminated. If termination occurs, we
may issue the securities through another book-entry clearing system
or decide that the securities may no longer be held through any
book-entry clearing system.
Special Considerations For Global Securities
The
rights of an indirect holder relating to a global security will be
governed by the account rules of the investor’s financial
institution and of the depositary, as well as general laws relating
to securities transfers. We do not recognize an indirect holder as
a holder of securities and instead deal only with the depositary
that holds the global security.
If
securities are issued only in the form of a global security, an
investor should be aware of the following:
●
an
investor cannot cause the securities to be registered in his or her
name, and cannot obtain non-global certificates for his or her
interest in the securities, except in the special situations we
describe below;
●
an
investor will be an indirect holder and must look to his or her own
bank or broker for payments on the securities and protection of his
or her legal rights relating to the securities, as we describe
above;
●
an
investor may not be able to sell interests in the securities to
some insurance companies and to other institutions that are
required by law to own their securities in non-book-entry
form;
●
an
investor may not be able to pledge his or her interest in a global
security in circumstances where certificates representing the
securities must be delivered to the lender or other beneficiary of
the pledge in order for the pledge to be effective;
●
the
depositary’s policies, which may change from time to time,
will govern payments, transfers, exchanges and other matters
relating to an investor’s interest in a global
security;
●
we
and any applicable trustee have no responsibility for any aspect of
the depositary’s actions or for its records of ownership
interests in a global security, nor do we or any applicable trustee
supervise the depositary in any way;
●
the
depositary may, and we understand that DTC will, require that those
who purchase and sell interests in a global security within its
book-entry system use immediately available funds, and your broker
or bank may require you to do so as well; and
●
financial
institutions that participate in the depositary’s book-entry
system, and through which an investor holds its interest in a
global security, may also have their own policies affecting
payments, notices and other matters relating to the
securities.
18
There
may be more than one financial intermediary in the chain of
ownership for an investor. We do not monitor and are not
responsible for the actions of any of those
intermediaries.
Special Situations When a Global Security Will Be
Terminated
In
a few special situations described below, the global security will
terminate and interests in it will be exchanged for physical
certificates representing those interests. After that exchange, the
choice of whether to hold securities directly or in street name
will be up to the investor. Investors must consult their own banks
or brokers to find out how to have their interests in securities
transferred to their own name, so that they will be direct holders.
We have described the rights of holders and street name investors
above.
Unless
we provide otherwise in the applicable prospectus supplement, the
global security will terminate when the following special
situations occur:
●
if
the depositary notifies us that it is unwilling, unable or no
longer qualified to continue as depositary for that global security
and we do not appoint another institution to act as depositary
within 90 days;
●
if
we notify any applicable trustee that we wish to terminate that
global security; or
●
if
an event of default has occurred with regard to securities
represented by that global security and has not been cured or
waived.
The
prospectus supplement may also list additional situations for
terminating a global security that would apply only to the
particular series of securities covered by the applicable
prospectus supplement. When a global security terminates, the
depositary, and not we or any applicable trustee, is responsible
for deciding the names of the institutions that will be the initial
direct holders.
PLAN OF DISTRIBUTION
We
may sell the securities from time to time pursuant to underwritten
public offerings, “at the market” offerings, negotiated
transactions, block trades or a combination of these methods. We
may sell the securities to or through underwriters or dealers,
through agents, or directly to one or more purchasers. We may
distribute securities from time to time in one or more
transactions:
●
at
a fixed price or prices, which may be changed;
●
at
market prices prevailing at the time of sale;
●
at
prices related to such prevailing market prices; or
●
at
negotiated prices.
A
prospectus supplement or supplements (and any related free writing
prospectus that we may authorize to be provided to you) will
describe the terms of the offering of the securities, including, to
the extent applicable:
●
the
name or names of the underwriters, if any;
●
the
purchase price of the securities or other consideration therefor,
and the proceeds, if any, we will receive from the
sale;
●
any
over-allotment options under which underwriters may purchase
additional securities from us;
●
any
agency fees or underwriting discounts and other items constituting
agents’ or underwriters’ compensation;
●
any
public offering price;
19
●
any
discounts or concessions allowed or reallowed or paid to dealers;
and
●
any
securities exchange or market on which the securities may be
listed.
Only
underwriters named in the prospectus supplement will be
underwriters of the securities offered by the prospectus
supplement.
If
underwriters are used in the sale, they will acquire the securities
for their own account and may resell the securities from time to
time in one or more transactions at a fixed public offering price
or at varying prices determined at the time of sale. The
obligations of the underwriters to purchase the securities will be
subject to the conditions set forth in the applicable underwriting
agreement. We may offer the securities to the public through
underwriting syndicates represented by managing underwriters or by
underwriters without a syndicate. Subject to certain conditions,
the underwriters will be obligated to purchase all of the
securities offered by the prospectus supplement, other than
securities covered by any over-allotment option. Any public
offering price and any discounts or concessions allowed or
reallowed or paid to dealers may change from time to time. We may
use underwriters with whom we have a material relationship. We will
describe in the prospectus supplement, naming the underwriter, the
nature of any such relationship.
We
may sell securities directly or through agents we designate from
time to time. We will name any agent involved in the offering and
sale of securities and we will describe any commissions we will pay
the agent in the prospectus supplement. Unless the prospectus
supplement states otherwise, our agent will act on a best-efforts
basis for the period of its appointment.
We
may authorize agents or underwriters to solicit offers by certain
types of institutional investors to purchase securities from us at
the public offering price set forth in the prospectus supplement
pursuant to delayed delivery contracts providing for payment and
delivery on a specified date in the future. We will describe the
conditions to these contracts and the commissions we must pay for
solicitation of these contracts in the prospectus
supplement.
We
may provide agents and underwriters with indemnification against
civil liabilities, including liabilities under the Securities Act,
or contribution with respect to payments that the agents or
underwriters may make with respect to these liabilities. Agents and
underwriters may engage in transactions with, or perform services
for, us in the ordinary course of business.
All
securities we may offer, other than common shares, will be new
issues of securities with no established trading market. Any
underwriters may make a market in these securities, but will not be
obligated to do so and may discontinue any market making at any
time without notice. We cannot guarantee the liquidity of the
trading markets for any securities.
Any
underwriter may engage in over-allotment, stabilizing transactions,
short-covering transactions and penalty bids in accordance with
Regulation M under the Exchange Act. Over-allotment involves sales
in excess of the offering size, which create a short position.
Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified
maximum price. Syndicate-covering or other short-covering
transactions involve purchases of the securities, either through
exercise of the over-allotment option or in the open market after
the distribution is completed, to cover short positions. Penalty
bids permit the underwriters to reclaim a selling concession from a
dealer when the securities originally sold by the dealer are
purchased in a stabilizing or covering transaction to cover short
positions. Those activities may cause the price of the securities
to be higher than it would otherwise be. If commenced, the
underwriters may discontinue any of the activities at any
time.
20
Any
underwriters that are qualified market makers on The Nasdaq Capital
Market may engage in passive market making transactions in the
common shares on The Nasdaq Capital Market in accordance with
Regulation M under the Exchange Act, during the business day prior
to the pricing of the offering, before the commencement of offers
or sales of the common shares. Passive market makers must comply
with applicable volume and price limitations and must be identified
as passive market makers. In general, a passive market maker must
display its bid at a price not in excess of the highest independent
bid for such security; if all independent bids are lowered below
the passive market maker’s bid, however, the passive market
maker’s bid must then be lowered when certain purchase limits
are exceeded. Passive market making may stabilize the market price
of the securities at a level above that which might otherwise
prevail in the open market and, if commenced, may be discontinued
at any time.
CERTAIN TAX CONSIDERATIONS
Edesa
Biotech, Inc. is a British Columbia, Canada corporation. As such,
there are important tax considerations to U.S. holders and non-U.S.
holders under United States and Canadian federal income taxation.
Certain tax considerations are included in our most recent Annual
Report on Form 10-K for the fiscal year ended September 30, 2018,
on file with the SEC, which is incorporated by reference into this
prospectus.
Given
the complexity of the tax laws and because the tax consequences to
any particular shareholder may be affected by matters not discussed
in our Annual Report on Form 10-K, shareholders are urged to
consult their own tax advisors with respect to the specific tax
consequences of the acquisition, ownership and disposition of our
equity securities, including the applicability and effect of state,
local and non-U.S. tax laws, as well as U.S. federal tax
laws.
LEGAL MATTERS
In connection with
particular offerings of the securities in the future, unless
otherwise stated in the applicable prospectus supplement,
the validity of the securities being offered hereby will be passed
upon for us by Fasken Martineau DuMoulin, LLP, Toronto, Ontario,
Canada and
certain other matters will be passed upon for us by Stubbs Alderton
& Markiles, LLP, Sherman Oaks, California. Any underwriters
will also be advised about legal matters by their own counsel,
which will be named in the prospectus
supplement.
EXPERTS
The
balance sheets of Edesa Biotech Research, Inc. (formerly known as
Edesa Biotech Inc.) as of December 31, 2018 and 2017, and the
related statements of operations and comprehensive loss, changes in
shareholders’ equity and cash flows of Edesa Biotech Inc. for
each of the two years ended December 31, 2018 and 2017,
incorporated by reference in this Registration Statement on Form
S-3 have been so incorporated in reliance on the report of MNP LLP,
an independent registered public accounting firm, given on the
authority of said firm as experts in auditing and
accounting.
21
WHERE YOU CAN FIND MORE
INFORMATION
This
prospectus is part of the registration statement on Form S-3 we
filed with the SEC under the Securities Act and does not contain
all the information set forth in the registration statement.
Whenever a reference is made in this prospectus to any of our
contracts, agreements or other documents, the reference may not be
complete and you should refer to the exhibits that are a part of
the registration statement or the exhibits to the reports or other
documents incorporated by reference into this prospectus for a copy
of such contract, agreement or other document. Because we are
subject to the information and reporting requirements of the
Exchange Act, we file annual, quarterly and current reports, proxy
statements and other information with the SEC. Our SEC filings are
available to the public over the Internet at the SEC’s
website at www.sec.gov. Our Internet address is
www.edesabiotech.com. You may also read and copy any document we
file at the SEC’s Public Reference Room at 100 F Street,
N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the Public Reference
Room. We are also a “reporting issuer” in the Canadian
provinces of British Columbia and Alberta. As such, information we
file the SEC is also available under our profile at
www.SEDAR.com.
INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE
The
SEC allows us to incorporate by reference the information we file
with it, which means that we can disclose important information to
you by referring you to another document that we have filed
separately with the SEC. You should read the information
incorporated by reference because it is an important part of this
prospectus. We incorporate by reference the following information
or documents that we have filed with the SEC (Commission File No.
001-37619):
●
Our
Annual Report on Form 10-K for our fiscal year ended September
30, 2018 (filed on November 30, 2018);
●
Our
Quarterly Reports on Form 10-Q for our quarters ended December 31,
2018 (filed on February 5, 2019), March 31, 2019 (filed on May 8,
2019) and June 30, 2019 (filed on August 14, 2019);
●
Our
Current Reports on Form 8-K, dated March 7, 2019, 2018 (filed on
March 8, 2019); dated May 30, 2019 (filed on May 30, 2019); dated
June 7, 2019 (filed on June 10, 2019 and amended on each of June
20, 2019 and August 14, 2019) and August 30, 2019 (filed on August
30, 2019);
●
Our
Definitive Proxy Statement filed with the SEC on April 18, 2019;
and
●
The description of
our common shares contained in Amendment No. 2 to our Registration
Statement on Form 20-F/A, filed with the SEC on July 5, 2012,
including any amendment or report filed for the purpose of updating
such description.
Any
information in any of the foregoing documents will automatically be
deemed to be modified or superseded to the extent that information
in this prospectus or in a later filed document that is
incorporated or deemed to be incorporated herein by reference
modifies or replaces such information.
We
also incorporate by reference any future filings (other than
current reports furnished under Item 2.02 or Item 7.01 of
Form 8-K and exhibits filed on such form that are related to
such items) made with the SEC pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act, including all such reports
filed after the date of the initial registration statement and
prior to effectiveness of the registration statement, until we file
a post-effective amendment that indicates the termination of the
offering of the securities made by this prospectus. Information in
such future filings updates and supplements the information
provided in this prospectus. Any statements in any such future
filings will automatically be deemed to modify and supersede any
information in any document we previously filed with the SEC that
is incorporated or deemed to be incorporated herein by reference to
the extent that statements in the later filed document modify or
replace such earlier statements.
We will
furnish without charge to each person to whom a copy of this
prospectus is delivered, upon written or oral request, a copy of
the documents that have been incorporated by reference into this
prospectus, including exhibits to these documents. You should
direct any requests for copies to: Investor Relations, Edesa
Biotech, Inc., 100 Spy Court, Markham, Ontario L3R 5H6 Canada;
telephone number (905) 475-1234.
22
1,355,380 Common Shares
________________________________________
PROSPECTUS SUPPLEMENT
________________________________________
Placement Agent
Brookline Capital Markets, a division of Arcadia Securities,
LLC
January
6, 2020