UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
For the fiscal year ended December 31, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
For the transition period from __________ to __________
Commission file number: 001-38764
APTORUM GROUP LIMITED
(Exact Name of Registrant as Specified in its Charter)
N/A
(Translation of Registrant’s Name into English)
Cayman Islands
(Jurisdiction of Incorporation or Organization)
Ian Huen, Chief Executive Officer
Aptorum Group Limited
17 Hanover Square, London W1S 1BN, United Kingdom
Tel: +44 20 8092 9299
Fax: +44 20 3928 8277
(Address of principal executive offices and Name, Telephone, E-mail and/or Facsimile number and
Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class
Class A Ordinary shares, par value $1.00
Trading Symbol
APM
Name of Each Exchange on Which Registered
NASDAQ Global Market
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Class A Ordinary Shares: 13,202,408
Class B Ordinary Shares: 22,437,754
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of
“large accelerated filer,” accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
Emerging growth company
☒
☒
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new or revised financial accounting standards+ provided pursuant to Section 13(a) of the Exchange Act. ☐
+ The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards
Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report. ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☒
International Financial Reporting Standards as issued by the International Accounting Standards
Board ☐
Other ☐
*
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item
17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
INTRODUCTION
TABLE OF CONTENTS
PART I
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 4A.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 8.
ITEM 9.
ITEM 10.
ITEM 11.
ITEM 12.
PART II
ITEM 13.
ITEM 14.
ITEM 15.
ITEM 16
ITEM 16A.
ITEM 16B.
ITEM 16C.
ITEM 16D.
ITEM 16E.
ITEM 16F.
ITEM 16G.
ITEM 16H.
ITEM 16I.
PART III
ITEM 17.
ITEM 18.
ITEM 19.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
OFFER STATISTICS AND EXPECTED TIMETABLE
KEY INFORMATION
INFORMATION ON THE COMPANY
UNRESOLVED STAFF COMMENTS
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
FINANCIAL INFORMATION
THE OFFER AND LISTING
ADDITIONAL INFORMATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
CONTROLS AND PROCEDURES
[RESERVED]
AUDIT COMMITTEE FINANCIAL EXPERT
CODE OF ETHICS
PRINCIPAL ACCOUNTANT FEES AND SERVICES
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
CORPORATE GOVERNANCE
MINE SAFETY DISCLOSURE
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
EXHIBITS
i
ii
1
1
1
1
45
86
86
100
114
116
117
117
123
123
124
124
124
124
125
126
126
126
126
126
126
126
126
127
127
127
127
Unless the context otherwise requires, in this annual report on Form 20-F references to:
INTRODUCTION
● “505(b)(2) Application” refers to an application for which one or more of the investigations relied upon by the applicant for approval “were not
conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the
investigations were conducted” (21 U.S.C. 355(b)(2)).
● “A*STAR” refers to Agency for Science, Technology and Research
● “Acticule” refers to Acticule Life Sciences Limited, an 80% owned subsidiary of Aptorum Group.
● “Aeneas Group” refers to Aeneas Limited and its subsidiaries. Aeneas Limited is 76.8% owned by Jurchen Investment Corporation. Because Mr. Huen,
our CEO, holds 100% equity interest in Jurchen Investment Corporation, we refer Aeneas Group as a fellow subsidiary of Aptorum Group.
● “AML” refers to Aptorum Medical Limited, a 91% owned subsidiary of Aptorum Group, as of the date of this report.
● “AML Clinic” refers to an outpatient medical clinic operated by AML under the name of Talem Medical.
● “Aptorum Group,” “Company,” “we,” “Group” and “us” refer to Aptorum Group Limited, a Cayman Islands exempted company with limited liability
whose principal place of business is in Hong Kong.
● “Aptorum Non-Therapeutics Group” refers to the Company’s non-therapeutics segment that encompasses: diagnostics projects including the novel
molecular-based rapid pathogen identification and detection diagnostics (“RPIDD”) technology, natural supplement products including NativusWell®,
and the AML Clinic.
● “Aptorum Therapeutics Group” refers to the Company’s therapeutics segment that is operated through its wholly-owned subsidiary, Aptorum
Therapeutics Limited, a Cayman Islands exempted company with limited liability, whose principal place of business is in Hong Kong and its indirect
subsidiary companies, whose principal places of business are in the United Kingdom, Singapore and Hong Kong.
● “At The Market Offering” or “ATM Offering” refers to the offering and sale of the Company’s Class A Ordinary Shares, offered pursuant to the
prospectus supplement and the accompanying prospectus to the registration statement on Form F-3 (File No. 333-235819), in which H.C. Wainwright &
Co., LLC (“Wainwright”), acted as the Company’s sales agent in accordance with certain at the market offering agreement (the “Sales Agreement”),
dated as of March 26, 2021, by and between the Company and Wainwright.
● “Bond” refers to the $15,000,000 convertible bond the Company originally issued to Peace Range Limited in the Bond Offering, but which has since
been repurchased by one of the Company’s wholly owned subsidiaries, Aptorum Investment Holding Limited, pursuant to that certain Bond Repurchase
Agreement dated April 24, 2019 between the Company, Peace Range Limited and Aptorum Investment Holding Limited, and which has matured and
been redeemed on October 25, 2019
● “Bond Offering” refers to the Company’s private offering of the Bond that closed on April 25, 2018.
● “cGCP” refers to Current Good Clinical Practice as adopted by the applicable regulatory authority.
● “cGLP” refers to Current Good Laboratory Practice as adopted by the applicable regulatory authority.
● “cGMP” refers to Current Good Manufacturing Practice as adopted by the applicable regulatory authority.
ii
● “Class A Ordinary Shares” refers to the Company’s Class A Ordinary Shares, par value $1.00 per share.
● “Class B Ordinary Shares” refers to the Company’s Class B Ordinary Shares, par value $1.00 per share.
● “CMC” refers to chemical, manufacturing and control.
● “Covar” refers to Covar Pharmaceuticals Incorporated, a contract research organization engaged by the Company.
● “CROs” refers to contract research organizations.
● “CTA” refers to Clinical Trial Application.
● “EEA” refers to the European Economic Area.
● “EMA” refers to the European Medicines Agency.
● “EMEA” refers to Europe, the Middle East and Africa.
● “EPO” refers to the European Patent Organization or the European Patent Office operated by it.
● “European Patent” refers to patents issuable by the EPO.
● “EU” refers to the European Union.
● “Exchange Act” refers to the U.S. Securities Exchange Act of 1934, as amended.
● “FDA” refers to U.S. Food and Drug Administration.
● “FDCA” refers to the U.S. Federal Food, Drug and Cosmetic Act.
● “Fiscal year” refers to the period from January 31 of each calendar year to December 31 of the following calendar year.
● “HKD” refers to Hong Kong Dollars.
● “Hong Kong” or “H.K.” refers to Hong Kong Special Administrative Region of the People’s Republic of China.
● “Hong Kong Doctors” refers to the doctors in Hong Kong under the employment of AML Clinic.
● “IND” refers to Investigational New Drugs.
● “IP” refers to intellectual property.
● “IPO” or “Offering” means the initial public offering by the Company of 761,419 Class A Ordinary Shares consummated on December 17, 2018.
● “Jurchen” refers to Jurchen Investment Corporation, a company wholly-owned by our CEO, Ian Huen, and a holding company of Aptorum Group.
● “Lead Projects” refers to ALS-4, SACT-1 and RPIDD.
● “Major Patent Jurisdictions” refers to the United States, member states of the European Patent Organization and the People’s Republic of China.
● “Mios” refers to Mios Pharmaceuticals Limited, a variable interest entity which we hold 97.93% economic interest and 36.17% voting power.
iii
● “Nativus” refers to Nativus Life Sciences Limited, a wholly-owned subsidiary of Aptorum Group.
● “NMPA” refers to China’s National Medical Products Administration and its predecessor, the China Food and Drug Administration.
● “NDA” refers to a New Drug Application issued by the FDA.
● “Ordinary Shares” refers to the Class A Ordinary Shares and Class B Ordinary Shares collectively.
● “PRC” and “China” refer to the People’s Republic of China.
● “Registered Direct Offering” means the registered direct offering by the Company of 1,351,350 Class A Ordinary Shares and warrants to purchase up to
1,351,350 Class A Ordinary Share consummated on February 28, 2020.
● “Restructure” refers to the Company’s change from an investment fund with management shares and non-voting participating redeemable preference
shares to a holding company with operating subsidiaries, effective as of March 1, 2017.
● “Registration Statement” refers to the Company’s Registration Statement on Form F-1 (File No. 333-227198) for the sale of up to 3,493,969 Class A
Ordinary Shares (including Class A Ordinary Shares underlying certain warrants and a bond, as fully described therein) which initially filed on
September 5, 2018 and became effective on December 3, 2018.
● “R&D” refers to research and development.
● “R&D Center” refers to an in-house pharmaceutical development center located in Hong Kong Science and Technology Park.
● “Securities Exchange Commission,” “SEC,” “Commission” or similar terms refer to the Securities Exchange Commission.
● “Sarbanes-Oxley Act” refers to the Sarbanes-Oxley Act of 2002.
● “Scipio” refers to Scipio Life Sciences Limited, a variable interest entity which we hold 97.93% economic interest and 35.06% voting power.
● “Securities Act” refers to the Securities Act of 1933.
● “Series A Notes” refers to Series A convertible notes, at a purchase price of $10,000 per note, sold in the Series A Note Offering.
● “Series A Note Investors” refers to the investors who purchased Series A Notes.
● “Series A Note Offering” refers to the private offering of Series A Notes, pursuant to Regulation S or Regulation D, as promulgated under the Securities
Act that closed on May 15, 2018.
● “UK” refers to the United Kingdom.
● “United States,” “U.S.” and “US” refer to the United States of America.
● “Videns” refers to Videns Incorporation Limited, a wholly-owned subsidiary of Aptorum Group.
● “US$,” “U.S. dollars,” or “dollars” are to the legal currency of the United States.
Discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.
This annual report on Form 20-F includes our audited consolidated balance sheets as of December 31, 2021 and 2020, and the related consolidated statements
of operations and comprehensive (loss) income, equity and cash flows for the years ended December 31, 2021, 2020 and 2019.
Our operations and equity are funded in U.S. dollars and we currently incur the majority of our expenses in U.S. dollars or in H.K. dollars. H.K. dollar is
currently pegged to the U.S. dollar; however, we cannot guarantee that such peg will continue to be in place in the future. Our exposure to foreign exchange risk
primarily relates to the limited cash denominated in currencies other than the functional currencies of each entity and limited revenue contracts dominated in H.K.
dollars in certain PRC operating entities. We do not believe that we currently have any significant direct foreign exchange risk and have not hedged exposures
denominated in foreign currencies or any other derivative financial instruments.
iv
Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not Applicable.
Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Part I
Not Applicable.
Item 3. KEY INFORMATION
A. [Reserved]
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Our business faces significant risks. You should carefully consider all of the information set forth in this annual report on Form 20-F and in our other filings
with the United States Securities and Exchange Commission, or the SEC, including the following risk factors which we face and which are faced by our industry. Our
business, financial condition, results of operations and growth prospects could be materially adversely affected by any of these risks. This report also contains
forward-looking statements that involve risks and uncertainties. Our results could materially differ from those anticipated in these forward-looking statements, as a
result of certain factors including the risks described below and elsewhere in this annual report and our other SEC filings. See “Special Note Regarding Forward-
Looking Statements” below.
Summary Risk Factors
The following summarizes some, but not all, of the risks provided below. Please carefully consider all of the information discussed in this Item 3.D. “Risk
Factors” in this annual report for a more thorough description of these and other risks.
Risks Related to the Preclinical and Clinical Development of Our Drug Candidates
● Risks relating to not generate sufficient revenue
● Risks relating to uncertainty in preclinical development process
● Risks relating to fail to identify additional drug candidates
● Risks relating to conduct clinical trials in or outside the U.S.
Risks Related to Obtaining Regulatory Approval for Our Drug Candidates
● Risks relating to fail or delay to obtain regulatory approval
● Risks relating to undesirable adverse event
● Risks relating to fail to complete the 505(b)(2) pathway for the pediatric formulation
● Risks relating to our third-party suppliers fail to comply with the FDA’s good manufacturing practice regulations or fail to respond to an FDA Form 483 or
subsequent Warning Letter
1
Risks Related to Commercialization of Our Drug Candidates
● Risks relating to fail to achieve market acceptance
Risks Related to Our IP
● Risks relating to being unaware of others’ pending patent applications
● Risks relating to unable to protect and enforce our IP rights throughout the world
● Risks relating to lawsuits for protecting our IP or against infringing IP rights of other parties
● Risks relating to non-compliance with patent protection requirements or obligations in the license agreements
● Risks relating to the terms and scope of our patents not sufficient to protect our candidates
● Risks relating to unable to obtain or maintain rights of the developing technology through acquisitions or licenses
Risks Related to Our Reliance on Unrelated Parties
● Risks relating to manufacturers fail to provide sufficient quantities of clinical supply on our candidate at acceptable quality levels or prices
Risks Related to AML Clinic, Natural Supplements and Diagnostic Technology
Risks Related to Our Industry, Business and Operation
● Risks relating to not complying with laws
● Risks relating to difficulties in managing our growth
● Risks relating to unable to collaborations, strategic alliances or acquisitions or enter into royalty-seeking or sublicensing arrangements
● Risks relating to our disclosure controls and procedures and internal financial reporting controls
● Risks relating to do business internationally
● Risks relating to product liability lawsuits arise from clinical trials
● Risks relating to inadequate insurance coverage
● Risks relating to failure in safeguarding our computer network system
● Risks relating to outbreak of the novel coronavirus disease, COVID-19, or other pandemic, epidemic or outbreak of an infectious disease
Risks Related to Our Corporate Structure
● Risks relating to our Class B shareholders have higher voting rights
Risks Related to our Securities
● Risks relating to certain existing shareholders have substantial influence over our Company and their interests may not be aligned with the interests of our
other shareholders
● Risks relating to conduct substantially all of our operations outside the United States
● Risks relating to adopt certain home country practices or take advantage of certain reduced reporting requirements
2
Risks Related to the Preclinical and Clinical Development of Our Drug Candidates
We currently do not generate revenue from product sales and may never become profitable; unless we can raise more capital through additional financings, of
which there can be no guarantee, our principal source of revenue will be from AML Clinic, which may not be substantial.
Our ability to generate revenue and become profitable depends upon our ability to successfully complete the development of, and obtain the necessary
regulatory approvals for, the drug candidates in our Lead Projects and any future drug candidates we may develop, as we do not currently have any drugs that are
available for commercial sale. We expect to continue to incur losses before commercialization of our drug candidates and any future drug candidates. None of our drug
candidates has been approved for marketing in the U.S., Europe, the PRC or any other jurisdictions and may never receive such approval. Our ability to generate
revenue and achieve profitability is dependent on our ability to complete the development of our drug candidates and any future drug candidates we develop in our
portfolio, obtain necessary regulatory approvals, and have our drugs products under development manufactured and successfully marketed, of which there can be no
guarantee. Although AML Clinic commenced operations in June 2018 and we have received some revenue from such operations, even at full capacity, AML Clinic
may not bring enough revenue to support our operation and R&D. Thus, we may not be able to generate a profit until our drug candidates become profitable.
Even if we receive regulatory approval and marketing authorization for one or more of our drug candidates or one or more of any future drug candidates for
commercial sale, a potential product may not generate revenue at all unless we are successful in:
● developing a sustainable and scalable manufacturing process for our drug candidates and any approved products, including establishing and maintaining
commercially viable supply relationships with third parties;
● launching and commercializing drug candidates following regulatory approvals and marketing authorizations, either directly or with a collaborator or
distributor;
● obtaining market acceptance of our drug candidates as viable treatment options;
● addressing any competing technological and market developments;
● negotiating and maintaining favorable terms in any collaboration, licensing or other arrangement into which we may enter to commercialize drug
candidates for which we have obtained required approvals and marketing authorizations; and
● maintaining, protecting and expanding our portfolio of IP rights, including patents, trade secrets and know-how.
In addition, our ability to achieve and maintain profitability depends on timing and the amount of expenses we will incur. Our expenses could increase
materially if we are required by the FDA, NMPA, EMA, Health Canada or other comparable regulatory authorities to perform studies in addition to those that we
currently have anticipated. Even if our drug candidates are approved for commercial sale, we anticipate incurring significant costs associated with the commercial
launch of these products.
Our ability to become and remain profitable depends on our ability to generate revenue. Even if we are able to generate revenues from AML Clinic or the sale
or sublicense of any products we may develop or license, we may not become profitable on a sustainable basis or at all. Our failure to become and remain profitable
would decrease the value of our Company and adversely affect the market price of our Class A Ordinary Shares, which could impair our ability to raise capital, expand
our business or continue our operations.
AML Clinic’s operations and the initial commercialization of our NativusWell® (NLS-2) natural supplements may be our principal source of revenue for the
foreseeable future and most likely, without additional financing, such revenue will not be sufficient for us to carry out all of our plans.
As stated above, we have not generated any revenue and do not foresee generating any revenue from our drug candidates in the near future. Effective as of
March 2018, we leased the property in Central, Hong Kong that is the home to AML Clinic, which commenced operations in June 2018. We also expect to launch
NativusWell® (NLS-2) to the market in 2022.
Until our therapeutic candidates produce revenue, our principal source of revenue is from AML Clinic, but neither is sufficient by themselves to fund our
other operations; even if we receive revenue from NativusWell® (NLS-2) natural supplements later this year, which we cannot guarantee, it will not provide sufficient
revenue. We believe that available cash, together with the efforts from management plans and actions described elsewhere in this report, should enable the Company to
meet presently anticipated cash needs for at least the next 12 months after the date that the financial statements are issued and the Company has prepared the
consolidated financial statements on a going concern basis. However, the Company continues to have ongoing obligations and it expects that it will require additional
capital in order to execute its longer-term development plan. If the Company encounters unforeseen circumstances that place constraints on its capital resources,
management will be required to take various measures to conserve liquidity, which could include, but not necessarily be limited to, deferring some of its research and
seeking to dispose of marketable securities. Management cannot provide any assurance that the Company will raise additional capital if needed.
3
Preclinical development is a long, expensive and uncertain process, and we may terminate one or more of our current preclinical development programs.
Traditionally, drug discovery and development is a time-consuming, costly and high-risk business. On average, the cost of launching a new drug is estimated
to approach US$2.6 billion and can take around 12 years to make it to the market (4 key benefits of drug repositioning. (n.d.). Retrieved from
http://www.totalbiopharma.com/2012/07/04/4-key-benefits-drug-repositioning/). Despite the huge expenditures, only approximately 1 in 1,000 potential drugs is
graduated to human clinical trials after pre-clinical testing in the United States, (Norman, G. A. Drugs, Devices, and the FDA: Part 1. JACC: Basic to Translational
Science, 1(3), 170-179, 2016) and nearly 86.2% of drug candidates entering phase 1 trials fails to achieve drug approval. (Wong C. H., Siah K. W. & Lo A. W. (2019,
April), “Estimation of clinical trial success rates and related parameters,” retrieved from https://academic.oup.com/biostatistics/article/20/2/273/4817524). Even after a
drug is commercialized, there are just too many factors affecting the sales of pharmaceutical products, including unmet need/burden of disease (68.2%), clinical
efficacy (47.3%), comparator choice (36.4%), safety profile (36.4%), and price (35.5%) (Sendyona, S., Odeyemi, I., & Maman, K. “Perceptions and factors affecting
pharmaceutical market access: Results from a literature review and survey of stakeholders in different settings” Journal of Market Access & Health Policy, 4(1),
31660, 2016). In the end, on average, only 20% of approved new drugs generate revenues that exceed the average R&D investment. (Rosenblatt, M. (2014, December
19) “The Real Cost of “High-Priced” Drugs,” retrieved from https://hbr.org/2014/11/the-real-cost-of-high-priced-drugs). We may determine that certain preclinical
product candidates or programs do not have sufficient potential to warrant the allocation of resources toward them. Accordingly, we may elect to terminate our
programs for and, in certain cases, our licenses to, such product candidates or programs. If we terminate a preclinical program in which we have invested significant
resources, we will have expended resources on a program that will not provide a full return on our investment and missed the opportunity to have allocated those
resources to potentially more productive uses.
Management has discretion to terminate the development of any of our projects at any time.
In light of the costs, both in time and expense, as well as the preclinical results and general business considerations, management may decide not to continue
developing a particular preclinical program without announcement. Management will always base its decision on what it believes to be the most efficient use of the
Company’s resources to provide the most value to its shareholders. As a result, investors may not always be aware of the termination of a previously announced study
or trial. The Company will continue to provide update on its active preclinical projects in its SEC filings and/or press releases, as appropriate.
We may not be successful in our efforts to identify or discover additional drug candidates. Due to our limited resources and access to capital, we must continue to
prioritize development of certain drug candidates; such decisions may prove to be wrong and may adversely affect our business.
Although we intend to explore other therapeutic opportunities in addition to the drug candidates that we are currently developing, we may fail to identify
other drug candidates for a number of reasons. For example, our research methodology may be unsuccessful in identifying potential drug candidates or those we
identify may be shown to have harmful side effects or other undesirable characteristics that make them unmarketable or unlikely to receive regulatory approval.
Research programs to pursue the development of our drug candidates for additional indications and to identify new drug candidates and disease targets
require substantial technical, financial and human resources whether or not we ultimately are successful. Our research programs may initially show promise in
identifying potential indications and/or drug candidates, yet fail to yield results for clinical development for a number of reasons, including but not limited to:
● the research methodology used may not be successful in identifying potential indications and/or drug candidates;
4
● potential drug candidates may, after further study, be shown to have harmful adverse effects or other characteristics that indicate they are unlikely to be
effective drugs; or
● it may take greater human and financial resources to identify additional therapeutic opportunities for our drug candidates or to develop suitable potential
drug candidates through internal research programs than we will possess, thereby limiting our ability to diversify and expand our drug portfolio.
Because we have limited financial and managerial resources, we have chosen to focus at present on our three Lead Projects, which may ultimately prove to be
unsuccessful. As a result of this focus, we may forego or delay pursuit of opportunities with other drug candidates, or for other indications that later prove to have
greater commercial potential or a greater likelihood of success. Even if we determine to pursue alternative therapeutic or diagnostic drug candidates, these other drug
candidates or other potential programs may ultimately prove to be unsuccessful. In short, our resource allocation decisions may cause us to fail to capitalize on viable
commercial products or profitable market opportunities.
Accordingly, there can be no assurance that we will ever be able to develop suitable potential drug candidates through internal research programs. This could
materially adversely affect our future growth and prospects.
If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.
Although we obtained CTA/FDA approval to initiate clinical trials for our Lead Projects, there can be no assurance, timely completion of clinical trials in
accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who meet the trial criteria and remain in the trial
until its conclusion. We may experience difficulties enrolling and retaining appropriate patients in our clinical trials for a variety of reasons, including but not limited
to:
● the size and nature of the patient population;
● patient eligibility criteria defined in the clinical protocol;
● the size of study population required for statistical analysis of the trial’s primary endpoints;
● the proximity of patients to trial sites;
● the design of the trial and changes to the design of the trial;
● our ability to recruit clinical trial investigators with the appropriate competencies and experience;
● competing clinical trials for similar therapies or other new therapeutics exist and will reduce the number and types of patients available to us;
● clinicians’ and patients’ perceptions as to the potential advantages and side effects of the drug candidate being studied in relation to other available
therapies, including any new drugs or treatments that may be approved for the indications we are investigating;
● our ability to obtain and maintain patient consents;
● patients enrolled in clinical trials may not complete a clinical trial; and
● the availability of approved therapies that are similar to our drug candidates.
Even if we are able to enroll a sufficient number of patients in our clinical trials, delays in patient enrollment may result in increased costs or may affect the
timing or outcome of the planned clinical trials, which could prevent completion of these trials and adversely affect our ability to advance the development of our drug
candidates.
5
Clinical drug development involves a lengthy and expensive process and could fail at any stage of the process. We have limited experience in conducting clinical
trials and results of earlier studies and trials may not be reproduced in future clinical trials.
For our drug candidates, clinical testing is expensive and can take many years to complete, while failure can occur at any time during the clinical trial
process. The results of studies in animals and early clinical trials of our drug candidates may not predict the results of later-stage clinical trials. Drug candidates in later
stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through studies in animals and initial clinical trials. In some
instances, there can be significant variability in safety and/or efficacy results between different trials of the same drug candidate due to numerous factors, including
changes in trial procedures set forth in protocols, differences in the size and type of the patient populations (including genetic differences), patient adherence to the
dosing regimen and the patient dropout rate. Results in later trials may also differ from earlier trials due to a larger number of clinical trial sites and additional
countries and languages involved in such trials. In addition, the design of a clinical trial can determine whether its results will support approval of a drug candidate,
and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced and significant expense has been incurred.
A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials due to lack of
demonstrated efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Clinical trials of potential products often reveal that it is not
practical or feasible to continue development efforts. Furthermore, if the trials we conduct fail to meet their primary statistical and clinical endpoints, they will not
support the approval from the FDA, NMPA, EMA, Health Canada or other comparable regulatory authorities for our drug candidates. If this occurs, we would need to
replace the failed study with new trials, which would require significant additional expense, cause substantial delays in commercialization and materially adversely
affect our business, financial condition, cash flows and results of operations.
If clinical trials of our drug candidates fail to demonstrate safety and efficacy to the satisfaction of the FDA, NMPA, EMA, Health Canada or other comparable
regulatory authorities, or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to
complete, the development and commercialization of our drug candidates.
Before applying for and obtaining regulatory approval for the sale of any of our drug candidates, we must conduct extensive clinical trials to demonstrate the
safety and efficacy of our drug candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and may fail. A
failure of one or more of our clinical trials can occur at any stage of testing and successful interim results of a clinical trial do not necessarily predict successful final
results.
We and our CROs are required to comply with current Good Clinical Practices (“cGCP”) requirements, which are regulations and guidelines enforced by the
FDA, NMPA, EMA, Health Canada and other comparable regulatory authorities for all drugs in clinical development. Regulatory authorities enforce these cGCP
through periodic inspections of trial sponsors, principal investigators and trial sites. Compliance with cGCP can be costly and if we or any of our CROs fail to comply
with applicable cGCP, the clinical data generated in our clinical trials may be deemed unreliable and the FDA, NMPA, EMA, Health Canada or comparable regulatory
authorities may require us to perform additional clinical trials before approving our marketing applications.
We may experience numerous unexpected events during, or as a result of, clinical trials that could delay or prevent our ability to receive regulatory approval
or commercialize our drug candidates, including but not limited to:
● regulators, institutional review boards (“IRBs”) or ethics committees may not authorize us or our investigators to commence a clinical trial or conduct a
clinical trial at a prospective trial site;
● clinical trials of our drug candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct
additional clinical trials or abandon drug development programs;
● the number of patients required for clinical trials of our drug candidates may be larger than we anticipate, enrollment may be insufficient or slower than
we anticipate or patients may drop out at a higher rate than we anticipate;
6
● our contractors and investigators may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;
● we might have to suspend or terminate clinical trials of our drug candidates for various reasons, including a lack of clinical response or a determination
that participants are being exposed to unacceptable health risks;
● regulators, IRBs or ethics committees may require that we or our investigators suspend or terminate clinical research for various reasons, including non-
compliance with regulatory requirements;
● the cost of clinical trials of our drug candidates may be greater than we anticipate;
● the supply or quality of our drug candidates or other materials necessary to conduct clinical trials of our drug candidates may be insufficient or
inadequate; and
● our drug candidates may cause adverse events, have undesirable side effects or other unexpected characteristics, causing us, our investigators, or
regulators to suspend or terminate the trials.
If we are required to conduct additional clinical trials or other testing of our drug candidates beyond those that we currently contemplate, if we are unable to
successfully complete clinical trials of our drug candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if they
raise safety concerns, we may:
● be delayed in obtaining regulatory approval for our drug candidates;
● not obtain regulatory approval at all;
● obtain approval for indications that are not as broad as intended;
● have a drug removed from the market after obtaining regulatory approval;
● be subject to additional post-marketing testing requirements;
● be subject to restrictions on how a drug is distributed or used; or
● be unable to obtain reimbursement for use of a drug.
Delays in testing or approvals may result in increases in our drug development costs. We do not know whether any clinical trials will begin as planned, will
need to be restructured, or will be completed on schedule, or at all. Clinical trials may produce negative or inconclusive results. Moreover, these trials may be delayed
or proceed less quickly than intended. Delays in completing our clinical trials will increase our costs, slow down our drug candidate development and approval
process, and jeopardize our ability to commence product sales and generate revenues and we may not have sufficient funding to complete the testing and approval
process. Any of these events may significantly harm our business, financial condition and prospects, lead to the denial of regulatory approval of our drug candidates or
allow our competitors to bring drugs to market before we do, impairing our ability to commercialize our drugs if and when approved.
Significant clinical trial delays also could shorten any periods during which we have the exclusive right to commercialize our drug candidates or allow our
competitors to bring products to market before we do, impair our ability to commercialize our drug candidates and may harm our business and results of operations.
We may in the future conduct clinical trials for our drug candidates in sites outside the U.S. and the FDA may not accept data from trials conducted in such
locations.
We may in the future conduct certain of our clinical trials outside the U.S. Although the FDA may accept data from clinical trials conducted outside the U.S.
for our New Drug Application (“NDA”), acceptance of this data is subject to certain conditions imposed by the FDA. There can be no assurance the FDA will accept
data from any of the clinical trials we conduct outside the U.S. If the FDA does not accept the data from any of our clinical trials conducted outside the U.S., it would
likely result in the need for additional clinical trials in the U.S., which would be costly and time-consuming and could delay or prevent the commercialization of any of
our drug candidates.
7
Risks Related to Obtaining Regulatory Approval for Our Drug Candidates
The regulatory approval processes of the FDA, NMPA, EMA, Health Canada and other comparable regulatory authorities are lengthy, time-consuming and
inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our current drug candidates or any future drug candidates we may
develop, our business will be substantially harmed.
We cannot commercialize drug candidates without first obtaining regulatory approval to market each drug from the FDA, NMPA, EMA, Health Canada or
comparable regulatory authorities. Before obtaining regulatory approvals for the commercial sale of any drug candidate for a target indication, we must demonstrate in
studies in animals and well-controlled clinical trials, and, with respect to approval in the United States and other regulatory agencies, to the satisfaction of the FDA,
NMPA, EMA, Health Canada or comparable regulatory authorities, that the drug candidate is safe and effective for use for that target indication and that the
manufacturing facilities, processes and controls are adequate.
The time required to obtain approval from the FDA, NMPA, EMA, Health Canada and other comparable regulatory authorities is unpredictable but typically
takes many years following the commencement of studies in animals and clinical trials and depends upon numerous factors, including the substantial discretion of the
regulatory authorities.
In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval can differ among regulatory authorities and may
change during the course of the development of a drug candidate. We have not obtained regulatory approval for any drug candidate. It is possible that neither our
existing drug candidates nor any drug candidates we may discover or acquire for development in the future will ever obtain regulatory approval. Even if we obtain
regulatory approval in one jurisdiction, we may not obtain it in other jurisdictions.
Our drug candidates could fail to receive regulatory approval from any of the FDA, NMPA, EMA, Health Canada or other comparable regulatory authorities
for many reasons, including but not limited to:
● disagreement with regulators regarding the design or implementation of our clinical trials;
● failure to demonstrate that a drug candidate is safe and effective or safe, pure and potent for its proposed indication;
● failure of clinical trial results to meet the level of statistical significance required for approval;
● failure to demonstrate that a drug candidate’s clinical and other benefits outweigh its safety risks;
● disagreement with regulators regarding our interpretation of data from studies in animals or clinical trials;
● insufficiency of data collected from clinical trials of our drug candidates to support the submission and filing of a New Drug Application (“NDA”), or
other submission or to obtain marketing approval;
● the FDA, NMPA, EMA, Health Canada or a comparable regulatory authority’s finding of deficiencies related to the manufacturing processes or facilities
of third-party manufacturers with whom we contract for clinical and commercial supplies; and
● changes in approval policies or regulations that render our preclinical studies and clinical data insufficient for approval.
8
Any of the FDA, NMPA, EMA, Health Canada or other comparable regulatory authorities may require more information, including additional preclinical
studies or clinical data, to support approval, which may delay or prevent approval and our commercialization plans, or we may decide to abandon the development
program. If we were to obtain approval, regulatory authorities may approve any of our drug candidates for fewer or more limited indications than we request.
Regulatory authorities also may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a drug candidate with a label
that is not desirable for the successful commercialization of that drug candidate. In addition, if our drug candidate produces undesirable side effects or involves other
safety issues, the FDA may require the establishment of a Risk Evaluation Mitigation Strategy (“REMS”), or NMPA, EMA, Health Canada or other comparable
regulatory authorities may require the establishment of a similar strategy. Such a strategy may, for instance, restrict distribution of our drug candidates, require patient
or physician education, or impose other burdensome implementation requirements on us.
Regulatory approval may be substantially delayed or may not be obtained for one or all of our drug candidates if regulatory authorities require additional time or
studies to assess the safety or efficacy of our drug candidates.
We currently do not have any drug candidates that have gained approval for sale by the FDA, NMPA or EMA, Health Canada or other regulatory authorities
in any other country, and we cannot guarantee that we will ever have marketable drugs. Despite SACT-1 having been granted orphan drug status, this is not an
approval for sale by the FDA. Our business is substantially dependent on our ability to complete the development of, obtain marketing approval for and successfully
commercialize drug candidates in a timely manner. We cannot commercialize drug candidates without first obtaining marketing approval from the FDA, NMPA,
EMA, Health Canada and comparable regulatory authorities. In the U.S., we hope to file INDs for the drug candidates from our Lead Projects and, subject to the
approval of IND, Phase 1 clinical trials in humans. Even if we are permitted to commence such clinical trials, they may not be successful and regulators may not agree
with our conclusions regarding the data generated by our clinical trials.
We may be unable to complete development of our drug candidates or initiate or complete development of any future drug candidates we may develop on our
projected schedule. While we believe that our existing cash will likely enable us to complete the preclinical development of at least one of our current Lead Projects,
the full clinical development, manufacturing and launch of that drug candidate, will take significant additional time and likely require funding beyond the existing
cash. In addition, if regulatory authorities require additional time or studies to assess the safety or efficacy of our drug candidates, we may not have or be able to obtain
adequate funding to complete the necessary steps for approval for our drug candidates or any future drug candidates.
Preclinical studies in animals and clinical trials in humans to demonstrate the safety and efficacy of our drug candidates are time-consuming, expensive and
take several years or more to complete. Delays in preclinical or clinical trials, regulatory approvals or rejections of applications for regulatory approval in the U.S.,
Europe, the PRC or other markets may result from many factors, including but not limited to:
● our inability to obtain sufficient funds required to conduct or continue a trial, including lack of funding due to unforeseen costs or other business
decisions;
● regulatory reports for additional analysts, reports, data, preclinical studies and clinical trials;
● failure to reach agreement with, or inability to comply with conditions imposed by the FDA, NMPA, EMA, Health Canada or other regulators regarding
the scope or design of our clinical trials;
● regulatory questions regarding interpretations of data and results and the emergence of new information regarding our drug candidates or other products;
● delay or failure in obtaining authorization to commence a clinical trial or inability to comply with conditions imposed by a regulatory authority regarding
the scope or design of a clinical trial;
● withdrawal of clinical trial sites from our clinical trials as a result of changing standards of care or the ineligibility of a site to participate in our clinical
trials;
● unfavorable or inconclusive results of clinical trials and supportive non-clinical studies, including unfavorable results regarding effectiveness of drug
candidates during clinical trials;
● difficulty in maintaining contact with patients during or after treatment, resulting in incomplete data;
● our inability to obtain approval from IRBs or ethics committees to conduct clinical trials at their respective sites;
● our inability to enroll and retain a sufficient number of patients who meet the inclusion and exclusion criteria in a clinical trial;
9
● our inability to conduct a clinical trial in accordance with regulatory requirements or our clinical protocols;
● clinical sites and investigators deviating from trial protocol, failing to conduct the trial in accordance with regulatory requirements, withdrawing from or
dropping out of a trial, or becoming ineligible to participate in a trial;
● failure of our clinical trial managers to satisfy their contractual duties or meet expected deadlines;
● manufacturing issues, including problems with manufacturing or timely obtaining from third parties sufficient quantities of a drug candidate for use in a
clinical trial;
● ambiguous or negative interim results, or results that are inconsistent with earlier results;
● feedback from the FDA, NMPA, EMA, Health Canada, an IRB, data safety monitoring boards, or comparable entities, or results from earlier stage or
concurrent studies in animals and clinical trials, regarding our drug candidates, including which might require modification of a trial protocol;
● unacceptable risk-benefit profile or unforeseen safety issues or adverse side effects; and
● a decision by the FDA, NMPA, EMA, Health Canada, an IRB, comparable entities, or the Company, or recommendation by a data safety monitoring
board or comparable regulatory entity, to suspend or terminate clinical trials at any time for safety issues or for any other reason.
Changes in regulatory requirements and guidance may also occur, and we may need to amend clinical trial protocols submitted to applicable regulatory
authorities to reflect these changes. Amendments may require us to resubmit clinical trial protocols to IRBs or ethics committees for re-examination, which may
increase the costs or time required to complete a clinical trial.
If we experience delays in the completion of, or the termination of, a clinical trial, of any of our drug candidates, the commercial prospects of our drug
candidates will be harmed, and our ability to generate product sales revenues from any of those drug candidates will be delayed. In addition, any delay in completing
our clinical trials will increase our costs, slow down our drug candidate development and approval process, and jeopardize our ability to commence product sales and
generate revenues. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, 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 our drug candidates.
If we are required to conduct additional clinical trials or other studies with respect to any of our drug candidates beyond those that we initially contemplated,
if we are unable to successfully complete our clinical trials or other studies or if the results of these studies are not positive or are only modestly positive, we may be
delayed in obtaining regulatory approval for that drug candidate, we may not be able to obtain regulatory approval at all or we may obtain approval for indications that
are not as broad as intended. Our product development costs will also increase if we experience delays in testing or approvals, and we may not have sufficient funding
to complete the testing and approval process. Significant clinical trial delays could allow our competitors to bring their products to market before we do and impair our
ability to commercialize our drugs, if and when approved. If any of this occurs, our business will be materially harmed.
Our drug candidates may cause undesirable adverse events or have other properties that could delay or prevent their regulatory approval, limit the commercial
profile of an approved label, or result in significant negative consequences following any regulatory approval.
Undesirable adverse events caused by our drug candidates or any future drug candidates we may develop could cause us or regulatory authorities to interrupt,
delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA, NMPA, EMA, Health Canada or other
comparable regulatory authorities. Results of our potential clinical trials could reveal a high and unacceptable severity or prevalence of adverse effects. In such event,
our trials could be suspended or terminated and the FDA, NMPA, EMA, Health Canada or other comparable regulatory authorities could order us to cease further
development of, or deny approval of, our drug candidates for any or all target indications. Drug-related adverse events could also affect patient recruitment or the
ability of enrolled subjects to complete the trial, could result in potential product liability claims and may harm our reputation, business, financial condition and
business prospects significantly.
10
Additionally, if any of our current or future drug candidates receives regulatory approval, and we or others later identify undesirable side effects caused by
such drugs, a number of potentially significant negative consequences could result, including but not limited to:
● suspending the marketing of the drug;
● having regulatory authorities withdraw approvals of the drug;
● adding warnings on the label;
● developing a REMS for the drug or, if a REMS is already in place, incorporating additional requirements under the REMS, or to develop a similar
strategy as required by a comparable regulatory authority;
● conducting post-market studies;
● being sued and held liable for harm caused to subjects or patients; and
● damage to our reputation.
Any of these events could prevent us from achieving or maintaining market acceptance of the particular drug candidate, if approved, and could significantly
harm our business, results of operations and prospects.
Even if we receive regulatory approval for our drug candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may
result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems
with our drug candidates.
If our drug candidates or any future drug candidates we develop are approved, they will be subject to ongoing regulatory requirements for manufacturing,
labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing studies, and submission of safety, efficacy, and other post-
market information, including both federal and state requirements in the United States and requirements of comparable regulatory authorities outside of the United
States.
Manufacturers and manufacturers’ facilities are required to comply with extensive requirements from the FDA, NMPA, EMA, Health Canada and
comparable regulatory authorities, including, in the United States, ensuring that quality control and manufacturing procedures conform to cGMP regulations. As such,
our contract manufacturers will be subject to continual review and inspections to assess compliance with cGMP and adherence to commitments made in any NDA,
other marketing application, and previous responses to inspection observations. Accordingly, we and others with whom we work must continue to expend time, money
and effort in all areas of regulatory compliance, including manufacturing, production and quality control.
Any regulatory approvals that we receive for our drug candidates may be subject to limitations on the approved indicated uses for which the drug may be
marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials and surveillance to
monitor the safety and efficacy of the drug candidate. The regulatory authorities may also require risk management plans or programs as a condition of approval of our
drug candidates (such as REMS of the FDA and risk-management plan of the EMA), which could entail requirements for long-term patient follow-up, a medication
guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization
tools. In addition, if the FDA, NMPA, EMA, Health Canada or a comparable regulatory authority approves our drug candidates, we will have to comply with
requirements including, for example, submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGCP
and cGMP, for any clinical trials that we conduct post-approval.
11
The FDA may impose consent decrees or withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur
after the drug reaches the market. Later discovery of previously unknown problems with our drug candidates, including adverse events of unanticipated severity or
frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the
approved labeling to add new safety information; imposition of post-market studies or clinical studies to assess new safety risks; or imposition of distribution
restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:
● restrictions on the marketing or manufacturing of our drug candidates, withdrawal of the product from the market, or voluntary or mandatory product
recalls;
● fines, untitled or warning letters, or holds on clinical trials;
● refusal by the FDA to approve pending applications or supplements to approved applications filed by us or suspension or revocation of license approvals;
● product seizure or detention, or refusal to permit the import or export of our drug candidates; and
● injunctions or the imposition of civil or criminal penalties.
The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Companies may promote drugs only for
the approved indications and in accordance with the provisions of the approved label and may not promote drugs for any off-label use, such as uses that are not
described in the product’s labeling and that differ from those approved by the regulatory authorities. However, physicians may prescribe drug products for off-label
uses and such off-label uses are common across some medical specialties. Thus, they may, unbeknownst to us, use our product for an “off label” indication for a
specific treatment recipient. The FDA, NMPA, EMA, Health Canada and other regulatory authorities actively enforce the laws and regulations prohibiting the
promotion of off-label uses, and if we are found to be out of compliance with the requirements and restrictions imposed on us under those laws and restrictions, we
may be subject to significant liability, including civil and administrative remedies as well as criminal sanctions, and the off-label use of our products may increase the
risk of product liability claims. In addition, management’s attention could be diverted from our business operations and our reputation could be damaged.
The policies of the FDA, NMPA, EMA, Health Canada and other regulatory authorities may change and we cannot predict the likelihood, nature or extent of
government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to
changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any regulatory
approval that we may have obtained and we may not achieve or sustain profitability.
Despite FDA’s consent for us to pursue the 505(b)(2) development pathway for SACT-1, we may be unable to successfully complete the 505(b)(2) pathway for the
pediatric formulation of SACT-1 to treat neuroblastoma as planned, which would materially impact our likelihood of obtaining FDA approval.
Even though the FDA is allowing us to pursue the 505(b)(2) regulatory pathway for our product candidates, we will need to conduct additional clinical trials,
provide additional data and information and meet additional standards for regulatory approval. If this were to occur, the time and financial resources required to obtain
FDA approval for our product candidates would likely substantially increase. We cannot assure you that we will receive the requisite or timely approvals for
commercialization of such product candidate. Any failure to obtain regulatory approval of our product candidates would significantly limit our ability to generate
revenues, and any failure to obtain such approval for all of the indications and labeling claims we deem desirable could reduce our potential revenues.
12
If we or our third-party suppliers fail to comply with the FDA’s good manufacturing practice regulations or fail to adequately, timely, or sufficiently respond to an
FDA Form 483 or subsequent Warning Letter, this could impair our ability to market our products in a cost-effective and timely manner and could result in FDA
enforcement action.
We and our third-party suppliers are required to comply with the FDA’s Current Good Manufacturing Practices (cGMP) which covers the methods and
documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage and shipping of our products. The FDA audits
compliance with the cGMP and related regulations through periodic announced and unannounced inspections of manufacturing and other facilities. The FDA may
conduct these inspections or audits at any time. If, during the inspection, FDA identifies issues which, in FDA’s judgment, may constitute violations of the Federal
Food, Drug, and Cosmetic Act or FDA’s regulations, the FDA inspector may issue an FDA Form 483 listing these observations.
Note that if an entity does not address observations found in an FDA Form 483 to FDA’s satisfaction, the FDA could take enforcement action, including any
of the following sanctions:
● untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;
● customer notifications or recall, detention or seizure of our product;
● operating restrictions or partial suspension or total shutdown of production;
● refusing or delaying our requests for pre-market approval of new products;
● withdrawing pre-market approvals that have already been granted;
● refusal to grant export approval for our product; or
● criminal prosecution.
Any of the foregoing actions could have a material adverse effect on our reputation, business, financial condition and operating results.
Risks Related to Commercialization of Our Drug Candidates
Even if any of our drug candidates receive regulatory 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.
After we complete clinical trials and receive regulatory approval for any of our drug candidates, which may not happen for some time, we recognize that such
candidate(s) may ultimately fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. We may not be
able to achieve or maintain market acceptance of our products over time if new products or technology are introduced that are more favorably received than our
products, are more cost effective or render our drug obsolete. We will face competition with respect to our drug candidates from other pharmaceutical companies
developing products in the same disease/therapeutic area and specialty pharmaceutical and biotechnology companies worldwide. Many of the companies against
which we may be competing have significantly greater financial resources and expertise in research and development, manufacturing, animal testing, conducting
clinical trials, obtaining regulatory approvals and marketing approval for drugs than we do. Physicians, patients and third-party payors may prefer other novel products
to ours, which means that we may not generate significant sales revenues for that product and that product may not become profitable. The degree of market
acceptance of our drug candidates, if approved for commercial sale, will depend on a number of factors, including but not limited to:
● clinical indications for which our drug candidates are approved;
● physicians, hospitals, and patients considering our drug candidates as a safe and effective treatment;
● the potential and perceived advantages of our drug candidates over alternative treatments;
13
● the prevalence and severity of any side effects;
● product labeling or product insert requirements of the FDA, NMPA, EMA, Health Canada or other comparable regulatory authorities;
● limitations or warnings contained in the labeling approved by the FDA, NMPA, EMA, Health Canada or other comparable regulatory authorities;
● the timing of market introduction of our drug candidates as well as competitive drugs;
● the cost of treatment in relation to alternative treatments and their relative benefits;
● the availability of adequate coverage, reimbursement and pricing by third-party payors and government authorities;
● lack of experience and financial and other limitations on our ability to create and sustain effective sales and marketing efforts or ineffectiveness of our
sales and marketing partners; and
● changes in legislative and regulatory requirements that could prevent or delay regulatory approval of our drug candidates, restrict or regulate post-
approval activities and affect our ability to profitably sell any drug candidates for which we obtain regulatory approval.
We depend substantially on the success of the drug candidates being researched as our current Lead Projects. If we are unable to license or sublicense, sell or
otherwise commercialize our drug candidates, or experience significant delays in doing so, our business will be materially harmed.
Our business and the ability to generate revenue related to product sales, if ever achieved, will depend on the successful development, regulatory approval
and licensing or sublicensing or other commercialization of our drug candidates or any other drug candidates we may develop. We have invested a significant amount
of financial resources in the development of our drug candidates and we may invest in other drug candidates. The success of our drug candidates and any other
potential drug candidates will depend on many factors, including but not limited to:
● successful enrollment in, and completion of, studies in animals and clinical trials;
● other parties’ ability in conducting our clinical trials safely, efficiently and according to the agreed protocol;
● receipt of regulatory approvals from the FDA, NMPA, EMA, Health Canada and other comparable regulatory authorities for our drug candidates;
● our ability to establish commercial manufacturing capabilities by making arrangements with third-party manufacturers;
● reliance on other parties to conduct our clinical trials swiftly and effectively;
● launch of commercial sales of our drug candidates, if and when approved;
● obtaining and maintaining patents, trade secrets and other IP protection and regulatory exclusivity, as well as protecting our rights in our own IP;
● ensuring that we do not infringe, misappropriate or otherwise violate patents, trade secrets or other IP rights of other parties;
● obtaining acceptance of our drug candidates by doctors and patients;
● obtaining reimbursement from third-party payors for our drug candidates, if and when approved;
● our ability to compete with other drug candidates and drugs; and
● maintenance of an acceptable safety profile for our drug candidates following regulatory approval, if and when received.
14
We may not achieve regulatory approval and commercialization in a timely manner or at all. Significant delays in obtaining approval for and/or to
successfully commercialize our drug candidates would materially harm our business and we may not be able to generate sufficient revenues and cash flows to continue
our operations.
Risks Related to Our IP
A significant portion of our IP portfolio currently includes pending patent applications that have not yet been issued as granted patents and if the pending patent
applications covering our product candidates fail to be issued, our business will be adversely affected. If we or our licensors are unable to obtain and maintain
patent protection for our technology and drugs, our competitors could develop and commercialize technology and drugs similar or identical to ours, and our
ability to successfully commercialize our technology and drugs may be adversely affected.
Our success depends largely on our ability to obtain and maintain patent protection and other forms of IP rights for the composition of matter, method of use
and/or method of manufacture for each of our drug candidates. Failure to obtain, maintain protection, enforce or extend adequate patent and other IP rights could
materially adversely affect our ability to develop and market one or more of our drug candidates. We also rely on trade secrets and know-how to develop and maintain
our proprietary and IP position for each of our drug candidates. Any failure to protect our trade secrets and know-how with respect to any specific drug and diagnostics
technology candidate could adversely affect the market potential of that potential product.
As of the date of this report, the Company has, through its licenses, obtained rights to patents and patent applications covering some or all its drug and
diagnostics technology candidates that have been filed in major jurisdictions such as the United States, member states of the European Patent Organization (the
“EPO”) and the PRC (collectively, “Major Patent Jurisdictions”), as well as in other countries. We have also filed a number of provisional applications to establish
earlier filing dates for certain of our other ongoing researches, the specifics of which are currently proprietary and confidential. To the extent we do not seek or obtain
patent protection in a particular jurisdiction, we may not have commercial incentive to seek marketing authorization in such jurisdiction. Nonetheless, other parties
might enter those markets with generic versions or copies of our products and received regulatory approval without having significantly invested in their own research
and development costs compared to the Company’s investment. For more information about our IP portfolio, please refer to the Intellectual Property section below.
With respect to issued patents in certain jurisdictions, for example in the U.S. and under the EPO, we may be entitled to obtain a patent term extension to
extend the patent expiration date provided we meet the applicable requirements for obtaining such patent term extensions. We have sought to support our proprietary
position by working with our licensors in filing patent applications in the names of the licensors in the United States and through the PCT, related to the Lead Projects
and certain other drug candidates. In the future, we intend to file patent applications on supplemental or improvement IP derived from the licensed technologies, where
those IP would be solely or jointly owned by the Company pursuant to the terms of respective license agreements. Filing patents covering multiple technologies in
multiple countries is time-consuming and expensive, and we may not have the resources file and prosecute all necessary or desirable patent applications 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.
We cannot be certain that patents will be issued or granted with respect to patent applications that are currently pending, or that issued or granted patents will
not later be found to be invalid or unenforceable.
15
The patent position of biotechnology and pharmaceutical companies is generally uncertain because it involves complex legal and factual considerations. The
standards applied by the EPO, the U.S. Patent and Trademark Office, or USPTO, and foreign patent offices in granting patents are not always applied uniformly or
predictably. For example, there is no uniform worldwide policy regarding patentable subject matter or the scope of claims allowable in biotechnology and
pharmaceutical patents. Consequently, patents may not issue from our pending patent applications and even if they do issue, such patents may not issue in a form that
effectively prevents others from commercializing competing products. As such, we do not know the degree of future protection that we will have on our proprietary
products and technology.
Additionally, the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the courts
or patent offices in the United States and abroad. Even if patents do successfully issue and even if such patents cover our drug candidates, other parties may initiate,
for patents filed before March 16, 2013 (i.e., the enactment of the America Invents Act), interference or re-examination proceedings, for patents filed on or after
March 16, 2013, post-grant review, inter partes review, nullification or derivation proceedings, in court or before patent offices, or similar proceedings challenging the
validity, enforceability or scope of such patents, which may result in the patent claims being narrowed or invalidated. Successful defense of its patents can constitute a
material factor in a company’s expenses. According to an article published by BlueIron (https://finance.yahoo.com/news/current-patent-litigation-costs-between-
120200165.html), depending on the value at stake, the American Intellectual Property Law Association’s “2019 Report of the Economic Survey” reported the average
costs of a patent litigation are between $2.3 million to $4.0 million.
In addition, the fact that the Company has exclusive rights to prevent others from using a patented invention does not necessarily mean that the Company
itself will have the unrestricted right to use that invention. Other parties may obtain ownership or licenses to patents or other IP rights that cover the manufacture, use
or sale of our current or future products (or elements thereof). This may enable such other parties to enforce their patents or IP rights against us, and may, as a result,
affect the commercialization of our products or exploitation of our own technology. We endeavor to identify early patents and patent applications which may block
development of a product or technology and minimize this risk by conducting prior art searches before and during the projects. However, relevant documents may be
overlooked, yet-to-be published or missed, which may in turn impact on the freedom to commercialize the relevant asset. In such cases, we may not be in a position to
develop or commercialize products or drug candidates unless we successfully pursue litigation to nullify or invalidate the other IP rights concerned, or enter into a
license agreement with the IP right holder, if available on commercially reasonable terms.
If we are unable to obtain and maintain the appropriate scope for our patents, our competitors could develop and commercialize technology and drugs similar or
identical to ours, and our ability to successfully commercialize our technology and drugs may be adversely affected.
We may not obtain sufficient claim scope in those patents to prevent another party from competing successfully with our drug and diagnostics technology
candidates. Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from
competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our patents by developing similar or
alternative technology or drug and diagnostics technology candidates in a non-infringing manner. The issuance of a patent is not conclusive as to its scope, validity or
enforceability, and our patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in patent claims being
narrowed, invalidated or held unenforceable, which could limit our ability to stop or prevent us from stopping others from using or commercializing similar or
identical technology and drug and diagnostics technology candidates, or limit the duration of the patent protection of our technology and drug and diagnostics
technology candidates. Given the amount of time required for the development, testing and regulatory review of new drug and diagnostics technology candidates,
patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our patent portfolio may not provide us with
sufficient rights to exclude others from commercializing drug and diagnostics technology candidates similar or identical to ours.
Further, the issuance, scope, validity, enforceability and commercial value of our and our current or future licensors’ or collaboration partners’ patent rights
are highly uncertain. Our and our licensors’ pending and future patent applications 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.
16
We may not be able to protect and enforce our IP rights throughout the world.
Our commercial success will depend, in part, on our ability to maintain IP protection for our drug candidates in which we seek to develop and commercialize.
While we rely primarily upon a combination of patents, trademarks, trade secrets and other contractual obligations to protect the IP related to our brands, products and
other proprietary technologies, these legal means may afford only limited protection.
Filing and prosecuting patents on drug candidates and defending the validity of the same (if challenged) in all countries throughout the world could be
prohibitively expensive for us, and our IP rights in countries outside the Major Patent Jurisdictions can be less extensive than those in the Major Patent Jurisdictions.
In addition, the laws of some countries in the rest of the world such as India do not protect IP rights to the same extent as laws in the Major Patent Jurisdictions.
Consequently, we may not be able to prevent other parties from practicing our inventions in the rest of the world, despite our continued efforts in enforcing our IP
rights through legal means. Competitors may use our technology in jurisdictions where we have not or not yet obtained patent protection to develop their own drugs
and further, may export otherwise infringing drugs to non-U.S. jurisdictions where we have patent protection.
Our, our licensors’ or collaboration partners’ patent applications cannot be enforced against other parties practicing the technology claimed in such
applications unless and until a patent issues from such applications, and then only to the extent the issued claims cover the technology. In addition, patents and other IP
rights also will not protect our technology, drug candidates if another party, including our competitors, design around our protected technology, drug candidates
without infringing, misappropriating or otherwise violating our patents or other IP rights.
Moreover, currently and as our R&D continues to progress, some of our patents and patent applications are or may be co-owned with another party. Some of
our licenses already provide that future-developed technologies (and any resulting patents) will be co-owned with the licensors and other patents for technologies we
may acquire or develop with other parties may also be jointly owned. If we are unable to obtain an exclusive license to any such co-owners’ interest in such patents or
patent applications, such co-owners may be able to license their rights to other persons, including our competitors, and our competitors could market competing
products and technology, and we will be unable to transfer or grant exclusive rights to potential purchasers or development partners of such co-owned technologies. In
addition, we may need the cooperation of any such co-owners of our patents in order to enforce such patents against other parties, and such cooperation may not be
provided to us. Any of the foregoing could limit the revenue we might generate from our patents or patent applications and thus have a material adverse effect on our
competitive position, business, financial conditions, results of operations, and prospects.
Because patent applications are confidential for a period of time after filing, and some remain so until issued, we cannot be certain that we or our licensors or
collaborators were or will be the first to file any patent application related to a drug and diagnostics technology candidate. Furthermore, in the United States, if patent
applications of other parties have an effective filing date before March 16, 2013, an interference proceeding can be initiated by such other party to determine who was
the first to invent any of the subject matter covered by the patent claims of our applications. If patent applications of other parties have an effective filing date on or
after March 16, 2013, in the United States a derivation proceeding can be initiated by such other parties to determine whether our invention was derived from theirs.
Even where we have a valid and enforceable patent, we may not be able to exclude others from practicing our invention where the other party can show that
they used the invention in commerce before our filing date or the other party benefits from a compulsory license. In addition, we may be subject to other challenges
regarding our exclusive ownership of our IP. If another party were successful in challenging our exclusive ownership of any of our IP, we may lose our right to use
such IP, such other party may be able to license such IP to other parties, including our competitors, and our competitors could market competing products and
technology. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations, and prospects.
17
Many companies have encountered significant problems in protecting and defending IP rights in jurisdictions outside Major Patent Jurisdictions. The legal
systems of some countries do not favor the enforcement of patents, trade secrets and other IP, which could make it difficult in those jurisdictions for us to stop the
infringement or misappropriation of our patents or other IP rights, or the marketing of competing drugs in violation of our proprietary rights generally.
To date, we have not sought to enforce any issued patents in any jurisdictions. Proceedings to enforce our patent and other IP rights in any jurisdictions could
result in substantial costs and divert our efforts and attention from other aspects of our business.
Furthermore, such proceedings could put our patents at risk of being invalidated, held unenforceable, or interpreted narrowly, could put our patent
applications at risk of not issuing, and could provoke other parties to assert claims of infringement or misappropriation against us. We may not prevail in any lawsuits
that we initiate in jurisdictions where opposition proceedings are available and the damages or other remedies awarded, if any, may not be commercially meaningful.
The requirements for patentability may differ in certain countries, particularly developing countries. Certain countries in Europe, the PRC, and developing countries
including India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to other parties. In those countries, we and our
licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to another party, which could materially diminish
the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our IP rights around the world may be inadequate to
obtain a significant commercial advantage from the IP that we develop.
We may become involved in lawsuits to protect or enforce our IP, which could be expensive, time-consuming and unsuccessful. Our patent rights relating to our
drug and diagnostics technology candidates could be found invalid or unenforceable if challenged in court or before the USPTO or comparable non-U.S.
authority.
Competitors may infringe our patent rights or misappropriate or otherwise violate our IP rights. To counter infringement or unauthorized use, litigation may
be necessary in the future to enforce or defend our IP rights, to protect our trade secrets or determine the validity and scope of our own IP rights or the proprietary
rights of others. This can be expensive and time-consuming. Any claim that we assert against perceived infringers could also provoke these parties to assert
counterclaims against us alleging that we infringe their IP rights. Many of our current and potential competitors have the ability to dedicate substantially greater
resources to enforce and/or defend their IP rights than we can. Accordingly, despite our efforts, we may not be able to prevent other parties from infringing upon or
misappropriating our IP. Litigation could result in substantial costs and diversion of management resources, which could harm our business and financial results. In
addition, in an infringement proceeding, a court may decide that patent rights or other IP rights owned by us are invalid or unenforceable, or may refuse to stop the
other party from using the technology at issue on the grounds that our patent rights or other IP rights do not cover the technology in question. An adverse result in any
litigation proceeding could put our patent, as well as any patents that may issue in the future from our pending patent applications, at risk of being invalidated, held
unenforceable or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with IP litigation, there is risk that some of
our confidential information could be compromised by disclosure during this type of litigation.
If we initiate legal proceedings against another party to enforce our patent, or any patents that may be issued in the future from our patent applications, that
relates to one of our drug and diagnostics technology candidates, the defendant could counterclaim that such patent rights are invalid or unenforceable. In patent
litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace, and there are numerous grounds upon which another
party can assert invalidity or unenforceability of a patent. Parties may also raise similar claims before administrative bodies in the United States or abroad, even
outside the context of litigation. Such mechanisms include ex parte re-examination, inter partes review, post-grant review, derivation and equivalent proceedings in
non-U.S. jurisdictions, such as opposition proceedings. Such proceedings could result in revocation or amendment to our patents in such a way that they no longer
cover and protect our drug and diagnostics technology candidates. With respect to the validity of our patents, for example, there may be invalidating prior art of which
we, our patent counsel, and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or
unenforceability, we would lose at least part, and perhaps all, of the patent protection on our drug and diagnostics technology candidates. Such a loss of patent
protection could have a material adverse impact on our business.
18
We may not be able to prevent misappropriation of our trade secrets or confidential information, particularly in countries where the laws may not protect
those rights as fully as in the United States. Furthermore, because of the substantial amount of discovery required in connection with IP litigation, there is a risk that
some of our confidential information could be compromised by disclosure during this type of litigation.
We may be subject to claims challenging the inventorship of our patents and other IP.
Although we are not currently experiencing any claims challenging the inventorship of our patents or ownership of our IP, we may in the future be subject to
claims that former employees, collaborators or other parties have an interest in our patents or other IP as inventors or co-inventors. For example, we may have
inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our drug and diagnostics technology candidates and
who have not clearly contracted to transfer or assign any rights they may have to the Company. In addition, for our licensed patents, although a majority of our
licensors have procured assignment forms and records from inventors to affirm their ownership in the licensed IP, another party or former employee or collaborator of
our licensors not named in the patents may challenge the inventorship of claim an ownership interest in one or more of our or our licensors’ patents. Litigation may be
necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, in addition to paying monetary damages, we may
lose rights such as exclusive ownership of, or right to use, our patent rights or other IP. Such an outcome could have a material adverse effect on our business. Even if
we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
If we are sued for infringing IP rights of other parties, such litigation could be costly and time-consuming and could prevent or delay us from developing or
commercializing our drug candidates, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.
Our commercial success depends in part on our avoiding infringement of the patents and other IP rights of other parties. There is a substantial amount of
litigation involving patent and other IP rights in the biotechnology and pharmaceutical industries. Numerous issued patents, provisional patents and pending patent
applications, which are owned by other parties, exist in the fields in which we are developing drug candidates. As the biotechnology and pharmaceutical industries
expand and more patents are issued, the risk increases that our drug candidates may give rise to claims of infringement of the patent rights of others.
Other parties may assert that we are employing their proprietary technology without authorization. There may be other patents of which we are currently
unaware with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our drug candidates. Because
patent applications can take many years to issue, there may be currently pending patent applications or provisional patents which may later result in issued patents that
our drug candidates may infringe. In addition, other parties may obtain patents in the future and claim that use of our technology infringes upon these patents. If any
other patents were held by a court of competent jurisdiction to cover the manufacturing process of any of our drug candidates, any molecules formed during the
manufacturing process or any final drug itself, the holders of any such patents may be able to prevent us from commercializing such drug candidate unless we obtain a
license under the applicable patents, or until such patents expire or they are finally determined to be held invalid or unenforceable. Similarly, if any other patent were
held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, including combination therapy or patient
selection methods, the holders of any such patent may be able to block our ability to develop and commercialize the applicable drug candidate unless we obtain a
license, limit our uses, or until such patent expires, or is finally determined to be held invalid or unenforceable. In either case, such a license may not be available on
commercially reasonable terms or at all.
Other parties who bring successful claims against us for infringement of their IP rights may obtain injunctive or other equitable relief, which could prevent us
from developing and commercializing one or more of our drug candidates. Defense of these claims, regardless of their merits, would involve substantial litigation
expense and be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement or misappropriation against us, we
may have to pay substantial damages, including treble damages and attorneys’ fees in the case of willful infringement, obtain one or more licenses from other parties,
pay royalties or redesign our infringing drug candidates, which may be impossible or require substantial time and monetary expenditure. In the event of an adverse
result in any such litigation, or even in the absence of litigation, we may need to obtain licenses from other parties to advance our research or allow commercialization
of our drug candidates. Any required license may not be available at all, or may not be available on commercially reasonable terms. In the event that we are unable to
obtain such a license, we would be unable to further develop and commercialize one or more of our drug candidates, which could harm our business significantly. We
may also elect to enter into license agreements in order to settle patent infringement claims or resolve disputes prior to litigation, and any such license agreements may
require us to pay royalties and other fees that could significantly reduce our profitability for any product related to that patent and thus harm our business.
19
Even if resolved in our favor, litigation or other legal proceedings relating to IP claims may cause us to incur significant expenses, and could distract our
technical personnel, management personnel, or both from their normal responsibilities. In addition, there could be public announcements of the results of hearings,
motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse
effect on the market price of our Class A Ordinary Shares. Such litigation or proceedings could substantially increase our operating losses and reduce the resources
available for development activities or any future 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. 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.
There may be patent applications pending of which we are not aware, but which cover similar products to the ones we are attempting to license or develop, which
may result in lost time and money, as well as litigation.
It is possible that we have failed to identify relevant outstanding patents or applications. For example, U.S. applications filed before November 29, 2000 and
certain U.S. applications filed after that date that will not be filed outside the United States remain confidential until patents are issued. Patent applications filed in the
United States after November 29, 2000 and generally filed elsewhere are published approximately 18 months after the earliest filing for which priority is claimed, with
such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering our products could have been filed by others without
our knowledge. Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover
our products or the use of our products. Holders of any such unanticipated patents or patent applications may actively bring infringement claims against us, with the
same potential litigation consequences as alluded to elsewhere in this annual report. Any of these events could require us to divert substantial financial and
management resources that we would otherwise be able to devote to our business.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements
imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees on any issued patent are due to be paid to the USPTO and other patent agencies in several stages over the lifetime of the patent.
The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment, and other similar
provisions during the patent application process. Although an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance
with the applicable rules, there are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or
complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include
failure to respond to official actions within prescribed time limits, non-payment of fees, and failure to properly submit documents requesting an extension of time. In
any such event, our competitors might be able to enter the market, which would have a material adverse effect on our business.
The terms of our patents may not be sufficient to effectively protect our drug and diagnostics technology candidates and business.
In most countries in which we file, including the United States, the term of an issued patent is generally 20 years from the earliest claimed filing date of a
non-provisional patent application in the applicable country. Although various extensions may be available, the life of a patent and the protection it affords is limited.
For example, depending upon the timing, duration and specifics of the FDA regulatory approval for our drug candidates, one or more of our U.S. patents, if issued,
might be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman
Amendments. The Hatch-Waxman Amendments permit a patent term extension of up to five years as compensation for patent term lost during drug development and
the FDA regulatory review process. Patent term extensions, however, cannot extend the remaining term of a patent beyond a total of 14 years from the date of drug
approval by the FDA, and only one patent can be extended for a particular drug. The application for patent term extension is subject to approval by the USPTO, in
conjunction with the FDA. We may not be granted an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to
expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded
could be less than we request. If we are unable to obtain a patent term extension for a given patent or the term of any such extension is less than we request, the period
during which we will have the right to exclusively market our drug will be that of the originally issued patents themselves.
20
Even if patents covering one of our drug candidates are obtained, thereby giving us a period of exclusivity for manufacturing and marketing that drug, we will
not be able to assert such patent rights upon the expiration of the issued patents against potential competitors who may begin marketing generic copies of our
medications, and our business and results of operations may be adversely affected.
Changes in patent law in the United States could diminish the value of patents in general, thereby impairing our ability to protect our drug and diagnostics
technology candidates.
The United States has recently enacted and is currently implementing wide-ranging patent reform legislation. Recent U.S. Supreme Court rulings have
narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing
uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents once
obtained, if any. Depending on decisions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents in the United States
could change in unpredictable ways that would weaken our ability to obtain new patents, or to enforce our existing patents and patents that we might obtain in the
future. For example, in a recent case, Assoc. for Molecular Pathology v. Myriad Genetics, Inc., the U.S. Supreme Court held that certain claims to naturally-occurring
substances are not patentable. Although we do not believe that any of the patents owned or licensed by us will be found invalid based on this decision, future decisions
by the courts, the U.S. Congress or the USPTO may impact the value of our patent rights. There could be similar changes in the laws of foreign jurisdictions that may
impact the value of our patent rights or our other IP rights.
In addition, recent patent reform legislation in the U.S., including the Leahy-Smith America Invents Act, or the America Invents Act, could increase those
uncertainties and costs. The America Invents Act was signed into law on September 16, 2011, and many of the substantive changes became effective on March 16,
2013. The America Invents Act reforms U.S. patent law in part by changing the U.S. patent system from a “first to invent” system to a “first inventor to file” system,
expanding the definition of prior art, and developing a post-grant review system, thus changing the U.S. patent law in a way that may weaken our ability to obtain
patent protection in the U.S. for those applications filed after March 16, 2013. Further, the America Invents Act created new procedures to challenge the validity of
issued patents in the U.S., including post-grant review and inter partes review proceedings, which some other parties have been using to cause the cancellation of
selected or all claims of issued patents of competitors. For a patent with an effective filing date of March 16, 2013 or later, a petition for post-grant review can be filed
by another party in a nine-month window from issuance of the patent. A petition for inter partes review can be filed immediately following the issuance of a patent if
the patent has an effective filing date prior to March 16, 2013. A petition for inter partes review can be filed after the nine-month-period for filing a post-grant review
petition has expired for a patent with an effective filing date of March 16, 2013 or later. Post-grant review proceedings can be brought on any ground of invalidity,
whereas inter partes review proceedings can only raise an invalidity challenge based on published prior art and patents. These adversarial actions at the USPTO
review patent claims without the presumption of validity afforded to U.S. patents in lawsuits in U.S. federal courts, and use a lower burden of proof than used in
litigation in U.S. federal courts. Therefore, it is generally considered easier for a competitor or other party to have a U.S. patent invalidated in a USPTO post-grant
review or inter partes review proceeding than invalidated in a litigation in a U.S. federal court. If any of our patents are challenged by another party in such a USPTO
proceeding, there is no guarantee that we or our licensors or collaborators will be successful in defending the patent, which would result in our loss of the challenged
patent right.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to our issued patents, provisional patent, and pending patent applications, we expect to rely on trade secrets, including unpatented know-how,
technology and other proprietary information, to maintain our competitive position and protect our drug and diagnostics technology candidates. We seek to protect
these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties that have access to them, such as our employees, corporate
collaborators, outside scientific collaborators, sponsored researchers, contract manufacturers, consultants, advisors and other parties. We also enter into confidentiality
and invention or patent assignment agreements with our employees and consultants. However, any of these parties may breach such agreements and disclose our
proprietary information, 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 can be difficult, expensive and time-consuming, and the outcome is unpredictable. If trade secrets which are material to our business were to be obtained
by a competitor, our competitive position would be harmed.
21
We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims
that we or these employees have used or disclosed IP, including trade secrets or other proprietary information, of any such employee’s former employer. In addition,
while we typically require our employees, consultants and contractors who may be involved in the development of IP to execute agreements assigning such IP to us,
we may be unsuccessful in executing such an agreement with each party who in fact develops IP that we regard as our own, which may result in claims by or against
us related to the ownership of such IP. We are not aware of any threatened or pending claims that any of our projects involve misappropriated IP or other proprietary
information, but in the future litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition to paying monetary
damages, we may lose valuable IP rights. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to
management.
We may be unable to execute on the optimal development plan for one or more of our existing product candidates if we are unable to obtain or maintain necessary
rights for some aspect of the developing technology through acquisitions or licenses.
Our existing programs currently use or may in the future use additional technologies subject to proprietary rights held by others, such as particular
compositions or methods of manufacture, treatment or use. The licensing and acquisition of IP rights is a competitive area, and more established companies may
pursue strategies to license or acquire such IP rights that we may consider necessary or useful. These established companies may have a competitive advantage over us
due to their size, cash resources and greater capabilities in clinical development and commercialization.
In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire IP
rights on terms that would allow us to make an appropriate return on our investment. If we are unable to successfully obtain or maintain licenses or other rights from
other parties to use IP of those parties, our business, financial condition and prospects for growth could suffer.
If we fail to comply with our obligations in the agreements under which we license IP rights from other parties or otherwise experience disruptions to our business
relationships with our licensors, we could be required to pay monetary damages or could lose license rights that are important to our business.
Many of our projects (including our Lead Projects) are based on IP which we have licensed from other parties. (See “Item 4. Information on the Company –
B. Business Overview – Intellectual Property”) Certain of these license agreements impose diligence, development or commercialization obligations on us, such as
obligations to pay royalties on net product sales of our drug candidates once commercialized by us, to pay a percentage of sublicensing revenues if the licensed
product is sublicensed, to make other specified milestone and/or annual payments relating to our drug candidates or to pay license maintenance and other fees, as well
as obligations to pursue commercialization with due diligence. Specifically, a number of our license agreements also require us to meet development timelines in order
to maintain the related license(s). In spite of our efforts, our licensors might conclude that we have materially breached our obligations under such license agreements
and might therefore seek to terminate the license agreements. If one of our licensors, despite our efforts, were to be successful in terminating its agreement with us, we
would not be able to continue to develop, manufacture or market any drug candidate under that license agreements, and we could face claims for monetary damages or
other penalties under that agreement. Such an occurrence would diminish or eliminate the value of that project to our Company, even if we are able to negotiate new or
reinstated agreements, which may have less favorable terms. Depending on the importance of the IP and the related project, any such development could have a
material adverse effect on our competitive position, business, financial conditions, results of operations, and prospects.
Moreover, disputes may arise regarding intellectual property subject to a licensing agreement, including:
● the scope of rights granted under the license agreement and other interpretation-related issues;
● the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;
22
● the sublicensing of patent and other rights under our collaborative development relationships;
● our diligence obligations under the license agreement and what activities satisfy those diligence obligations;
● the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and
our partners; and
● the priority of invention of patented technology.
In addition, the agreements under which we currently license intellectual property or technology from other parties are complex, and certain provisions in
such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we
believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the
relevant agreement, either of which (depending on the importance of the IP and the related project) could have a material adverse effect on our business, financial
condition, results of operations, and prospects. Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability to maintain our
current licensing arrangement for a project on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected drug and
diagnostics technology candidates, which could have a material adverse effect on our business, financial conditions, results of operations, and prospects.
We may not have complete control of the preparation, filing and prosecution of patent applications, or to maintain patents, licensed by us from other parties.
The Company has in-licensed, and may in the future in-license patents owned or controlled by others for our use as part of our development plans. We also
may out-license or sublicense patents which we own or control in collaborations with others for development and commercialization of our products. In either case,
the continuing right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology under development is a
matter for negotiation and we may not always be the party that obtains such control, in which case we will be reliant on our licensors, collaboration partners or
sublicensees for determining strategies with respect to those patents. For our existing licenses, while we have an understanding with most of the licensors who
maintain control over patent prosecution and we have jointly appointed and engaged patent agents nominated by us under one or more of our licenses, we cannot
guarantee that such licensors or collaborators will always accept prosecution strategies proposed by us and/or our patent agents. Therefore, these patents and
applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. If our current or future licensors or collaboration
partners fail to establish, maintain or protect such patents and other IP rights, such rights may be reduced or eliminated. If our licensors or joint development partners
are not fully cooperative or disagree with us as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised.
Risks Related to Our Reliance on Unrelated Parties
We rely on unrelated parties to conduct discovery and further improvement of our innovations and licensed technologies, as well as our preclinical studies and
clinical trials. If these unrelated parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory
approval for or commercialize our drug candidates, and our business could be substantially harmed.
We have relied upon and plan to continue to rely upon CROs and collaborating institutions to monitor and manage data for our ongoing preclinical studies
and programs. We rely on these parties for execution of preclinical studies and clinical trials, and control only certain aspects of their activities. Nevertheless, we are
responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, and regulatory requirements and scientific standards,
and our reliance on the CROs and collaborating institutions does not relieve us of our regulatory responsibilities. If CROs, collaborating institutions or clinical
investigators do not successfully carry out their contractual duties or obligations or meet expected deadlines, development of our product candidates could be delayed
and our business could be adversely affected.
23
In addition, our CROs and collaborating institutions, are subject to numerous environmental, health and safety laws and regulations, including those
governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and waste. In the event of contamination or injury
resulting from our use of hazardous materials, we might be held liable for any resulting damages, and any liability could exceed our resources. We could also be
subject to civil or criminal fines and penalties, and significant associated costs.
If an IND for one of our drug candidates requires significantly larger quantities of the candidate to be tested, we expect to rely on unrelated parties to
manufacture supplies of that candidate. If those unrelated parties fail to provide us with sufficient quantities of clinical supply on that candidate or fail to do so at
acceptable quality levels or prices, or fail to maintain required cGMP licenses, we may not be able to manufacture that candidate in sufficient quantities to
conduct the necessary human trials. Should the failure by the CRO occur in anticipation of or after marketing approval of that candidate, we may be unable to
generate as much revenue as rapidly (and such revenue may not be as profitable) as we had anticipated.
The manufacture of many drug products, particularly in commercial quantities, can be complex and may require significant expertise and capital investment,
particularly if the development of advanced manufacturing techniques and process controls are required. We intend to contract with outside contractors to manufacture
clinical supplies and process our drug candidates. We have not yet had our drug candidates to be manufactured or processed on a commercial scale and may not be
able to do so for any of our drug candidates.
As we expect to engage contract manufacturers, the Company will be exposed to the following risks:
● we might be unable to identify manufacturers on acceptable terms or at all because the FDA, NMPA, EMA, Health Canada or other comparable
regulatory authorities must approve any manufacturers we determine to use and any potential manufacturer may be unable to satisfy federal, state or
international regulatory standards;
● although we would be choosing manufacturers with the type of experience most suitable for our drug candidates, it is possible that our contract
manufacturers may not be able to execute unique manufacturing procedures and other logistical support requirements we have developed and they might
require a significant amount of support from us to implement and maintain the infrastructure and processes required to manufacture our particular drug
candidates;
● our contract manufacturers might be unable to reproduce the quantity and quality of the drugs we need to meet our clinical and commercial needs within
the time frames when we require those drugs;
● our contract manufacturers may breach their contracts with us, including by not performing as agreed or not devoting sufficient resources to our drug
candidates, or they may not remain in the contract manufacturing business for the time required to supply our clinical trials or to successfully produce,
store and distribute our products;
● even if initially accepted by regulatory authorities, a manufacturer remains subject to ongoing periodic unannounced inspection by regulatory authorities
to ensure strict compliance with cGMP and other government regulations, and our contract manufacturers may fail to comply with these regulations and
requirements, resulting in rescission of cGMP licenses and our inability to continue using their services, requiring us to find a replacement manufacturer;
● depending on the terms of our agreement with a manufacturer, we may not own, or may have to share, the IP rights to any improvements made by the
manufacturer in the manufacturing process for our drug candidates; and
● our contract manufacturers may have unacceptable or inconsistent product quality success rates and yields.
24
Each of these risks could delay or prevent the completion of our clinical trials or the approval of any of our drug candidates by the FDA, NMPA, EMA,
Health Canada or other comparable regulatory authorities, result in higher costs or adversely impact commercialization of our drug candidates.
We are also responsible for quality control by our manufacturers. We intend to rely on those unrelated-party manufactures to perform certain quality
assurance tests on our drug candidates prior to delivery to patients. If these tests are not appropriately done and test data are not reliable, patients could be put at risk of
serious harm and the FDA, NMPA, EMA, Health Canada or other comparable regulatory authorities could place significant restrictions on our Company until
deficiencies are remedied.
Manufacturers of drug products often encounter difficulties in production, particularly in scaling up or out, validating the production process, and assuring
high reliability of the manufacturing process (including the absence of contamination). These problems include logistics and shipping, difficulties with production
costs and yields, quality control, including stability of the product, product testing, operator error, availability of qualified personnel, as well as compliance with
strictly enforced federal, state and non-U.S. regulations. Furthermore, if contaminants are discovered in our supply of our drug candidates or in the manufacturing
facilities, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. It is possible that stability
failures or other issues relating to the manufacture of our drug candidates may occur in the future. Additionally, our manufacturers may experience manufacturing
difficulties due to resource constraints, or as a result of labor disputes or unstable political environments. If our manufacturers were to encounter any of these
difficulties, or otherwise fail to comply with their contractual obligations, our ability to provide our drug candidate to patients in clinical trials would be jeopardized.
Any delay or interruption in the manufacturing of clinical trial supplies could delay the completion of clinical trials, increase the costs associated with maintaining
clinical trial programs and, depending upon the period of delay, require us to begin new clinical trials with additional costs or terminate clinical trials completely.
Review of changes in the manufacturing process of our drug candidates could cause delays resulting from the need for additional regulatory approvals.
Changes in a process or procedure for manufacturing one of our drug candidates, including a change in the location where the drug candidate is manufactured
or a change of a contract manufacturer, could require prior review by the FDA, NMPA, EMA, Health Canada or other comparable regulatory authorities and approval
of the manufacturing process and procedures in accordance with the FDA, NMPA, EMA, or Health Canada’s regulations, or comparable requirements. This review
may be costly and time-consuming and could delay or prevent the launch of a product. The new facility will also be subject to pre-approval inspection. In addition, we
would have to demonstrate that the product made at the new facility is equivalent to the product made at the former facility by physical and chemical methods, which
are costly and time-consuming. It is also possible that the FDA, NMPA, EMA, Health Canada or other comparable regulatory authorities may require clinical testing
as a way to prove equivalency, which would result in additional costs and delay.
Risks Related to AML Clinic
Failure to comply with all laws and regulations applicable to the business of AML Clinic could have a material, adverse impact on the Company’s business.
Operation of AML Clinic subjects the Company to a variety of Hong Kong laws and regulations specific to companies and professionals in the business of
delivering medical care. We and our employees will be subject to licensing and professional qualifications that do not apply to our other businesses. Breach of any of
these laws, regulations or licensing requirements could subject the Company to significant fines and other penalties and possibly damage the Company’s reputation,
which could have a material adverse effect on the Company’s business.
25
Risks Related to Our Natural Supplements
We may be subject to government regulations for natural supplements
From a regulatory perspective, some of the Company’s non-drug candidates (including those developed under the project company Nativus), may be
regulated as natural supplements, including NativusWell® (NLS-2). For those non-drug candidates that the Company plans to develop, they are subject to extensive
and rigorous domestic government regulation, including regulation by the FDA, the Centers for Medicare & Medicaid Services, or CMS, other divisions of the U.S.
Department of Health and Human Services, state and local governments and their respective foreign equivalents. The FDA regulates natural supplements, cosmetics
and drugs under different regulatory schemes.
For example, the FDA regulates the processing, formulation, safety, manufacturing, packaging, labeling, advertising and distribution of natural supplements
and cosmetics under its natural supplement and cosmetic authority, respectively. The FDA also regulates the research, development, pre-clinical and clinical testing,
manufacture, safety, effectiveness, record keeping, reporting, labeling, storage, approval, advertising, promotion, sale, distribution, import and export of
pharmaceutical products under various regulatory provisions. If any drug products we develop are tested or marketed abroad, they will also be subject to extensive
regulation by foreign governments, whether or not we have obtained FDA approval for a given product and its uses. Such foreign regulation may be equally or more
demanding than corresponding U.S. regulation.
Government regulation substantially increases the cost and risk of researching, developing, manufacturing and selling products. Our failure to comply with
these regulations could result in, by way of example, significant fines, criminal and civil liability, product seizures, recalls, withdrawals, withdrawals of approvals and
exclusion and debarment from government programs. Any of these actions, including the inability of our hormone therapy drug candidates to obtain and maintain
regulatory approval, would have a materially adverse effect on our business, financial condition, results of operations and prospects.
In addition, the FDA’s policies may change and additional government regulations may be issued that could prevent, limit, or delay regulatory approval of our
drug candidates, or impose more stringent product labeling and post-marketing testing and other requirements.
We intend to launch and market NativusWell® (NLS-2) in Hong Kong. In Hong Kong, natural supplements are defined as “health food” products. “Health
food” containing medicines are subject to the Pharmacy and Poisons Ordinance (Cap 138) and such “health food” containing Chinese medicines are regulated by the
Chinese Medicine Ordinance (Cap 549), where they must meet the requirements in respect of safety, quality and efficacy before they can be registered.
For other “health food” products which cannot be classified as Chinese medicine or western medicine are regulated under the Public Health and Municipal
Services Ordinance (Cap 132) as general food products. The Public Health and Municipal Services Ordinance requires the manufacturers and sellers of food to ensure
that their products are fit for human consumption and comply with the requirements in respect of food safety, food standards and labelling. In addition, all prepackaged
food should bear labels which correctly list out the ingredients of the food under the Food and Drugs (Composition and Labelling) Regulations (Cap 132W) under the
Ordinance.
The NativusWell® (NLS-2) is made with the bioactive ingredient extracted Chinese yam powder and does not contain any western or Chinese medicine;
therefore, registration is not required under the local laws for marketing in Hong Kong. We will, however, ensure the compliance of the Food and Drugs (Composition
and Labelling) Regulations (Cap 132W) with by proper labelling in place.
Risks Related to Our Diagnostics Technology
Our products could in the future be subject to additional regulation by the U.S. Food and Drug Administration or other domestic and international regulatory
agencies, which could increase our costs and delay our commercialization efforts, thereby materially and adversely affecting our business and results of
operations.
The FDA has statutory authority to assure that medical devices and in vitro diagnostics, including those where the RPIDD technology may be utilized, are
safe and effective for their intended uses. Should the RPIDD technology be utilized in U.S. as a Laboratory Developed Test (LDT), the FDA has historically exercised
its enforcement discretion and may not enforce applicable provisions of the FDC Act and regulations with respect to LDTs. We believe the RPIDD may not be subject
to the FDA’s enforcement of its medical device regulations and the applicable FDC Act provisions.
26
However, if and when we utilize the RPIDD technology in the U.S., the FDA may disagree with our assessment that the RPIDD falls within the definition of
an LDT and seek to regulate the RPIDD as medical devices. If the FDA determines that our products are subject to such requirements, we could be subject to
enforcement action, including administrative and judicial sanctions, and additional regulatory controls and submissions for the RPIDD, all of which could be
burdensome.
In the future, certain of our products or related applications could be subject to additional FDA regulation. Even where a product is not subject to FDA
clearance or approval requirements, the FDA may impose restrictions as to the types of customers to which we can market and sell our products. Such regulation and
restrictions may materially and adversely affect our business, financial condition and results of operations. Other regulatory regimes that do not currently present
material challenges but that could in the future subject to regulations include biosecurity should our RPIDD technology be utilized in the U.S.
In addition, many countries have laws and regulations that could affect our products and which could limit our ability to sell our products in those countries.
The number and scope of these requirements are increasing. We may not be able to obtain regulatory approvals in such countries or may incur significant costs in
obtaining or maintaining foreign regulatory approvals. For example, the European Union, or EU, is transitioning from the existing European Directive 98/79/EC on in
vitro diagnostic medical devices, or In Vitro Diagnostic Directive (IVDD), to the In Vitro Diagnostic Device Regulation (EU) 2017/746 (IVDR), which imposes
stricter requirements for the marketing and sale of medical devices, including in the area of clinical evaluation requirements, quality systems and post-market
surveillance. The IVDR is expected to become effective in May 2022. It is likely that we will be impacted by this new regulation, either directly as a manufacturer of
IVDs, or indirectly as a supplier to customers who are placing IVDs in the EU market for clinical or diagnostic use. Complying with the requirements of the IVDR
may require us to incur significant expenditures. Failure to meet these requirements could adversely impact our business in the EU and other regions that tie their
product registrations or chemical regulations to the EU requirements.
Risks Related to Our Industry, Business and Operation
If we do not comply with laws regulating the protection of the environment and health and human safety, our business could be adversely affected.
Our research, development and clinic operations involve the use of hazardous materials, chemicals and various radioactive compounds/radiation and AML
Clinic may create medical waste and radiation. Our R&D Center may maintain quantities of various flammable and toxic chemicals in our facilities that are required
for our research, development and manufacturing activities. We are subject to local laws and regulations governing the use, manufacture, storage, handling and
disposal of these hazardous materials and of medical waste at the jurisdictions where we operate our clinic and research facilities, which are currently limited to Hong
Kong. We believe our procedures for storing, handling and disposing of these materials comply with the relevant guidelines and laws of the jurisdictions in which our
facilities are located. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards mandated by applicable
regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. If an accident occurs, we could be held liable for resulting
damages, which could be substantial. We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing
laboratory procedures, exposure to blood-borne pathogens and the handling of biohazardous materials and medical waste.
Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the
use of these materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic
tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials. Additional federal, state and
local laws and regulations affecting our operations may be adopted in the future. We may incur substantial costs to comply with, and substantial fines or penalties, if
we violate any of these laws or regulations.
27
Our future success depends on our ability to retain our Chief Executive Officer, our scientific and clinical advisors, and other key executives and to attract, retain
and motivate qualified personnel.
We are highly dependent on Ian Huen, our Chief Executive Officer, as well as, other principal members of our management teams, scientific teams as well as
scientific and clinical advisors. Although we have formal employment agreements, which we refer to as appointment letters, with all of our executive officers, these
agreements do not prevent our executives from terminating their employment with us at any time, subject to applicable notice periods. Nevertheless, the loss of the
services of any of these persons could impede the achievement of our research, development and commercialization objectives.
To induce valuable employees to remain at our Company, in addition to salary and cash incentives, we plan to provide share incentive grants that vest over
time. The value to employees of these equity grants that vest over time may be significantly affected by movements in the price of our Class A Ordinary Shares that
are beyond our control, and may at any time be insufficient to counteract more lucrative offers from other companies. Although we have appointment letters with our
key employees, any of our employees could resign at any time, with 1-month to 3-months prior written notice or with payment in lieu of notice.
Recruiting and retaining qualified officers, scientific, clinical, sales and marketing personnel or consultants will also be critical to our success. In addition, we
rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our discovery and preclinical studies development and
commercialization strategy. The loss of the services of our executive officers or other key employees and consultants could impede the achievement of our research,
development and commercialization objectives and seriously harm our ability to successfully implement our business strategy.
Furthermore, replacing executive officers and key employees or consultants may be difficult and may take an extended period of time, because of the limited
number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval of and commercialize drug
and diagnostics technology candidates. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key
personnel or consultants on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel.
We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. Our consultants and advisors
may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to
us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.
We will need to increase the size and capabilities of our organization, and we may experience difficulties in managing our growth.
As of the date of this annual report, we have 26 full-time employees. Of these, 9 are engaged in research and development and laboratory operations, 13 are
engaged in general and administrative functions and 4 are engaged in the clinic operation. As of the date of annual report, 25 of our employees are located in Asia and
1 of our employees is located in Europe. In addition, we have engaged and may continue to engage 56 independent contracted consultants and advisors to assist us
with our operations. As our development and commercialization plans and strategies develop, and as we have transitioned into operating as a public company, we will
need to establish and maintain effective disclosure and financial controls and make changes in our corporate governance practices. We will need to add a significant
number of additional managerial, operational, sales, marketing, financial and other personnel with the appropriate public company experience and technical
knowledge and we may not successfully recruit and maintain such personnel. Future growth will impose significant added responsibilities on members of
management, including:
● identifying, recruiting, integrating, maintaining and motivating additional employees;
● managing our internal development efforts effectively, including clinical, the FDA or other comparable regulatory authority review process for our drug
and diagnostics technology candidates, while complying with our contractual obligations to contractors and others; and
● improving our operational, financial and management controls, reporting systems and procedures.
28
Our future financial performance and our ability to commercialize our drug candidates will depend, in part, on our ability to effectively manage our future
growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount
of time to managing these growth activities.
We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors and consultants for
significant input in selecting and evaluating new products to pursue. These independent organizations, advisors and consultants may not continue to be available to us
on a timely basis when needed, and in such case, we may not have the ability to find qualified replacements. In addition, if we are unable to effectively manage our
outsourced activities, or if the quality or accuracy of the services provided by consultants is compromised for any reason, our clinical trials may be extended, delayed
or terminated, and we may not be able to obtain regulatory approval of our drug candidates or otherwise advance our business. Furthermore, we may not be able to
manage our existing consultants or find other competent outside contractors and consultants on economically reasonable terms, if at all.
If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may not be
able to successfully implement the tasks necessary to further develop and commercialize our drug and diagnostics technology candidates and, accordingly, may not
achieve our research, development and commercialization goals.
We intend to seek additional collaborations, strategic alliances or acquisitions or enter into royalty-seeking or sublicensing arrangements in the future, but we
may not realize the benefits of these arrangements.
We intend to form or seek strategic alliances, create joint ventures or collaborations, acquire complimentary products, IP rights, technology or businesses or
enter into additional licensing arrangements with unrelated parties that we determine may complement or augment our development and commercialization efforts
with respect to our drug and diagnostics technology candidates. Any of these relationships may require us to incur non-recurring and other charges, increase our near
and long-term expenditures, issue securities that dilute our existing shareholders, or disrupt our management and business.
We will face significant competition in seeking appropriate strategic partners and the negotiation process is likely to be time-consuming, costly and complex.
Moreover, we may not be successful in our efforts to establish a strategic partnership or another alternative arrangement for any of our drug and diagnostics
technology candidates because their state of development may be deemed to be too early for collaborative effort and others may not view our drug candidates as
having the requisite potential to demonstrate safety and efficacy. If and when we enter into an agreement with a collaboration partner or sublicensee for development
and commercialization of a drug or diagnostics technology candidate, we can expect to relinquish some or all of the control over the future success of that drug
candidate to the unrelated-party.
Further, even if we enter into a collaboration involving any of our drug and diagnostics technology candidates, the arrangement will be subject to numerous
risks, which may include the following:
● the collaborators will likely have significant discretion in determining the efforts and resources that they will apply to a collaboration;
● the collaborator may ultimately choose not pursue development and commercialization of our drug or diagnostics technology candidates or may elect not
to continue or renew development or commercialization programs, based on clinical trial results, changes in their strategic focus due to the acquisition of
competitive drugs, availability of funding, or other external factors, such as a business combination that diverts resources or creates competing priorities;
29
● the collaborator may delay clinical trials, provide insufficient funding for a clinical trial, stop a clinical trial, abandon a drug or diagnostics technology
candidate, repeat or conduct new clinical trials, or require a new formulation of a drug or diagnostics technology candidate for clinical testing;
● the collaborator could independently develop, or develop with unrelated parties, drugs that compete directly or indirectly with our drugs or drug
candidates;
● the collaborator with marketing and distribution rights to one or more drugs may not commit sufficient resources to their marketing and distribution;
● the collaborator may not properly maintain or defend our IP rights or may use our IP or proprietary information in a way that gives rise to actual or
threatened litigation that could jeopardize or invalidate our IP or proprietary information or expose us to potential liability;
● disputes may arise between us and the collaborator that cause the delay or termination of the research, development or commercialization of our drug and
diagnostics technology candidates, or that result in costly litigation or arbitration that diverts management attention and resources;
● the collaboration may be terminated and, if terminated, may result the Company needing additional capital to pursue further development or
commercialization of the applicable drug and diagnostics technology candidates;
● the collaborator may own or co-own IP covering our drugs that results from our collaborating with them, and in such cases, we would not have the
exclusive right to commercialize such IP;
● the collaboration may result in increased operating expenses or the assumption of indebtedness or contingent liabilities; and
● the collaboration arrangement may result in the loss of key personnel and uncertainties in our ability to maintain key business relationships.
As a result, if we enter into collaboration agreements and strategic partnerships or license our drugs, we may not be able to realize the benefit of such
transactions, which could delay our timelines or otherwise adversely affect our business. Following a strategic transaction or license, we may not achieve the revenue
or specific net income that justifies such transaction. If we are unable to reach agreements with a suitable collaborator on a timely basis, on acceptable terms, or at all,
we may have to curtail the development of a drug or diagnostics technology candidate, reduce or delay its development program or one or more of our other
development programs, delay its 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 fail to enter into collaborations, we may seek to fund and undertake development or commercialization activities on our own, but we may not have
sufficient funds or expertise to undertake the necessary development and commercialization activities. In such a case, we may not be able to further develop our drug
and diagnostics technology candidates or bring them to market and generate product sales revenue, which would harm our business prospects, financial condition and
results of operations.
Our employees, independent contractors, consultants, commercial partners and vendors may engage in misconduct or other improper activities, including non-
compliance with regulatory standards and requirements.
We are exposed to the risk of fraud, misconduct or other illegal activity by our employees, independent contractors, consultants, commercial partners and
vendors. Misconduct by these parties could include intentional, reckless and negligent conduct that fails to: comply with the laws of the FDA and other similar non-
U.S. regulatory authorities; provide true, complete and accurate information to the FDA and other similar non-U.S. regulatory authorities; comply with manufacturing
standards we have established; comply with healthcare fraud and abuse laws in the United States and similar non-U.S. fraudulent misconduct laws; or report financial
information or data accurately or to disclose unauthorized activities to us. If we obtain the FDA approval for any of our drug and diagnostics technology candidates
and begin commercializing those drugs in the United States, our potential exposure under U.S. laws will increase significantly and our costs associated with
compliance with such laws are also likely to increase. These laws may impact, among other things, our current activities with principal investigators of our sponsored
researches and research patients and our use of information obtained in the course of patient recruitment for clinical trials, as well as proposed and future sales,
marketing and education programs. In particular, the promotion, sales and marketing of healthcare items and services, as well as certain business arrangements in the
healthcare industry, are subject to extensive laws designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may
restrict or prohibit a wide range of pricing, discounting, marketing and promotion, structuring and commission(s), certain customer incentive programs and other
business arrangements generally.
30
It is not always possible to identify and deter misconduct by employees and other parties, 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 comply with these laws 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, including the imposition of significant fines or other sanctions.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the
Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and
forms of the SEC.
We believe that any disclosure controls and procedures, or internal controls and procedures, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system are met.
These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the
controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected, which would likely
cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead
to a decline in the trading price of our Class A Ordinary Shares. Additionally, ineffective internal control over financial reporting could expose us to increased risk of
fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal
sanctions. We may also be required to restate our financial statements from prior periods.
If we fail to establish and maintain proper internal financial reporting controls, our ability to produce accurate financial statements or comply with applicable
regulations could be impaired.
Pursuant to Section 404 of the Sarbanes-Oxley Act, we are required to file a report by our management on our internal control over financial reporting,
including an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. However, while we remain an
emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered
public accounting firm. The presence of material weaknesses in internal control over financial reporting could result in financial statement errors which, in turn, could
lead to errors in our financial reports and/or delays in our financial reporting, which could require us to restate our operating results. In connection with the audit of our
financial statements for the year ended December 31, 2018, we and our independent registered public accounting firm identified one material weakness in our internal
control over financial reporting, as defined in the standards established by the Public Company Accounting Oversight Board of the United States. The material
weakness identified was the lack of dedicated resources to take responsibility for the finance and accounting functions and the preparation of financial statements in
compliance with generally accepted accounting principles in the United States, or U.S. GAAP.
31
Since 2019, we took actions to remediate the abovementioned material weakness, and we believe we have remediated the material weakness by implementing
the following measures:
● provide trainings to staff regarding to the preparation of financial statements in compliance with generally accepted accounting principles in the United
States;
● change to a new and well-established accounting system to enhance effectiveness and financial and system control;
● establish clear roles and responsibilities for accounting and financial reporting staff to address finance and accounting issues; and
● continue to monitor the improvement on internal control over financial reporting.
As of December 31, 2021 and 2020, we determined that the aforementioned measures remediated the material weakness. However, since we are still in the
process of replenishing and building up a qualified finance and accounting team with sufficient dedicated resources, our management assessed that the deficiency
related to the lack of dedicated resources to take responsibility for the finance and accounting functions and the preparation of financial statements in compliance with
generally accepted accounting principles in the United States, or U.S. GAAP, still existed as of December 31, 2021. Based on the definition of “material weakness”
and “significant deficiency” in the standards established by the Public Company Accounting Oversight Board of the United States, our management concluded that the
deficiency now only rises to the level of a significant deficiency. However, we cannot assure you that we will not identify additional material weaknesses or significant
deficiencies in the future.
Our management concluded that our internal controls over financial reporting were effective as of December 31, 2021. However, if we fail to maintain
effective internal controls over financial reporting in the future, our management and our independent registered public accounting firm may conclude that our internal
control over financial reporting is not effective. Investors may lose confidence in our operating results, the price of the Class A Ordinary Shares could decline and we
may be subject to litigation or regulatory enforcement actions. In addition, if we are unable to meet the requirements of Section 404 of the Sarbanes-Oxley Act, the
Class A Ordinary Shares may not be able to remain listed on the NASDAQ Global Market.
We may market our products, if approved, globally; if we do, we will be subject to the risk of doing business internationally.
We operate and expect to operate in various countries, and we may not be able to market our products in, or develop new products successfully for, these
markets. We may also encounter other risks of doing business internationally including but not limited to:
● unexpected changes in, or impositions of, legislative or regulatory requirements;
● efforts to develop an international sales, marketing and distribution organization may increase our expenses, divert our management’s attention from the
acquisition or development of drug candidates or cause us to forgo profitable licensing opportunities in these geographies;
● the occurrence of economic weakness, including inflation or political instability;
● the effects of applicable non-U.S. tax structures and potentially adverse tax consequences;
● differences in protection of our IP rights including patent rights of other parties;
● the burden of complying with a variety of foreign laws including difficulties in effective enforcement of contractual provisions;
● delays resulting from difficulty in obtaining export licenses, tariffs and other barriers and restrictions, potentially longer payment cycles, greater
difficulty in accounts receivable collection and potentially adverse tax treatment; and
● production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad.
32
In addition, we are subject to general geopolitical risks in foreign countries where we operate, such as political and economic instability and changes in
diplomatic and trade relationships, which could affect, among other things, customers’ inventory levels and consumer purchasing, which could cause our results to
fluctuate and our net sales to decline. The occurrence of any one or more of these risks of doing business internationally, individually or in the aggregate, could
materially and adversely affect our business and results of operations.
If we engage in future acquisitions or strategic partnerships, this may increase our capital requirements, dilute our shareholders, cause us to incur debt or assume
contingent liabilities, and subject us to other risks.
We may evaluate various acquisitions and strategic partnerships, including licensing or acquiring complementary products, IP rights, technology or
businesses. Any potential acquisition or strategic partnership may entail numerous risks, including, but not limited to:
● increase in operating expenses and cash requirements;
● the assumption of additional indebtedness or contingent liabilities;
● the issuance of our equity securities;
● assimilation of operations, IP and products of an acquired company, including difficulties associated with integrating new personnel;
● the diversion of our management’s attention from our existing product programs and initiatives in pursuing such a strategic merger or acquisition;
● retention of key employees, the loss of key personnel, and uncertainties in our ability to maintain key business relationships;
● risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing drugs or drug and
diagnostics technology candidates and regulatory approvals; and
● our inability to generate revenue from acquired technology and/or products sufficient to meet our objectives in undertaking the acquisition or even to
offset the associated acquisition and maintenance costs.
In addition, if we undertake acquisitions, we may issue dilutive securities, assume or incur debt obligations, incur large one-time expenses and acquire
intangible assets that could result in significant future amortization expense. Moreover, we may not be able to locate suitable acquisition opportunities and this
inability could impair our ability to grow or obtain access to technology or products that may be important to the development of our business.
If we fail to comply with the U.S. Foreign Corrupt Practices Act (“FCPA”), or other anti-bribery laws, including the Bribery Act 2010 of the United Kingdom (UK
Bribery Act”), our reputation may be harmed and we could be subject to penalties and significant expenses that have a material adverse effect on our business,
financial condition and results of operations.
We are subject to the FCPA. The FCPA and UK Bribery Act generally prohibits us from making improper payments to non-U.S. officials for the purpose of
obtaining or retaining business or other benefits. We are also subject to the anti-bribery laws of other jurisdictions, particularly the PRC. As our business expands, the
applicability of the FCPA and other anti-bribery laws to our operations will increase. Our procedures and controls to monitor anti-bribery compliance may fail to
protect us from reckless or criminal acts committed by our employees or agents. If we, due to either our own deliberate or inadvertent acts or those of others, fail to
comply with applicable anti-bribery laws, our reputation could be harmed and we could incur criminal or civil penalties, other sanctions and/or significant expenses,
which could have a material adverse effect on our business, including our financial condition, results of operations, cash flows and prospects.
33
Our business and results of operations may be negatively impacted by the UK’s withdrawal from the EU.
On June 23, 2016, the UK held a referendum in which a majority of voters approved an exit from the EU, or Brexit, and the UK formally left the EU on
January 31, 2020. There was a transition period during which EU pharmaceutical laws continued to apply to the UK, which expired on December 31, 2020. However,
the EU and the UK have concluded a trade and cooperation agreement, or TCA, which was provisionally applicable since January 1, 2021 and has been formally
applicable since May 1, 2021. The TCA includes specific provisions concerning pharmaceuticals, which include the mutual recognition of GMP, inspections of
manufacturing facilities for medicinal products and GMP documents issued, but does not foresee wholesale mutual recognition of UK and EU pharmaceutical
regulations. At present, Great Britain has implemented EU legislation on the marketing, promotion and sale of medicinal products through the Human Medicines
Regulations 2012 (as amended) (under the Northern Ireland Protocol, the EU regulatory framework will continue to apply in Northern Ireland). The regulatory regime
in Great Britain therefore currently aligns in the most part with EU regulations, however it is possible that these regimes will diverge in the future now that Great
Britain’s regulatory system is independent from the EU and the TCA does not provide for mutual recognition of UK and EU pharmaceutical legislation. For example,
the new Clinical Trials Regulation which became effective in the EU on January 31, 2022 and provides for a streamlined clinical trial application and assessment
procedure covering multiple EU Member States has not been implemented into UK law, and a separate application will need to be submitted for clinical trial
authorization in the UK. In addition, as we are headquartered in the UK, it is possible that Brexit may impact some or all of our current operations. For example,
Brexit will impact our ability to freely move employees from our headquarters in the UK to other locations in the EU. Furthermore, if other EU Member States pursue
withdrawal, barrier-free access among the EEA overall could be diminished or eliminated.
The long-term effects of Brexit will depend in part on how the terms of the TCA continue to take effect in practice and the terms of any further agreements
the UK makes with the EU. Such a withdrawal from the EU is unprecedented, and it is unclear how the restrictions on the UK’s access to the European single market
for goods, capital, services and labor, or single market, and the wider commercial, legal and regulatory environment, will impact our future operations (including
business activities conducted by third parties and contract manufacturers on our behalf) and clinical activities in the UK in the long term.
34
If we commence clinical trials of one of our drug or diagnostics technology candidates, and product liability lawsuits are brought against us, we may incur
substantial liabilities and the commercialization of such drug or diagnostics technology candidates may be affected.
If any of our drug or diagnostics technology candidates enter clinical trials, we will face an inherent risk of product liability suits and will face an even greater
risk if we obtain approval to commercialize any drugs. For example, we may be sued if our drug candidates cause or are perceived to cause injury or are found to be
otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing,
defects in design, a failure to warn of dangers inherent in the drug, negligence, strict liability or a breach of warranties. Claims could also be asserted under state
consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit
commercialization of our drug candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual
outcome, liability claims may result in:
● decreased demand for our drugs;
● injury to our reputation;
● withdrawal of clinical trial participants and inability to continue clinical trials;
● initiation of investigations by regulators;
● costs to defend the related litigation;
● a diversion of management’s time and our resources;
● substantial monetary awards to trial participants or patients;
● product recalls, withdrawals or labeling, marketing or promotional restrictions;
● loss of revenue;
● exhaustion of any available insurance and our capital resources;
● the inability to commercialize any drug candidate; and
● a decline in the price of our Class A Ordinary Shares.
We shall seek to obtain the appropriate insurance once our candidates are ready for clinical trial. However, our inability to obtain sufficient product liability
insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of drugs we develop, alone or with
collaborators. We currently do not have in place product liability insurance and although we plan to have in place such insurance as and when the products are ready
for commercialization, as well as insurance covering clinical trials, the amount of such insurance coverage may not be adequate, we may be unable to maintain such
insurance, or we may not be able to obtain additional or replacement insurance at a reasonable cost, if at all. Our insurance policies may also have various exclusions,
and we may be subject to a product liability claim for which we have no coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement
that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Even if
our agreements with any future corporate collaborators entitle us to indemnification against losses, such indemnification may not be available or adequate should any
claim arise.
Additionally, we may be sued if the products that we commercialize, market or sell cause or are perceived to cause injury or are found to be otherwise
unsuitable, and may result in:
● decreased demand for those products;
● damage to our reputation;
● costs incurred related to product recalls;
● limiting our opportunities to enter into future commercial partnership; and
● a decline in the price of our Class A Ordinary Shares.
35
Our insurance coverage may be inadequate to protect us against losses.
We currently maintain property insurance for our office premises (including two units of server and accessories). We hold employer’s liability insurance
generally covering death or work-related injury of employees; we maintain “Office Care Plan Insurance” for those persons working in our offices and “Medical Plan”
for our employee. We hold public liability insurance covering certain incidents involving unrelated parties that occur on or in the premises of the Company. We have
directors and officers liability insurance. We do not have key-man life insurance on any of our senior management or key personnel, or business interruption insurance.
Our insurance coverage may be insufficient to cover any claim for product liability, damage to our fixed assets or employee injuries. If any claims for damage are
brought against us, or if we experience any business disruption, litigation or natural disaster, we might incur substantial costs and diversion of resources.
Fluctuations in exchange rates could result in foreign currency exchange losses
Our operations and equity are funded in U.S. dollars and we currently incur the majority of our expenses in U.S. dollars or in H.K. dollars. H.K. dollar is
currently pegged to the U.S. dollar; however, we cannot guarantee that such peg will continue to be in place in the future. Our exposure to foreign exchange risk
primarily relates to the limited cash denominated in currencies other than the functional currencies of each entity and limited revenue contracts dominated in H.K.
dollars in certain Hong Kong operating entities. We do not believe that we currently have any significant direct foreign exchange risk and have not hedged exposures
denominated in foreign currencies or any other derivative financial instruments.
If we are exposed to foreign currency exchange risk as our results of operations, cash flows maybe subject to fluctuations in foreign currency exchange rates.
For example, if a significant portion of our clinical trial activities may be conducted outside of the United States, and associated costs may be incurred in the local
currency of the country in which the trial is being conducted, which costs could be subject to fluctuations in currency exchange rates. We currently do not engage in
hedging transactions to protect against uncertainty in future exchange rates between particular foreign currencies and the U.S. dollar. A decline in the value of the U.S.
dollar against currencies in countries in which we conduct clinical trials could have a negative impact on our research and development costs. Foreign currency
fluctuations are unpredictable and may adversely affect our financial condition, results of operations and cash flows.
Our investments are subject to risks that could result in losses.
We had unrestricted cash of $8.13 million, $3.50 million and $5.19 million as of December 31, 2021, 2020 and 2019, respectively. We may invest our cash in
a variety of financial instruments. All of these investments are subject to credit, liquidity, market and interest rate risk. Such risks, including the failure or severe
financial distress of the financial institutions that hold our cash, cash equivalents and investments, may result in a loss of liquidity, impairment to our investments,
realization of substantial future losses, or a complete loss of the investments in the long-term, which may have a material adverse effect on our business, results of
operations, liquidity and financial condition. While we believe our cash position does not expose us to excessive risk, future investments may be subject to adverse
changes in market value.
We are exposed to risks associated with our computer hardware, network security and data storage.
Similar to all other computer network users, our computer network system is vulnerable to attack of computer virus, worms, trojan horses, hackers or other
similar computer network disruptive problems. Any failure in safeguarding our computer network system from these disruptive problems may cause breakdown of our
computer network system and leakage of confidential information of the Company. Any failure in the protection of our computer network system from external threat
may disrupt our operation and may damage our reputation for any breach of confidentiality to our customers, which in turn may adversely affect our business
operation and performance. In the event that our confidential information is stolen and misused, we may become exposed to potential risks of losses from litigation
and possible liability.
In addition, we are highly dependent on our IT infrastructure to store research data and information and manage our business operations. We do not backup
all data on a real-time basis and the effectiveness of our business operations may be materially affected by any failure in our IT infrastructure. If our communications
and IT systems do not function properly, or if there is any partial or complete failure of our systems, we could suffer financial losses, business disruption or damage to
our reputation.
36
Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.
Our operations, and those of our research institution collaborators, CROs, suppliers and other contractors and consultants, could be subject to supply chain
disruptions, earthquakes, power shortages, telecommunications failures, damage from computer viruses, material computer system failures, water shortages, floods,
hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or man-made disasters or business interruptions. In addition, we partially
rely on our research institution collaborators for conducting research and development of our drug candidates, and they may be affected by government shutdowns or
withdrawn funding. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and
expenses. We rely on contract manufacturers to produce and process our drug candidates. Our ability to obtain clinical supplies of our drug candidates could be
disrupted if the operations of these suppliers are affected by a man-made or natural disaster or other business interruption. A large portion of our contract
manufacturer’s operations is located in a single facility. Damage or extended periods of interruption to our corporate or our contract manufacturer’s development or
research facilities due to fire, natural disaster, power loss, communications failure, unauthorized entry or other events could cause us to cease or delay development of
some or all of our drug candidates.
Although we do not currently conduct any business in the PRC, we may in the future; in doing so we would be exposed to various risks related to doing business
in the PRC.
Although we currently do not conduct any business in the PRC, we are the exclusive licensee to certain PRC patents directed to our drug candidates, and we
intend to file application for certain products in the PRC. The pharmaceutical industry in the PRC is subject to comprehensive government regulation and supervision,
encompassing the approval, registration, manufacturing, packaging, licensing and marketing of new drugs. (See “Item 4. Information on the Company – B. Business
Overview – Regulations”). In recent years, the regulatory framework in the PRC regarding the pharmaceutical industry has undergone significant changes, and we
expect that it will continue to undergo significant changes. Any such changes or amendments may result in increased compliance costs on our business or cause delays
in or prevent the successful development or commercialization of our drug candidates in the PRC and reduce the current benefits that we believe are available to us
from developing and manufacturing drugs in the PRC. Chinese authorities have become increasingly vigilant in enforcing laws in the pharmaceutical industry and any
failure by us or our partners to maintain compliance with applicable laws and regulations or obtain and maintain required licenses and permits may result in the
suspension or termination of our business activities in the PRC. We believe our strategy and approach is aligned with the PRC government’s policies, but we cannot
ensure that our strategy and approach will continue to be aligned.
If in the future, we commence business or operation in the PRC, changes in the political and economic policies of the PRC government may materially and
adversely affect our business, financial condition and results of operations and may result in our inability to sustain our growth and expansion strategies. Once we start
doing business in the PRC, our financial condition and results of operation in the PRC could be materially and adversely affected by government control over capital
investments or changes in tax regulations that are applicable to us, and consequently have a material adverse effect on our businesses, financial condition and results of
operations.
If the U.S. Public Company Accounting Oversight Board, or the PCAOB, is unable to inspect our auditors as required under the Holding Foreign Companies
Accountable Act, the SEC will prohibit the trading of our Class A Ordinary Shares. A trading prohibition for our Class A Ordinary Shares, or the threat of a
trading prohibition, may materially and adversely affect the value of your investment. Additionally, the inability of the PCAOB to conduct inspections of our
auditors would deprive our investors of the benefits of such inspections.
The U.S. Holding Foreign Companies Accountable Act, or the HFCA Act, was enacted into law on December 18, 2020. Under the HFCA Act, if the SEC
determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive
years (beginning with this annual report on Form 20-F), the SEC will prohibit our securities, including our Class A Ordinary Shares, from being traded on a U.S.
national securities exchange, including NASDAQ, or in the over-the-counter trading market in the U.S. Furthermore, on June 22, 2021, the U.S. Senate passed the
Accelerating Holding Foreign Companies Accountable Act (“HFCAA”), which, if enacted, would amend the HFCA Act and require the SEC to prohibit an issuer’s
securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three, thus reducing the
time period for triggering the prohibition on trading. On September 22, 2021, the PCAOB adopted a final rule implementing the HFCAA, which provides a framework
for the PCAOB to use when determining, as contemplated under the HFCAA, whether the Board is unable to inspect or investigate completely registered public
accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. On November 5, 2021, the SEC approved
the PCAOB’s Rule 6100, Board Determinations Under the Holding Foreign Companies Accountable Act. Rule 6100 provides a framework for the PCAOB to use
when determining, as contemplated under the HFCAA, whether it is unable to inspect or investigate completely registered public accounting firms located in a foreign
jurisdiction because of a position taken by one or more authorities in that jurisdiction. On December 2, 2021, the SEC issued amendments to finalize rules
implementing the submission and disclosure requirements in the HFCAA The rules apply to registrants that the SEC identifies as having filed an annual report with an
audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that PCAOB is unable to inspect or investigate completely
because of a position taken by an authority in foreign jurisdictions. The process for implementing trading prohibitions pursuant to the HFCA Acts will be based on a
list of registered public accounting firms that the PCAOB has been unable to inspect and investigate completely as a result of a position taken by a non-U.S.
government, or the Relevant Jurisdiction, and such identified auditors, the PCAOB Identified Firms. The first list of PCAOB Identified Firms was included in a
release by the PCAOB on December 16, 2021, or the PCAOB December 2021 Release. The SEC will review annual reports filed with it for fiscal years beginning
after December 18, 2020 to determine if the auditor used for such reports was so identified by the PCAOB, and such issuers will be designated as “Commission
Identified Issuers” on a list to be published by the SEC. If an issuer is a Commission Identified Issuer for three consecutive years (which will be determined after the
third such annual report), the SEC will issue a trading order that will implement prohibitions described above.
37
Our current independent accounting firm, Marcum Bernstein & Pinchuk LLP, whose audit report is included in this annual report on Form 20-F, is
headquartered in Manhattan, New York, and was not included in the list of PCAOB Identified Firms in the PCAOB December Release. Our ability to retain an auditor
subject to PCAOB inspection and investigation, including but not limited to inspection of the audit working papers related to us, may depend on the relevant positions
of U.S. and Chinese regulators. Marcum Bernstein & Pinchuk LLP’s audit working papers related to us are located in China. With respect to audits of companies with
operations in China, such as the Company, there are uncertainties about the ability of our auditor to fully cooperate with a request by the PCAOB for audit working
papers in China without the approval of Chinese authorities. If in the future Marcum Bernstein & Pinchuk LLP is included in the list of PCAOB Identified Firms and
we are unable to retain a PCAOB-registered auditor subject to PCAOB inspection and investigation, a trading prohibition for our Class A Ordinary Shares could be
issued shortly after our filing of the second consecutive annual report on Form 20-F for which we have retained a PCAOB Identified Firm.
If our Class A Ordinary Shares are subject to a trading prohibition under the HFCA Act, the price of our Class A Ordinary Shares may be adversely affected,
and the threat of such a trading prohibition would also adversely affect their price. If we are unable to be listed on another securities exchange that provides sufficient
liquidity, such a trading prohibition may substantially impair your ability to sell or purchase our Class A Ordinary Shares when you wish to do so. Furthermore, if we
are able to maintain a listing of our Class A Ordinary Shares on a non-U.S. exchange, investors owning our Class A Ordinary Shares may have to take additional steps
to engage in transactions on that exchange, including establishing non-U.S. brokerage accounts.
The HFCA Act also imposes additional certification and disclosure requirements for Commission Identified Issuers, and these requirements apply to issuers
in the year following their listing as Commission Identified Issuers. The additional requirements include a certification that the issuer is not owned or controlled by a
governmental entity in the Relevant Jurisdiction, and the additional requirements for annual reports include disclosure that the issuer’s financials were audited by a
firm not subject to PCAOB inspection, disclosure on governmental entities in the Relevant Jurisdiction’s ownership in and controlling financial interest in the issuer,
the names of Chinese Communist Party, or CCP, members on the board of the issuer or its operating entities, and whether the issuer’s article’s include a charter of the
CCP, including the text of such charter.
In addition to the issues under the HFCA discussed above, the PCAOB’s inability to conduct inspections in China and Hong Kong prevents it from fully
evaluating the audits and quality control procedures of the independent registered public accounting firm, consequently, investors would be deprived of the benefits of
such PCAOB inspections. Our current independent registered public accounting firm, Marcum Bernstein & Pinchuk LLP, is headquartered in Manhattan, New York,
and has been inspected by the PCAOB on a regular basis with the last inspection in 2020. However, in the event it is later determined that the PCAOB is unable to
inspect or investigate completely our auditor because of a position taken by an authority in a foreign jurisdiction, then such lack of inspection could cause trading in
our securities to be prohibited under the HFCA Act, and ultimately result in a determination by a securities exchange to delist our Class A Ordinary Shares.
The SEC could take the position that we are an “investment company” subject to the extensive requirements of the Investment Company Act of 1940. Such a
characterization and the associated compliance requirements could have a material adverse effect on our business, financial condition, and results of operations.
Our business had historically included passive healthcare related investments in early stage companies primarily in the United States. Although we are in the
process of liquidating those securities that remain in our portfolio, we still hold some such investments and these are included as assets of our Company on a
consolidated basis. As part of the Restructure, we resolved to exit such portfolio investments over an appropriate timeframe and focus our resources on our current
business. Since the date of the Restructure, we have not held ourselves out as an investment company and we do not believe we are an “investment company” under
the Investment Company Act of 1940. If the SEC or a court, however, were to disagree with us, we could be required to register as an investment company. This
would subject us to disclosure and accounting rules geared toward investment companies, rather than operating companies, which may limit our ability to borrow
money, issue options, issue multiple classes of stock and debt, and engage in transactions with affiliates, and may require us to undertake significant costs and
expenses to meet the disclosure and regulatory requirements to which we would be subject as a registered investment company.
If we are classified as a passive foreign investment company for U.S. federal income tax purposes, United States holders of our Class A Ordinary Shares may be
subject to adverse United States federal income tax consequences.
A non-U.S. corporation will be a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes, for such year, if either
● At least 75% of its gross income for such year is passive income; or
● The average percentage of our assets (determined at the end of each quarter) during such year which produce passive income or which are held for the
production of passive income is at least 50%.
Passive income generally includes dividends, interests, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business)
and gains from the disposition of passive assets.
A separate determination must be made after the close of each taxable year as to whether a non-U.S. corporation is a PFIC for that year. For purposes of the
PFIC analysis, in general, a non-U.S. corporation is deemed to own its pro rata share of the gross income and assets of any entity in which it is considered to own at
least 25% of the equity by value. Based on the current and anticipated value of our assets, we believe we were a PFIC for U.S. federal income tax purposes for our
taxable year ending December 31, 2021, and we may be a PFIC for U.S. federal income tax purposes for our current taxable year ending December 31, 2022.
38
In determining whether we are a PFIC, cash and investments are considered by the U.S. Internal Revenue Service (“IRS”) to be a passive asset. During our
taxable year ending December 31, 2021, we believe that the amount of restricted and unrestricted cash we had on hand and investments were greater than 50% of our
total assets. The composition of our assets during the current taxable year may cause us to continue to be classified as a PFIC. The determination of whether we will be
a PFIC for our current taxable year or a future year may depend in part upon how quickly we spend our liquid assets, and on the value of our goodwill and other
unbooked intangibles not reflected on our balance sheet, which may depend upon the market value of our Class A Ordinary Shares from time to time. Further, while
we will endeavor to use a classification methodology and valuation approach that is reasonable, the IRS may challenge our classification or valuation of our goodwill
and other unbooked intangibles for purposes of determining whether we are a PFIC in the current or one or more future taxable years.
If we are a PFIC for any taxable year during which a U.S. Holder owns our Class A Ordinary Shares or warrants, certain adverse U.S. federal income tax
consequences could apply to such U.S. Holder. As discussed under “Taxation – Material U.S. Federal Income Tax Considerations for U.S. Holders – Passive Foreign
Investment Company Rules”, a U.S. Holder may be able to make certain tax elections that would lessen the adverse impact of PFIC status; however, in order to make
such elections the U.S. holder will usually have to have been provided information about the company by us, and there is no assurance that the company will provide
such information.
For a more detailed discussion of the application of the PFIC rules to us and the consequences to U.S. holders if we were determined to be a PFIC. (See “Item
10. Additional Information – E. Taxation – Material U.S. Federal Income Tax Considerations for U.S. Holders – Passive Foreign Investment Company Rules”)
Our results of operation may be negatively affected should the 2019-nCov virus (Coronavirus) continue to spread on a wider scale.
Our business could be adversely affected by the effects of a widespread outbreak of contagious disease, including the outbreak of respiratory illness caused
by a novel coronavirus. Any outbreak of contagious diseases, and other adverse public health developments, particularly in China, could have a material and adverse
effect on our business operations. These could include disruptions or restrictions on our ability to travel or to distribute our products, as well as temporary closures of
our facilities or the facilities of our suppliers or customers.
The COVID-19 pandemic continues to rapidly evolve. The extent to which the outbreak impacts our business, preclinical studies and clinical trials will
depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the
duration of the pandemic, travel restrictions and social distancing in various countries, business closures or business disruptions and the effectiveness of actions taken
to contain and treat the disease. If we or any of the third parties with whom we engage were to experience shutdowns, undergo the compulsory universal testing by the
HKSAR Government or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and
negatively impacted.
In addition, the trading prices for our Class A Ordinary Shares and other biopharmaceutical companies have been highly volatile as a result of the COVID-19
pandemic. As a result, we may face difficulties raising capital through sales of our securities or such sales may be on unfavorable terms.
The outbreak of the novel coronavirus disease, COVID-19, or other pandemic, epidemic or outbreak of an infectious disease may materially and adversely impact
our preclinical studies and clinical trials.
As a result of the COVID-19 outbreak, or similar pandemics, we have and may in the future experience disruptions that could materially and adversely
impact our manufacturing, preclinical development activities, preclinical studies and planned clinical trial. Potential disruptions include but are not limited to:
● delays or difficulties in enrolling patients in our clinical trials, should the relevant clinical trials be approved;
● delays or difficulties in initiating or expanding clinical trials, including delays or difficulties with clinical site initiation and recruiting clinical site
investigators and clinical site staff;
● increased rates of patients withdrawing from our clinical trials following enrollment as a result of contracting COVID-19 or other health conditions or
being forced to quarantine;
● diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and
hospital staff supporting the conduct of our clinical trials;
● interruption of key clinical trial activities, such as clinical trial site data monitoring, due to limitations on travel imposed or recommended by
governments, employers and others or interruption of clinical trial subject visits and study procedures, which may impact the integrity of subject data and
clinical study endpoints;
● interruption or delays in the operations of the FDA or other regulatory authorities, which may impact review and approval timelines for regulatory
submission and trial initiation;
39
● interruption or delays in our CROs and collaborators meeting expected deadlines or complying with regulatory requirements related to preclinical
development activities, preclinical studies and planned clinical trials;
● delays or disruptions in preclinical experiments and investigational new drug application-enabling or clinical trial application-enabling studies due to
restrictions of on-site staff and unforeseen circumstances at contract research organizations and vendors;
● interruption of, or delays in receiving, supplies of our product candidates from our contract manufacturing organizations due to staffing shortages,
production slowdowns or stoppages and disruptions in delivery systems;
● limitations on our ability to recruit and hire key personnel due to our inability to meet with candidates because of travel restrictions and “shelter in place”
orders;
● limitations on employee resources that would otherwise be focused on the conduct of our preclinical studies and clinical trials, including because of
sickness of employees or their families or the desire of employees to avoid contact with large groups of people; and
● interruption or delays to our sourced discovery and clinical activities.
Risks Related to Our Corporate Structure
Our CEO has control over key decision making as a result of his control of a majority of our voting shares.
Our Founder, CEO, and our Executive Director, Mr. Ian Huen, and his affiliates, over which he is deemed to have control and/or have substantial influence,
has voting rights with respect to an aggregate of 20,464,543 ordinary shares, on an as converted basis (4,403,074 Class A Ordinary Shares and 16,061,469 Class B
Ordinary Shares), representing approximately 69% of the voting power of our outstanding ordinary shares as of the date hereof. As a result, Mr. Huen has the ability to
control the outcome of matters submitted to our shareholders for approval, including the election of directors and any merger, consolidation, or sale of all or
substantially all of our assets. In addition, Mr. Huen has the ability to control the management and affairs of our company as a result of his position as our CEO and his
ability to control the election of our directors. Additionally, in the event that Mr. Huen controls our company at the time of his death, control may be transferred to a
person or entity that he designates as his successor. As a board member and officer, Mr. Huen owes a fiduciary duty to our shareholders and must act in good faith in a
manner he reasonably believes to be in the best interests of our shareholders. As a shareholder, even a controlling shareholder, Mr. Huen is entitled to vote his shares,
and shares over which he has voting control as a result of voting agreements, in his own interests, which may not always be in the interests of our shareholders
generally.
As a “controlled company” under the rules of the NASDAQ Global Market, we may choose to exempt our company from certain corporate governance
requirements that could have an adverse effect on our public shareholders.
Our directors and officers beneficially own a majority of the voting power of our outstanding Class A Ordinary Shares. Under the Rule 4350(c) of the
NASDAQ Global Market, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and
may elect not to comply with certain corporate governance requirements, including the requirement that a majority of our directors be independent, as defined in the
NASDAQ Global Market Rules, and the requirement that our compensation and nominating and corporate governance committees consist entirely of independent
directors. Although we do not intend to rely on the “controlled company” exemption under the Nasdaq listing rules, we could elect to rely on this exemption in the
future. If we elect to rely on the “controlled company” exemption, a majority of the members of our board of directors might not be independent directors and our
nominating and corporate governance and compensation committees might not consist entirely of independent directors. Accordingly, during any time while we
remain a controlled company relying on the exemption and during any transition period following a time when we are no longer a controlled company, you would not
have the same protections afforded to shareholders of companies that are subject to all of the NASDAQ Global Market corporate governance requirements. Our status
as a controlled company could cause our Class A Ordinary Share to look less attractive to certain investors or otherwise harm our trading price.
40
Risks Related to our Securities
Class A Ordinary Shares eligible for future sale may adversely affect the market price of our Class A Ordinary Shares if the shares are successfully listed on
NASDAQ or other stock markets, as the future sale of a substantial amount of outstanding Class A Ordinary Shares in the public marketplace could reduce the
price of our Class A Ordinary Shares.
The market price of our Class A Ordinary Shares could decline as a result of sales of substantial amounts of our Class A Ordinary Shares in the public
market, or the perception that these sales could occur. In addition, these factors could make it more difficult for us to raise funds through future offerings of our Class
A Ordinary Shares. An aggregate of 13,260,446 Class A Ordinary Shares are outstanding as of the date of this annual report. 8,657,445 of the Class A Ordinary Shares
are freely transferable without restriction or further registration under the Securities Act. The remaining Class A Ordinary Shares will be “restricted securities” as
defined in Rule 144. These Class A Ordinary Shares may be sold without registration under the Securities Act to the extent permitted by Rule 144 or other exemptions
under the Securities Act.
A sale or perceived sale of a substantial number of our Ordinary Shares may cause the price of our Class A Ordinary Shares to decline.
If our shareholders sell substantial amounts of our Class A Ordinary Shares in the public market, the market price of our Class A Ordinary Shares could fall.
Moreover, the perceived risk of this potential dilution could cause shareholders to attempt to sell their shares and investors to short our Class A Ordinary Shares. These
sales also may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
Issuances by us of additional securities, could affect ownership and voting rights over us. In addition, the issuance of preferred shares, or options or warrants to
purchase those preferred shares, could negatively impact the value of the Ordinary Shares as the result of preferential dividend rights, conversion rights,
redemption rights and liquidation provisions granted to the stockholders of such preferred shares.
From time to time, we may issue in public or private sales additional securities to third party investors. Such securities may provide holders with ownership
and voting rights that could provide the holders thereof with substantial influence over our business. Any preferred shares that may be issued shall have such rights,
preferences, privileges and restrictions as may be designated from time-to-time by our board, including preferential dividend rights, voting rights, conversion rights,
redemption rights and liquidation provisions. There cannot be any assurance that we will not issue preferred securities with rights and preferences that are more
beneficial than those provided to our Ordinary Shares.
We have not paid dividends in the past and do not expect to pay dividends in the future, and any return on investment may be limited to the value of our shares.
We have never paid any cash dividends on our Class A Ordinary Shares and do not anticipate paying any cash dividends on our Class A Ordinary Shares in
the foreseeable future, and any return on investment may be limited to the value of our Class A Ordinary Shares. We plan to retain any future earnings to finance
growth.
Our dividend policy is subject to the discretion of our Board of Directors and will depend on, among other things, our earnings, financial condition, capital
requirements and other factors. There is no assurance that our Board of Directors will declare dividends even if we are profitable. Under Cayman Islands law,
dividends may be declared and paid only out of funds legally available therefor, namely out of either profit or our share premium account, and provided further that a
dividend may not be paid if this would result in our Company being unable to pay its debts as they fall due in the ordinary course of business and the realizable value
of assets of our Company will not be less than the sum of our total liabilities, other than deferred taxes as shown on our books of account, and our capital.
Our Class B Ordinary Shares have greater voting power than our Class A Ordinary Shares and certain existing shareholders have substantial influence over our
Company and their interests may not be aligned with the interests of our other shareholders.
We have a dual-class voting structure consisting of Class A Ordinary Shares and Class B Ordinary Shares. Under this structure, holders of Class A Ordinary
Shares are entitled to one vote per share, and holders of Class B Ordinary Shares are entitled to ten votes per share, which can cause the holders of Class B Ordinary
Shares to have an unbalanced, higher concentration of voting power. Our management team as a group beneficially owns over 18 million Class B Ordinary Shares
representing approximately 77% voting power. As a result, until such time as their collective voting power is below 50%, our management team as a group of
controlling shareholders have substantial influence over our business, including decisions regarding mergers, consolidations and the sale of all or substantially all of
our assets, election of directors and other significant corporate actions. They may take actions that are not in the best interests of us or our other shareholders. These
corporate actions may be taken even if they are opposed by our other shareholders. Further, concentration of ownership of our Class B Ordinary Shares may
discourage, prevent or delay the consummation of change of control transactions that shareholders may consider favorable, including transactions in which
shareholders might otherwise receive a premium for their shares. Future issuances of Class B Ordinary Shares may also be dilutive to the holders of Class A Ordinary
Shares. As a result, the market price of our Class A Ordinary Shares could be adversely affected.
41
Shareholders who hold shares of Class B Ordinary Shares, including our executive officers and their affiliates, hold approximately 94% of the voting power
of our outstanding ordinary shares. Because of the ten-to-one voting ratio between our Class B and Class A Ordinary Shares, the holders of our Class B Ordinary
Shares will collectively continue to control a majority of the combined voting power of our Ordinary Shares and therefore be able to control all matters submitted to
our shareholders for approval, so long as the Class B Ordinary Shares represent at least 9.1% of all outstanding shares of our Ordinary Shares.
Raising additional capital may cause dilution to our shareholders, restrict our operations or require us to relinquish rights to our technology or drug and
diagnostics technology candidates.
We may seek additional funding through a combination of equity offerings, debt financings, collaborations, licensing arrangements, strategic alliances and
marketing or distribution arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest
will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a holder of our Class A Ordinary Shares. The incurrence
of additional indebtedness or the issuance of certain equity securities could result in increased fixed payment obligations, and could also result in certain additional
restrictive covenants, such as limitations on our ability to incur additional debt or issue additional equity, limitations on our ability to acquire or license IP rights and
other operating restrictions that could adversely impact our ability to conduct our business. In addition, issuance of additional equity securities, or the possibility of
such issuance, may cause the market price of our Class A Ordinary Shares to decline. In the event that we enter into collaborations or licensing arrangements to raise
capital, we may be required to accept unfavorable terms, including relinquishing or licensing to another party on unfavorable terms our rights to technology or drug
and diagnostics technology candidates that we otherwise would seek to develop or commercialize ourselves or potentially reserve for future potential arrangements
when we might be able to achieve more favorable terms.
Since we are a Cayman Islands exempted company, the rights of our shareholders may be more limited than those of shareholders of a company organized in the
United States.
Our corporate affairs are governed by our Second Amended and Restated Memorandum and Articles of Association (as may be amended from time to time)
(“Memorandum and Articles”), the Companies Law (2018 Revision) of the Cayman Islands (the “Companies Law”) and the common law of the Cayman Islands. The
rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors are to a large extent
governed by the common law of the Cayman Islands. This common law is derived in part from comparatively limited judicial precedent in the Cayman Islands as well
as from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. Under the laws of some jurisdictions in the United
States, majority and controlling shareholders generally have certain fiduciary responsibilities to the minority shareholders. Shareholder action must be taken in good
faith, and actions by controlling shareholders which are obviously unreasonable may be declared null and void. Cayman Islands law protecting the interests of
minority shareholders may not be as protective in all circumstances as the law protecting minority shareholders in some U.S. jurisdictions. In addition, the
circumstances in which a shareholder of a Cayman Islands company may sue the company derivatively, and the procedures and defenses that may be available to the
company, may result in the rights of shareholders of a Cayman Islands company being more limited than those of shareholders of a company organized in the United
States. Accordingly, shareholders may have fewer alternatives available to them if they believe that corporate wrongdoing has occurred. The Cayman Islands courts
are also unlikely to recognize or enforce judgments from U.S. courts based on certain liability provisions of U.S. securities laws that are penal in nature. There is no
statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of the Cayman Islands will generally recognize and
enforce non-penal judgment of a foreign court of competent jurisdiction for a liquidated sum without retrial on its merits which is not obtained in a manner contrary to
public policy in the Cayman Islands and in respect of which there are no concurrent proceedings in the Cayman Islands. This means, even if shareholders were to sue
us successfully, they may not be able to recover anything to make up for the losses suffered.
42
Furthermore, our directors have the power to take certain actions without shareholder approval which would require shareholder approval under the laws of
most U.S. jurisdictions. For example, the directors of a Cayman Islands company, without shareholder approval, may implement a sale of any assets, property, part of
the business, or securities of the Company.
While Cayman Islands law allows a dissenting shareholder to express the shareholder’s view that a court sanctioned reorganization of a Cayman Islands
company would not provide fair value for the shareholder’s shares, Cayman Islands statutory law does not specifically provide for shareholder appraisal rights on a
merger or consolidation of a company. This may make it more difficult for you to assess the value of any consideration you may receive in a merger or consolidation
or to require that the acquirer gives you additional consideration if you believe the consideration offered is insufficient. However, Cayman Islands’ statutory law does
provide a mechanism for a dissenting shareholder in a merger or consolidation to apply to the Grand Court for a determination of the fair value of the dissenter’s
shares, if it is not possible for the Company and the dissenter to agree a fair price within the time limits prescribed.
Shareholders of Cayman Islands exempted companies, such as our Company, have no general rights under Cayman Islands’ law to inspect corporate records
and accounts or to obtain copies of lists of shareholders. Our directors have discretion under our Memorandum and Articles to determine whether or not, and under
what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more
difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection
with a proxy contest.
Lastly, under the law of the Cayman Islands, there is little statutory law for the protection of minority shareholders. The principal protection under statutory
law is that shareholders may bring an action to enforce the constituent documents of the corporation, our Memorandum and Articles. Shareholders are entitled to have
the affairs of the company conducted in accordance with the general law and the memorandum and articles of association.
There are common law rights for the protection of shareholders that may be invoked, largely dependent on English company law, since the common law of
the Cayman Islands for business companies is limited. Under the general rule pursuant to English company law known as the rule in Foss v. Harbottle, a court will
generally refuse to interfere with the management of a company at the insistence of a minority of its shareholders who express dissatisfaction with the conduct of the
company’s affairs by the majority or the board of directors. However, every shareholder is entitled to have the affairs of the company conducted properly according to
law and the constituent documents of the company. As such, if those who control the company have persistently disregarded the requirements of company law or the
provisions of the company’s memorandum and articles of association, then the courts will grant relief. Generally, the areas in which the courts will intervene are the
following: (1) an act complained of which is outside the scope of the authorized business or is illegal or not capable of ratification by the majority; (2) acts that
constitute fraud on the minority where the wrongdoers control the company; (3) acts that infringe on the personal rights of the shareholders, such as the right to vote;
and (4) where the company has not complied with provisions requiring approval of a special or extraordinary majority of shareholders, which are more limited than the
rights afforded minority shareholders under the laws of many states in the United States subject to limited exceptions, under Cayman Islands Law a minority
shareholder may not bring a derivative action against directors. Our Cayman Islands’ counsel has advised us that they are aware of one recent as yet unreported
derivative action having been brought in a Cayman Islands’ court. Class actions are not recognized in the Cayman Islands, but groups of shareholders with identical
interests may bring representative proceedings, which are similar.
As a result, you may be limited in your ability to protect your interests if you are harmed in a manner that would otherwise enable you to sue in a United
States federal court. In addition, shareholders of Cayman Islands companies may not have standing to initiate a shareholder derivative action in U.S. federal courts.
43
As a result of all of the above, shareholders of our Company may have more difficulty in protecting their interests in the face of actions taken by
management, members of the board of directors or controlling shareholders than they would have as shareholders of a public U.S. company.
You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited because we are
incorporated under Cayman Islands law, we currently conduct substantially all of our operations outside the United States and some of our directors and
executive officers reside outside the United States.
We are incorporated in the Cayman Islands and currently conduct substantially all of our operations outside the United States through our subsidiaries. Some
of our directors and executive officers reside outside the United States and a substantial portion of their assets are located outside of the United States. As a result, it
may be difficult or impossible for you to bring an action against us or against these individuals in the Cayman Islands, the United Kingdom or in Hong Kong, in the
event that you believe that your rights have been infringed under the securities laws of the United States or otherwise. Even if you are successful in bringing an action
of this kind, the laws of the Cayman Islands, the United Kingdom and Hong Kong may render you unable to enforce a judgment against our assets or the assets of our
directors and officers. There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, the United Kingdom or Hong Kong,
although the courts of the Cayman Islands will generally recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the
merits if such judgment is final, for a liquidated sum, not in the nature of taxes, a fine or penalty, is not inconsistent with a Cayman Islands’ judgment in respect of the
same matters, and was not obtained in a manner which is contrary to public policy. In addition, a Cayman Islands court may stay proceedings if concurrent
proceedings are being brought elsewhere.
As a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the
NASDAQ Global Market corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied
fully with corporate governance listing standards.
As a foreign private issuer, we are permitted to take advantage of certain provisions in the NASDAQ Global Market listing rules that allow us to follow
Cayman Islands law for certain governance matters. Certain corporate governance practices in the Cayman Islands may differ significantly from corporate governance
listing standards as, except for general fiduciary duties and duties of care, Cayman Islands law has no corporate governance regime which prescribes specific corporate
governance standards. We may follow Cayman Islands corporate governance practices in lieu of the corporate governance requirements of the Nasdaq Global Market
in respect of the following. For instance, Cayman law does not require that we obtain shareholder approval to issue 20% or more of our outstanding Ordinary Shares in
a private offering nor we make our interim results available to shareholders, although as a NASDAQ listed company we are required to publicly file interim results for
the first six months of our fiscal year. Therefore, our shareholders may be afforded less protection than they otherwise would have under corporate governance listing
standards applicable to U.S. domestic issuers.
We are an emerging growth company within the meaning of the Securities Act and will take advantage of certain reduced reporting requirements.
We are an “emerging growth company,” as defined in the JOBS Act and take advantage of certain exemptions from various requirements applicable to other
public companies that are not emerging growth companies including, most significantly, not being required to comply with the auditor attestation requirements of
Section 404 of the Sarbanes-Oxley Act for so long as we are an emerging growth company. As a result, if we elect not to comply with such auditor attestation
requirements, our investors may not have access to certain information they may deem important.
The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such
date that a private company is otherwise required to comply with such new or revised accounting standards. The Company has elected to use the extended transition
period for complying with new or revised accounting standard under Section 102(b)(2) of the Jobs Act, that allows the Company to delay the adoption of new or
revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies.
44
Item 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
Aptorum was incorporated under the laws of the Cayman Islands on September 13, 2010. Our share capital is $100,000,000.00 divided into 60,000,000 Class
A Ordinary Shares with a nominal or par value of $1.00 each and 40,000,000 Class B Ordinary Shares with a nominal or par value of $1.00 each.
APTUS CAPITAL LIMITED, which has since been renamed to AENEAS CAPITAL LIMITED, was always under the direct ownership of Jurchen and not
under the ownership chain of Aptorum Group. However, Aptus Asia Financial Holdings Limited (“AAFH”), which has since been renamed to Aeneas Group Limited,
was transferred out of the Aptorum Group on November 10, 2017 to be held directly by Jurchen Investment Corporation and that subsequently, APTUS CAPITAL
LIMITED was then transferred to be under AAFH.
On May 4, 2017, Mr. Huen transferred all of the ordinary shares in the Company he owned (in the amount of 22,307,596) to Jurchen, a company incorporated
in the British Virgin Islands and wholly-owned by Mr. Huen. On October 13, 2017, as part of the Conversions (as defined below) the ordinary shares held by Jurchen
were redesignated as 2,230,760 Class A Ordinary Shares and 20,076,836 Class B Ordinary Shares.
On February 21 and March 1, 2017, the Company’s board of directors and shareholders resolved to restructure the Company from an investment fund with
management shares and non-voting participating redeemable preference shares to a holding company with operating subsidiaries, respectively (the “Restructuring
Plan”).
According to the Restructuring Plan, the 256,571.12 issued participating shares with par value of $0.01 (“Participating Shares”) were redeemed and
4,743,418.88 unissued Participating Shares were cancelled; following such redemption and cancellation, we no longer have any Participating Shares authorized or
issued. Additionally, the Company authorized a class of securities consisting of 100,000,000 ordinary shares, par value $1.00 per share and issued 25,657,110 ordinary
shares to our original investors.
During the period March 1, 2017 through October 13, 2017, an aggregate of 2,207,025 ordinary shares were issued at a price of approximately $3.90 per
share in a private placement we described as a “Series A” offering. Each investor of the Series A offering, in addition to a subscription agreement, signed a
shareholder agreement, which set forth the basic governance terms of the Company, as well as our capital structure. The shareholders agreement was terminated in
October 2017.
On October 13, 2017, ordinary resolutions were passed at an extraordinary general meeting of the Company approving (the “Conversions”): (i) converting
72,135,865 of authorized but unissued ordinary shares into 54,573,620 authorized but unissued Class A Ordinary Shares, par value of $1.00 per share and 17,562,245
authorized but unissued Class B Ordinary Shares, par value of $1.00 per share, respectively; (ii) converting 24,930,839 ordinary shares held by three shareholders into
an aggregate of 2,493,085 Class A Ordinary Shares and 22,437,754 Class B Ordinary Shares; and (iii) converting 2,933,296 ordinary shares held by 24 shareholders
into an aggregate 2,933,296 Class A Ordinary Shares. Following these issuances, we had 27 shareholders of record.
On October 19, 2017, we changed our name from APTUS Holdings Limited to our current name, Aptorum Group Limited.
On March 23, 2018, Jurchen transferred 446,152 Class A Ordinary Shares and 4,015,367 Class B Ordinary Shares to CGY Investments Limited, a company
incorporated in Hong Kong and which we deem Mr. Darren Lui jointly controls and/or of which he has substantial influence on the disposition rights and voting rights
of such shares. Following this transfer, Jurchen owns approximately 33% and 72% of our Class A Ordinary Shares and Class B Ordinary Shares, respectively.
45
On December 17, 2018, the Company consummated its IPO of 761,419 Class A Ordinary Shares. The Registration Statement was declared effective by the
U.S. Securities and Exchange Commission on December 3, 2018 (the “Effective Date”). The shares were sold at a price of $15.80 per share, generating gross proceeds
to the Company of approximately $12,030,420.
On February 28, 2020, the Company consummated a Registered Direct Offering of 1,351,350 Class A Ordinary Shares and warrants to purchase up to
1,351,350 Class A Ordinary Shares. The shares were sold at a price of $7.40 per share, generating gross proceeds to the Company of approximately $10 million. The
warrants will be exercisable immediately following the date of issuance for a period of seven years at an initial exercise price of $7.40.
On October 2, 2020, the Group completed a public offering, issuing 2,769,231 Class A Ordinary Shares and warrants to purchase an aggregate of 2,769,231
Class A Ordinary Shares, for gross proceeds of approximately $9 million. The warrants have an exercise price of $3.25 per Class A Ordinary Share, are exercisable
upon issuance and will expire five years from the date of issuance.
On March 26, 2021, the Company entered into an at the market offering agreement (the “Sales Agreement”), with H.C. Wainwright & Co., LLC, acting as
our sales agent (the “Sales Agent”), relating to the sale of our Class A Ordinary Shares, offered pursuant to the prospectus supplement and the accompanying
prospectus to the registration statement on Form F-3 (File No. 333-235819) (such offering, the “ATM Offering”, or “At The Market Offering”). In accordance with the
terms of the Sales Agreement, we may offer and sell shares of our Class A Ordinary Shares having an aggregate offering price of up to $15,000,000 from time to time
through the Sales Agent under such prospectus supplement and the accompanying prospectus. As of the date of this annual report, we have not yet issued any Class A
Ordinary Shares pursuant to the ATM Offering.
On May 26, 2021, the Company entered into a private placement shares purchase agreement with Jurchen, issuing 1,387,925 Class A Ordinary Shares at
$2.882 per share, representing a 10% premium to the last closing price of the Company’s Class A Ordinary Shares on the NASDAQ stock exchange on that date. The
Company received aggregate gross proceeds of $4,000,000 from the purchase of these shares. Following the purchase, Mr. Huen’s total shareholding represented
55.52% of the total issued share capital of the Company.
Over the past three years, we have invested approximately $1.2 million towards our principal capital expenditures, which include laboratory equipment,
premises, leasehold improvements, and medical and other equipment.
46
The following diagram illustrates our corporate structure as of the date of this annual report:
Note: Both Mios Pharmaceuticals Limited (“Mios”) and Scipio Life Sciences Limited (“Scipio”) issued Class A and Class B ordinary shares to various parties; for
each such entity, each Class A ordinary share is entitled to 1 vote and 1 share of economic interest of the respective company, while each Class B ordinary share is
entitled to 10 votes and 0.001 share of economic interest of the respective company. As of the date of this annual report, we hold 97.93% economic interest and
36.17% voting power in Mios, and 97.93% economic interest and 35.06% voting power in Scipio.
Emerging Growth Company Status
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”), and we are eligible to take advantage of
certain exemptions from various reporting and financial disclosure requirements that are applicable to other public companies, that are not emerging growth
companies, including, but not limited to, (1) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, (2)
reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and (3) exemptions from the requirements of holding a
non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We intend to take
advantage of these exemptions.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in
Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. As a result, an emerging growth company can delay the adoption of
certain accounting standards until those standards would otherwise apply to private companies.
We could remain an emerging growth company for up to five years, or until the earliest of (1) the last day of the first fiscal year in which our annual gross
revenues exceed $1.07 billion, (2) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the
market value of our Ordinary Shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter
and we have been publicly reporting for at least 12 months, or (3) the date on which we have issued more than $1 billion in non-convertible debt during the preceding
three-year period.
Foreign Private Issuer Status
We are a foreign private issuer within the meaning of the rules under the Exchange. As such, we are exempt from certain provisions applicable to United
States domestic public companies. For example:
● we are not required to provide as many Exchange Act reports, or as frequently, as a domestic public company;
● for interim reporting, we are permitted to comply solely with our home country requirements, which are less rigorous than the rules that apply to
domestic public companies;
47
● we are not required to provide the same level of disclosure on certain issues, such as executive compensation;
● we are exempt from provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information;
● we are not required to comply with the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a
security registered under the Exchange Act; and
● we are not required to comply with Section 16 of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities
and establishing insider liability for profits realized from any “short-swing” trading transaction.
B. Business Overview
Overview
We are a clinical stage biopharmaceutical company dedicated to the discovery, development and commercialization of therapeutic assets to treat diseases with
unmet medical needs, particularly in oncology (including orphan oncology indications) and infectious diseases. The pipeline of Aptorum is also enriched through (i)
the establishment of drug discovery platforms that enable the discovery of new therapeutics assets through, e.g. systematic screening of existing approved drug
molecules, and microbiome-based research platform for treatments of metabolic diseases; and (ii) the co-development of a novel molecular-based rapid pathogen
identification and detection diagnostics technology with Accelerate Technologies Pte Ltd, commercialization arm of the Singapore’s Agency for Science, Technology
and Research.
In addition to the above main focus, we are also pursuing therapeutic projects in neurology, gastroenterology, metabolic disorders, women’s health and other
disease areas. We also have projects focused on natural supplements for women undergoing menopause and experiencing related symptoms. We also opened a medical
clinic, AML Clinic, in June 2018.
Our goal is to develop a broad range of novel and repurposed therapeutics and diagnostics technology across a wide range of disease/therapeutic areas. Key
components of our strategy for achieving this goal include: (for details of our strategy, See “Business Overview – Our Strategy”)
● Developing therapeutic and diagnostic innovations across a wide range of disease/therapeutic areas;
● Selectively expanding our portfolio with potential products that may be able to attain orphan drug designation and/or satisfy current unmet medical
needs;
● Collaborating with leading academic institutions and CROs;
● Expanding our in-house pharmaceutical development center;
● Leveraging our management’s expertise, experience and commercial networks;
● Obtaining and leveraging government grants to fund project development.
We have devoted a substantial portion of the proceeds from our offerings, to our Lead Projects. Our Lead Projects are ALS-4, SACT-1 and RPIDD. In
January 2022, we announced that we completed Phase 1 clinical trial for ALS-4 and Phase 1 clinical trial for assessing relative bioavailability and food effect of
SACT-1. No serious adverse events were observed and there were no relevant clinical changes in respect of vital signs. We expect to be able to submit IND application
to the US FDA in 2022 seeking to (i) initiate a Phase 2 clinical study to assess the efficacy of ALS-4 in patients and (ii) initiate our planned Phase 1b/2a trial for
SACT-1, subject to regulatory review. We also commenced clinical validation of our molecular based RPIDD and will continue to undergo validations during 2022, in
parallel with its pre-commercialization process in 2022.
48
Our current business consists of “therapeutics” and “non-therapeutics” segments. However, our focus is on the therapeutics segments. Because of the risks,
costs and extended development time required for successful drug development, we have determined to pursue projects within our non-therapeutics segments, such as
AML Clinic, to provide some interim revenue, as well as diagnostics technology and natural supplements that may be brought to market and generate revenue more
quickly.
Therapeutics Segment. In our therapeutics segment (“Aptorum Therapeutics Group”), we are currently seeking to develop various drug molecules (including
projects seeking to use extracts or derivatives from natural substances to treat diseases) and certain technologies for the treatment of human disease conditions to
tackle unmet needs, in particular, two of our Lead Projects targeting infectious disease and cancer (including orphan oncology indications). In addition to our main
areas of focus above, we are also pursuing therapeutic projects in neurology, gastroenterology, metabolic disorders, women’s health and other disease areas. Aptorum
Therapeutics Group is operated through Aptorum’s wholly-owned subsidiary, Aptorum Therapeutics Limited, a Cayman Islands exempted company with limited
liability, whose principal place of business is in Hong Kong and whose subsidiaries (who we sometimes refer to herein as project companies) are based in the United
Kingdom, Singapore and Hong Kong.
Non-Therapeutics Segment. The non-therapeutics segment (“Aptorum Non-Therapeutics Group”) encompasses three businesses: (i) diagnostics projects
including a novel molecular-based rapid pathogen identification and detection diagnostics (“RPIDD”) technology, (ii) natural supplements including NativusWell®,
and (iii) AML Clinic. RPIDD technology is currently under co-development with A*STAR. The core objectives of RPIDD are to rapidly and accurately identify and
detect existing or emerging unknown pathogens (including DNA/RNA-based viruses such as coronavirus, antibiotic-resistant bacteria, fungi, etc.), in a cost-effective,
unbiased and broad-spectrum manner, through liquid biopsy (patients’ blood samples and is potentially adaptable for other sample types), genome sequencing and
artificial intelligence driven software analytics. A key objective is also to develop RPIDD to leverage existing and emerging Next-Generation Sequencing platforms
for pathogenic genome sequencing analysis. The sale of natural supplements is operated through Nativus Life Sciences Limited (“Nativus”), a subsidiary of Aptorum
Therapeutics Limited. The production of Aptorum Group’s dioscorea opposita bioactive nutraceutical tablets has commenced production in Canada and will be
marketed under the brand name NativusWell®; once ready for sale, we plan to sell NativusWell® online and in physical healthcare stores. The outpatient clinic is
operated through our subsidiary, Aptorum Medical Limited. Effective as of March 2018, we leased office space in Central, Hong Kong as the home to AML Clinic.
AML Clinic commenced operations under the name of Talem Medical in June 2018.
Prior to March 2017, the Company had pursued passive healthcare related investments in early stage companies primarily in the United States. However, we
have since ceased pursuing further passive investment operations and intend to exit all such portfolio investments over an appropriate timeframe to focus resources on
our current business.
On September 25, 2020, Aptorum, via its subsidiaries, enters into a series of transactions with Accelerate Technologies Pte. Ltd.’s (“Accelerate
Technologies”), the commercialization arm of the Singapore Agency for Science, Technology and Research (“A*STAR”), in relation to the research and development
of novel molecular-based rapid pathogen identification and detection diagnostics (“RPIDD”) technology through its subsidiaries. Specifically, Aptorum Innovations
Holding Pte. Limited, one of the Company’s subsidiaries, entered into an Exclusive Licence Agreement with Accelerate Technologies to co-develop the RPIDD
technology. The term of the Exclusive Licence Agreement is described in Exhibit 4.62 on Form 20-F filed with the SEC on April 19, 2021. Furthermore, Accelerate
Technologies, the inventors of the RPIDD technologies in A*STAR (“Founding Scientists”), Aptorum Innovations Holding Pte. Limited, and Aptorum Innovations
Holding Limited (“AIHL”), a wholly owned subsidiary of the Company, entered into a Share Subscription & Shareholders Agreement on the same day to subscribe
ordinary shares of Aptorum Innovations Holding Pte. Limited. The shares are subscribed and issued in two tranches, the first tranche has taken place at closing of the
Share Subscription & Shareholders Agreement, while the second tranche will take place after the certain first milestone is met. The total number of shares subscribed
by the shareholders under the Share Subscription & Shareholders Agreement is around 2.7 million. After the two tranches of subscription, Aptorum, Accelerate
Technologies and the Founding Scientists are expected to control 71.23%, 14.25% and 9.53% of the share of Aptorum Innovations Holding Pte. Limited respectively,
with 4.99% of the shares reserved for its employee share plan.
49
On December 30, 2020, Aptorum Innovations Holding Limited, or AIHL, one of the Company’s wholly-owned subsidiaries, entered into an Evaluation
Agreement with Illumina Inc (“Illumina”). Pursuant to the agreement, AIHL will evaluate the data and performance of Illumina’s sequencing technology based on the
workflow of AIHL’s molecular rapid pathogen identification and detection diagnostics technology (“RPIDD”), at AIHL’s Singapore based evaluation site.
Our Strategy
Although we plan to continue the development and improvement of a broad range of novel therapeutics and diagnostics across a wide range of
disease/therapeutic areas, over the next 24-36 months we plan to concentrate on development of our Lead Projects, maintaining our AML Clinic and sale of natural
supplements.
We believe that execution of this strategy will position the Company to catalyze the development and improvement of a broad range of novel and repurposed
therapeutics and diagnostics across a wide range of disease/therapeutic areas. Failure to achieve positive results in at least one of the programs for a Lead Project could
have a material adverse effect on the Company’s prospects and business.
To achieve this goal, we are implementing the following strategies:
● Developing therapeutic and diagnostic innovations across a wide range of disease/therapeutic areas. We are currently developing drug candidates
in several disease/therapeutic areas. We believe that by diversifying our research efforts, it would increase the likelihood that at least one of our projects
will achieve clinical success and therefore add value to the Company. As of date of this annual report, the Company is developing 12 projects covering
therapeutic assets, diagnostic assets, and natural supplements, in broad range of areas across infectious diseases, cancers (including rare oncology
indications), neurology, gastroenterology, metabolic disorders and women’s health. The 12 projects are comprised of 8 exclusively licensed projects
(including Lead Project ALS-4 being exclusively licensed from the University of Hong Kong and RPIDD being exclusively licensed from A*STAR) and
7 proprietary projects developed by our scientists (including Lead Project SACT-1). Our initial focus will be on developing our Lead Projects, but intend
to continue developing our other current projects and may seek new licensing opportunities where we determine that the market potential justifies the
additional commitment of our limited resources.
● Selectively expanding our portfolio with potential products that may be able to attain orphan drug designation and/or satisfy current unmet
medical needs. We have selected innovations for development which we believe are of superior scientific quality, whilst taking into account the potential
market size and demand for same, for example, taking into consideration whether the relevant product can satisfy significant unmet medical needs. In
particular, Aptorum Group Limited has established a Scientific Advisory Board, which helped us to select our current projects and which we expect will
provide input from a scientific perspective towards any future opportunities for acquiring or licensing life science innovations. We intend to continue
expanding our line of projects under development, and subject to our financial and other resource limitations, exploring acquisitions or licenses of
additional products which may be able to attain orphan drug designations (e.g., rare types of cancer) or satisfy significant unmet medical needs and that
show strong preclinical and/or early clinical data to provide promising opportunities for clinical and commercial success.
● Collaborating with leading academic institutions and CROs. In building and developing our product portfolio, we believe that accessing external
innovation, expertise and technology through collaboration with leading academic institutions and CROs is a vital and cost-efficient strategy. We have
established strong relationships with leading academic institutions around the world and expect to continue to strengthen our collaborations by, for
example, seeking to provide their affiliated Principal Investigators resources through sponsorship to conduct further research in specialty fields of interest
and association with personnel connected to our current project companies, in exchange for obtaining for the Company the first right to negotiate for an
exclusive license to any resulting innovations. In addition, we have entered and will continue to actively source arrangements with pharmaceutical
companies, in most cases in roles as contract research organizations, to streamline the development of our projects. This may include outsourcing part of
the preclinical, clinical studies and clinical supplies manufacturing to externally accredited cGLP, cGMP and cGCP standard contract research
organizations or laboratories in order to attain the required studies for submission to the regulatory authorities as part of the clinical development plan.
(See “Item 4. Information on the Company – B. Business Overview – Arrangements with Other Parties”)
50
● Expanding our in-house pharmaceutical development center. We believe collaborations between the R&D Center and the scientists engaged in work
for our project companies will enhance clinical and commercial potential of the projects. In addition, we will assist the project companies by engaging
external pharmaceutical companies and/or contract research organizations to outsource any part of the preclinical or clinical development work that
cannot be performed by the R&D Center in order to obtain the resources necessary for our development process.
● Leveraging our management’s expertise, experience and commercial networks. We believe the combination of our management’s expertise and
experience, with their academic and commercial networks make us an effective platform for advancing healthcare innovations towards clinical studies
and commercialization in key global markets. We have assembled a management team with global experience and an extensive record of
accomplishments in medical research, consulting and financing, and identification and acquisition of pharmaceutical and biopharmaceutical drug
candidates. Our Head of Research and Development also has extensive experiences in drug development. We also employ key management personnel
with banking and financial experience, which enhances our capability to establish the most efficient financial structure for the development of our
programs.
● Obtaining and leveraging government grants to fund project development. Governments across the world pays close attention to the development of
the biotechnology sector and provides support and funding. We intend to aggressively seek government support from the governments in the United
States, the United Kingdom, Hong Kong, Singapore and elsewhere for our product development and to facilitate the development of some of our
projects.
Arrangements with Other Parties
As mentioned above, part of our business model includes collaborating with research entities such as academic institutions and CROs, as well as highly
regarded experts in their respective fields. We engage these entities and researchers either for purposes of exploring new innovations or advancing preclinical studies
of our existing licensed drug candidates. Although the financial cost of these arrangements does not represent a material expense to the Company, the relationships we
can access through, specifically, sponsored research arrangements (“SRAs”) with academic institutions and organizations can provide significant value for our
business; for example, we may decide whether to continue development of certain early-staged projects and/or out-license a project based on the data and results from
research governed by SRAs. However, as of the date of this annual report, we do not consider the particulars of any of our SRAs to be material to the success of our
current business plans.
Our drug discovery programs are based upon licenses from universities and are mainly conducted in universities via SRAs. As for the development of our
drug candidates, our R&D Center conducts part of the CMC work. However, since our current facilities are not cGMP, cGLP or cGCP qualified, we will have to rely
on CROs to conduct that type of work, if and when our drug candidates reach the level of development that requires such qualification.
Lead Projects, Natural Supplements and Other Projects under Development
We are actively operating and managing the development of our drug candidates through various subsidiaries. Each candidate is being researched in a
subsidiary with a medical/scientific area of focus related to the drug candidate in development. We refer to these as our “Project Companies” and their products or
areas of focus as our Lead Projects (i.e., ALS-4, SACT-1 and RPIDD), our natural supplements (i.e., NativusWell®) or Other Projects under Development (as defined
below). The selection of a drug candidate is based on our estimate of the market potential for that candidate, the scientific expertise required to develop it, and our
overall corporate strategy, including our ability to commit personnel and future investment to that candidate.
51
To pursue a number of our current projects, our Project Companies have entered into standard license agreements with various universities and licensing
entities customized to the nature of each project. These license agreements largely contain the same terms, as is typically seen in license agreements for an early-stage
life science invention; such terms include a worldwide license with licensed field comprising indications in the intended treatment areas, having upfront payments,
certain royalty rates, sublicensing royalties, as well as provisions for payments upon occurrence of development and/or regulatory milestones. Under the license
agreements, the Project Company must also adhere to certain diligence obligations (which may include specific diligence) and the types of activities or achievements
that will satisfy those diligence obligations. Additionally, our Project Company may or may not be required to obtain prior consent from the licensor to sublicense the
invention. The license terms of our Lead Projects are discussed in detail below.
Generally speaking, pharmaceutical development consists of preclinical and clinical phases. The preclinical phase can further sub-divided into the following
stages:
● Target Identification & Selection: The target is the naturally existing cellular or modular structure that appears to have an important role in a particular
disease pathway and will be targeted by the drug that will subsequently be developed. Target validation techniques for different disease areas can be very
different but typically include from in vitro and in silico methods through to the use of whole animal models.
● Lead Discovery: Following “Target Identification & Selection,” compound screening assays are developed as part of the Lead Discovery. ‘Lead’
molecules can mean slightly different things to different researches or companies, but in this annual report, we refer to Lead Discovery as the process of
identifying one or more small molecules with the desired activity against the identified targets. Leads can be identified through one or more approaches,
which can depend on the target and what, if any, previous knowledge exists.
● Lead Optimization: In this stage of the drug discovery process, the aim is to produce a preclinical drug candidate by maintaining the desired and
favorable properties in the lead compounds, while repairing or reducing deficiencies in their structures. For example, to optimize the chemical structures
to improve, among others, efficacy, reduce toxicity, improve metabolism, absorption and pharmacokinetic properties.
● CTA-Enabling Studies: Includes all the essential studies such as GLP toxicology studies, pharmacology and efficacy, pharmacokinetics, in vitro
metabolism, CMC studies, and the data of which are used for CTA submission.
● IND-Enabling Studies: Includes all the essential studies such as GLP toxicology studies, pharmacology and efficacy, pharmacokinetics, in vitro
metabolism, CMC studies, and the data of which are used for IND submission.
● In vitro validation: At this stage, the efficacy and safety of a drug candidate are assessed at cellular levels.
● In vivo validation: At this stage, the efficacy, safety and pharmacokinetic of a drug candidate are assessed in animal models.
● IND Preparation and Submission: Preparation of a package of documents for different sections such as CMC, clinical, nonclinical, etc. and getting them
reviewed, approved and final checked and followed by submission to regulatory agencies.
52
Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:
● Phase 1. Phase 1 includes the initial introduction of an investigational new drug into humans. These studies are closely monitored and may be conducted
in patients, but are usually conducted in healthy volunteer subjects. These studies are designed to determine the metabolic and pharmacologic actions of
the drug in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness. During Phase 1, sufficient
information about the drug’s pharmacokinetics and pharmacological effects should be obtained to permit the design of well-controlled, scientifically
valid, Phase 2 studies. Phase 1 studies also evaluate drug metabolism, structure-activity relationships, and the mechanism of action in humans. These
studies also determine which investigational drugs are used as research tools to explore biological phenomena or disease processes. The total number of
subjects included in Phase 1 studies varies with the drug, but is generally in the range of twenty to eighty.
● Phase 2. Phase 2 includes the early controlled clinical studies conducted to obtain some preliminary data on the effectiveness of the drug for a particular
indication or indications in patients with the disease or condition. This phase of testing also helps determine the common short-term side effects and risks
associated with the drug. Phase 2 studies are typically well-controlled, closely monitored, and conducted in a relatively small number of patients, usually
involving several hundred people.
● Phase 3. Phase 3 studies are expanded controlled and uncontrolled trials. They are performed after preliminary evidence suggesting effectiveness of the
drug has been obtained in Phase 2, and are intended to gather the additional information about effectiveness and safety that is needed to evaluate the
overall benefit-risk relationship of the drug. Phase 3 studies are designed to provide an adequate basis for extrapolating the results to the general
population and transmitting that information in the physician labeling. Phase 3 studies usually include several hundred to several thousand people.
Our non-therapeutics projects can be sub-divided into the following stages:
● Development and Experimentation: Early development work for proof-of-concept.
● Product Optimization: The practice of making changes or adjustments to a product to make it more desirable.
● Clinical Validation: Confirming the performance of a technology using clinical/patient samples.
● Pre-commercialization preparation: The logistics that need to be accomplished before commercialization.
● Formulation: Preparation of a marketed dosage form from active ingredients and excipients/additives.
● Commercialization: The process of introducing a new product or production method into commerce—making it available on the market.
53
Another subsidiary, Aptorum Medical Limited (“AML”),1 is our vehicle for developing our business of delivering medical services in the form of AML
Clinic.
We anticipate allocating approximately 20% of our resources to develop projects other than our Lead Projects (such other projects being referred to herein as
“Other Projects under Development”), with a strong focus on NativusWell®, and AML Clinic. The production of Aptorum Group’s dioscorea opposita bioactive
nutraceutical tablets has commenced production in Canada and will be marketed under the brand name NativusWell®; once ready for sale, we plan to sell it at online
stores and in physical healthcare stores. AML Clinic is expected to provide us with a modest amount of revenue. Even if NativusWell® achieves commercial sales, of
which there can be no assurance, revenue from these products alone will not be sufficient for us to carry out all of our plans, but it will assist with name recognition
and supplement our income while we develop our Lead Projects.
54
Lead Projects
After consideration of various factors, such as time and resources required for further development, potential success rate and market size, the Group decided
to focus the majority of its resources on ALS-4 and SACT-1 and RPIDD as the current Lead Projects. The Group will continue to invest some of its resources to
develop other projects, including those previously classified as Lead Projects.
1
Clark Cheng, our Chief Medical Officer and an Executive Director, owns 9% of Aptorum Medical Limited as of the date of this annual report.
ALS-4: Small molecule for the treatment of bacterial infections caused by Staphylococcus aureus including but not limited to Methicillin-resistant
Staphylococcus aureus (“MRSA”)
Just as certain strains of viruses, such as human immunodeficiency virus (“HIV”) and influenza have developed resistance to drugs developed to treat them,
certain bacteria such as Staphylococcus aureus, Mycobacterium tuberculosis and Pseudomonas aeruginosa have become “superbugs”, having developed resistance to
many, if not all, of the existing drugs available to treat them, rendering those treatments ineffective in many instances. MRSA is one such bacterium, a gram-positive
bacterium that is genetically different from other strains of Staphylococcus aureus. Staphylococcus aureus and MRSA can cause a variety of problems ranging from
skin infections and sepsis to pneumonia and bloodstream infections. It is estimated that about one out of every three people (33%) carry Staphylococcus aureus in their
nose, usually without any illness; about two in a hundred (2%) carry MRSA (source: https://www.cdc.gov/mrsa/tracking/index.html). Both adults and children may
carry MRSA.
contact.
skin-to-skin
Most MRSA infections occur in people who have been in hospital or other health care settings, such as nursing homes and dialysis centers (source:
https://www.mayoclinic.org/diseases-conditions/mrsa/symptoms-causes/syc-20375336), which is known as Healthcare-Associated MRSA (“HA-MRSA”). HA-MRSA
infections are typically associated with invasive procedures or devices, such as surgeries, intravenous tubing or artificial joints. Another type of MRSA infection,
known as Community-Associated MRSA (“CA-MRSA”), has occurred in wider community among healthy people. It often begins as a painful skin boil and spreads
by
infections
(https://www.cdc.gov/media/pressrel/2007/r071016.htm). The incidence of CA-MRSA varies according to population and geographic location. In the U.S., more than
94,000 people develop serious MRSA infection and about 19,000 patients die as a result each year (https://www.cdc.gov/media/pressrel/2007/r071016.htm).
According to the US Centers for Disease Control and Prevention (“CDC”), Staphylococcus aureus, including MRSA, caused about 11% of healthcare-associated
infections in 2011 (source: http://www.healthcommunities.com/mrsa-infection/incidence.shtml). Each year in the U.S., around one out of every twenty-five
hospitalized patients contracts at least one infection in the hospital (N Engl J Med. 2014, 27;370(13):1198-208). In the U.S., there were over 80,000 invasive MRSA
infections and 11,285 related deaths in 2011 (source: https://edition.cnn.com/2013/06/28/us/mrsa-fast-facts/index.html). Indeed, severe MRSA infections most
commonly occur during or soon after inpatient medical care. More than 290,000 hospitalized patients are infected with Staphylococcus aureus and of these
staphylococcal infections, approximately 126,000 are related to MRSA (source: http://www.healthcommunities.com/mrsa-infection/incidence.shtml).
invasive MRSA
associated
healthcare
infections
serious,
About
85%
are
of
55
ALS-4 is a small drug molecule which appears to target the products produced by bacterial genes that facilitate the successful colonization and survival of the
bacterium in the body or that cause damage to the body’s systems. These products of bacterial genes are referred to as “virulence expression.” Targeting bacterial
virulence is an alternative approach to antimicrobial therapy that offers promising opportunities to overcome the emergence and increasing prevalence of antibiotic-
resistant bacteria.
Professor Richard Kao from The University of Hong Kong (who is also the Founder and Principal Investigator of Acticule and Inventor of ALS-1, ALS-2,
ALS-3 and ALS-4) initiated a high throughput approach for screening compounds which are active against virulence expression, which resulted in the discovery of
ALS-1, ALS-2, ALS-3 and ALS-4.
ALS-4 targets an enzyme essential for Staphylococcus aureus (including MRSA) survival in vivo. This enzyme is involved in the production of
Staphyloxanthin, a carotenoid pigment produced by Staphylococcus aureus including MRSA, and is responsible for the characteristic golden color. This pigment has
proven to be an important factor in promoting bacterial invasion as well as rendering the bacteria resistant to attack from reactive oxygen species (ROS) and
neutrophils. In other words, pigmented bacteria have increased resistance to the host’s immune defenses. ALS-4 may have particular value if it can be shown to be an
effective therapy in situations where a Staphylococcus aureus infection is resistant to available antibiotics (i.e., where the pathogen is MRSA).
In a study by the inventor, Prof. Richard Kao, ALS-4 demonstrates potent activity against Staphylococcus aureus pigment formation in vitro, as indicated in
Figure 1, with an IC50 (IC50 is defined as the concentration of a drug which inhibits half of the maximal response of a biochemical process. In this case, inhibition of
the formation of the golden pigment is the response) equal to 20 nM.
56
Figure 1
Figure 1: In vitro pigment inhibition by compound ALS-4: Inhibition of staphyloxathin (the golden pigment in S. Aureus) in the presence of increasing concentrations
of ALS-4
Efficacy of ALS-4 in a MRSA Wound Infection Mouse Model
A study conducted by a third-party contract research organization, assessed ALS-4’s effect in the healing of open wounds infected with MRSA in a mouse
model. Compared with topical dosing of 2% Mupirocin and oral dosing of Linezolid at 100mg/kg twice a day, oral dosing of ALS-4 at 30mg/kg twice a day showed
statistically significant improvement in wound healing. Specifically, at the end of the study on Day 7, ALS-4 exhibited 63.8% of wound closure compared with 48.4%
for oral Linezolid and 43.2% for topical Mupirocin 2%. The results are further illustrated in the graph below.
57
Figure 2
Figure 2: Result of study on ALS-4’s effect in the healing of open wounds infected with MRSA in a mouse model
*Unpaired student’s t-test, p<0.05
Efficacy of ALS-4 in a Bacteraemia Mouse Model
In a further round of in vivo studies, conducted by a third-party contract research organization, in a non-lethal MRSA bacteraemia mouse model, the mice
were orally administered with different doses of ALS-4 from 0.3 to 30mg/kg twice a day for 7 days, compared to those who received vancomycin only group (3mg/kg
of vancomycin administered intravenously) and a no treatment control group.
At the conclusion of the study on Day 7, ALS-4 brought a statistically significant reduction in bacterial counts in major organs such as the kidneys, lungs,
liver and spleen compared with the no drug control and vancomycin only groups (unpaired student’s t-test, p<0.05). This is in addition to the previous in vivo results
announced in February 2020, whereby ALS-4 demonstrated on a statistically significant basis better survival rates (56% vs 0% control group) in the lethal MRSA
bacteraemia rat model (Figure 3a) and higher reduction of bacterial load (by 99.5% against the control group) in the non-lethal MRSA bacteraemia rat model (Figure
3b).
58
Figure 3a
Figure 3a: Oral Formulation of ALS-4 in an MRSA Survival Study
Figure 3b
Figure 3b: Oral Formulation of ALS-4 in a Non-Lethal Bacteremia Model
CFU = Colony Forming Unit, a unit used to estimate the number of viable bacteria in a sample
A Clinical Trial Application (“CTA”) was submitted with the Public Health Agency of Canada (Health Canada) to conduct a Phase 1 clinical trial of ALS-4,
an orally administered small molecule drug for the treatment of infections caused by Staphylococcus aureus including Methicillin-resistant Staphylococcus aureus
(MRSA) in Q4 2020. ALS-4 received clearance from Health Canada regarding the CTA to initiate a Phase 1 clinical study in January 2021. In March 2021, we
announced dosing the first human subject in its Phase 1 clinical trial evaluating ALS-4. In January 2022, we further announced the completion of our Phase I clinical
trial for ALS-4. The first-in-human Phase 1 trial was a randomized, double-blinded, placebo-controlled, single and multiple ascending dose study designed to evaluate
safety, tolerability, and pharmacokinetics of orally administered ALS-4 in healthy male and female adult volunteers. The single-ascending dose studies (SAD) and
multiple-ascending dose studies (MAD) have been completed for a total of 72 healthy subjects and no subjects were dropped from the studies. There were no serious
adverse events observed and no relevant clinical changes in respect of vital signs.
59
We are on track to submit an IND application to the US FDA in 2022 seeking to initiate a Phase 2 clinical study to assess the efficacy of ALS-4 in patients.
Patent License
On October 18, 2017, the Company’s subsidiary, Acticule, entered into an exclusive license agreement with Versitech Limited, the licensing entity of HKU,
for ALS-4. Subsequently on June 7, 2018, the parties entered into a first amendment to the exclusive license agreement, and on July 10, 2019, the parties entered into a
second amendment to the license agreement.
On January 11, 2019, Acticule and Versitech Limited entered into a second license agreement for ALS-4, where Acticule exclusively licensed the intellectual
property rights on certain HKU-owned improvements to the original licensed invention.
Under the exclusive license agreements, we were granted an exclusive, royalty-bearing, sublicensable licenses to develop, make, have made, use, sell, offer
for sale and import products that are covered by the licensed patents (as described below). The territory of the licenses is worldwide and the field of the licenses is for
treatment or prevention of bacterial infections caused by Staphylococcus aureus including MRSA and bacterial virulence.
We paid an upfront fee upon entering into the license agreements. We are required to pay less than 10% of the net sales of the licensed products sold by us or
our affiliates as royalties, as well as a low teens percentage of sublicense royalties that we receive from our sublicensees, if any. In addition, we agreed to pay to the
licensor aggregate regulatory milestones of up to US$1 million subject to the following achievements: submission of investigational new drug application; completion
of phase 1, 2 and 3 clinical trials; and submission of new drug application; grant of regulatory approval. We also agreed to pay to the licensor aggregate sales
milestones of up to US$7.8 million subject to the following achievement: first commercial sale; and annual net sales exceeding US$100 million in one jurisdiction.
Pursuant to the license agreements, Acticule became the exclusive licensee of 2 pending U.S. non-provisional patent applications and 2 PCT applications
(now expired). Prior to the expiration of the PCT applications, we filed national phase applications in member states of the EPO, in PRC and 12 other jurisdictions.
The claimed inventions are described as: “Compounds Affecting Pigment Production and Methods for Treatment of Bacterial Diseases.”
Two (2) US non-provisional patent applications have been granted by United States Patent and Trademark Office on June 22, 2021 and July 6, 2021
respectively. In addition, one (1) new non-provisional application was filed on June 21, 2021.
Acticule has the right to grant sublicenses to third parties under the license agreements without prior approval from Versitech Limited and to assign the
agreements to any successor to the business related to the licenses. In the event that Acticule makes an improvement to the licensed technologies, so long as the
improvement does not incorporate any licensed patents, Acticule will be the owner to such improvement, subject to a non-exclusive royalty-free license being granted
back to Versitech Limited for academic and research purposes only.
The exclusive license agreements shall be in effect until the expiration of all licensed patents (please refer to the patent expiration dates under “Item 4.
Information on the Company – B. Business Overview – Intellectual Property”). Acticule may terminate the licenses at any time with 6-month written notice in
advance. Either party may terminate the agreements upon a material breach by other party.
60
SACT-1: A Repurposed Drug for the Treatment of Neuroblastoma
Drug repurposing is a strategy for identifying new indications for approved or investigational drugs that are outside the scope of the original medical uses. It
is often viewed as a lower-cost method for drug commercialization, as it is based on already-approved drugs (which has been proven to be safe for human use by the
respective governing regulatory agency) and explores new target indications. (Ashburn, T. T. & Thor, K. B. Drug repositioning: identifying and developing new uses
for existing drugs. Nat. Rev. Drug Discov. 3, 673–683, 2004).
One of the advantages of drug repurposing is a lower development risk due to safety and toxicity, as well as other properties related to water solubility,
absorption, distribution and metabolism, as the safety and CMC profiles of marketed drugs are usually well-established. Due to the same reason, the development time
is also shortened because there is no need to repeat the whole spectrum of the safety assessment. As a result, the drug repurposing approach appears to be attractive
due to its superior risk management, smaller capital investment and quicker financial return. (Sudeep Pushpakom, et. al. Drug repurposing: progress, challenges and
recommendations. Nat. Rev. Drug Discov. 18, 41-58, 2019)
The cost of bringing a repurposed drug is estimated to be around US$300 million, which is only one-tenth of the development cost for a new drug. (Nosengo,
N. Can you teach old drugs new tricks? Nature. 534, 314-316, 2016).
In summary, drug repurposing offers the following advantages:
● Well-established safety profiles: The development risk for new indications can be substantially reduced by applying existing drugs that are approved or
have been shown to be safe in large scale late-stage trials. Since safety accounts for approximately 30% of drug failures in clinical trials, this is a key
advantage that repositioned drugs can harness to great effect. (The benefits of drug repositioning. (n.d.). Retrieved from https://www.ddw-
online.com/the-benefits-of-drug-repositioning-1779-201104/)
● Time-saving: As repositioned drugs can rely on existing data, including efficacy and toxicity studies, the process is usually faster than de novo
development. Developing a new chemical entity (NCE) can take 10 to 17 years, depending on indications. (Roin, B. N. Solving the Problem of New
Uses, 2013). For a drug repositioning company, the development process from compound identification to launch can be around 3 to 8 years. (Walker, N.
(2017, December
from
https://www.pharmoutsourcing.com/Featured-Articles/345076-Accelerating-Drug-Development-Through-Repurposing-Repositioning-and-Rescue/)
07). Accelerating Drug Development Through Repurposing, Repositioning
and Rescue. Retrieved
● Cost-saving: Along with time-saving, money-saving is also a key benefit. The cost to relaunch a repositioned drug averages $8.4 million, whereas to
relaunch a new formulation of an existing drug in its original indication costs an average $41.3 million. Given that the average cost of launching a new
chemical entity (NCE) is more than $1.3 billion, successfully bringing a repositioned drug to market seems to cost approximately 160 times less than the
current standard of NCE development. Even if this differential is off by a hundred times or more, from the purely financial perspective, repositioning is
in a completely different league of investment needed to create a new drug product in the market. (https://www.ddw-online.com/the-benefits-of-drug-
repositioning-1779-201104/)
● Potential for out-licensing: Pharmaceutical companies are said to be exploring new models to out-license some of their clinical drug candidates that may
have been shelved for pure business reasons unrelated to safety or efficacy, even though they have met their endpoints and have proven themselves to be
safe. If such drugs were to be repositioned, the pharmaceutical company increases the attractiveness of these drugs and gives itself more options to find
interested buyers. (https://www.ddw-online.com/the-benefits-of-drug-repositioning-1779-201104/)
● Lower failure rate: According to BCC Research, approval rates for repurposed drugs are close to 30%, which is greater than the approval rate for new
drug applications. (Front Oncol. 2017; 7: 273)
One of the major limitations of the current drug repurposing and repositioning practice is that there is a lack of a systematic way to identify and reinvestigate
drugs that are approved and/or have failed approval.
61
SACT-1 is the first repurposed drug candidate to be developed under the Smart-ACT® drug discovery platform. SCAT-1 is one of the Company’s proprietary
technologies. Our first targeted indication is neuroblastoma. Neuroblastoma is a rare form of cancer, and classified as an orphan disease, that forms in certain types of
nerve tissue and most frequently in the adrenal glands as well as spine, chest, abdomen or neck, predominantly in children, especially for those aged 5 years and
below. For the high-risk group, which is close to 20% (Annu Rev Med. 2015; 66: 49–63.) of total new patient population per year, the 5-year survival rate of this
condition is around 40-50% as observed by the American Cancer Society (https://www.cancer.org/cancer/neuroblastoma/detection-diagnosis-staging/survival-
cycles)
rates.html). The
(https://www.cadth.ca/sites/default/files/pcodr/Reviews2019/10154DinutuximabNeuroblastoma_fnEGR_NOREDACT-ABBREV_Post_26Mar2019_final.pdf).
In
addition, most pediatric patients often do not tolerate or survive the relevant chemotherapy stage which, subject to further clinical studies, may be positively addressed
by the SACT-1 candidate due to the potential synergistic effects when applied with standard chemotherapy.
average USD200,000 per
current high drug
risk patients
for high
treatment
regimen
(all 6
cost
can
In our studies, SACT-1 has been shown to be effective against numerous neuroblastoma cell lines, of which 2 are MYCN-amplified cells, which represent the
high-risk neuroblastoma patient group. In addition, by using a bliss score as a quantitative measure of the extent of drug interaction, Aptorum Group has seen a high
and robust synergism between SACT-1 and traditional chemotherapy in vitro (Figure 4), indicating a potential efficacy enhancement/dose reduction of the
chemotherapy.
Figure 4
Figure 4: synergism between SACT-1 and traditional chemotherapy in vitro
In addition, in our study, the maximum tolerable dose of SACT-1 in a rodent model was determined to be higher than 400mg/kg. Compared with the MTD of
standard chemotherapy such as paclitaxel (20-30mg/kg) (Clin Cancer Res. 5(11):3632-8) and cisplatin (6mg/kg) (BMC Cancer 17: 684 (2017)), the safety profile of
SACT-1 appears to be very impressive. Based on our internal observations of pre-existing information from approved products, (subject to FDA’s approval and on a
case-by-case basis, a 505(b)(2) Application can rely in part on existing information from approved products (such as the FDA’s previous findings on safety and
efficacy) or products in literature (such as data available). However, typically speaking, the applicant is nonetheless required to carry out a Phase 1 bridging study to
compare the Reference Listed Drug and reference the established safety and efficacy information), SACT-1 also exhibits a well-established safety profile: at
150mg/day, the death rate was 0% in prior clinical studies with no dosage related adverse events (Table 1). In addition, the pharmacokinetic profile of SACT-1 has also
been reported (Table 2).
62
Table 1: Safety Profiles of SACT-1 in Human Clinical Trials
Table 2: The pharmacokinetic Profile of SACT-1 in Humans
We have developed a pediatric formulation of SACT-1 to better address the needs of neuroblastoma patients who are exclusively children younger than 5.
Positive data from our latest internal in vivo studies show significant activity against neuroblastoma tumor reduction when treated with the compound SACT-1 in
combination with standard of care (SOC) chemotherapy.
Separately, we also screened SACT-1 for its in vitro activity against over 300 cancer cell lines and showed positive results in a number of cancer types
including in particular colorectal cancer, leukemia and lymphoma, etc. Similar to our previous findings against neuroblastoma cell lines, SACT-1 exhibits similar anti-
tumor efficacy across one or more other major cancer types, including but not limited to colorectal cancer, leukemia and lymphoma cell lines. As a result, in addition
to treating neuroblastoma, SACT-1 may have potential applications in the treatment of other cancers. Based on this discovery, we plan to carry out further in
vivo studies to study the efficacy of SACT-1 over other types of cancers to maximize the potential of SACT-1. Based on the initial 22 day data of a recent study we
conducted in a xenograft mouse model of neuroblastoma, SACT-1 was orally administered daily at 60mg/kg in combination of SOC chemotherapy brought a
statistically significant tumor shrinkage (unpaired student’s t-test, p<0.01) from Day 15 to Day 22, compared to the control group which received SOC only. The
combination reduced the tumor size by up to 54.2% in the first 22 days compared with the control (SOC only). SACT-1 appears to be effective in accelerating the
effect of the SOC in early time points (from Day 1 - 7 vs control). This further supports our earlier in vitro observation that SACT-1 promotes tumor DNA damage and
tumor cell death.
63
Figure 5
Figure 5: 22 days data of in vivo studies in a xenograft mouse model of neuroblastoma
** Unpaired student’s t-test, p<0.01, n=8 (based on initial 22 days period)
In September 2021, we announced that we received clearance from the US FDA regarding the IND application to initiate clinical trials of SACT-1. In January
2022, we further announced that the completion of our Phase I clinical trial for assessing relative bioavailability and food effect of SACT-1, and no serious adverse
events were observed. SACT-1’s Phase 1 clinical trial is an Open-label Randomized, Single Cross Over Bioavailability and Food Effect Study of SACT-1 in healthy
adult volunteers. In additions, the US FDA has granted Orphan Drug Designation to SACT-1 in January 2022.
We are on track to submit an IND application to the US FDA in 2022 seeking to initiate our planned Phase 1b/2a trial for SACT-1.
Patent License
In January 2022, the US Patent and Trademark Office has granted the first patent regarding Aptorum’s SACT-1 (through Aptorum’s subsidiary) repurposed
drug for the treatment of various cancers including but not limited to neuroblastoma (US Patent 11,166,952 B2).
64
RPIDD: A novel molecular-based rapid pathogen identification and detection diagnostics technology
Infectious disease diagnostic standard of care (SOC) often involves techniques that are slow (e.g., bacterial culturing takes several days) or expensive (e.g.,
current pathogen diagnostic sequencing solutions are not comprehensive, are expensive, and often inaccessible to physicians). Although infectious disease diagnosis
capabilities have been improving in recent years, there are still issues with the public health capacity to control infectious disease threats.
Infectious disease diagnostic standard of care (SOC) does not necessarily provide the physician a comprehensive diagnosis or report. Most point of care
diagnostic solutions, while rapid, screen only for a single pathogen and only focus on common and widespread pathogens (e.g., HIV). Thus, for infectious disease
patients in developed nations that present with an uncommon, novel or emerging pathogen threat, diagnosis is often slow (2-5 days) and inconclusive leaving time for
pathogen spread and increased patient suffering and/or death.
RPIDD is a rapid infectious disease diagnostic test that we believe will be potentially able to identify all pathogens in a patient’s sample, both known and
unknown, by employing Next Generation Sequencing (NGS). The goal of RPIDD is to cost-effectively return a 99% accurate result within 24-48 hours. Our internal
results show that, in principle, RPIDD can identify pathogens such as viruses (e.g. COVID-19/SARS-CoV-2) or any other known or emerging infectious disease event
in one test (e.g., DNA or RNA-based pathogens). With these properties, RPIDD is expected to track the infectome landscape (e.g., tracking mutations), rapidly
identify antibiotic resistant microbials in the process, and be more affordable than current NGS-based diagnostic platforms, which will make it a superior product to
those currently on the market.
Preliminary data from our internal studies, which have not been verified or confirmed by third parties, presented below demonstrate additional points of
innovation and proof of concept feasibility data.
Case Study #1: We examined a bio banked blood sample from a patient with a diagnosed Hepatitis B infection (Figure 6). Our technology successfully detected the
presence of Hepatitis B, as well as additional pathogens.
Figure 6
Figure 6: Aptorum’s technology successfully confirmed a known Hepatitis B diagnosis in a bio banked sample.
65
Case Study #2: A patient was undergoing chemotherapy and developed a severe lung infection that was refractory to first-line antibiotics but eventually responded to
the traditional trial and error approach. Using our technology, we found that 10% of all reads came from Leuconostoc, a Gram+ bacteria (Figure 7). Importantly,
Leuconostoc was not identified by physicians, demonstrating that our technology can identify pathogens that allude a traditional diagnosis.
Figure 7
Figure 7: Aptorum’s technology identified pathogen(s) that allude the traditional diagnostic approach.
RPIDD has the revolutionary potential to cover simultaneously over 1300 pathogens due to the unbiased approach in analyzing pathogen genome information
and caters to patients who are infected with multi-strains of pathogen. The technology can be updated through our software analytics on an ongoing basis as further
pathogenic genome sequences are updated through public databases, ensuring that it is up-to-date on new and emerging pandemic threats.
RPIDD is currently undergoing Clinical Validation to confirm the performance of RPIDD using clinical/patient samples. RPIDD will continue to undergo
validations during 2022, in parallel with its pre-commercialization process in 2022.
Patent License and Application
On September 25, 2020, the Company’s subsidiary, Aptorum Innovations Holding Pte. Limited, entered into an exclusive licence agreement with Accelerate
Technologies Pte Ltd, the commercialization arm of the Singapore’s Agency for Science, Technology and Research (“A*STAR”), to co-develop novel molecular-
based rapid pathogen identification and detection diagnostics (“RPIDD”) technology. No upfront fee or royalty on net sales is payable under the license agreements,
although we are required to pay a mid-teens to mid-twenties percentage of sublicense revenue that we receive from our sublicensees, if any. In addition, we agreed to
pay to the licensor aggregate development milestones of up to US$250,000. When specific development milestone is reached, we are also required to satisfy certain
diligence obligations, including recruitment of staff, establishment of relationship with potential customers and exercise commercially reasonable efforts in selling the
Licensed Products.
66
We filed two (2) US provisional patent applications and one (1) Singapore patent application was filed in 2021, but subsequently abandoned. In addition, one
(1) US non-provisional patent application was filed on October 8, 2021 and we entered a Paris Convention (PCT) application on February 24, 2022. The claimed
inventions are described as: “Unbiased And Simultaneous Amplification Method For Preparing A Double-Stranded DNA Library From A Sample Of More Than One
Type Of Nucleic Acid.”
Statistical Significance
The term statistical significance is to define the probability that a measured difference between two groups (e.g. two treatment groups, treatment versus
control groups) is the result of a real difference in the tested variations and not the result of chance. It means that the result of a test does not appear randomly or by
chance, but because of a specific change that is tested, so it can be attributed to a specific cause.
The confidence level indicates to what percentage the test results will not commit a type 1 error, the false positive. A false positive occurs when a change in
the result is due to randomness (or other noise) and not the change in variations. At a 95% confidence level (p = 0.05), there is a 5% chance that the test results are due
to a type 1 error. 95% has become the standard and usually be the minimum confidence level for the tests. To make the test more stringent, a 99% confidence level (p
= 0.01) is also commonly employed, which means that there is a 1% chance that the test results are due to a type 1 error.
In other words, a p value represents the confidence level. For example, if the p-value for a test is < 0.05, it means that there is less than 5% chance the
difference between two groups is due to random error or by chance. If the p-value is < 0.01, it means that there is less than 1% chance the difference between two
groups is due to random error or by chance.
We employed statistical testing to compare different treatment groups in animal studies simply for proof of concept and to aid internal decision making for
further development. We do not intend to use this standard for any regulatory submission. The US FDA or other regulatory agencies may not necessarily employ the
same statistical standard to assess the efficacy in clinical trials, the results of which would be submitted for regulatory approval. Although a p-value of 0.05 has
become the standard, the US FDA or other regulatory agencies may also individualize their efficacy standard for different clinical programs based on the indications,
the purpose of a clinical trial, among others.
FDA Application Status
As of the date of this annual report, we received CTA and IND approvals for ALS-4 and SACT-1 from Health Canada and US FDA to initiate human clinical
trial. We have not submitted other applications for IND to the FDA or other regulatory agencies.
Other Projects under Development
The following provides additional detail regarding Other Projects under Development. As noted elsewhere in this report, based on certain criteria, we
sometimes cease work on certain projects to focus on projects we believe are more promising. We have discontinued the development of certain candidates because
patent applications protecting such technologies could not be obtained from USPTO, so we decided to focus our capital and efforts on other candidates. We typically
discontinue the development of a candidate because the expected result could not be generated, so we focus our capital and efforts on our other candidates. The patents
and patent applications covering the Other Projects are either owned by the Company or have been in-licensed.
On April 20, 2021, the Company’s subsidiary, Aptorum Therapeutics Limited, entered into an Option Agreement with Yale University to evaluate the certain
classes of autoimmune anti-inflammatory drug. The agreement ends on July 14, 2022.
67
SACT-COV19: Drug repurposing for the treatment of infections caused by COVID-19
SACT-COV19 is a drug repurposing program for the treatment of infections caused by COVID-19. We have completed initial screening under the Smart-
ACT® platform to select, out of more than 2,600 small drug molecules that were previously approved for other indications, at least 3 potential candidates for further
preclinical investigation against the new coronavirus disease, COVID-19. We are collaborating with Toronto based Covar Pharmaceuticals and University of Oxford,
and have also entered into agreement with the University of Hong Kong’s Microbiology Department to conduct further preclinical investigation of the selected
candidates prior to seeking approval from regulatory agencies to initiate clinical trials on suitable candidates.
Drug candidates from the SACT-COV19 program are currently undergoing in vitro validation.
ALS-1: Small molecule intended for the treatment of viral infections caused by Influenza virus A
Professor Richard Kao, the Inventor of ALS-1, was the first to identify viral nucleoproteins (NP) as an effective drug target (Nature Biotechnology. 28:600-
605) We are exploring ALS-1 as a potential treatment for viral infections caused by Influenza virus A.
It is our hypothesis that Influenza A NP is an essential protein for the proliferation of the influenza virus. ALS-1 targets NP and triggers the aggregation of
NP and this prevents the aggregated NP from entering the nucleus. In an animal study published by the inventor, Prof. Richard Kao, in Nature Biotechnology (28 (6):
600, 2010), after treating with ALS-1, 50% of the mice receiving two doses of ALS-1 (100 μl of 2.3 mg/ml ALS-1) per day for 7 days survived for more than 21 days
compared with 100% mortality in the treatment-free control group within 7 days. In addition, about a 10x reduction of viral load in the lungs of the ALS-1-treated
mice was observed compared to the untreated control group. The animal study results suggest that ALS-1 has the potential to be developed into a useful anti-influenza
therapeutic.
ALS-1 is designed to target a broad range of NP variants, a novel therapeutic target. Compared with the currently marketed antiviral drugs for which the
viruses have acquired extensive resistance, ALS-1 acts on a completely different therapeutic target.
ALS-1 is currently undergoing Lead Optimization to optimize its drug-like properties.
ALS-2/ 3: Small molecules for the treatment of bacterial infections caused by Staphylococcus aureus including MRSA
ALS-2/3 is a potential class of next generation small molecules targeting bacterial virulence for the treatment of bacterial infections caused by
Staphylococcus aureus including MRSA. In a recent paper published by the inventor, Professor Richard Kao from The University of Hong Kong (also the Founder and
Principal Investigator of Acticule), in PNAS (115(310: 8003, 2018), ALS-2/3 suppresses the expression of multiple virulence factors in Staphylococcus aureus
simultaneously. In a lethal infection mouse model, compared with the vehicle group, ALS-2/3 protected against Staphylococcus aureus for all the mice in the group,
with significant differences between the treatment and control groups [P = 0.0057, by log-rank (Mantel-Cox) test].
ALS-2/3 small molecules are currently at the Lead Optimization stage to optimize its drug-like properties.
NLS-1: A Derivative of Epigallocatechin-3-Gallate (“Pro-EGCG”) for the treatment of Endometriosis
NLS-1, a drug molecule derived from natural products (green tea), is currently under development for the treatment of endometriosis, a disease in which the
tissue that normally lines the uterus (endometrium) grows outside the uterus.
NLS-1 acts as an anti-angiogenic to offer a potential novel treatment of endometriosis. In a paper published by the inventors in Angiogenesis (16:59, 2013),
NLS-1 brought a statistically significantly reduction in the lesion size and weight compared with EGCG and the control without any treatment in an experimental
endometriosis mouse model (Student t-test, p < 0.05). In addition, the inhibition by NLS-1 in all of the angiogenesis parameters was statistically significantly greater
than that by EGCG (Student t-test, p < 0.05). In addition, NLS-1 significantly (Student t-test, p < 0.05) reduces the lesion size in both prevention and treatment group
compared with both saline and EGCG groups. Moreover, NLS-1 also had better bioavailability and greater antioxidation and anti-angiogenesis capacities compared
with EGCG. As a follow-up study in an animal model of endometriosis, orally administered NLS-1 reduced the lesion size significantly better than oral EGCG
(p<0.05-0.001 at week 3- 8, ANOVA) and other hormone-based therapy such as intramuscular GnRH analog (p<0.05 at week 4-8, ANOVA) and other synthetic anti-
angiogenesis agents such as intraperitoneal PTK787 (p<0.05-0.01 at week 4-8, ANOVA). Regarding safety, there was no signs of stress to NLS-1 administration were
observed during the treatment period. No significant weight change was observed over the course of the experiment. Histological examination revealed no obvious
reproductive effects on ovarian follicles and endometrial glands under NLS-1 treatments. Also, vascularization of the ovaries and the uterus was not affected in the
NLS-1 treatment group.
68
We are currently undergoing some activities to enable NLS-1 to enter IND-enabling studies. Besides, we are exploring possibilities to develop a non-drug
formulation for NLS-1.
On May 6, 2021, we announced that we entered into an agreement with Exeltis (“Exeltis”) (a division of the global pharmaceutical group Insud Pharma) to
develop, manufacture and commercialize NLS-1 in the following territories: the European Union and Latin America (with an option to expand the collaboration to the
United States). This novel candidate is intended to target woman’s health and gynecological conditions, such as endometriosis or related conditions. Under this
agreement, Aptorum Group will retain the development rights in other jurisdictions in the world, as well as the right to develop the novel candidate into a drug
product. Commercialization of the product is subject to relevant regulatory approvals in their respective jurisdictions.
Aptorum Medical Limited - AML Clinic
Incorporated in August 2017, Aptorum Medical Limited is a Hong Kong-based company incorporated in Cayman Islands focused on delivering premium
healthcare and clinic services. AML can draw on the expertise of many of the region’s most experienced medical practitioners, and is committed to providing a
comprehensive cross-functional facility for healthcare professionals to practice evidence-based medicine and offer high-quality medical services to their patients. We
also intend that AML will offer to conduct clinical trials of both the Company’s and third parties’ new drug products.
Effective as of March 2018, we leased office space in Central, Hong Kong, the commercial and financial heart of Hong Kong, as the home to AML Clinic.
We operate the AML Clinic under the name of Talem Medical. AML Clinic commenced operation in June 2018.
The renovated medical center is staffed by our group of medical professionals and offers state-of-the-art facilities. Initially we expect to focus our expertise
on treatment of chronic diseases resulting from modern sedentary lifestyles and an aging population.
Natural supplement
NLS-2: NativusWell®, a Bioactive Ingredient (DOI) in Chinese Yam for the Relief of Menopausal Symptoms as a Natural Supplement.
NativusWell® (NLS-2) is a natural supplement made with the bioactive ingredient extracted Chinese yam powder containing “DOI”, which is Aptorum
Group’s non-hormonal approach intended to meet certain growing consumer nutritional trends and concerns. It is estimated that 1.2 billion women worldwide will be
menopausal or postmenopausal by the year 20301. The global woman’s health supplement market for menopausal symptoms is projected to reach over USD$50bn by
2025 with a CAGR rate of 16.4% (2016-2025)2. Initially, the supplement will be commercialized and sold in Hong Kong; the Company is seeking regulatory
clearance to market the product in other major jurisdictions. We previously entered into a regional distribution and marketing agreement, but have since decided to
commercialize NLS-2 through our own efforts.
1 World Health Technical Report Series. Research on the Menopause in the 1990’s. Geneva, Switzerland: World Health Organization; 1996.
2
https://www.grandviewresearch.com/press-release/global-isoflavones-market
69
The production of Aptorum Group’s dioscorea opposita bioactive nutraceutical tablets has commenced production in Canada and will be marketed under the
brand name NativusWell®; once ready for sale, we intend to sell it online and in physical healthcare stores.
NativusWell® tablets are natural, non-hormonal supplements containing DOI. The yam powder with DOI utilizes a non-hormonal approach that is intended to
boost the general wellness of women undergoing menopause. Third party scientific studies indicate that DOI, the naturally occurring bioactive ingredient in Chinese
yam, appears to stimulate estradiol biosynthesis, induce estradiol and progesterone secretion and increase bone density, thereby potentially counteracting the
progression of osteoporosis3, one of the common symptoms associated with menopause4.
Competition
Our industry is highly competitive and subject to rapid and significant change. While we believe that our development and commercialization experience,
scientific knowledge and industry relationships provide us with competitive advantages, we face competition from pharmaceutical and biotechnology companies,
including specialty pharmaceutical companies, and generic drug companies, academic institutions, government agencies and research institutions.
There are a number of large pharmaceutical and biotechnology companies that currently market and sell drugs or are pursuing the development of drugs for
the diagnosis and treatment of diseases for which we are developing products or technology. Moreover, a number of additional drugs are currently in clinical trials and
may become competitors if and when they receive regulatory approval.
3
4
https://www.ke.hku.hk/story/innovation/the-magic-of-chinese-yam-for-treatment-of-menopausal-syndrome; see also, Scientific Reports, 5-10179.
https://www.everydayhealth.com/menopause/osteoporosis-and-menopause.aspx
Many of our competitors have longer operating histories, better name recognition, stronger management capabilities, better supplier relationships, a larger
technical staff and sales force and greater financial, technical or marketing resources 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. Our commercial opportunity could be reduced or
eliminated if our competitors develop or market products or other novel therapies that are more effective, safer or less costly than our current drug candidates, or any
future drug candidates we may develop, or obtain regulatory approval for their products more rapidly than we may obtain approval for our current drug candidates or
any such future drug candidates. Our success will be based in part on our ability to identify, develop and manage a portfolio of drug candidates that are safer and more
effective than competing products.
Inflation
Inflation affects us by generally increasing our cost of labor and research and development costs, the way it does to all labor and research costs. However, we
do not anticipate that inflation will materially affect our business in the foreseeable future.
Seasonality
We believe our operation and sales do not experience seasonality.
Employees
As of the date of this annual report, we have 26 full-time employees. Of these, 9 are engaged in research and development and laboratory operations, 13 are
engaged in general and administrative functions and 4 are engaged in the clinic operation. As of the date of annual report, 25 of our employees are located in Asia and
1 of our employees is located in Europe. In addition, we have engaged and may continue to engage 56 independent contracted consultants and advisors to assist us
with our operations. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We have never experienced any
employment related work stoppages, and we consider our relations with our employees to be good.
70
Intellectual Property
The technologies underlying our various research and development projects are the subject of various patents and patent applications claiming, in certain
instances, composition of matter and, in other instances, methods of use. Prosecution, maintenance and enforcement of these patents, as well as those on any future
protectable technologies we may acquire, are and will continue to be an important part of our strategy to develop and commercialize novel medicines, as described in
more detail below. Through entering into license agreements with their owners, we have obtained exclusive rights to these patents, applications and related know-how
in the U.S. and certain other countries to develop, manufacture and commercialize the products using or incorporating the protected inventions that are described in
this annual report and that are expected to contribute significant value to our business. The technologies protected by these patents may also for the basis for the
development of other products.
In addition to licensed intellectual property, our in-house science team has been actively developing our own proprietary intellectual property. No non-
provisional patent application has yet been filed in the Company’s own name for the Lead Projects. We have, however, filed a number of provisional applications to
establish earlier filing dates for certain of our other ongoing researches, the specifics of which are currently proprietary and confidential.
The U.S. patent system permits the filing of provisional and non-provisional patent applications (i.e., a regular patent application). A non-provisional patent
application is examined by the USPTO, and can mature into a patent once the USPTO determines that the claimed invention meets the standards for patentability. On
the other hand, a provisional patent application is not examined for patentability, and automatically expires 12 months after its filing date. As a result, a provisional
patent application cannot mature into a patent.
Provisional applications are often used, among other things, to establish an earlier filing date for a subsequent non-provisional patent application. The term of
individual patents depends upon the legal term of the patents in the countries in which they are obtained.
The effective filing date of a non-provisional patent application is used by the USPTO to determine what information is prior art when it considers the
patentability of a claimed invention. If certain requirements are satisfied, a non-provisional patent application can claim the benefit of the filing date of an earlier filed
provisional patent application. As a result, the filing date accorded by the provisional patent application may supersede information that otherwise could preclude the
patentability of an invention.
A provisional patent application is not eligible to become an issued patent unless, among other things, we file a non-provisional patent application within 12
months of the filing date of the provisional patent application. If we do not timely file a non-provisional patent application claiming priority to said provisional
application, we may lose our priority date with respect to our provisional patent applications. Further, if any (self or by others) publication of the invention is made
after such priority date, and if we do not file a non-provisional application claiming priority to said provisional application, our invention may become unpatentable.
Moreover, we cannot predict whether such future patent applications will result in the issuance of patents that effectively protect any of our product
candidates or will effectively prevent others from commercializing competitive products.
We do not expect to incur material expenses in the prosecution of the provisional applications or other licensed patent applications. We expect to fund the
patent costs from our cash and restricted cash.
The value of our drug products will depend significantly on our ability to obtain and maintain patent and other proprietary protection for those products,
preserve the confidentiality of our trade secrets and operate without infringing the valid and enforceable patents and proprietary rights of other parties.
71
As of the date hereof, we are the patentee of a number of provisional and non-provisional patent applications, both on our proprietarily developed projects
and improvement to our in-licensed projects.
The following table sets forth a list of our patent rights under the exclusive licenses as of the date of this annual report related to our Lead Projects, ALS-4
and RPIDD; on the other hand, our other Lead Project, SACT-1 is a proprietary technology not subject to any license agreement:
Project
Company /
Project name License Agreement
Acticule /
ALS-4
Exclusive Patent License
dated
Agreement,
October 18, 2017
Licensee
Licensor(s)
Versitech Limited Acticule
Life
Sciences Limited
to
First Amendment
Exclusive
License
Agreement, dated June
7, 2018
Second Amendment to
Exclusive
License
Agreement dated July
10, 2019
Exclusive Patent License
Agreement
dated
January 11, 2019
RPIDD
Exclusive Patent License
dated
Agreement,
September 25, 2020
Accelerate
Aptorum
Technologies
Ltd
Pte
Innovations
Holding Pte. Ltd
Licensed / IP Rights
Exclusive
pending
licensee: 2 pending U.S.
applications (16/867,540 and 17/006,985),
applications
European
1
pending
PRC
(EP18835238.9),
1
12
application
pending applications
in other foreign
jurisdictions including Australia, Brazil,
Canada, Chile, Eurasia, Hong Kong, Israel,
Japan, Korea, Malaysia, New Zealand,
Singapore
(CN201880048674.5),
Exclusive
licensee: 4 U.S. patents
US7635566, US8241850, US9920355,
US10472667,
patent
EP3224374, 1 Great Britain patent
GB2532749
European
1
Patent Expiration Dates
The licensed IP rights include
granted patents in the U.S. and
pending patent applications in the
U.S., Europe, PRC and other
foreign jurisdictions.
The U.S. patents will expire in
2038; any other patent based on
the pending application, if granted,
will have a 20-year patent term
from 2018.
The U.S. patents will expire in
2028, 2029 and 2035 respectively.
The UK patent will expire in 2034.
Because of the extensive time required for clinical development and regulatory review of a drug we may develop, it is possible that, before any of our drug
candidates can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any
advantage of any such patent. If appropriate, the Company may seek to extend the period during which it has exclusive rights to a product by pursuing patent term
extensions and marketing exclusivity periods that are available from the regulatory authorities of certain countries (including the United States) and the EPO.
72
Even though the Company has certain patent rights, the ability to obtain and maintain protection of biotechnology and pharmaceutical products and processes
such as those we intend to develop and commercialize involves complex legal and factual questions. No consistent policy regarding the breadth of claims allowed in
such patents has emerged to date in the U.S. The scope of patent protection outside the United States is even more uncertain. Changes in the patent laws or in
interpretations of patent laws in the United States and other countries have diminished (and may further diminish) our ability to protect our inventions and enforce our
IP rights and, more generally, could affect the value of IP.
While we have already secured rights to a number of issued patents directed to our drug candidates, we cannot predict the breadth of claims that may issue
from the pending patent applications and provisional patents that we have licensed or that we have filed. Substantial scientific and commercial research has been
conducted for many years in the areas in which we have focused our development efforts, which has resulted in other parties having a number of issued patents,
provisional patents and pending patent applications relating to such areas. The patent examiner in any particular jurisdiction may take the view that prior issued patents
and prior publications render our patent claims “obvious” and therefore unpatentable or require us to reduce the scope of the claims for which we are seeking patent
protection.
In addition, patent applications in the United States and elsewhere generally are not available to the public until at least 18 months from the priority date, and
the publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made.
Therefore, patent applications relating to drugs similar to our drug candidates may have already been filed, which (if they result in issued patents) could restrict or
prohibit our ability to commercialize our drug candidates.
The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents and other IP rights. Our ability to prevent
competition for our drug candidates and technologies will depend on our success in obtaining patents containing substantial and enforceable claims for those
candidates and enforcing those claims once granted. With respect to any applications which have not yet resulted in issued patents, there can be no assurance that
meaningful claims will be obtained. Even issued patents may be challenged or invalidated. If others have prepared and filed patent applications in the United States
that also claim technology to which we have filed patent applications or otherwise wish to challenge our patents, we may have to participate in interferences, post-
grant reviews, inter parties reviews, derivation or other proceedings in the USPTO and other patent offices to determine issues such as priority of claimed invention or
validity of such patent applications as well as our own patent applications and issued patents. Patents may also be circumvented, and our competitors may be able to
independently develop and commercialize similar drugs or mimic our technology, business model or strategy without infringing our patents. The rights granted under
any issued patents may not provide us with proprietary protection or competitive advantages against competitors with similar technology.
We may rely, in some limited circumstances, on unpatented trade secrets and know-how to protect aspects of our technology. However, it is challenging to
monitor and prevent the disclosure of trade secrets. We seek to protect our proprietary trade secrets and know-how, in part, by entering into confidentiality agreements
with consultants, scientific advisors and contractors and invention assignment agreements with our employees. We also seek to preserve the integrity and
confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology
systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, giving our competitors
knowledge of our trade secrets and know-how, and we may not have adequate remedies for any such breach, in which case our business could be adversely affected.
Our trade secrets will not prevent our competitors from independently discovering or developing the same know-how. Although our agreements with our consultants,
contractors or collaborators require them to provide us only original work product and prohibit them from incorporating or using IP owned by others in their work for
us, if they breach these obligations, disputes may arise as to the rights in any know-how or inventions that arise from their work.
Our commercial success will also depend in part on not infringing the proprietary rights of other parties. Although we seek to review the patent landscape
relevant to our technologies on an ongoing basis, we may become aware of a new patent which has been issued to others with claims covering or related to aspects of
one of our drug candidate. The issuance of such a patent could require us to alter our development plans for that candidate, redesign the candidate, obtain a license
from the patent holder or cease development. Our inability to obtain a license to proprietary rights that we may require to develop or commercialize any of our drug
candidates would have a material adverse impact on us.
73
Trademarks
As of the date of this annual report, we own trademark registrations covering the trade names and logos of Aptorum and our subsidiaries, including but not
limited to “APTORUM”, “APTORUM THERAPEUTICS,” “VIDENS LIFE SCIENCES,” “ACTICULE LIFE SCIENCES,”, “CLAVES LIFE SCIENCES”,
“NATIVUS LIFE SCIENCES”, “TALEM,” in jurisdictions Hong Kong, EU and the United Kingdom and PRC. Furthermore, we are in the process of applying for
registration of trademarks in jurisdictions including the U.S., EU, the United Kingdom, and PRC.
We also own certain unregistered trademark rights.
All other trade names, trademarks and service marks of other companies appearing in this annual report are the property of their respective holders. Solely for
convenience, the trademarks and trade names in annual report are referred to without the ® and ™ symbols, but such references should not be construed as any
indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use or display of other
companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
Regulations
Government authorities in the United States at the federal, state and local level and in other countries extensively regulate, among other things, the research
and clinical development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-
approval monitoring and reporting, marketing, pricing, export and import of drug products (“Regulated Products”), such as those we are developing. Generally, before
a new Regulated Product can be marketed, considerable data demonstrating its quality, safety and efficacy must be obtained, organized to address the requirements of
and in the format specific to each regulatory authority, submitted for review and approved by the regulatory authority. This process is very lengthy and expensive, and
success is uncertain.
Regulated Products are also subject to other federal, state and local statutes and regulations in the United States and other countries, as applicable. The
process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the
expenditure of substantial time and financial resources. Failure to comply with the applicable regulatory requirements at any time during the product development
process, approval process or after approval, may subject an applicant to administrative or judicial sanctions. These sanctions could include, among other actions, the
regulatory authority’s refusal to approve pending applications, withdrawal of an approval, clinical holds, untitled or warning letters, voluntary product recalls or
withdrawals from the market, product seizures, total or partial suspension of production or distribution, injunctions, disbarment, fines, refusals of government
contracts, restitution, disgorgement, or civil or criminal penalties. Any such administrative or judicial enforcement action could have a material adverse effect on us.
As AML Clinic and part of the Company’s principal place of business is in Hong Kong, the Company is subject to various Hong Kong laws and regulation
covering its business activities there, described in further detail below. Also, the Company anticipates that, if it obtains marketing approval for any of its drug
candidates, it intends to focus its marketing and sales efforts primarily in three regions: the United States, Canada, Europe and PRC. The regulatory framework for
each of these regions is described below.
74
U.S. Drug Development Process
The process of obtaining regulatory approvals and maintaining compliance with appropriate federal, state and local statutes and regulations requires the
expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process,
approval process, or after approval, may subject an applicant to administrative or judicial sanctions or lead to voluntary product recalls. Administrative or judicial
sanctions could include the FDA’s refusal to approve pending applications, withdrawal of an approval, a clinical hold, untitled or warning letters, product seizures,
total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties.
The process required by the FDA before a drug may be marketed in the United States generally involves the following:
● completion of non-clinical laboratory tests, preclinical studies according to cGLP and manufacturing of clinical supplies according to cGMP;
● submission to the FDA of an IND, which must become effective before human clinical trials may begin;
● approval by an independent IRB, at each clinical site before each trial may be initiated;
● performance of adequate and well-controlled human clinical trials according to cGCP, to establish the safety and efficacy of the proposed product for its
intended use;
● preparation and submission to the FDA of an NDA, for a drug;
● satisfactory completion of an FDA advisory committee review, if applicable;
● satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product, or components thereof, are produced to
assess compliance with cGMP; and
● payment of user fees and the FDA review and approval of the NDA.
The testing and approval process requires substantial time, effort and financial resources and we cannot be certain that any approvals for our drug candidates,
or any future drug candidates we may develop, will be granted on a timely basis, if at all.
Once a drug candidate is identified for development, it enters the non-clinical testing stage. Non-clinical tests include laboratory evaluations of product
chemistry, toxicity, formulation and stability, as well as preclinical studies. An IND sponsor must submit the results of the non-clinical tests, together with
manufacturing information, analytical data and any available clinical data or literature, to the FDA as part of the IND prior to commencing any testing in humans. An
IND sponsor must also include a protocol detailing, among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria,
the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated if the initial clinical trial lends itself to an efficacy evaluation. Some non-
clinical testing may continue even after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA raises
concerns or questions related to a proposed clinical trial and places the trial on a clinical hold within that 30-day time period. In such a case, the IND sponsor and the
FDA must resolve any outstanding concerns before the clinical trial can begin. Clinical holds also may be imposed by the FDA at any time before or during clinical
trials due to safety concerns or non-compliance, and may be imposed on all products within a certain class of products. The FDA also can impose partial clinical holds,
for example, prohibiting the initiation of clinical trials for certain duration or for certain doses.
All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with cGCP regulations. These regulations
include the requirement that all research subjects provide informed consent in writing before their participation in any clinical trial. Further, an IRB representing each
institution participating in a clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct
continuing review and reapprove the study at least annually. An IRB is responsible for protecting the rights of clinical trial subjects and considers, among other things,
whether the risks to individuals participating in the clinical trial are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the
information regarding the clinical trial and the consent form that must be provided to each clinical trial subject or his or her legal representative and must monitor the
clinical trial until completed. Each new clinical protocol and any amendments to the protocol must be submitted to the FDA for review, and to the IRBs for approval.
Protocol detail, among other things, includes the objectives of the clinical trial, testing procedures, sublease selection and exclusion criteria, and the parameters to be
used to monitor subject safety.
75
Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:
● Phase 1. Phase 1 includes the initial introduction of an investigational new drug into humans. These studies are closely monitored and may be conducted
in patients, but are usually conducted in healthy volunteer subjects. These studies are designed to determine the metabolic and pharmacologic actions of
the drug in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness. During Phase 1, sufficient
information about the drug’s pharmacokinetics and pharmacological effects should be obtained to permit the design of well-controlled, scientifically
valid, Phase 2 studies. Phase 1 studies also evaluate drug metabolism, structure-activity relationships, and the mechanism of action in humans. These
studies also determine which investigational drugs are used as research tools to explore biological phenomena or disease processes. The total number of
subjects included in Phase 1 studies varies with the drug, but is generally in the range of twenty to eighty.
● Phase 2. Phase 2 includes the early controlled clinical studies conducted to obtain some preliminary data on the effectiveness of the drug for a particular
indication or indications in patients with the disease or condition. This phase of testing also helps determine the common short-term side effects and risks
associated with the drug. Phase 2 studies are typically well-controlled, closely monitored, and conducted in a relatively small number of patients, usually
involving several hundred people.
● Phase 3. Phase 3 studies are expanded controlled and uncontrolled trials. They are performed after preliminary evidence suggesting effectiveness of the
drug has been obtained in Phase 2, and are intended to gather the additional information about effectiveness and safety that is needed to evaluate the
overall benefit-risk relationship of the drug. Phase 3 studies are designed to provide an adequate basis for extrapolating the results to the general
population and transmitting that information in the physician labeling. Phase 3 studies usually include several hundred to several thousand people.
Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and safety reports must be submitted to the FDA and
clinical investigators within 15 calendar days for serious and unexpected suspected adverse events, any clinically important increase in the rate of a serious suspected
adverse reaction over that listed in the protocol or investigator’s brochure, or any findings from other studies or animal or in vitro testing that suggest a significant risk
in humans exposed to the drug candidate. Additionally, a sponsor must notify the FDA of any unexpected fatal or life-threatening suspected adverse reaction no later
than 7 calendar days after the sponsor’s receipt of the information. There is no assurance that Phase 1, Phase 2 and Phase 3 testing can be completed successfully
within any specified period, or at all. The FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the
research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if
the clinical trial is not being conducted in accordance with the IRB’s requirements or if the product has been associated with unexpected serious harm to subjects.
Concurrent with clinical trials, companies usually complete additional preclinical studies and must also develop additional information about the chemistry
and physical characteristics of the product and finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The
manufacturing process must be capable of consistently producing quality batches of the product drug and, among other things, the manufacturer must develop methods
for testing the identity, strength, quality and purity of the final product. Additionally, appropriate packaging must be selected and tested and stability studies must be
conducted to demonstrate that the product drug does not undergo unacceptable deterioration over its shelf life.
The results of product development, non-clinical studies and clinical trials, together with other detailed information regarding the manufacturing process,
analytical tests conducted on the product, proposed labeling and other relevant information, are submitted to the FDA as part of an NDA requesting approval to market
the new drug. The FDA reviews all NDAs submitted within 60 days of submission to ensure that they are sufficiently complete for substantive review before it accepts
them for filing. If the submission is accepted for filing, the FDA begins an in-depth substantive review.
The approval process is lengthy and difficult and the FDA may refuse to approve an NDA if the applicable regulatory criteria are not satisfied or may require
additional clinical data or other data and information. Even if such data and information are submitted, the FDA may ultimately decide that the NDA does not satisfy
the criteria for approval. Data obtained from clinical trials are not always conclusive, and the FDA may interpret data differently than we interpret the same data. The
FDA will issue a complete response letter if the agency decides not to approve the NDA in its present form. The complete response letter usually describes all of the
specific deficiencies that the FDA identified in the NDA that must be satisfactorily addressed before it can be approved. The deficiencies identified may be minor, for
example, requiring labeling changes, or major, for example, requiring additional clinical trials. Additionally, the complete response letter may include recommended
actions that the applicant might take to place the application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the
NDA, addressing all of the deficiencies identified in the letter, or withdraw the application or request an opportunity for a hearing.
76
If after such review a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for
use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or
precautions be included in the product labeling. Any products for which we receive the FDA approval would be subject to continuing regulation by the FDA,
including, among other things, record-keeping requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy
information, product sampling and distribution requirements, complying with certain electronic records and signature requirements and complying with the FDA
promotion and advertising requirements. In addition, the FDA may require post-approval studies, including Phase 4 clinical trials, to further assess a product’s safety
and effectiveness after NDA approval and may require testing and surveillance programs to monitor the safety of approved products that have been commercialized.
The FDA also may conclude that an NDA may only be approved with a Risk Evaluation and Mitigation Strategy designed to mitigate risks through, for example, a
medication guide, physician communication plan, or other elements to assure safe use, such as restricted distribution methods, patient registries and other risk
minimization tools.
Post-Approval Requirements
Any products for which we receive the FDA approval are subject to continuing regulation by the FDA, including, among other things, record-keeping
requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information, product sampling and distribution
requirements, complying with certain electronic records and signature requirements and complying with the FDA promotion and advertising requirements. The FDA
strictly regulates labeling, advertising, promotion and other types of information on products that are placed on the market. Products may be promoted only for the
approved indications and in accordance with the provisions of the approved label. Further, manufacturers must continue to comply with cGMP requirements, which
are extensive and require considerable time, resources and ongoing investment to ensure compliance. In addition, changes to the manufacturing process generally
require prior the FDA approval before being implemented and other types of changes to the approved product, such as adding new indications and additional labeling
claims, are also subject to further the FDA review and approval.
The FDA may withdraw a product approval if compliance with regulatory requirements is not maintained or if problems occur after the product reaches the
market. Later discovery of previously unknown problems with a product may result in restrictions on the product’s marketing or even complete withdrawal of the
product from the market. Further, the failure to maintain compliance with regulatory requirements may result in administrative or judicial actions, such as fines,
untitled or warning letters, holds on clinical trials, product seizures, product detention or refusal to permit the import or export of products, refusal to approve pending
applications or supplements, restrictions on marketing or manufacturing, injunctions or consent decrees, or civil or criminal penalties, or may lead to voluntary product
recalls.
Patent Term Restoration and Marketing Exclusivity
Because drug approval can take an extended period of time, there may be limited remaining life for the patents covering the approved drug, meaning that the
company has limited time to use the patents to protect the sponsor’s exclusive rights to make, use and sell that drug. In such a case, U.S. patents may be eligible for
limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Act. The
Hatch-Waxman Act permits a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory
review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date.
77
In addition, the FDCA provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to gain approval of an
NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which
is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug
application (“ANDA”) or a 505(b)(2) Application submitted by another company for another version of such drug where the applicant does not own or have a legal
right of reference to all the data required for approval.
In the future, if appropriate, we intend to apply for restorations of patent term and/or marketing exclusivity for some of our products; however, there can be
no assurance that any such extension or exclusivity will be granted to us.
Disclosure of Clinical Trial Information
Sponsors of clinical trials of the FDA-regulated products, including drugs are required to register and disclose certain clinical trial information, which is
publicly available at www.clinicaltrials.gov. Information related to the product, patient population, phase of investigation, study sites and investigators, and other
aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to disclose the results of their clinical trials after completion.
Disclosure of the results of these trials can be delayed until the new product or new indication being studied has been approved. Competitors may use this publicly
available information to gain knowledge regarding the progress of development programs.
Pharmaceutical Coverage, Pricing and Reimbursement
Much of the revenue generated by new Regulated Products depends on the willingness of third-party payors to reimburse the price of the product. Significant
uncertainty exists as to the coverage and reimbursement status of any products for which we may obtain regulatory approval. In the United States, sales of any
products for which we may receive regulatory approval for commercial sale will depend in part on the availability of coverage and reimbursement from third-party
payors. Third-party payors include government authorities, managed care providers, private health insurers and other organizations. The process for determining
whether a payor will provide coverage for a product may be separate from the process for setting the reimbursement rate that the payor will pay for the product. Third-
party payors may limit coverage to specific products on an approved list, or formulary, which is not required to include all of the FDA-approved products for a
particular indication. Moreover, a payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Adequate
third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product
development.
Third-party payors are increasingly challenging the price and examining the medical necessity and cost- effectiveness of medical products and services, in
addition to their safety and efficacy. To obtain coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive
pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of any products, in addition to the costs required to obtain regulatory
approvals. Our product candidates may not be considered medically necessary or cost-effective. If third-party payors do not consider a product to be cost-effective
compared to other available therapies, they may not cover the product after approval as a benefit under their plans or, if they do, the level of payment may not be
sufficient to allow a company to sell its products at a profit.
The U.S. government and state legislatures have shown significant interest in implementing cost containment programs to limit the growth of government-
paid health care costs, including price controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs.
Adoption of government controls and measures, and tightening of restrictive policies in jurisdictions with existing controls and measures, could limit payments for
pharmaceuticals.
78
Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage
policies and reimbursement rates may be implemented in the future. Unfavorable coverage or reimbursement policies regarding any of the Company’s products would
have a material adverse impact on the value of that product.
Other Healthcare Laws and Compliance Requirements
If we obtain regulatory approval of our products, we may be subject to various federal and state laws targeting fraud and abuse in the healthcare industry.
These laws may impact, among other things, our proposed sales, marketing and education programs. In addition, we may be subject to patient privacy regulation by
both the federal government and the states in which we conduct our business.
Patient Protection and the Affordable Care Act
The Affordable Care Act, enacted in March 2010, includes measures that have or will significantly change the way health care is financed in the United States
by both governmental and private insurers. Among the provisions of the Affordable Care Act of greatest importance to the pharmaceutical industry are the following:
● The Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have in effect a national rebate agreement with the
Secretary of the Department of Health and Human Services as a condition for states to receive federal matching funds for the manufacturer’s outpatient
drugs furnished to Medicaid patients. The Affordable Care Act increased pharmaceutical manufacturers’ rebate liability on most branded prescription
drugs from 15.1% of the average manufacturer price to 23.1% of the average manufacturer price, added a new rebate calculation for line extensions of
solid oral dosage forms of branded products, and modified the statutory definition of average manufacturer price. The Affordable Care Act also expanded
the universe of Medicaid utilization subject to drug rebates by requiring pharmaceutical manufacturers to pay rebates on Medicaid managed care
utilization and expanding the population potentially eligible for Medicaid drug benefits.
● In order for a pharmaceutical product to receive federal reimbursement under the Medicare Part B and Medicaid programs or to be sold directly to U.S.
government agencies, the manufacturer must extend discounts to entities eligible to participate in the 340B drug pricing program. The Affordable Care
Act expanded the types of entities eligible to receive discounted 340B pricing.
● The Affordable Care Act imposed a requirement on manufacturers of branded drugs to provide a 50% discount off the negotiated price of branded drugs
dispensed to Medicare Part D patients in the coverage gap (i.e., the “donut hole”).
● The Affordable Care Act imposed an annual, non-deductible fee on any entity that manufactures or imports certain branded prescription drugs,
apportioned among these entities according to their market share in certain government healthcare programs, although this fee does not apply to sales of
certain products approved exclusively for orphan indications.
In addition to these provisions, the Affordable Care Act established a number of bodies whose work may have a future impact on the market for certain
pharmaceutical products. These include the Patient-Centered Outcomes Research Institute, established to oversee, identify priorities in, and conduct comparative
clinical effectiveness research, the Independent Payment Advisory Board, which has authority to recommend certain changes to the Medicare program to reduce
expenditures by the program, and the Center for Medicare and Medicaid Innovation within the Centers for Medicare and Medicaid Services, to test innovative
payment and service delivery models to lower Medicare and Medicaid spending.
These and other laws may result in additional reductions in healthcare funding, which could have a material adverse effect on customers for our product
candidates, if we gain approval for any of them. Although we cannot predict the full effect on our business of the implementation of existing legislation or the
enactment of additional legislation pursuant to healthcare and other legislative reform, we believe that legislation or regulations that would reduce reimbursement for,
or restrict coverage of, our products could adversely affect how much or under what circumstances healthcare providers will use our product candidates if we gain
approval for any of them.
79
Canadian Regulation
In Canada, our pharmaceutical product candidates and our research and development activities are primarily regulated by the Food and Drugs Act and the
rules and regulations thereunder, which are enforced by Health Canada. Health Canada regulates, among other things, the research, development, testing, manufacture,
packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, post-approval monitoring, marketing and import and export of pharmaceutical
products. Drug approval laws require licensing of manufacturing facilities, carefully controlled research and testing of products, government review and approval of
experimental results prior to giving approval to sell drug products. Regulators also typically require that rigorous and specific standards such as Good Manufacturing
Practices (GMP), Good Laboratory Practices, or GLP, and Good Clinical Practices, or GCP, are followed in the manufacture, testing and clinical development,
respectively, of any drug product. The processes for obtaining regulatory approvals in Canada, along with subsequent compliance with applicable statutes and
regulations, require the expenditure of substantial time and financial resources.
The principal steps required for drug approval in Canada is as follows:
Preclinical Toxicology Studies
Non-clinical studies are conducted in vitro and in animals to evaluate pharmacokinetics, metabolism and possible toxic effects to provide evidence of the
safety of the drug candidate prior to its administration to humans in clinical studies and throughout development. Such studies are conducted in accordance with
applicable laws and GLP.
Initiation of Human Testing
In Canada, the process of conducting clinical trials with a new drug cannot begin until we have received a NOL (No objection Letter) from Health Canada,
typically within 30 days (during Covid the 30 days extended to 45 days) of a CTA submission. Similar regulations apply in Canada to a CTA as to an IND in the
United States. Once approved, two key factors influencing the rate of progression of clinical trials are the rate at which patients can be enrolled to participate in the
research program and whether effective treatments are currently available for the disease that the drug is intended to treat. Patient enrollment is largely dependent upon
the incidence and severity of the disease, the treatments available and the potential side effects of the drug to be tested and any restrictions for enrollment that may be
imposed by regulatory agencies.
Clinical Trials
Similar regulations apply in Canada regarding clinical trials as in the United States. In Canada, Research Ethics Boards, or REBs, instead of IRBs, are used to
review and approve clinical trial plans. Clinical trials involve the administration of an investigational new drug to human subjects under the supervision of qualified
investigators in accordance with current Good Clinical Practices, or cGCP, requirements, which include review and approval by REBs. Clinical trials are conducted
under protocols detailing, among other things, the objectives of the trial, the trial procedures, the parameters to be used in monitoring safety and the efficacy criteria to
be evaluated and a statistical analysis plan. Human clinical trials are typically conducted in three sequential phases, as discussed above in similar context to
government regulation in the United States.
The manufacture of investigational drugs for the conduct of human clinical trials is subject to current Good Manufacturing Practice, or cGMP, requirements.
Investigational drugs and active pharmaceutical ingredients imported into Canada are also subject to regulation by Health Canada relating to their labeling and
distribution. Post authorization requirements include reporting of serious adverse events and clinical trial site inspection program. Phase 1, Phase 2 and Phase 3
clinical trials are subject to a clinical trial application (CTA) for each phase of study. Furthermore, in Canada, Health Canada or the sponsor may suspend or terminate
a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an REB can
suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the REB’s requirements or if the drug has
been associated with unexpected serious harm to subjects. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the
clinical trial sponsor, known as a data safety monitoring board or committee. This group regularly reviews accumulated data and advises the study sponsor regarding
the continuing safety of trial subjects, potential trial subjects and the continuing validity and scientific merit of the clinical trial. We may also suspend or terminate a
clinical trial based on evolving business objectives or competitive climate.
80
New Drug Submission (NDS)
Upon successful completion of Phase 3 clinical trials, in Canada the company sponsoring a new drug then assembles all the preclinical and clinical data and
other testing relating to the product’s pharmacology, chemistry, manufacture, and controls, and submits it to Health Canada as part of a New Drug Submission, or
NDS. The NDS is then reviewed by Health Canada for approval to market the drug.
As part of the approval process, an additional application for a Drug Establishment License (DEL) 90 days prior the NDS submission to Health Canada to
initiate review and inspection of the facility or the facilities at which the drug is manufactured are compliant with GMP requirements. Health Canada will not approve
the product unless compliance with cGMP—a quality system regulating manufacturing—is satisfactory and the NDS contains data that provide substantial evidence
that the drug is safe and effective in the indication studied. In addition, before approving an NDS, Health Canada will typically inspect one or more clinical sites to
assure compliance with GCP.
The testing and approval process for an NDS requires substantial time, effort and financial resources, and may take several years to complete. Data obtained
from preclinical and clinical testing are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory
approval. Health Canada may not grant approval of an NDS on a timely basis, or at all. In Canada, NDSs are subject to user fees and these fees are typically increased
annually to reflect inflation.
Even if Health Canada approves a product candidate, the relevant authority may limit the approved indications for use of the product candidate, require that
contraindications, warnings or precautions be included in the product labeling, including a black box warning, require that post-approval studies, including Phase 4
clinical trials, be conducted to further assess a drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization,
or impose other conditions, including distribution restrictions or other risk management mechanisms.
Health Canada may prevent or limit further marketing of a product based on the results of post-marketing studies or surveillance programs. After approval,
some types of changes to the approved product, such as adding new indications, manufacturing changes, and additional labeling claims, are subject to further testing
requirements, notification, and regulatory authority review and approval. Further, should new safety information arise, additional testing, product labeling or
regulatory notification may be required.
European Union Regulation
Regulation in the European Union
The process governing approval of medicinal products in the EU generally follows the same lines as in the United States. It entails satisfactory completion of
pharmaceutical development, non-clinical studies and adequate and well-controlled clinical trials to establish the safety and efficacy of the medicinal product for each
proposed indication. It also requires the submission to relevant competent authorities for clinical trials authorization and to the European Medicines Authority, or
EMA, for a marketing authorization application, or MAA, and granting of a marketing authorization by these authorities before the product can be marketed and sold
in the EU.
Clinical Trial Approval
Pursuant to the currently applicable Clinical Trials Directive 2001/20/EC and the Directive 2005/28/EC on cGCP, a system for the approval of clinical trials
in the EU (the equivalent of the IND process in the United States) has been implemented through national legislation of the EU member states. Under this system, an
applicant must obtain approval from the competent national authority of an EU member state in which the clinical trial is to be conducted or in multiple EU member
states if the clinical trial is to be conducted in a number of EU member states. Furthermore, the applicant may only start a clinical trial at a specific study site after the
independent ethics committee has issued a favorable opinion. The clinical trial application, or CTA, must be accompanied by an investigational medicinal product
dossier with supporting information prescribed by Directive 2001/20/EC and Directive 2005/28/EC and corresponding national laws of the EU member states and
further detailed in applicable guidance documents.
81
In April 2014, the EU adopted a new Clinical Trials Regulation (EU) No 536/2014, which is set to replace the current Clinical Trials Directive 2001/20/EC. It
is expected that the new Clinical Trials Regulation will apply in 2019. It will overhaul the current system of approvals for clinical trials in the EU. Specifically, the
new regulation, which will be directly applicable in all EU member states, aims at simplifying and streamlining the approval of clinical trials in the EU. For instance,
the new Clinical Trials Regulation provides for a streamlined application procedure using a single entry point and strictly defined deadlines for the assessment of
clinical trial applications.
Marketing Authorization
To obtain a marketing authorization for a product under the EU regulatory system (the equivalent of the NDA process in the United States), an applicant must
submit an MAA, either under a centralized procedure administered by the EMA or one of the procedures administered by competent authorities in EU member states
(decentralized procedure, national procedure, or mutual recognition procedure). A marketing authorization may be granted only to an applicant established in the EU.
Regulation (EC) No. 1901/2006 provides that prior to obtaining a marketing authorization in the EU, an applicant must demonstrate compliance with all measures
included in an EMA-approved Pediatric Investigation Plan, or PIP, covering all subsets of the pediatric population, unless the EMA has granted a product-specific
waiver, class waiver, or a deferral for one or more of the measures included in the PIP.
The centralized procedure provides for the grant of a single marketing authorization by the European Commission that is valid for all EU member states.
Pursuant to Regulation (EC) No. 726/2004, the centralized procedure is compulsory for specific products, including for medicines produced by certain
biotechnological processes, products designated as orphan medicinal products, advanced therapy products and products with a new active substance indicated for the
treatment of certain diseases, including products for the treatment of cancer. For products with a new active substance indicated for the treatment of other diseases and
products that are highly innovative or for which a centralized process is in the interest of patients, the centralized procedure may be optional.
Under the centralized procedure, the Committee for Medicinal Products for Human Use, or the CHMP, established by the EMA is responsible for conducting
the assessment of a product to define its risk/benefit profile. Under the centralized procedure, the maximum timeframe for the evaluation of an MAA is 210 days,
excluding clock stops when additional information or written or oral explanation is to be provided by the applicant in response to questions of the CHMP. Accelerated
evaluation may be granted by the CHMP in exceptional cases, when a medicinal product is of major interest from the point of view of public health and, in particular,
from the viewpoint of therapeutic innovation.
If the CHMP accepts such a request, the time limit of 210 days will be reduced to 150 days, but it is possible that the CHMP may revert to the standard time
limit for the centralized procedure if it determines that it is no longer appropriate to conduct an accelerated assessment.
Periods of Authorization and Renewals
A marketing authorization is valid for five years, in principle, and it may be renewed after five years on the basis of a reevaluation of the risk benefit balance
by the EMA or by the competent authority of the authorizing Member State. To that end, the marketing authorization holder must provide the EMA or the competent
authority with a consolidated version of the file in respect of quality, safety and efficacy, including all variations introduced since the marketing authorization was
granted, at least six months before the marketing authorization ceases to be valid. Once renewed, the marketing authorization is valid for an unlimited period, unless
the European Commission or the competent authority decides, on justified grounds relating to pharmacovigilance, to proceed with one additional five-year renewal
period. Any authorization that is not followed by the placement of the drug on the EU market (in the case of the centralized procedure) or on the market of the
authorizing Member State within three years after authorization ceases to be valid.
82
Regulatory Requirements after Marketing Authorization
Following approval, the holder of the marketing authorization is required to comply with a range of requirements applicable to the manufacturing, marketing,
promotion and sale of the medicinal product. These include compliance with the EU’s stringent pharmacovigilance or safety reporting rules, pursuant to which post-
authorization studies and additional monitoring obligations can be imposed. In addition, the manufacturing of authorized products, for which a separate manufacturer’s
license is mandatory, must also be conducted in strict compliance with the EMA’s cGMP requirements and comparable requirements of other regulatory bodies in the
EU, which mandate the methods, facilities and controls used in manufacturing, processing and packing of drugs to assure their safety and identity. Finally, the
marketing and promotion of authorized products, including industry-sponsored continuing medical education and advertising directed toward the prescribers of drugs
and/or the general public, are strictly regulated in the EU under Directive 2001/83EC, as amended.
Orphan Drug Designation and Exclusivity
Regulation (EC) No. 141/2000 and Regulation (EC) No. 847/2000 provide that a product can be designated as an orphan drug by the European Commission
if its sponsor can establish: that the product is intended for the diagnosis, prevention or treatment of (1) a life-threatening or chronically debilitating condition affecting
not more than five in ten thousand persons in the EU when the application is made, or (2) a life-threatening, seriously debilitating or serious and chronic condition in
the EU and that without incentives it is unlikely that the marketing of the drug in the EU would generate sufficient return to justify the necessary investment. For either
of these conditions, the applicant must demonstrate that there exists no satisfactory method of diagnosis, prevention, or treatment of the condition in question that has
been authorized in the EU or, if such method exists, the drug has to be of significant benefit compared to products available for the condition.
An orphan drug designation provides a number of benefits, including fee reductions, regulatory assistance and the possibility to apply for a centralized EU
marketing authorization. Marketing authorization for an orphan drug leads to a ten-year period of market exclusivity. During this market exclusivity period, neither the
EMA nor the European Commission or the EU member states can accept an application or grant a marketing authorization for a “similar medicinal product.” A
“similar medicinal product” is defined as a medicinal product containing a similar active substance or substances as contained in an authorized orphan medicinal
product, and which is intended for the same therapeutic indication. The market exclusivity period for the authorized therapeutic indication may, however, be reduced
to six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for orphan drug designation because, for example, the product is
sufficiently profitable not to justify market exclusivity.
PRC Regulation
In order to protect our potential market in the PRC, we have obtained an exclusive license of certain PRC patents directed to certain of the drug candidates
that we are developing and are currently seeking approval of additional patent and other IP filings in the PRC. We do not otherwise conduct business in the PRC.
Seeking IP approval in the PRC subjects us to some of the rules and practices of the PRC government. Since the Company intends eventually to market its products in
the PRC, at least some of our drug candidates may become subject to regulatory approval and marketing authorization in the PRC.
Hong Kong Regulation
The operations of AML Clinic in Hong Kong are subject to certain general laws and regulations in relation to clinic medical professionals, trade description
and safety of consumer goods, medical advertisement and importation, exportation, dealing in and sale of pharmaceutical products and drugs.
Medical Clinics Ordinance
The Medical Clinics Ordinance provides for the registration, control and inspection of medical clinics. It requires a medical clinic to be registered, with name
and address and other prescribed particulars. “Medical clinic” means any premises used or intended to be used for the medical diagnosis or treatment of persons
suffering from, or believed to be suffering from, any disease, injury or disability of mind or body, with specific exceptions, including private consulting rooms used
exclusively by registered medical practitioners in the course of their practice on their own account and not bearing any title or description which includes the word
“clinic” or “polyclinic” in the English language.
83
The application of registration may be refused if:
(i)
the income derived or to be derived from the establishment or operation of the clinic is not, or will not be, applied solely towards the promotion of the
objects of the clinic; or
(ii) any portion of such income, except payment of remuneration to employed registered medical practitioners, nurses and menial servants, will be paid by
way of dividend, bonus or otherwise howsoever by way of profit to the applicant himself, or to any persons properly so employed, or to any other
persons howsoever.
We do not believe that the Medical Clinic Ordinance is applicable to the business of our Company and its subsidiaries, having considered, among others, the
following:
(iii) the legislative intent behind the Medical Clinics Ordinance was to provide for registration of non-profit making clinics;
(iv) the Food and Health Bureau of Hong Kong published a consultation document, “Regulation of Private Healthcare Facilities” in 2014 which specifically
states that the Medical Clinics Ordinance and the Code of Practice For Clinics Registered Under The Medical Clinics Ordinance (Chapter 343 of the
Laws of Hong Kong) set out the regulatory framework for non-profit-making medical clinics and that other private healthcare facilities, such as
ambulatory medical centers and clinics operated by medical groups or individual medical practitioners, are not subject to direct statutory control beyond
the regulation of an individual’s professional practice; and
(v) our business is one which makes and intends to continue making profit as a listed entity. The payment of bonuses to some of our Hong Kong Doctors is
clearly a reflection of the profit-making nature of our business.
Hence, we do not believe that AML Clinic is required to be registered under the Medical Clinics Ordinance.
Waste Disposal Ordinance
The Waste Disposal Ordinance (Chapter 354 of the Laws of Hong Kong) (“WDO”) and the Waste Disposal (Clinical Waste) (General) Regulation (Chapter
354O of the Laws of Hong Kong) (the “WDR”) provide for, among others, the control and regulation of the production, storage, collection and disposal of clinical
waste.
Under the WDO, clinical waste means waste consisting of any substance, matter or thing generated in connection with:
● a dental, medical, nursing or veterinary practice;
● any other practice, or establishment (howsoever described), that provides medical care and services for the sick, injured, infirm or those who require
medical treatment;
● dental, medical, nursing, veterinary, pathological or pharmaceutical research; or
● a dental, medical, veterinary or pathological laboratory practice,
84
and which consists wholly or partly of any of the materials specified in one or more of the groups listed below:
● used or contaminated sharps;
● laboratory waste;
● human and animal tissues;
● infectious materials;
● dressings; and
● such other wastes as specified by the Director of the Environmental Protection Department (“EPD”) of Hong Kong.
Given the medical services provided by AML Clinic and the research works in our R&D Center may produce used or contaminated sharps such as syringes
and needles as well as dressings, we are subject to WDO, WDR and the Code of Practice.
Public Health and Municipal Services Ordinance
We intend to first launch market NativusWell® (NLS-2) in Hong Kong. In Hong Kong, natural supplements are defined as “health food” products. “Health
food” containing medicines are subject to the Pharmacy and Poisons Ordinance (Cap 138) and such “health food” containing Chinese medicines are regulated by the
Chinese Medicine Ordinance (Cap 549), where they must meet the requirements in respect of safety, quality and efficacy before they can be registered.
For other “health food” products which cannot be classified as Chinese medicine or western medicine are regulated under the Public Health and Municipal
Services Ordinance (Cap 132) as general food products. The Public Health and Municipal Services Ordinance requires the manufacturers and sellers of food to ensure
that their products are fit for human consumption and comply with the requirements in respect of food safety, food standards and labelling. In addition, all prepackaged
food should bear labels which correctly list out the ingredients of the food under the Food and Drugs (Composition and Labelling) Regulations (Cap 132W) under the
Ordinance.
The NativusWell® (NLS-2) is made with the bioactive ingredient extracted Chinese yam powder and does not contain any western or Chinese medicine;
therefore, registration is not required under the local laws for marketing in Hong Kong. We will, however, ensure the compliance of the Food and Drugs (Composition
and Labelling) Regulations (Cap 132W) with by proper labelling in place.
Rest of the World Regulation
For other countries in the world, the requirements governing the conduct of clinical trials, medical product licensing, pricing and reimbursement vary from
country to country. In all cases if clinical trials are required, they must be conducted in accordance with cGCP requirements and the applicable regulatory requirements
and the ethical principles having their origin in the Declaration of Helsinki.
If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory
approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
C. Our Structure
See “Item 4. Information on the Company – A. History and Development of the Company.”
D. Property, plants and equipment
We have several operating leases for offices, laboratories and clinic. Our offices are located in London, New York and Hong Kong.
85
Our office space in London consists of approximately 172 square feet under a lease that commenced in August 2019, last renewed in March 2022, expires in
May 2022 and has a rent of $4,246 per month. Our office space in New York consists of approximately 95 square feet under a lease that commenced in February 2020,
which will automatically renew until 1 month’s notice for termination, and has a rent of $1,844 per month. Our facilities in Hong Kong consists of: (i) 2,021 square
feet lab space under a lease that commenced in March 2020 and expires in March 2023, that carries a monthly rent of $6,348 and which is used for the center for
R&D; (ii) 851 square feet office space under a lease that commenced in December 2017 and expired in December 2020, renewed in December 2020 and expires in
March 2023 with a monthly rent of $2,509, (the “HKSTP Office Space”); and (iii) 3,173 square feet space under a lease that commenced in March 2018 and expires in
March 2022, renewed in March 2022 and expires in March 2024 with an initial monthly rent of $31,923 (the “AML Lease”, which is home to AML Clinic).
Payments under operating leases are expensed on a straight-line basis over the periods of the respective leases, and the terms of the leases do not contain rent
escalation, contingent rent, and renewal or purchase options.
We believe our current facilities are sufficient to meet our needs.
Item 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our consolidated financial
statements and their related notes included in this annual report.
For purposes of Item 5, reference to the “We”, “Our”, “Ours” or “Group” means Aptorum Group Limited and all of its subsidiaries.
This annual report includes consolidated financial statements for the years ended December 31, 2021, 2020 and 2019. However, as permitted by Instruction 6
to Item 5 of Form 20-F, a discussion of the changes in our results of operations for the years ended December 31, 2019 and 2018 has been omitted from this annual
report, but may be found in “Item 5. Operating And Financial Review And Prospects” in our annual report on Form 20-F for the year ended December 31, 2019, filed
with the SEC on April 29, 2020.
This annual report contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to
us. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be
materially different from those expressed or implied by the forward-looking statements.
You can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,”
“believe,” “potential,” “continue,” “is/are likely to” or other similar expressions. We have based these forward-looking statements largely on our current expectations
and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.
These forward-looking statements include, among other things, statements relating to:
● our goals and strategies;
● our future business development, financial conditions and results of operations;
● our expectations regarding demand for and market acceptance of our products once available;
● our expectations regarding our development and commercialization of our therapeutics;
● competition in our industry; and
● relevant government policies and regulations relating to our industry.
86
You should thoroughly read this annual report and the documents that we refer to in this annual report with the understanding that our actual results in the
future may be materially different from or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements. Other sections
of this annual report include additional factors which could adversely affect our business and financial performance. Moreover, we operate in an evolving
environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor
can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statements. Important risks and factors that could cause our actual results to be materially different from our expectations are
generally set forth in “Item 3. Key Information—D. Risk Factors” and elsewhere in this annual report. We caution you that our businesses and financial performance
are subject to substantial risks and uncertainties.
The forward-looking statements made in this annual report relate only to events or information as of the date on which these statements are made in this
annual report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after
the date of this annual report. You should not rely upon forward-looking statements as predictions of future events.
A. Operating Results
Overview
We are a clinical stage biopharmaceutical company dedicated to the discovery, development and commercialization of therapeutic assets to treat diseases with
unmet medical needs, particularly in oncology (including orphan oncology indications) and infectious diseases. The pipeline of Aptorum is also enriched through (i)
the establishment of drug discovery platforms that enable the discovery of new therapeutics assets through, e.g. systematic screening of existing approved drug
molecules, and microbiome-based research platform for treatments of metabolic diseases, and (ii) the co-development of a novel molecular-based rapid pathogen
identification and detection diagnostics technology with Accelerate Technologies Pte Ltd, commercialization arm of the Singapore’s Agency for Science, Technology
and Research.
In addition to the above main focus, we are also pursuing therapeutic projects in neurology, gastroenterology, metabolic disorders, women’s health and other
disease areas. We also have projects focused on natural supplements for women undergoing menopause and experiencing related symptoms. We also opened a medical
clinic, AML Clinic, in June 2018.
Based on our evaluation of preliminary data and our consideration of a number of factors including substantial unmet needs, benefits over existing therapies,
potential market size, competition in market, the Company decides how to prioritize its resources among projects. Overall, our rationale for selecting Lead Projects is
not based on any mechanical formula or rigid selection criteria, but instead focused on a combination of the factors and individual attributes of the Lead Projects
themselves. See “Item 3. Key Information—D. Risk Factors— Risks Related to the Preclinical and Clinical Development of Our Drug Candidates— “Preclinical
development is a long, expensive and uncertain process, and we may terminate one or more of our current preclinical development programs.” and “Management has
discretion to terminate the development of any of our projects at any time.”
Our current business consists of “therapeutics” and “non-therapeutics” segments. However, our focus is on the therapeutics segments. Because of the risks,
costs and extended development time required for successful drug development, we have determined to pursue projects within our non-therapeutics segments, such as
AML Clinic, to provide some interim revenue, as well as diagnostics technology and natural supplements that may be brought to market and generate revenue more
quickly.
87
Therapeutics Segment. In our therapeutics segment (“Aptorum Therapeutics Group”), we are currently seeking to develop various drug molecules (including
projects seeking to use extracts or derivatives from natural substances to treat diseases) and certain technologies for the treatment of human disease conditions to
tackle unmet needs, in particular, two of our Lead Projects targeting infectious disease and cancer (including orphan oncology indications). In addition to our main
areas of focus above, we are also pursuing therapeutic projects in neurology, gastroenterology, metabolic disorders, women’s health and other disease areas. Aptorum
Therapeutics Group is operated through Aptorum’s wholly-owned subsidiary, Aptorum Therapeutics Limited, a Cayman Islands exempted company with limited
liability, whose principal place of business is in Hong Kong and whose subsidiaries (who we sometimes refer to herein as project companies) are based in the United
Kingdom, Singapore and Hong Kong.
Non-Therapeutics Segment. The non-therapeutics segment (“Aptorum Non-Therapeutics Group”) encompasses three businesses: (i) diagnostics projects
including a novel molecular-based rapid pathogen identification and detection diagnostics (“RPIDD”) technology, (ii) natural supplements including NativusWell®,
and (iii) AML Clinic. RPIDD technology is currently under co-development with A*STAR. The core objectives of RPIDD are to rapidly and accurately identify and
detect existing or emerging unknown pathogens (including DNA/RNA-based viruses such as coronavirus, antibiotic-resistant bacteria, fungi, etc.), in a cost-effective,
unbiased and broad-spectrum manner, through liquid biopsy (patients’ blood samples and is potentially adaptable for other sample types), genome sequencing and
artificial intelligence driven software analytics. A key objective is also to develop RPIDD to leverage existing and emerging Next-Generation Sequencing platforms
for pathogenic genome sequencing analysis. The sale of natural supplements is operated through Nativus Life Sciences Limited (“Nativus”), a subsidiary of Aptorum
Therapeutics Limited. The production of Aptorum Group’s dioscorea opposita bioactive nutraceutical tablets has commenced production in Canada and will be
marketed under the brand name NativusWell®; once ready for sale, we intend to sell it online and in physical healthcare stores. The outpatient clinic is operated
through our subsidiary, Aptorum Medical Limited. Effective as of March 2018, we leased office space in Central, Hong Kong as the home to our medical clinic
(“AML Clinic”). AML Clinic commenced operations under the name of Talem Medical in June 2018.
Our goal is to develop a broad range of novel and repurposed therapeutics and diagnostics technology across a wide range of disease/therapeutic areas. Key
components of our strategy for achieving this goal include: (for details of our strategy, See “Item 4. Information on the Company – B. Business Overview – Our
Strategy”)
● Developing therapeutic and diagnostic innovations across a wide range of disease/therapeutic areas;
● Selectively expanding our portfolio with potential products that may be able to attain orphan drug designation and/or satisfy current unmet medical
needs;
● Collaborating with leading academic institutions and CROs;
● Expanding our in-house pharmaceutical development center;
● Leveraging our management’s expertise, experience and commercial networks;
● Obtaining and leveraging government grants to fund project development.
We have devoted a substantial portion of the proceeds from our offerings to our Lead Projects. Our Lead Projects are ALS-4, SACT-1 and RPIDD. In January
2022, we announced that we have completed Phase 1 clinical trial for ALS-4 and Phase 1 clinical trial for assessing relative bioavailability and food effect of SACT-1.
No serious adverse events observed and no relevant clinical changes in respect of vital signs. We expect to be able to submit IND application to the US FDA in 2022
seeking to (i) initiate a Phase 2 clinical study to assess the efficacy of ALS-4 in patients and (ii) initiate our planned Phase 1b/2a trial for SACT-1, subject to regulatory
review. We also commenced clinical validation of our molecular based RPIDD and will continue to undergo validations during 2022, in parallel with its pre-
commercialization process in 2022.
88
Registered Direct Offering
On February 28, 2020, we closed a Registered Direct Offering with certain non-affiliated institutional investors (the “Non-affiliated Purchasers”) and Jurchen
Investment Corporation, our largest shareholder and wholly owned by Mr. Ian Huen, our Chief Executive Officer (the “Affiliated Purchaser” collectively with the
Non-affiliated Purchasers, the “Purchasers”). The Purchasers purchased an aggregate of 1,351,350 Class A Ordinary Shares and warrants (“Warrants”) to purchase
1,351,350 Class A Ordinary Shares, for gross proceeds of approximately $10 million. The Warrants are exercisable immediately following the date of issuance for a
period of seven years at an initial exercise price of $7.40. The purchase price for each Share and the corresponding Warrant is $7.40.
We agreed from the date of the purchase agreement until the date that is the later of (i) the 12 month anniversary of the closing date or (ii) one or more
subsequent issuance by the Company or any of its subsidiaries of ordinary share equivalent having aggregate gross proceeds of at least $20,000,000, the Purchasers
shall have the right to participate in the subsequent financing up to an amount equal to 50% of the Subsequent Financing (the “Participation Maximum”) on the same
terms, conditions and price provided for in the Subsequent Financing.
We also agreed certain most favored nation treatment of the all the Purchasers pursuant to which each Purchaser will have the opportunity to automatically
have the same benefit if the terms and conditions with respect to this Purchase Agreement or any securities offered therein the Company offered to the other
Purchasers are more favorable.
Public Offering
On July 24, 2020, our Class A Ordinary Shares began to trade on the Professional Compartment of the regulated market of Euronext Paris under the symbol
“APM” and are denominated in Euros on Euronext Paris.
On October 2, 2020, the Company completed a public offering of 2,769,231 shares of Class A ordinary shares, $1.00 par value per share, and warrants to
purchase up to an aggregate of 2,769,231 Class A Ordinary Shares, at a price of $3.25 per share, for gross proceeds of approximately $9 million. In connection with
the Offering, the Company issued Warrants to purchase an aggregate of 2,769,231 Class A Ordinary Shares. The warrants have an exercise price of $3.25 per Class A
Ordinary Share, are exercisable upon issuance and will expire five years from the date of issuance. The exercise price of the warrants is subject to adjustment for stock
splits, reverse splits, and similar capital transactions as described in the form of warrants.
In connection with the public offering, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain investors on
September 29, 2020. The Purchase Agreement contains customary representations and warranties of the Company, termination rights of the parties, and certain
indemnification obligations of the Company and ongoing covenants of the Company.
At the Market Offering
On March 26, 2021, the Company entered into an at the market offering agreement (the “Sales Agreement”), with H.C. Wainwright & Co., LLC, acting as
our sales agent (the “Sales Agent”), relating to the sale of our Class A Ordinary Shares, offered pursuant to the prospectus supplement and the accompanying
prospectus to the registration statement on Form F-3 (File No. 333-235819) (such offering, the “ATM Offering”, or “At The Market Offering”). In accordance with the
terms of the Sales Agreement, we may offer and sell shares of our Class A Ordinary Shares having an aggregate offering price of up to $15,000,000 from time to time
through the Sales Agent under such prospectus supplement and the accompanying prospectus. As of the date of this annual report, we have not yet issued any Class A
Ordinary Shares pursuant to the ATM Offering.
Private Placement Offering
On May 26, 2021, the Company entered into a private placement shares purchase agreement with Jurchen, issuing 1,387,925 Class A Ordinary Shares at
$2.882 per share, representing a 10% premium to the last closing price of the Company’s Class A Ordinary Shares on the NASDAQ stock exchange on that date. The
Company received aggregate gross proceeds of $4,000,000 from the purchase of these shares.
89
Research and Development Expenses
Factors Affecting our Results of Operations
We believe our ability to successfully develop innovative drug candidates will be the primary factor affecting our long-term competitiveness, as well as our
future growth and development. Creating high quality global first-in-class or best-in-class drug candidates requires significant investment of resources over a
prolonged period of time, and a core part of our strategy is to continue making sustained investments in this area. As a result of this commitment, our pipeline of drug
candidates has been steadily advancing. For more information on the nature of the efforts and steps necessary to develop our drug candidates, see Item 4.B. “Business
Overview— Lead Projects, Natural Supplements and Other Projects under Development.”
Our drug candidates are still in development, and we have incurred and will continue to incur significant research and development costs for pre-clinical
studies and clinical trials. We expect that our research and development expenses will significantly increase in future periods in line with the advancement and
expansion of the development of our drug candidates.
Research and development expenses include:
● employee and consultant compensation related expenses, including salaries, benefits and share based compensation expenses;
● expenses incurred for payments to CROs, investigators and clinical trial sites that conduct our clinical studies;
● the cost of acquiring IP rights which did not meet the criteria of capitalization under the U.S. GAAP;
● cost associated with sponsored research programs with various universities and research institutions
● facilities, depreciation, and other expenses, which include office leases and other overhead expenses; and
● costs associated with patent applications.
Research and development expenses incurred totaled $10.9 million, $11.6 million and $6.9 million for the years ended December 31, 2021, 2020 and 2019,
respectively, representing approximately 52.4%, 54.7% and 37.0% of our total operating expenses for the respective period.
We have been able to fund the research and development expenses for our drug candidates through a range of sources, including the proceeds raised from our
public offering and follow-on offerings on Nasdaq, private placement to other investors and line of credit facilities from shareholders, related parties and banks.
This diversified approach to funding allows us to not depend on any one method of funding for our research and development activities, thereby reducing the risk
that sufficient financing will be unavailable as we continue to accelerate the development of our drug candidates.
90
RESULTS OF OPERATIONS
Results of Operations for the Years ended December 31, 2021 and 2020
Financial statements and information are presented for the years ended December 31, 2021 and 2020.
The following table summarizes our results of operations for the years ended December 31, 2021 and 2020.
Revenue
Healthcare services income
Operating expenses
Cost of healthcare services
Research and development expenses
General and administrative fees
Legal and professional fees
Other operating expenses
Total expenses
Other (loss) income, net
(Loss) gain on investments in marketable securities, net
Loss on investments in derivatives, net
Gain on use of digital currencies
Gain on derecognition of non-financial assets
Interest expense, net
Rental income
Loss on disposal of subsidiaries
Sundry income
Total other (loss) income, net
Net (loss) income
Impact of COVID-19 Outbreak
Year Ended
December 31,
2021
Year Ended
December 31,
2020
$
1,541,778 $
911,509
(1,459,924)
(10,869,642)
(5,409,302)
(2,617,834)
(392,511)
(20,749,213)
(1,015,023)
(11,586,923)
(4,853,488)
(2,854,225)
(877,391)
(21,187,050)
(8,031,595)
(4,289)
4,918
75,000
(93,601)
-
(3,638)
146,347
(7,906,858)
25,241,556
(199,031)
-
-
(243,628)
30,894
-
365,917
25,195,708
(27,114,293)
4,920,167
On January 30, 2020, the World Health Organization declared the coronavirus outbreak a “Public Health Emergency of International Concern” and on March
10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, and quarantines in
certain areas, and forced closures for certain types of public places and businesses. The coronavirus and actions taken to mitigate it have had and are expected to
continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Group operates. While the
closures and limitations on movement, domestically and internationally, are expected to be temporary, if the outbreak continues on its current trajectory the duration of
the supply chain disruption could reduce the availability, or result in delays, of materials or supplies to and from the Group, which in turn could materially interrupt the
Group’s business operations. There was no material negative impact on the Group’s 2021 and 2020 consolidated result of operations. However, given the speed and
frequency of the continuously evolving developments with respect to this pandemic, the Group cannot reasonably estimate the magnitude of the impact to its
consolidated results of operations in the future. We have taken every precaution possible to ensure the safety of our employees.
Additionally, it is reasonably possible that estimates made in the consolidated financial statements have been, or will be, materially and adversely impacted in
the near term as a result of these conditions, including losses on investments; impairment losses related to long-lived assets and current obligations.
Revenue
Healthcare services income was $1,541,778 and $911,509 for the years ended December 31, 2021 and 2020, which related to the service income derived from
the AML clinic. The increase in revenue was mainly due to the number of patients increased when compared to last year.
91
Cost of healthcare services
Cost of healthcare services was $1,459,924 and $1,015,023 for the years ended December 31, 2021 and 2020, which related to the cost incurred by the AML
clinic. The increase in cost of healthcare services was mainly due to the number of patients increased when compared to last year.
Research and development expenses
The following table sets forth a summary of our research and development expenses for the years ended December 31, 2021 and 2020. The decrease in
research and development expenses was mainly due to less sponsored research to universities in current period, partly offset by the increase in contracted research
organizations services and consultation due to the development progress of our lead projects.
Research and Development Expenses:
Payroll expenses
Contracted research organizations services
Sponsored research
Amortization and depreciation
Consultation
Other R&D expenses
Impairment loss of intangible assets
Milestone payment
Total Research and Development Expenses
General and administrative fees
Year Ended
December 31,
2021
Year Ended
December 31,
2020
$
$
1,320,020 $
4,569,538
248,865
961,447
3,214,824
554,948
-
-
10,869,642 $
1,145,550
4,184,285
1,561,273
986,836
2,906,222
515,413
200,000
87,344
11,586,923
The following table sets forth a summary of our general and administrative expenses for the years ended December 31, 2021 and 2020. The increase in
general and administration fees was mainly due to increase in bonus expenses to our directors, employees, external consultants and advisors. The increase is partly
offset by a significant decrease in travelling expenses due to the outbreak of COVID-19.
General and Administrative Fees:
Payroll expenses
Rent and rates
Travelling expenses
Amortization and depreciation
Insurance
Advertising and marketing expenses
Other expenses
Total General and Administrative Fees
Legal and professional fees
Year Ended
December 31,
2021
Year Ended
December 31,
2020
$
3,951,421 $
288,806
21,857
231,131
555,159
95,953
264,975
5,409,302
3,255,274
366,615
140,019
347,824
509,593
55,430
178,733
4,853,488
For the years ended December 31, 2021 and 2020, the legal and professional fees were $2,617,834 and $2,854,225, respectively. The decrease in legal and
professional fees was mainly due to less one-off professional services engaged during 2021.
Other operating expenses
For the years ended December 31, 2021 and 2020, the other operating expenses was $392,511 and $877,391, respectively. The decrease in other operating
expenses was mainly due to an impairment loss and loss on disposal of fixed assets in 2020 while there were no such expenses in 2021, and decreased exchange loss
during 2021.
92
Other (loss) income, net
For the years ended December 31, 2021 and 2020, the other (loss) income, net was $(7,906,858) and $25,195,708, respectively. The other loss, net in 2021
was mainly consists of loss on investment in marketable securities, net; while the other income, net in 2020 was mainly derived from gains on investment in
marketable securities.
Net (loss) income attributable to Aptorum Group Limited
For the years ended December 31, 2021 and 2020, net (loss) income attributable to Aptorum Group Limited (excluding net loss attributable to non-controlling
interests) was $(25,048,389) and $6,311,340, respectively.
Results of Operations for the Years ended December 31, 2020 and 2019
Financial statements and information are presented for the years ended December 31, 2020 and 2019.
The following table summarizes our results of operations for the years ended December 31, 2020 and 2019.
Revenue
Healthcare services income
Operating expenses
Cost of healthcare services
Research and development expenses
General and administrative fees
Legal and professional fees
Other operating expenses
Total expenses
Other income (loss), net
Gain (loss) on investments in marketable securities, net
Gain on non-marketable investments
(Loss) gain on investments in derivatives, net
Gain on use of digital currencies
Gain on extinguishment of convertible debts
Changes in fair value of warrant liabilities
Interest expense, net
Rental income
Sundry income
Total other income (loss), net
Net income (loss)
Revenue
Year Ended
December 31,
2020
Year Ended
December 31,
2019
$
911,509 $
535,166
(1,015,023)
(11,586,923)
(4,853,488)
(2,854,225)
(877,391)
(21,187,050)
(794,545)
(6,939,051)
(7,373,425)
(3,405,705)
(220,891)
(18,733,617)
25,241,556
-
(199,031)
-
-
-
(243,628)
30,894
365,917
25,195,708
(81,839)
1,147,190
87,599
46,717
1,198,490
(866,300)
(3,699,672)
16,868
232,460
(1,918,487)
4,920,167
(20,116,938)
Healthcare services income was $911,509 and $535,166 for the years ended December 31, 2020 and 2019, which related to the service income derived from
the AML clinic. The increase in revenue was mainly due to the number of patients increased when compared to last year.
93
Cost of healthcare services
Cost of healthcare services was $1,015,023 and $794,545 for the years ended December 31, 2020 and 2019, which related to the cost incurred by the AML
clinic. The increase in cost of healthcare services was mainly due to the number of patients increased when compared to last year.
Research and development expenses
Research and development expenses comprised of costs incurred related to research and development activities, including payroll expenses to our research
and development staff, sponsored research programs with various universities and research institutions and costs in acquiring IP rights which did not meet the criteria
of capitalization under the U.S. GAAP. The following table sets forth a summary of our research and development expenses for the years ended December 31, 2020
and 2019. The increase in research and development expenses was mainly due to the increase in consultation services provided by our consultants, advisors and
contracted research organizations as a results of the progress of our projects’ development.
Research and Development Expenses:
Payroll expenses
Sponsored research
Amortization and depreciation
Consultation
Other R&D expenses
Impairment loss of intangible assets
Milestone payment
Total Research and Development Expenses
General and administrative fees
Year Ended
December 31,
2020
Year Ended
December 31,
2019
$
1,145,550 $
1,561,273
986,836
7,090,507
515,413
200,000
87,344
11,586,923
1,784,647
1,403,689
873,239
2,431,997
445,479
-
-
6,939,051
The following table sets forth a summary of our general and administrative expenses for the years ended December 31, 2020 and 2019. The decrease in
general and administration fees was mainly due to decrease in bonus expenses to our directors, employees, external consultants and advisors. Also there was a
significant decrease in business trips and sponsoring conference in 2020 due to the outbreak of COVID-19.
General and Administrative Fees:
Payroll expenses
Rent and rates
Travelling expenses
Amortization and depreciation
Insurance
Advertising and marketing expenses
Other expenses
Total General and Administrative Fees
Legal and professional fees
Year Ended
December 31,
2020
Year Ended
December 31,
2019
$
3,255,274 $
366,615
140,019
347,824
509,593
55,430
178,733
4,853,488
4,329,039
490,975
797,446
426,378
620,312
316,227
393,048
7,373,425
For the years ended December 31, 2020 and 2019, the legal and professional fees were $2,854,225 and $3,405,705, respectively. The decrease in legal and
professional fees was mainly due to the decrease of consultancy services engaged during 2020.
94
Other operating expenses
For the years ended December 31, 2020 and 2019, the other operating expenses was $877,391 and $220,891, respectively. The increase in other operating
expenses was mainly due to the impairment loss and loss on disposal of fixed assets, and increased exchange loss during 2020.
Other income (loss), net
For the years ended December 31, 2020 and 2019, the other income (loss), net was $25,195,708 and $(1,918,487), respectively. The other income, net in 2020
was mainly derived from gains on investment in marketable securities. The other loss, net in 2019 was mainly consists of interest expense, net incurred by convertible
debts with beneficial conversion feature.
Net income (loss) attributable to Aptorum Group Limited
For the years ended December 31, 2020 and 2019, net income (loss) attributable to Aptorum Group Limited (excluding net loss attributable to non-controlling
interests) was $6,311,340 and $(18,686,762), respectively.
B. Liquidity and Capital Resources
In April 2022, the Group accepted a banking facilities agreement offered by a bank. According to the banking facilities agreement, the bank offers a revolving
loan of up to $3 million to the Group. The Group may draw down from the revolving loan at any time through the day immediately preceding 12 months of the
agreement effective date. Interest will be payable on demand on the outstanding loans at the rate of either Hong Kong Interbank Offered Rate (“HIBOR”) plus 1.5%
per annum for loan in Hong Kong Dollars, or Secured Overnight Financing Rate (“SOFR”) compounded rate plus 1.5% per annum for loan in the United State
Dollars. The loan will be secured by a charge over deposits of up to $3 million when the Group draw down.
The Group reported a net loss of $27,114,293 and net operating cash outflow of $14,651,633 for the year ended December 31, 2021. In addition, the Group
had an accumulated deficit of $55,537,515 as of December 31, 2021. The Group’s operating results for future periods are subject to numerous uncertainties and it is
uncertain if the Group will be able to reduce or eliminate its net losses for the foreseeable future. If management is not able to generate significant revenues from its
product candidates currently in development, the Group may not be able to achieve profitability.
The Group’s principal sources of liquidity have been cash and line of credit facilities from related parties and banks. As of the date of issuance of the
consolidated financial statements, the Group has approximately $4.2 million of restricted and unrestricted cash, and $15 million and $3 million, respectively, of
undrawn line of credit facilities from related parties and banks. In addition, the Group will need to maintain its operating costs at a level through strictly cost control
and budget to ensure operating costs will not exceed such aforementioned sources of funds in order to continue as a going concern for a period within one year after
the issuance of its consolidated financial statements.
The Group believes that available cash, together with the efforts from aforementioned management plan and actions, should enable the Group to meet current
anticipated cash needs for at least the next 12 months after the date that the consolidated financial statements are issued and the Group has prepared the consolidated
financial statements on a going concern basis. We may, however, need additional capital in the future to fund our continued operations. If we determine that our cash
requirements exceeds the amount of cash and cash equivalents we have at the time, we may seek to issue equity or debt securities or obtain credit facilities. The
issuance and sale of additional equity or convertible debts would result in further dilution to our shareholders. The incurrence of indebtedness would result in
increased fixed obligations and could result in operating covenants that might restrict our operations. We cannot assure you the financing will be available in amounts
or on terms acceptable to us, if at all.
Condensed Summary of Cash Flows for the Years Ended December 31, 2021 and 2020
Net cash used in operating activities
Net cash provided by investing activities
Net cash provided by financing activities
Net increase (decrease) in cash and restricted cash
95
$
Year Ended
December 31,
2021
(14,651,633) $
16,507,039
2,780,725
4,636,131
Year Ended
December 31,
2020
(15,931,913)
1,842,164
12,421,932
(1,667,817)
Operating activities
Net cash used in operating activities amounted to $14.7 million and $15.9 million for the years ended December 31, 2021 and 2020. The decrease in net cash
used in operating activities is mainly due to our decreased operating expenses by $0.5 million and the decreased in changes in other receivables and prepayment by
$1.1 million.
Investing activities
Net cash provided by investing activities amounted to $16.5 million and $1.8 million for the year ended December 31, 2021 and 2020. The increase in net
cash provided by investing activities was due to the proceeds from disposal of investment in marketable securities of $20.1 million in 2021, partly offset by a loan
provided to a related party of $3.4 million.
Financing activities
Net cash provided by financing activities amounted to $2.8 million and $12.4 million for the year ended December 31, 2021 and 2020. The decrease in net
cash provided by financing activities was due to the decrease in net proceeds from issuance of Class A Ordinary Shares and warrants by $12.8 million, partly offset by
the increase in loan received from related parties of $2.5 million.
Condensed Summary of Cash Flows for the Years Ended December 31, 2020 and 2019
Net cash used in operating activities
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
Net decrease in cash and restricted cash
Operating activities
$
Year Ended
December 31,
2020
(15,931,913) $
1,842,164
12,421,932
(1,667,817)
Year Ended
December 31,
2019
(13,382,633)
(108,061)
(7,323,371)
(20,814,065)
Net cash used in operating activities amounted to $15.9 million and $13.4 million for the years ended December 31, 2020 and 2019. The increase in net cash
used in operating activities is mainly due to our increased operating expenses by $2.5 million.
Investing activities
Net cash provided by investing activities amounted to $1.8 million for the year ended December 31, 2020. Net cash used in investing activities amounted to
$0.1 million for the year ended December 31, 2019. The change from net cash used in investing activities to net cash provided by investing activities was due to the
proceeds from disposal of fixed assets and investment in marketable securities of $1.0 million and $0.9 million, respectively, in 2020.
Financing activities
Net cash provided by financing activities amounted to $12.4 million for the year ended December 31, 2020. Net cash used in financing activities amounted to
$7.3 million for the year ended December 31, 2019. The change from net cash used in financing activities to net cash provided by financing activities was due to the
net proceeds from issuance of Class A Ordinary Shares and warrants of $16.8 million in 2020.
CAPITAL EXPENDITURES
Our capital expenditures were $0.1 million, $0.2 million and $0.9 million for the years ended December 31, 2021, 2020 and 2019, respectively. These capital
expenditures were incurred primarily for investments in facilities, leasehold improvements, equipment and technology.
96
COMMITMENTS
The following table sets forth our contractual obligations as of December 31, 2021.
Operating lease commitments
Finance lease
Total
Operating lease commitments
Payment Due by Period
less than
one year
US$
One to
three years
US$
Three to
five years
US$
Total
US$
190,459
49,358
239,817
164,458
49,358
213,816
26,001
-
26,001
-
-
-
We have several operating leases for office, laboratories and clinic. Operating lease commitments reflect our obligation to make payments under these
operating leases.
Finance lease
Finance lease obligation reflect our outstanding payment obligations in connections with our hire purchased vehicle.
CONTINGENT PAYMENT OBLIGATIONS
We have entered into agreements with independent third parties for purchasing office and laboratory equipment. As of December 31, 2021, we had non-
cancellable purchase commitments of $49,166.
We have additional contingency payment obligations under each of the license agreements, such as milestone payments, royalties, research and development
funding, if certain condition or milestone is met.
Milestone payments are to be made upon achievements of certain conditions, such as Investigational New Drugs (“IND”) filing or U.S. Food and Drug
Administration (“FDA”) approval, first commercial sale of the licensed products, or other achievements. The aggregate amount of the milestone payments that we are
required to pay up to different achievements of conditions and milestones for all the license agreements signed as of December 31, 2021 are below:
Drug molecules: up to the conditions and milestones of
Preclinical to IND filing
From entering phase 1 to before first commercial sale
First commercial sale
Net sales amount more than certain threshold in a year
Subtotal
Diagnostics technology: up to the conditions and milestones of
Before FDA approval
Amount
282,564
22,276,410
14,982,051
70,769,231
108,310,256
201,155
108,511,411
$
$
$
$
For the years ended December 31, 2021, 2020 and 2019, the Group incurred $nil, $129,203 and $nil milestone payments, respectively. For the years ended
December 31, 2021, 2020 and 2019, the Group did not incur any royalties or research and development funding, respectively.
97
C. Research and Development, Patents and Licenses, etc.
As of the date of this annual report, the Company has 8 exclusively licensed technologies in the area of neurology, infectious diseases, gastroenterology,
oncology, diagnostics and natural health. In addition, the Company is actively developing 7 proprietary technologies.
For the years ended December 31, 2021, 2020 and 2019, the Group incurred $10,869,642, $11,586,923and $6,939,051, respectively, on research and
development expenses.
D. Trend Information
Other than as disclosed elsewhere in this annual report, we are not aware of any material recent trends in production, sales and inventory, the state of the order
book and costs and selling prices since our last fiscal year. We are also unaware of any known trends, uncertainties, demands, commitments or events for the year
ended December 31, 2021 that are reasonably likely to have a material adverse effect on our revenues, net income, profitability, liquidity or capital resources, or that
would cause reported financial information not necessarily to be indicative of future operating results or financial conditions.
E. Critical Accounting Estimates
Our consolidated financial statements have been prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the consolidated financial statements
and accompanying notes. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values of assets and liabilities. Changes in the economic environment, financial markets, and
any other parameters used in determining such estimates could cause actual results to differ. We believe that the following estimates involve the most significant
judgments used in the preparation of our financial statements. The critical accounting estimates should be read in conjunction with our risk factors as disclosed in
“Item 3. Key Information—D. Risk Factors.” See note 3 to our consolidated financial statements for the year ended December 31, 2021 for more information. Out of
our significant accounting policies, which are described in Note 3—Summary of Significant Accounting Policies of our consolidated financial statements included
elsewhere in this Form 20-F, certain accounting policies are deemed “critical,” as they require management’s highest degree of judgment, estimates and assumptions,
including (i) fair value measurement; (ii) long-term investments, (iii) impairment of long-lived assets, (iv) revenue recognition, and (v) share based compensation.
Impairment of long-lived assets
We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be
recoverable. When these events occur, we measure impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash
flows expected to result from the use of the assets and their eventual disposition. The sum of the expected undiscounted cash flow is sensitive to key assumption such
as projected revenue and research and development expenses, which are required management’s judgement. For the year ended December 31, 2020, we recorded
$330,445 of impairment loss of buildings in other operating expenses, and $200,000 impairment loss of an unpatented license in research and development expenses.
For the year ended December 31, 2021 and 2019, no impairment loss was recorded.
Share based compensation
We use the fair value method of accounting for our stock options granted to directors, employees, external consultants and advisors to measure the cost
services received in exchange for the share based awards. Determining the appropriate valuation model and estimating the fair values of share option grants requires
the input of subjective assumptions, including expected stock price volatility, risk-free interest rate, expected term from grant date, dividend rate, and dilution factor.
The expected volatility assumption is based partially upon the historical volatility of our Class A ordinary shares, which may or may not be a true indicator of future
volatility. The assumptions used in calculating the fair values of share option grants represent management’s best estimates, but these estimates involve inherent
uncertainties and the application of judgment. As a result, if factors change and different assumptions are used, share-based compensation expense could be
significantly different from what we recorded in the current period. Share-based compensation expense is recognized on a graded vesting basis, net of actual
forfeitures in the period. In connection with the grant of share options to employees and non-employees, we recorded share-based compensation charges of $1,203,000
and $479,460, respectively, for the year ended December 31, 2021, $1,191,957 and $286,608, respectively, for the year ended December 31, 2020, and $1,180,477 and
$432,355, respectively, for the year ended December 31, 2019.
98
Provision of income tax and valuation allowance for deferred tax asset
Significant judgment is required in determining income tax expense based on tax laws in the various jurisdictions in which we operate. In calculating our
effective income tax rate, estimates are required regarding the timing and amount of taxable and deductible items which will adjust the pre-tax income or loss reported
in various tax jurisdictions. Through our interpretation of local tax regulations, adjustments to pre-tax income or loss for income or loss reported in various tax
jurisdictions are reflected within various tax filings. Although we believe that our estimates and judgments discussed herein are reasonable, actual results may be
materially different than the estimated amounts.
We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. Significant judgment is required in
determining the valuation allowance. In assessing the need for a valuation allowance, we consider all sources of taxable income, including projected future taxable
income, reversing taxable temporary differences and ongoing tax planning strategies. If it is determined that we are able to realize deferred tax assets in excess of the
net carrying value or to the extent we are unable to realize a deferred tax asset, we would adjust the valuation allowance in the period in which such a determination is
made, with a corresponding increase or decrease to earnings. As of December 31, 2021 and 2020, we have made fully valuation allowance to deferred tax assets with
amount of $12.6 million and $9.6 million, respectively.
99
Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
Below is a list of our directors, senior management and any employees upon whose work we are dependent as of the date of this annual report, and a brief
account of the business experience of each of them. The business address for the directors and officers of Aptorum Group Limited is 17 Hanover Square, London,
W1S 1BN, United Kingdom.
On August 27, 2021, Dr. Angel Ng tendered her resignation as the Company’s Chief Operating Officer. Angel’s resignation did not result from any
disagreement regarding any matter related to the Company’s operations, policies or practices.
Name
Executive Officers
Ian Huen
Darren Lui
Clark Cheng
Sabrina Khan
Thomas Lee
Non-Management Directors
Charles Bathurst
Mirko Scherer
Justin Wu
Douglas Arner
Executive Officers
Age
42
41
42
40
49
67
53
52
52
Position
Founder, Chief Executive Officer and Executive Director
President and Executive Director
Chief Medical Officer and Executive Director
Chief Financial Officer
Head of Research and Development
Independent Non-Executive Director and Chair of Audit Committee
Independent Non-Executive Director
Independent Non-Executive Director and Chair of Compensation Committee
Independent Non-Executive Director and Chair of Nominating and Corporate Governance Committee
MR. IAN HUEN, Founder, Chief Executive Officer and Executive Director
Mr. Ian Huen is the Founder, Chief Executive Officer and Executive Director of Aptorum Group Limited. He has over 18 years of global asset management
experience and previously covered the U.S. healthcare sector as an equity research analyst at Janus Henderson Group plc (formerly known as Janus Capital). Mr. Huen
was the financial advisor in the sale of Seng Heng Bank Limited (Macau) to Industrial and Commercial Bank of China in 2007 and was appointed as the vice president
of the Board of General Meeting in Industrial and Commercial Bank of China (Macau) Capital Limited in March 2007 for a term of 12 years until March 2019.
As a trustee board member of the Dr. Stanley Ho Medical Development Foundation, Mr. Huen facilitates advisory, development funding, access to research
resources across Asia and continues to establish relationships with leading academic institutions to propel innovations in healthcare.
Mr. Huen graduated from Princeton University with an A.B. degree in Economics in June 2001, earned a MA in Comparative and Public History from CUHK
in June 2016. Mr. Huen is also a Chartered Financial Analyst (“CFA”).
100
MR. DARREN LUI, President and Executive Director
Mr. Darren Lui is the President and an Executive Director of Aptorum Group Limited. Mr. Lui was previously the founder, director and responsible officer of
Varengold Capital Securities Limited and Varengold Capital Asset Management Limited in Hong Kong, with subsidiaries operating brokerage, asset management, and
investment businesses in Asia established since January 2015.
Prior to this, he was a Director within the Fixed Income Group of Barclays Capital, where he spent over nine years from September 2005 to February 2014
developing and establishing their London, Singapore and New York teams. From September 2002 to August 2005 he was qualified as a Chartered Accountant with
Ernst & Young LLP (London), specializing in capital markets advisory.
Mr. Lui graduated with First-Class Honors from Imperial College, London with a BSc degree in Biochemistry in June 2002. He is a Chartered Accountant
(ICAS), accredited with Chartered Financial Analyst designation, and an Associate of Chartered Institute of Securities & Investments (UK).
DR. CLARK CHENG, Chief Medical Officer and Executive Director, Aptorum Group Limited
Executive Director, Aptorum Medical Limited
Dr. Clark Cheng is the Chief Medical Officer and Executive Director of Aptorum Group Limited; he is also an executive director of Aptorum Medical
Limited (one of the Company’s subsidiaries); Dr. Cheng also serves as a director of several other of our subsidiaries. Prior to this appointment, Dr. Cheng served as the
Operations Director since 2009 of Raffles Medical Group, and the company’s Deputy General Manager since 2011, representing an expanded role in the region.
During his employment with Raffles Medical Group, he practiced as a full-time medical administrator to mainly overlook Raffles Medical Hong Kong operations and
also supported its development in the PRC headquarter.
Dr. Cheng received his medical training at the University College London, UK, in 2005 and completed his foundation year training at The Royal Free
Hospital in 2007. Pursuing his career in surgery, he obtained his membership of the Royal College of Surgeons of Edinburgh in 2009 and commenced his training in
Orthopaedics where he practiced as Specialist Registrar at the National University Hospital, Singapore, with special interest in Traumatology of the lower limbs. In
2011, he also obtained his Master in Business & Administration with distinction from Tippie College of Business, University of Iowa, US.
Dr. Cheng is an active member of the Singapore Chamber of Commerce, and appears regularly as a guest speaker for The Open University of Hong Kong,
The Airport Authority Hong Kong and other corporate events.
MISS SABRINA KHAN, Chief Financial Officer
Miss Sabrina Khan is the Chief Financial Officer of Aptorum Group Limited; she is also the company secretary. She leads the Company’s financial strategy
and operations, as well as Investor Relations. She has extensive experience working at KPMG (Hong Kong) and Ernst & Young LLP (Hong Kong). She was a regional
financial controller in Asia for St. James’s Place Wealth Management (Hong Kong), which St. James’s Place Wealth Management Group (LON: STJ) is a FTSE100
company. Prior to that, she served as the senior finance manager of Neo Derm Group, a leading medical aesthetic group in Asia, in charge of its finance-related matters
and expansion in the PRC. From August 2009 to May 2013, she served as the senior finance manager of Global Cord Blood Corporation (formerly known as China
Cord Blood Corporation (NYSE: CO)), which was previously a subsidiary of Golden Meditech Holdings Limited (HK: 801), where she played an important role with
the NYSE listing filings, investor relations and post IPO reporting. During her employment with Global Cord Blood Corporation, she was actively involved in the
issuance of convertible bonds to Kohlberg Kravis Roberts and various merger and acquisition projects, facilitated and liaised with investment banks on due diligence,
deal structuring, and also involved in commercial negotiation with respect to major contract terms.
Miss Khan qualified as certified public accountant and graduated with a BBA (Hons) in Accounting & Finance at The University of Hong Kong in 2003. She
was qualified as an Advanced China Certified Taxation Consultant in 2015.
101
DR. THOMAS LEE, Head of Research and Development
Dr. Thomas Lee serves as the Head of R&D of Aptorum Group Limited since April 1, 2019; he is also the Chairman of our Scientific Advisory Board. Dr.
Lee served as Chief Executive Officer and Chief Scientific Officer of Aptorum Therapeutics Limited, a wholly-owned therapeutics subsidiary of Aptorum Group
Limited from January 2018 to March 2019. Prior to that, Dr. Lee served as an Assistant Professor in the School of Pharmacy, Faculty of Medicine, The Chinese
University of Hong Kong from August 2013 to January 2018. Dr. Lee’s key area of research involves drug delivery with specialties including: formulation
development of poorly soluble compounds, oral delivery, Nanotechnology, and similar fields.
Prior to academia, Dr. Lee accumulated big-pharma experience from the decade he spent at two multinational pharmaceutical companies in the U.S. From
November 2008 to July 2013, Dr. Lee worked at Celgene Corporation as a Senior Scientist of the Formulations Research & Development. From June 2003 to
November 2008, Dr. Lee worked at Novartis Pharmaceuticals Corporation, as a Principal Scientist.
Dr. Lee graduated with B.Pharm. (Hons) Degree from The Chinese University of Hong Kong in December 1995, and received his Ph.D. in Pharmaceutical
Sciences (Drug Delivery) from the University of Wisconsin-Madison in the U.S in May 2003.
Independent Non-Executive Directors
MR. CHARLES BATHURST
Mr. Bathurst is an Independent Non-Executive Director of Aptorum Group Limited, chairs the Audit Committee and is a member of both the Compensation
Committee and the Nominating and Corporate Governance Committee. He has over 46 years’ experience of management and senior executive roles across the
financial services, technology and healthcare industries. In 2011, he set up his own independent consultancy service, Summerhill Advisors Limited, advising on
management structure, business development, financial reporting, internal audit controls and compliance to both emerging and multinational companies. Today he
holds Non-Executive and Advisory board positions on fast-growing companies in healthcare, technology and financial services.
Prior to establishing Summerhill, he served as a Director for J.O. Hambro Investment Management from September 2008 to August 2011, where he oversaw
the restructuring and commercialization of a range of in-house investment funds. He was appointed to the management board and supervised reporting teams including
Business development, accounting, regulatory reporting and internal controls.
From April 2004 to March 2008, Mr. Bathurst served in multiple roles at Old Mutual Asset Managers (UK), including being a member of the senior
management team and head of international sales. Duties included business development, launching new investment funds, recruitment, establishing and supervision
of regulatory and financial reporting teams, as well as ensuring compliance with funds’ regulatory requirements and corporate governance standards.
Prior to this, Mr. Bathurst was an advisor to Lion Capital Advisors Limited from April 2003 to March 2004, and from June 2002 to March 2003 business
development consultant reporting to the board of management of LCF Rothschild Asset Management Limited.
From April 1995 to March 2002, Mr. Bathurst joined a newly formed alternative investment management team at Credit Agricole Asset Management,
establishing the London Branch as the Managing Director in 1998. He was responsible for the recruitment and development strategy for marketing, sales, investment,
financial reporting, compliance and regulatory controls and investor relations.
102
Between the period of September 1989 and December 1994, Mr. Bathurst worked for GNI, the largest futures and options execution and clearing broker on
the London International Financial Futures Exchange, where he focused on marketing to European and Middle East financial institutions. In 1991, he joined a new
management team to launch a series of specialist investment funds while serving as the Head of Sales and Product Development.
Mr. Bathurst graduated from the Royal Military Academy Sandhurst in November 1974 and commissioned into the British Army serving in the UK and
Germany.
DR. MIRKO SCHERER
Dr. Mirko Scherer is an Independent Non-Executive Director of Aptorum Group Limited. Dr. Scherer has been serving as the Chief Executive Officer at
CoFeS China (formerly known as “TVM Capital China”) in Hong Kong since March 2015. CoFeS China focuses on cross-border activities in the life science industry
between China and the West. CoFeS China acts as a bridge between China and the West, assisting Chinese investors and pharmaceutical companies accessing western
innovations, while collaborating with innovative life science companies from the West to enter the fast-growing China market.
Dr. Scherer has served on the Board of the Frankfurt Stock Exchange from 2005 to 2007 and has been a board member of the Stichting Preferente Aandelen
QIAGEN since 2004. From August 2016 through July 2018, Dr. Scherer served as a Non-Executive board member of Quantapore Inc. and from April 2015 through
September 2017, he was a director of China BioPharma Capital I, (GP).
Dr. Scherer is an experienced biotechnology executive and has led numerous financing M&A and licensing transactions, in both public and private markets,
in Europe and the U.S. for over 20 years. He consulted MPM Capital for the period between July 2012 and December 2014. Dr. Scherer was also a co-founder and
partner of KI Kapital from November 2008 to February 2014, a company which was specialized in providing consultation in life science industry.
Prior to working in the venture capital industry, Dr. Scherer co-founded GPC Biotech (Munich and Princeton, NJ) and served as the Chief Financial Officer
from October 1997 to December 2007. GPC Biotech engaged in numerous pharmaceutical alliances with companies such as Sanofi Aventis, Boehringer Ingelheim,
Altana (now part of Takeda), Yakult, and Pharmion (now part of Celgene). Over the past 20 years, Dr. Scherer has established an extensive network in the U.S.,
European, and China’s biotechnology and venture capital industry. Prior to his time at GPC Biotech, Dr. Scherer worked as a consultant from May 1993 to June 1994
at the Boston Consulting Group.
Dr. Scherer earned a Doctorate in Finance from the European Business School in Oestrich-Winkel/Germany in 1998, a MBA from Harvard Business School
in June 1996, and a degree in Business Administration from the University of Mannheim/Germany in February 1993.
PROFESSOR JUSTIN WU
Professor Justin Wu is an Independent Non-Executive Director of Aptorum Group Limited. He also has been serving as the Chief Operating Officer of
CUHK Medical Centre since August 2018. He served as the Associate Dean (Development) of the Faculty of Medicine at CUHK from July 2014 to June 2018 and the
Associate Dean (Clinical) of the Faculty of Medicine at CUHK from December 2012 to July 2014, and has been serving a Professor in the Department of Medicine
and Therapeutics since 2009, also the Director of the S. H. Ho Center for Digestive Health, a research center specializing in functional gastrointestinal diseases, reflux
and motility disorders, and digestive endoscopy. Active in research publications and assessments, Professor Wu served as the International Associate Editor of
American Journal of Gastroenterology (“AJG”), and Managing Editor of Journal of Gastroenterology and Hepatology (“JGH”). He is also the Secretary General of the
Asian Neurogastroenterology and Motility Association (“ANMA”), and Secretary General of the Asia Pacific Association of Gastroenterology (“APAGE”).
103
Professor Wu has won a number of awards including the Emerging Leader in Gastroenterology Award by the JGH Foundation, and the Vice Chancellor’s
Exemplary Teaching Award at CUHK. Aside from his expertise in gastroenterology, Professor Wu has an extensive interest in the development of Integrative
Medicine in Hong Kong. He is the Founding Director of the Hong Kong Institute of Integrative Medicine, working closely with the School of Chinese Medicine to
develop an integrative model at an international level. The institute aims at maximizing the strength of Western and Chinese medicine to provide a safe and effective
integrative treatment to patients.
Professor Wu served as a consultant and an advisory board member for Takeda Pharmaceutical, AstraZeneca, Menarini, Reckitt Benckiser and Abbott
Laboratory. He earned his Bachelor of Medicine and Bachelor of Surgery Degree (1993), and his Doctor of Medicine Degree (2000) from CUHK. Additionally, he
attained Fellowships of the Royal College of Physicians of Edinburgh and London in 2007 and 2012 respectively, Fellowship of the Hong Kong College of Physicians
in 2002, Fellowship of the Hong Kong Academy of Medicine in 2002, and has been an American Gastroenterological Association Fellow since 2012.
PROFESSOR DOUGLAS ARNER
Professor Douglas W. Arner is an Independent Non-Executive Director of Aptorum Group Limited. Douglas is the Kerry Holdings Professor in Law and
Director and co-founder of the Asian Institute of International Financial Law at the University of Hong Kong, as well as Faculty Director and co-founder of the LLM
in Compliance and Regulation, LLM in Corporate and Financial Law, and Law, Innovation, Technology and Entrepreneurship (LITE) Programmes. He served as Head
of the HKU Department of Law from 2011 to 2014 and as Co-Director of the Duke University-HKU Asia-America Institute in Transnational Law from 2005 to 2016.
Douglas has published eighteen books and more than 200 articles, chapters and reports on international financial law and regulation, most recently Reconceptualising
Global Finance and its Regulation (Cambridge 2016) (with Ross Buckley and Emilios Avgouleas) and The RegTech Book (Wiley 2019 (Janos Barberis and Ross
Buckley). His recent papers are available on SSRN at https://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=524849, where he is among the top 75 authors in
the world by total downloads. Professor Arner led the development of Introduction to FinTech – launched with edX in May 2018 and now with over 80,000 learners
spanning the world – and the foundation of the edx-HKU Online Professional Certificate in FinTech. He is a Senior Visiting Fellow of Melbourne Law School,
University of Melbourne, a non-executive director of NASDAQ and Euronext listed Aptorum Group and an Advisory Board Member of the Centre for Finance,
Technology and Entrepreneurship (CFTE). Professor Arner was an inaugural member of the Hong Kong Financial Services Development Council (2013-2019) and
has served as a consultant with, among others, the World Bank, Asian Development Bank, APEC, Alliance for Financial Inclusion, and European Bank for
Reconstruction and Development. He has lectured, co-organised conferences and seminars and been involved with financial sector reform projects around the world.
Professor Arner has been a visiting professor or fellow at Duke, Harvard, the Hong Kong Institute for Monetary Research, IDC Herzliya, McGill, Melbourne, National
University of Singapore, University of New South Wales, Shanghai University of Finance and Economics, and Zurich, among others. Professor Arner is the Senior
Regulatory & Strategic Advisor of Aeneas Group, a multi-disciplinary financial services institution with technology-driven growth initiatives.
He holds a BA from Drury College (where he studied literature, economics and political science) in 1992, a JD (cum laude) from Southern Methodist
University in 1995, an LLM (with distinction) in banking and finance law from the University of London (Queen Mary College) in 1996, and a PhD from the
University of London in 2005.
B. Compensation of Executive Directors and Executive Officers
The following table sets forth all cash compensation paid by us, as well as certain other compensation paid or accrued, in fiscal 2021 to each of the following
named executive officers. The total amount was $3.8 million in 2021. A total 483,697 options were awarded to executive directors and executive officers in 2021. This
amount does not include business travel, relocation, professional and business association dues and expenses reimbursed to such persons, and other benefits commonly
reimbursed or paid by companies in our industry. In addition to the compensation included in the table below, which covers the fiscal year ended December 31, 2021,
we issued an aggregate of 977,614 options to the persons included in the table below since January 1, 2022 through the date of this report. (See “Item 6. Directors,
Senior Management and Employees – E. Share Ownership”)
104
The base salary of Mr. Ian Huen will be adjusted to HK$223,200 (approximately US$28,615 per month) with effect from March 1, 2022.
The base salary and monthly salary paid to Dr. Clark Cheng to serve as Director of Aptorum Innovations Holding Pte. Limited remains unchanged. However,
we did adjust the monthly service fee payable to ACC Medical Limited to HK$143,200 (approximately US$18,359 per month) effective from March 1, 2022. Dr.
Cheng is the sole director and shareholder of ACC Medical Limited. Hence, for the purposes of this filing and disclosure, the consulting service fee and share options
granted to ACC Medical Limited will be deemed as Dr. Cheng’s compensation.
The base salary of Mr. Lui remains unchanged while the monthly service fee of CGY Investment Limited will be adjusted to HK$171,200 (approximately
US$21,949) with effect from March 1, 2022. CGY is 50% held by Seng Fun Yee (Mr. Lui’s spouse), 25% held by Mandy Lui (Mr. Lui’s sister) and 25% held by
Adrian Lui (Mr. Lui’s brother). Mr. Lui controls and/or has substantial influence on the disposition and voting rights of the shares held by his spouse, but no such
control over the shares held by his sister or brother. Hence, for the purposes of this filing and disclosure, 50% of the consulting service fee and share options will be
deemed as Mr. Lui’s compensation.
The Board also determined to issue Dr. Cheng and Miss Sabrina Khan a discretionary cash bonus equal to one-month and four-month of their base salary,
respectively.
Non-Equity
Incentive
Plan
Compensation
($)(9)
Option
Awards
($)
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
All Other
Compensation
($)
Fiscal
Year
Salary
($)(1)
Bonus
($)
2021
288,000
24,000
372,943
300,001
2,308
2021
166,667
6,667
186,472
150,001
2,308
-
-
Total
($)
987,252
512,115
2021
280,610
21,982
256,398
237,501
10,158
119(6)
806,768
2021
208,600
69,918
172,486
174,167
2,308
2021
229,600
19,518
233,090
225,001
2,308
2021
92,859
6,300
23,309
36,999
1,731
-
-
-
627,479
709,517
161,198
Name and Principal Position
Ian Huen (2)
(CEO)
Darren Lui (3)
(President)
Clark Cheng (4)
(CMO)
Sabrina Khan (5)
(CFO)
Thomas Lee (7)
(Head of R&D)
Angel Ng (8)
(COO)
(1) The Appointment Letters provide salaries in HKD; for purposes of this table, we used a conversion ratio of HKD7.80 to USD1.00 to determine the salary in USD.
(2) Mr. Huen is the founder and was appointed as the Chief Executive Officer of Aptorum Group on October 1, 2017. Before that, he was a director of the Company.
(3) Mr. Lui was appointed as the Chief Business Officer and President of Aptorum Group on October 1, 2017 and resigned as Chief Business Officer on October 10,
2019.
(4) Dr. Cheng was appointed as the Chief Medical Officer of Aptorum Group on January 2, 2018.
105
(5) Miss Khan was appointed as the Chief Financial Officer of Aptorum Group on October 16, 2017. The monthly salary of Miss Khan remains unchanged in 2022.
(6) Pursuant to Dr. Cheng’s appointment letter, Dr. Cheng received a share bonus of 526 ordinary shares of AML, representing 5% of AML’s issued and outstanding
ordinary shares (the “Share Bonus”) in 2018. Based on the Company’s financial position and Dr. Cheng’s performance, on each anniversary of Dr. Cheng’s
employment commencement date, the Share Bonus is eligible to increase by 1% of AML’s then issued and outstanding ordinary share count per year up to a
maximum additional amount of 5% of AML’s then issued and outstanding ordinary share count by the 5th anniversary from his employment commencement date.
As of the date of this annual report, Dr. Cheng received a total of 989 ordinary shares of AML, representing 9% of AML’s issued and outstanding ordinary shares;
during fiscal 2021, Dr. Cheng received 117 ordinary shares of AML, the cash value of which is USD117; during fiscal 2022, Dr. Cheng received 119 ordinary
shares with cash value of which is USD119.
(7) Dr. Lee was appointed as the Head of Research & Development of Aptorum Group on April 1, 2019. Before that, he was the Chief Executive Officer and Chief
Scientific Officer of Aptorum Therapeutics Limited, a wholly-owned therapeutics subsidiary of Aptorum Group Limited from January 2018 to March 2019. The
monthly salary of Dr. Lee was adjusted to HK$154,000 (approximately US$19,744) since January 1, 2022.
(8) Dr. Ng served as the Chief Operating Officer of Aptorum Group from April 1, 2019 to November 26, 2021.
(9) Represents deferred bonuses provided to directors and executive officers, which will be vested after 1-2 years vesting period.
Compensation of Non-executive Directors
The following table sets forth information for the fiscal year ended December 31, 2021 regarding the compensation of our non-executive directors who at
December 31, 2021, were not also named executive officers. A total 43,480 options were awarded to non-executive directors in 2021. In addition to the compensation
included in the table below, which covers the fiscal year ended December 31, 2021, we issued an aggregate of 89,556 options to the persons included in the table
below since January 1, 2022 through the date of this report.
Name
Charles Bathurst (1)
Mirko Scherer (3)
Justin Wu (4)
Douglas Arner (5)
Fees
Earned
or
Paid in
Cash
($)
Stock
Awards
($)
Option
Awards
($)
Non-Equity
Incentive
Plan
Compensation
($)(6)
Non-qualified
Deferred
Compensation
Earnings
($)
All Other
Compensation
($)
49,200(2)
30,750
30,750
30,750
-
-
-
-
27,972
27,972
27,972
27,972
29,000
29,000
29,000
29,000
-
-
-
-
-
-
-
-
Total
($)
106,172
87,722
87,722
87,722
(1) Mr. Bathurst was appointed as one of our directors as of October 2017 and is entitled to receive $50,676 annually for his combined services as a director and a
committee member effective from January 1, 2022.
(2) Mr. Bathurst’s appointment Letter provides his salary in GBP. For purposes of this table, we used a conversion ratio of GBP0.75 to USD1.00 to determine his
salary in USD; however, the ultimate amount paid is based on the actual rate as of the relevant pay day at the end of each month.
(3) Dr. Scherer was appointed as one of our directors as of October 2017 and is entitled to receive $31,673 annually for his services as a director effective from
January 1, 2022.
(4) Professor Wu was appointed as one of our directors as of October 2017 and is entitled to receive $31,673 annually for his combined services as a director and a
committee member effective from January 1, 2022.
(5) Professor Arner’s appointment as one of our directors became effective as of April 1, 2018 and is entitled to receive $31,673 annually for his combined services as
a director and a committee member effective from January 1, 2022.
(6) Represents deferred bonuses provided to directors which will be vested after 1-2 years vesting period.
106
2017 Share Option Plan
On October 13, 2017, we adopted the 2017 Share Option Plan (the “Option Plan”) and on November 5, 2021, we amended the Option Plan. Under the Option
Plan, up to an aggregate of 5,500,000 Class A Ordinary Shares (subject to subsequent adjustments described more fully below) may be issued pursuant to awards
under the Option Plan. Subsequent adjustments include that on each January 1, starting with January 1, 2020, an additional number of shares equal to the lesser of (A)
2% of the outstanding number of Class A Ordinary Shares (on a fully diluted basis) on the immediate preceding December 31, and (B) such lower number of Class A
Ordinary Shares as may be determined by the board of directors, subject in all cases to adjustments as provided in Section 10 of the Option Plan. Awards will be made
pursuant to agreements and may be subject to vesting and other restrictions as determined by the board of directors.
We adopted the Option Plan to provide additional incentives to selected directors, officers, employees and consultants, and enable our Company to obtain and
retain the services of these individuals. The Option Plan will enable us to grant options, restricted shares or other awards to our directors, employees and consultants.
Awards will be made pursuant to agreements and may be subject to vesting and other restrictions as determined by the board of directors.
218,222 options were granted on March 15, 2019 to directors, employees, external consultants and advisors of the Group. One-half of each option grant vests
on January 1, 2020 and expires on December 31, 2030, and the other half vests on January 1, 2021 and expires on December 31, 2031. The exercise price is $12.91 per
share, which was based on the closing price of the shares traded on the NASDAQ stock exchange on the trading day preceding the grant date.
536,777 options were granted on March 16, 2020 to directors, employees, external consultants and advisors of the Group. One-half of each option grant vests
on January 1, 2021 and expires on December 31, 2031 and the other half vests on January 1, 2022 and expires on December 31, 2032. The exercise price is $2.99 per
share, which was based on the average closing price of the shares traded on the NASDAQ stock exchange for the five trading days immediately preceding the grant
date.
148,792 options were granted on June 1, 2020 to directors and employees of the Group. Nearly one-half of each option grant vests on December 1, 2020 and
expires on November 30, 2030 and the remaining vests on January 1, 2021 and expires on December 31, 2031. The exercise price is US$3.11 per share, which was
based on the average closing price of the shares traded on the NASDAQ stock exchange for the five trading days immediately preceding the grant date.
27,473 options were granted on August 10, 2020 to Dr. Weiss, which will be vested on August 10, 2021 and expires on August 9, 2032. The exercise price is
$3.64 per share, which was based on the average closing price of the shares traded on the NASDAQ stock exchange for the five trading days immediately preceding
the grant date.
752,185 options were granted on March 11, 2021 to directors, employees, external consultants and advisors of the Group with an exercise price of $2.76 per
share, which was based on the average closing price of the shares traded on the NASDAQ stock exchange for the five trading days immediately preceding the grant
date. 367,950 options vest on January 1, 2022 and expire on December 31, 2032; 367,930 options vest on January 1, 2023 and expire on December 31, 2033; 9,058
options vest on June 8, 2021 and expire on June 7, 2032; and 7,247 options vest on July 14, 2021 and expire on July 13, 2032.
1,531,332 options were granted on March 8, 2022 to directors, employees, external consultants and advisors of the Group with an exercise price of $1.34 per
share, which was based on the average closing price of the shares traded on the NASDAQ stock exchange for the five trading days immediately preceding the grant
date. 748,881 options vest on January 1, 2023 and expire on December 31, 2033; 748,868 options vest on January 1, 2024 and expire on December 31, 2034; 18,657
options vest on June 8, 2022 and expire on June 7, 2033; and 14,926 options vest on July 14, 2022 and expire on July 13, 2033.
107
C. Board Practices
Board of Directors
Our Board of Directors currently consists of seven members, all of whom were elected pursuant to our current Memorandum and Articles. Our nominating
and governance committee and board of directors will consider a broad range of factors relating to the qualifications and background of nominees, which may include
diversity and is not limited to race, gender or national origin. We have no formal policy regarding board diversity. Our nominating and governance committee’s and
board of directors’ priority in selecting board members is identification of persons who will further the interests of our shareholders through his or her established
record of professional accomplishment, the ability to contribute positively to the collaborative culture among board members, knowledge of our business,
understanding of the competitive landscape and professional and personal experiences and expertise relevant to our growth strategy.
Committees of the Board of Directors
Our Board of Directors has established an audit committee, a compensation committee and a nominating and corporate governance committee, each of which
operates pursuant to a separate charter adopted by our Board of Directors. The composition and functioning of all of our committees will comply with all applicable
requirements of the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the NASDAQ Global Market and SEC rules and
regulations. Our Board of Directors may establish other committees from time to time.
Audit Committee
Charles Bathurst, Douglas Arner and Justin Wu currently serve on the audit committee, which is chaired by Charles Bathurst. Our Board of Directors has
determined that each member of the audit committee is “independent” for audit committee purposes as that term is defined in the rules of the SEC and the applicable
rules of the NASDAQ Global Market. The audit committee’s responsibilities include:
● selecting and appointing our independent registered public accounting firm, and approving the audit and permitted non-audit services to be provided by
our independent registered public accounting firm;
● evaluating the performance and independence of our independent registered public accounting firm;
● monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to our financial statements
or accounting matters;
● reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures;
● establishing procedures for the receipt, retention and treatment of accounting-related complaints and concerns;
● reviewing and discussing with the independent registered public accounting firm the results of our year-end audit, and recommending to our Board of
Directors, based upon such review and discussions, whether our financial statements shall be included in our annual report on Form 20-F;
● reviewing all related party transactions for potential conflict of interest situations and approving all such transactions; and
● reviewing the type and presentation of information to be included in our earnings press releases, as well as financial information and earnings guidance
provided by us to analysts and rating agencies.
108
Audit Committee Financial Expert
We have one financial expert as of the date of this report. Our Board of Directors has determined that Mr. Charles Bathurst, Chair of our audit committee,
qualifies as an “audit committee financial expert” as defined in the SEC rules and satisfies the financial sophistication requirements of The NASDAQ Global Market.
Compensation Committee
Charles Bathurst, Douglas Arner and Justin Wu currently serve on the compensation committee, which is chaired by Justin Wu. Our Board of Directors has
determined that each member of the compensation committee is “independent” as that term is defined in the applicable rules of the NASDAQ Global Market. The
compensation committee’s responsibilities include:
● reviewing the goals and objectives of our executive compensation plans, as well as our executive compensation plans in light of such goals and
objectives;
● evaluating the performance of our executive officers in light of the goals and objectives of our executive compensation plans and recommending to our
Board of Directors with respect to the compensation of our executive officers;
● reviewing the goals and objectives of our general compensation plans and other employee benefit plans as well as our general compensation plans and
other employee benefit plans in light of such goals and objectives;
● retaining and approving the compensation of any compensation advisors;
● reviewing all equity-compensation plans to be submitted for shareholder approval under the NASDAQ listing rules, and reviewing and approving all
equity-compensation plans that are exempt from such shareholder approval requirement;
● evaluating the appropriate level of compensation for board and board committee service by non-employee directors; and
● reviewing and approving description of executive compensation included in our annual report on Form 20-F.
Nominating and Corporate Governance Committee
Charles Bathurst, Douglas Arner and Justin Wu currently serve on the nominating and corporate governance committee, which is chaired by Professor Arner.
Our Board of Directors has determined that each member of the nominating and corporate governance committee is “independent” as that term is defined in the
applicable rules of the NASDAQ Global Market. The nominating and corporate governance committee’s responsibilities include:
● assisting our Board of Directors in identifying prospective director nominees and recommending nominees for election by the shareholders or
appointment by our Board of Directors;
● advising the board of directors periodically with respect to significant developments in the law and practice of corporate governance as well as our
compliance with applicable laws and regulations, and making recommendations to our Board of Directors on all matters of corporate governance and on
any corrective action to be taken;
● overseeing the evaluation of our Board of Directors; and
● recommending members for each board committee of our Board of Directors.
109
Scientific Advisory Boards
We restructured the Scientific Assessment Committee into a newly formed Scientific Advisory Board. The Scientific Advisory Board shall help the Company
sharpen its focus on innovation and technological advancements and address critical scientific challenges in our research and development; it will provide overall
advise on the scientific development of the company. As of the date of this annual report, we have 24 members on this board.
In light of the Company’s focus on developing treatment for infectious diseases, we have established a second scientific advisory board, i.e., the Infectious
Diseases Scientific Advisory Board in April 2020. As of the date hereof, the Infectious Diseases Scientific Advisory Board has 4 members.
Family Relationships
There is no family relationship among any of our directors or executive officers.
Duties of Directors
Under Cayman Islands law, our directors have a duty to act honestly, in good faith and bona fide with a view to our best interests. Our directors also have a
duty to exercise the care, diligence and skills that a reasonably diligent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our
directors must ensure compliance with our Memorandum and Articles. We have the right to seek damages if a duty owed by our directors is breached.
The functions and powers of our Board of Directors include, among others:
● appointing officers and determining the term of office of the officers;
● authorizing the payment of donations to religious, charitable, public or other bodies, clubs, funds or associations as deemed advisable;
● exercising the borrowing powers of the company and mortgaging the property of the company;
● executing checks, promissory notes and other negotiable instruments on behalf of the company; and
● maintaining or registering a register of mortgages, charges or other encumbrances of the company.
Terms of Directors and Officers
There is no Cayman Islands law requirement that a director must hold office for a certain term and stand for re-election unless the resolutions appointing the
director impose a term on the appointment. The Memorandum and Articles provide that our directors will be elected annually to serve a term of one year, or until his
or her earlier resignation or removal. We do not have any age limit requirements relating to our director’s term of office.
Our Memorandum and Articles also provide that our directors may be removed by the directors or ordinary resolution of the shareholders, and that any
vacancy on our Board of Directors, including a vacancy resulting from an enlargement of our Board of Directors (which shall not exceed any maximum number stated
therein), may be filled by ordinary resolution or by vote of a majority of our directors then in office.
Employment Agreements
We have entered into agreements with our executive officers. Each of our executive officers is employed for a specified time period, which will be renewed
upon both parties’ agreement. We may terminate the employment for cause, at any time, without notice or remuneration, for certain acts of the executive officer,
including but not limited to the commitments of any serious or persistent breach or non-observance of the terms and conditions of the employment, conviction of a
criminal offense, willful disobedience of a lawful and reasonable order, fraud or dishonesty, receipt of bribery, or severe neglect of his or her duties.
110
Each executive officer has agreed to hold, both during and after the employment agreement expires, in strict confidence and not to use or disclose to any
person, corporation or other entity without written consent, any confidential information. Each executive officer has also agreed to assign to our group all his or her all
inventions, improvements, designs, original works of authorship, formulas, processes, compositions of matter, computer software programs, databases, mask works,
concepts and trade secrets.
D. Employees
As of the date of this annual report, we have 26 full-time employees. Of these, 9 are engaged in research and development and laboratory operations, 13 are
engaged in general and administrative functions and 4 are engaged in the clinic operation. As of the date of annual report, 25 of our employees are located in Asia and
1 of our employees is located in Europe. In addition, we have engaged and may continue to engage 56 independent contracted consultants and advisors to assist us
with our operations. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We have never experienced any
employment related work stoppages, and we consider our relations with our employees to be good.
E. Share Ownership
The following table sets forth information with respect to the beneficial ownership, within the meaning of Rule 13d-3 under the Exchange Act, of our
Ordinary Shares as of the date of this annual report.
● each of our directors and executive officers who beneficially own our Ordinary Shares; and
● each person known to us to own beneficially more than 5.0% of our Ordinary Shares.
Beneficial ownership includes voting or investment power with respect to the securities. Except as indicated below, and subject to applicable community
property laws, the persons named in the table have sole voting and investment power with respect to all Ordinary Shares shown as beneficially owned by them.
Percentage of beneficial ownership of each listed person is based on 13,260,446 Class A Ordinary Shares and 22,437,754 Class B Ordinary Shares outstanding as of
the date of this annual report.
Information with respect to beneficial ownership has been furnished by each director, officer or beneficial owner of 5% or more of our Ordinary Shares.
Beneficial ownership is determined in accordance with the rules of the SEC and generally requires that such person have voting or investment power with respect to
securities. In computing the number of Ordinary Shares beneficially owned by a person listed below and the percentage ownership of such person, Ordinary Shares
underlying options, warrants or convertible securities held by each such person that are exercisable or convertible within 60 days of the date of this annual report are
deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person. Except as otherwise indicated in the footnotes to
this table, or as required by applicable community property laws, all persons listed have sole voting and investment power for all Ordinary Shares shown as
beneficially owned by them. As of the date of the annual report, we have 3 shareholders of record holding beneficial ownership of 5% or more, none of which are
located in the United States.
111
Unless otherwise indicated, the business address of each of the individuals is 17 Hanover Square, London, W1S 1BN, United Kingdom.
Name and Address of Beneficial Owner
Ian Huen(3)
Darren Lui(4)
Clark Cheng(5)
Sabrina Khan(6)
Thomas Lee(7)
Charles Bathurst(9)
Mirko Scherer(10)
Justin Wu(11)
Douglas Arner(12)
All directors and executive officers as a group (9 persons)
5% Beneficial Owner
Jurchen Investment Corporation(3)
Sui Fong Isabel Huen Ng(13)
CGY Investments Limited(14)
Class A
Ordinary
Shares
Beneficially
Owned
Class B
Ordinary
Shares
Beneficially
Owned
Percentage
of Total
Class A and
Class B
Ordinary
Shares(1)
Percentage
of Total
Voting
Power(2)
4,403,074
330,485
*
*
*
*
*
*
*
5,378,107
16,061,469
2,141,333
-
-
-
-
-
-
-
18,202,802
4,243,613
211,986
631,270
16,061,469
1,907,870
4,015,367
56.11%
6.91%
*
*
*
*
*
*
*
63.99%
56.03%
5.94%
12.96%
69.24%
9.15%
*
*
*
*
*
*
*
78.48%
69.22%
8.12%
17.15%
*
Less than 1% of total outstanding Ordinary Shares on an as converted basis.
(1) For each person and group included in this column, percentage ownership is calculated by dividing the number of Class A Ordinary Shares and Class B Ordinary
Shares beneficially owned by such person or group, including shares that such person or group has the right to acquire within 60 days after the date of this annual
report, by the sum of Class A Ordinary Shares and Class B Ordinary Shares, and the number of Class A Ordinary Shares that such person or group has the right to
acquire beneficial ownership within 60 days after the date of this annual report. Following the IPO, each Class B Ordinary Share can be converted at any time on
a one-for-one basis into Class A Ordinary Shares at the discretion of the holder.
(2) For each person and group included in this column, percentage of total voting power represents voting power based on both Class A Ordinary Shares and Class B
Ordinary Shares beneficially owned by such person or group with respect to all of our outstanding Class A Ordinary Shares and Class B Ordinary Shares as one
single class. Holders of Class A Ordinary Shares are entitled to one vote per share and holders of Class B Ordinary Shares are entitled to ten votes per share on all
matters subject to a shareholders’ vote.
(3) Includes 3,703,073 Class A Ordinary Shares owned by Jurchen, warrants held by Jurchen to purchase 540,540 Class A Ordinary Shares, options granted to Mr.
Huen to purchase 159,461 Class A Ordinary Shares, and 16,061,469 Class B Ordinary Shares owned by Jurchen. Jurchen Investment Corporation, is a company
wholly-owned by Mr. Huen. Mr. Huen maintains sole voting control over the shares held by Jurchen, the principal office address of which is at 17th Floor,
Guangdong Investment Tower, 148 Connaught Road Central, Hong Kong. Does not include 72,464 Class A Ordinary Shares issuable upon exercise of
outstanding options issued on March 11, 2021 and 298,508 Class A Ordinary Shares issuable upon exercise of outstanding options issued on March 8, 2022 to Mr.
Huen pursuant to the Option Plan, since such options have not vested and will not be exercisable within 60 days of the date of this annual report.
(4) Includes (i) 14,850 Class A Ordinary Shares and 133,649 Class B Ordinary Shares held by DSF Investment Holdings Limited, which is 29.5% held by Mr. Lui,
and 70.5% held by Eternal Clarity Holdings Limited which is wholly-owned by Mr. Lui’s mother, Ms. Emily Woo, and is located at Flat A2, 11th Floor, Wing
Hang Insurance Building, 11 Wing Kut Street, Hong Kong, (ii) 240,931 Class A Ordinary Shares and 2,007,684 Class B Ordinary Shares held by CGY
Investments Limited, which is 50% held by Seng Fun Yee (Mr. Lui’s spouse), 25% held by Mandy Lui (Mr. Lui’s sister) and 25% held by Adrian Lui (Mr. Lui’s
brother), and (iii) options held by CGY Investments Limited to purchase 74,704 Class A Ordinary Shares. Mr. Lui only controls and/or has substantial influence
on the disposition and voting rights of 29.5% of the Aptorum shares DSF owns; Mr. Lui controls and/or has substantial influence on the disposition and voting
rights of the shares held by his spouse, but no such control over the shares held by his sister or brother regarding the CGY shares. Does not include 36,232 Class
A Ordinary Shares issuable upon exercise of outstanding options issued on March 11, 2021 and 149,254 Class A Ordinary Shares issuable upon exercise of
outstanding options issued on March 8, 2022 to CGY Investments Limited, of which represented 50% deemed controlled by Mr. Lui, pursuant to the Option Plan,
since such options have not vested and will not be exercisable within 60 days of the date of this annual report.
112
(5) Pursuant to his appointment letter, Dr. Cheng received 9% of Aptorum Medical Limited’s ordinary shares as of the date of this annual report. Does not include
49,819 Class A Ordinary Shares issuable upon exercise of outstanding options issued on March 11, 2021 to Dr. Cheng, and 205,224 Class A Ordinary Shares
issuable upon exercise of outstanding options issued on March 8, 2022 to ACC Medical Limited, pursuant to the Option Plan, since such options have not vested
and will not be exercisable within 60 days of the date of this annual report. ACC Medical Limited, is a company wholly-owned by Dr. Cheng. Dr. Cheng
maintains sole voting control over the shares held by ACC Medical Limited, the principal office address of which is at Unit 1, 13/F, Block A, 19-25 Jervois Street,
Hong Kong.
(6) Does not include 33,514 Class A Ordinary Shares issuable upon exercise of outstanding options issued on March 11, 2021 and 138,060 Class A Ordinary Shares
issuable upon exercise of outstanding options issued on March 8, 2022 to Miss Khan pursuant to the Option Plan, since such options have not vested and will not
be exercisable within 60 days of the date of this annual report.
(7) Does not include 45,290 Class A Ordinary Shares issuable upon exercise of outstanding options issued on March 11, 2021 and 186,568 Class A Ordinary Shares
issuable upon exercise of outstanding options issued on March 8, 2022 to Dr. Lee pursuant to the Option Plan, since such options have not vested and will not be
exercisable within 60 days of the date of this annual report.
(8) [reserved]
(9) Does not include 5,435 Class A Ordinary Shares issuable upon exercise of outstanding options issued on March 11, 2021 and 22,389 Class A Ordinary Shares
issuable upon exercise of outstanding options issued on March 8, 2022 to Mr. Bathurst pursuant to the Option Plan, since such options have not vested and will
not be exercisable within 60 days of the date of this annual report.
(10) Does not include 5,435 Class A Ordinary Shares issuable upon exercise of outstanding options issued on March 11, 2021 and 22,389 Class A Ordinary Shares
issuable upon exercise of outstanding options issued on March 8, 2022 to Mr. Scherer pursuant to the Option Plan, since such options have not vested and will not
be exercisable within 60 days of the date of this annual report.
(11) Does not include 5,435 Class A Ordinary Shares issuable upon exercise of outstanding options issued on March 11, 2021 and 22,389 Class A Ordinary Shares
issuable upon exercise of outstanding options issued on March 8, 2022 to Professor Wu pursuant to the Option Plan, since such options have not vested and will
not be exercisable within 60 days of the date of this annual report.
(12) Does not include 5,435 Class A Ordinary Shares issuable upon exercise of outstanding options issued on March 11, 2021 and 22,389 Class A Ordinary Shares
issuable upon exercise of outstanding options issued on March 8, 2022 to Professor Arner pursuant to the Option Plan, since such options have not vested and will
not be exercisable within 60 days of the date of this annual report.
(13) Sui Fong Isabel Huen Ng is the mother of Mr. Ian Huen. Mr. Ian Huen does not have control nor substantial influence on the disposition and voting rights of the
shares held by his mother.
(14) CGY Investments Limited is 50% held by Seng Fun Yee (Mr. Lui’s spouse), 25% held by Mandy Lui (Mr. Lui’s sister) and 25% held by Adrian Lui (Mr. Lui’s
brother). Mr. Lui controls and/or has substantial influence on the disposition and voting rights of the shares held by his spouse, but no such control over the shares
held by his sister or brother. Includes (i) 481,863 Class A Ordinary Shares and 4,015,367 Class B Ordinary Shares held by CGY Investments Limited, and (ii)
options held by CGY Investments Limited to purchase 149,407 Class A Ordinary Shares. Does not include 72,464 Class A Ordinary Shares issuable upon
exercise of outstanding options issued on March 11, 2021 and 298,508 Class A Ordinary Shares issuable upon exercise of outstanding options issued on March 8,
2022 to CGY Investments Limited pursuant to the Option Plan, since such options have not vested and will not be exercisable within 60 days of the date of this
annual report.
113
Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
Please refer to “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”
B. Related Party Transactions
Lines of Credit
On August 13, 2019 (the “Effective Date”), Aptorum Therapeutics Limited (“ATL”), one of our wholly-owned subsidiaries, entered into two separate
Promissory Notes and Line of Credit Agreements (the “Agreements”) with Aeneas Group Limited and Jurchen Investment Corporation (“Jurchen”). The Aeneas
Group Limited Agreement and Jurchen Agreement provide ATL with a line of credit up to twelve million dollars ($12,000,000) and three million dollars ($3,000,000),
respectively (collectively, the “Line of Credit”), representing the maximum aggregate amount of the advances of funds from the Line of Credit that may be outstanding
at any time under the Line of Credit (the “Principal Indebtedness”). ATL may draw down from the Line of Credit at any time through the day immediately preceding
the third anniversary of the Effective Date (the “Maturity Date”). The Maturity is extendable for up to an additional three years period upon mutual written consent.
Interest will be payable on the outstanding Principal Indebtedness at the rate of eight percent (8%) per annum, payable semi-annually in arrears on February 12 and
August 12 in each year. ATL may pre-pay in whole or in part, the Principal Indebtedness of the Line of Credit, and all interest accrued at any time prior to the Maturity
Date, without penalty. Under the Agreements, in addition to certain standard covenants, we are also not permitted, without the prior written consent of Aeneas Group
and Jurchen to (i) liquidate, dissolve or wind-up our business and affairs; (ii) effect any merger or consolidation transaction; (iii) sell, lease, transfer, license or
otherwise dispose, in a single transaction or series of related transactions, all or substantially all of our assets; or (iv) consent to any of the foregoing. The Agreements
are subject to standard events of default, which if not cured within the agreed upon cure period, permits Aeneas Group Limited or Jurchen, as applicable, to declare the
outstanding Principal Indebtedness immediately due and payable, to exercise any other remedy provided for in the Agreements or any other right available to Aeneas
Group Limited or Jurchen as provided at law or in equity. Jurchen and Aeanas Group Limited also maintain the right to set-off during the term of the Agreements. As
of the date hereof, the Company has not drawn down any loan from the Line of Credit.
On November 17, 2021, Aptorum Therapeutics Limited (the “Lender”) entered into a loan agreement with Talem Medical Group Limited (“Talem” or the
“Borrower”). According to the loan agreement, the Lender will grant a loan of up to AUD 4.7 million for the Borrower for general working capital purposes of the
Borrower and its subsidiaries. The loan is interest-bearing at a rate of 10% per annum and secured by the entire issued shares of Talem Medical Group (Australia) Pty
Limited held by the Borrower. The loan is initially matured 6 months from the date of the first drawdown date. The maturity date may be extended for 6 months to the
first extended maturity date, and further extended for another 6 months to the second extended maturity date, if certain conditions stated in loan agreement are
satisfied. We consider this loan to be a related party transaction as certain insiders, including Ian Huen, our Chief Executive Officer, Executive Director and Director
of the Lender; Dr. Clark Cheng, our Chief Medical Officer, Executive Director and Director of the Lender; Darren Lui, our President, Executive Director and Director
of the Lender; Professor Justin Wu, our Independent Non-Executive Director; and Dr. Thomas Lee, our Head of Research and Development and Director of the
Lender have direct and indirect minority interests in the Borrower. As of the date hereof, the Lender has lent approximately AUD 4.7 million to Talem Medical and the
current maturity date is May 16, 2022.
On January 13, 2022, the Group entered a line of credit facility with Libra Sciences Limited to provide up to a total $1 million in line of credit debt financing
for its daily operation. The line of credit will mature on July 12, 2022, extendable for up to twelve months, and the interest on the outstanding principal indebtedness
will be at the rate of 10% per annum.
114
Sales and Purchases of Securities
Registered Direct Offering
On May 26, 2021, the Company entered into a private placement shares purchase agreement with Jurchen, issuing 1,387,925 Class A Ordinary Shares at
$2.882 per share, representing a 10% premium to the last closing price of the Company’s Class A Ordinary Shares on the NASDAQ stock exchange on that date. The
Company received aggregate gross proceeds of $4,000,000 from the purchase of these shares.
Disposal of a subsidiary
On May 27, 2021, Aptorum Therapeutics Limited, which is a wholly owned subsidiary of Aptorum Group Limited, entered a Share Sale Agreement to sell all
of the shares of SMPTH Limited, a previously wholly owned subsidiary of Aptorum Therapeutics Limited, to Aeneas Group Limited at the consideration $1.
Consulting Arrangements
CGY Investment Limited
We entered into a consulting agreement with CGY Investment Limited (“CGY”) effective on January 10, 2020. Pursuant to this agreement, CGY shall
provide certain consultancy, advisory, and management services to the Group on potential investment projects related to health care or R&D platform; CGY shall be
initially paid a monthly service fee of HK$104,000 per month (approximately US$13,333 per month), during the term of the agreement, which is remain in effect
unless it is terminated. The monthly service fee is adjusted to HK$171,200 (approximately US$21,949) with effect from March 1, 2022. The agreement may be
terminated by either party providing 1-months written notice to the other party.
CGY is 50% held by Seng Fun Yee (Mr. Lui’s spouse), 25% held by Mandy Lui (Mr. Lui’s sister) and 25% held by Adrian Lui (Mr. Lui’s brother). Mr. Lui,
President and Executive Director of the Group, controls and/or has substantial influence on the disposition and voting rights of the shares held by his spouse, but no
such control over the shares held by his sister or brother. Hence, 50% of the consulting service fee will be deemed as Mr. Lui’s compensation.
ACC Medical Limited
We entered into a consulting agreement with ACC Medical Limited (“ACC”) effective on December 1, 2020. Pursuant to this agreement, ACC shall provide
certain consultancy, advisory, and management services to the Group on clinic operations and other related projects for clinics’ business development; ACC shall be
initially paid a monthly service fee of HK$101,542 per month (approximately US$13,018 per month), during the term of the agreement, which is to remain in effect
unless it is terminated. The monthly service fee is adjusted to HK$143,200 (approximately US$18,359 per month) effective from March 1, 2022. The agreement may
be terminated by either party providing 1-months written notice to the other party. ACC is wholly owned by Dr. Clark Cheng, who is also the sole director of ACC, the
Group’s Chief Medical Officer and one of its executive directors.
GloboAsia, LLC
We entered into a consulting agreement with GloboAsia effective as of August 18, 2017 (the “2017 GA Agreement”); GloboAsia is not associated or
affiliated with any FINRA members. However, the 2017 GA Agreement was terminated when Dr. Chan resigned from his position as our Chief Scientific Officer in
March 2019. Dr. Chan serves as the Director of International Affairs of GloboAsia.
Effective as of April 1, 2019, GloboAsia, through Dr. Chan, shall serve as a member on our Scientific Advisory Board. To formalize such service, we entered
into that certain consulting agreement with GloboAsia dated March 13, 2019 (the “2019 GA Agreement”). Pursuant to the 2019 GA Agreement, GloboAsia provides
advisory and management services to us and as a member of the Scientific Advisory Board, they provide advice to us regarding research and development, the
scientific merit of licenses or products and other related scientific issues. We agreed to pay GloboAsia an hourly rate of USD300 for work actually performed. The
initial term of 2019 GA Agreement is until December 31, 2020 and shall thereafter be automatically renewed for successive one-year terms, unless earlier terminated
by either party upon three months’ notice prior to the end of the then applicable term; either party may also terminate the agreement upon 2 months written notice and
the Company may terminate the agreement if Dr. Chan is no longer with GloboAsia or if GloboAsia commits any act of fraud or dishonesty.
115
Employment Agreements
We entered into Appointment Letters with each of our executive officers. The terms of the Appointment Letters for each of our executive officers are
consistent with each other, except with regard to the individual’s compensation, term of employment and duties and responsibilities, the latter of which coincides with
the standard functions normally associated with the given position. In addition to setting forth the individual compensation and such, the appointment letters contain
the following material terms:
We may terminate employment for cause, at any time, without advance notice or remuneration, for certain acts of the executive officer, such as conviction or
plea of guilty to a felony or any crime involving moral turpitude, negligent or dishonest acts to our detriment, or misconduct or a failure to perform agreed duties. We
may also terminate an executive officer’s employment without cause upon three-month advance written notice. In such case of termination by us, we will provide
severance payments to the executive officer as expressly required by applicable law of the jurisdiction where the executive officer is based. The executive officer may
resign at any time with three-month advance written notice.
Each executive officer has agreed to hold, both during and after the termination or expiration of his or her Appointment Letter, in strict confidence and not to
use, except as required in the performance of his or her duties in connection with the employment or pursuant to applicable law, any of our confidential information or
trade secrets, any confidential information or trade secrets of our clients or prospective clients, or the confidential or proprietary information of any third-party
received by us and for which we have confidential obligations.
In addition, each executive officer has agreed to be bound by non-solicitation and non-compete restrictions during the term of his or her employment and
typically for one year following the last date of employment. Specifically, each executive officer has agreed not to (i) solicit or entice away from the Company, any
person, firm, company or organization that is or shall have been at any time within 12 months prior to termination of employee a customer, client, identified
prospective customer or client of the Company or in the habit of dealing with the Company; (ii) employ, solicit or entice away from the Company any person who is or
shall have been on the date of or within 12 months prior to termination of employment an employee of the Company; or (iii) assume employment with or provide
services to, or otherwise engage in income generating activities with any of our competitors, or engage, whether as principal, partner, licensor or otherwise, any of our
competitors, without our express consent.
Some of our Appointment Letters also provide for the executive officer to participate in our mandatory provident fund, which is similar to a pension fund.
See “Item 6. Directors, Senior Management and Employees — C. Board Practices — Employment Agreements”.
C. Interests of Experts and Counsel
Not applicable.
Item 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
We have appended consolidated financial statements filed as part of this annual report.
Legal Proceedings
From time to time, we are subject to legal proceedings, investigations and claims incidental to the conduct of our business. We are not currently a party to any
legal proceeding or investigation which, in the opinion of our management, is likely to have a material adverse effect on our business, financial condition or results of
operations.
Dividend Policy
We have never declared or paid cash dividends to our shareholders, and we do not intend to pay cash dividends in the foreseeable future. We intend to
reinvest any earnings in developing and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our Board of
Directors and will depend on a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements,
business prospects, our strategic goals and plans to expand our business, applicable law and other factors that our Board of Directors may deem relevant.
116
Under Cayman Islands law, dividends may be declared and paid only out of funds legally available therefor, namely out of either profit or our share premium
account, and provided further that a dividend may not be paid if this would result in our Company being unable to pay its debts as they fall due in the ordinary course
of business.
B. Significant Changes
Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial
statements included in this annual report.
Item 9. THE OFFER AND LISTING
A. Offering and Listing Details.
Our Class A Ordinary Shares are currently listed on NASDAQ Global Market under the symbol “APM” and the Professional Compartment of Euronext in
Paris under the Euronext ticker symbol “APM.”
B. Plan of Distribution
Not applicable.
C. Markets
Our Class A Ordinary Shares are currently listed on NASDAQ Global Market under the symbol “APM” and the Professional Compartment of Euronext in
Paris under the Euronext ticker symbol “APM.”
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
Item 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Amended and Restated Memorandum and Articles of Association
The description of our Amended and Restated Memorandum and Articles of Association is incorporated by reference from the Registration Statement. Our
amended and restated memorandum and articles of association were filed as Exhibit 3.1 to the Registration Statement and are hereby incorporated by reference into
this annual report.
C. Material Contracts
We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on the
Company” or elsewhere in this annual report.
117
D. Exchange Controls
There are no governmental laws, decrees, regulations or other legislation in the Cayman Islands, the United Kingdom or Hong Kong that may affect the
import or export of capital, including the availability of cash and cash equivalents for use by us, or that may affect the remittance of dividends, interest, or other
payments by us to non-resident holders of our ordinary shares, other than withholding tax requirements. There is no limitation imposed by Cayman Islands law, the
United Kingdom law, Hong Kong law or our articles of association on the right of non-residents to hold or vote shares.
E. Taxation
Cayman Islands Tax Considerations
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the
nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties
which may be applicable on instruments executed in, or brought within, the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax
treaties which are applicable to any payments made by or to our Company. There are no exchange control regulations or currency restrictions in the Cayman Islands.
Payments of dividends and capital in respect of our Class A Ordinary Shares will not be subject to taxation in the Cayman Islands and no withholding will be
required on the payment of a dividend or capital to any holder of our Class A Ordinary Shares, nor will gains derived from the disposal of our Class A Ordinary Shares
be subject to Cayman Islands income or corporation tax.
No stamp duty is payable in respect of the issue of our Class A Ordinary Shares or on an instrument of transfer in respect of our Class A Ordinary Shares
except on instruments executed in, or brought within, the jurisdiction of the Cayman Islands.
Material U.S. Federal Income Tax Considerations for U.S. Holders
The following is a description of the material U.S. federal income tax consequences to U.S. Holders (as defined below) of purchasing, owning and disposing
of Class A Ordinary Shares. It is not a comprehensive description of all U.S. federal income tax considerations that may be relevant to a particular person’s decision to
acquire Class A Ordinary Shares. This discussion applies only to a U.S. Holder that holds a Class A Ordinary Share as a capital asset for U.S. federal income tax
purposes (generally, property held for investment). In addition, it does not describe all of the tax consequences that may be relevant in light of a U.S. Holder’s
particular circumstances, including state and local tax consequences, non-U.S. tax consequences, federal estate or gift tax consequences, alternative minimum tax
consequences, the potential application of the provisions of the Code known as the Medicare Contribution Tax, and tax consequences applicable to U.S. Holders
subject to special rules, such as:
● banks and other financial institutions;
● insurance companies;
● dealers or traders in securities who use a mark-to-market method of tax accounting;
● persons holding Class A Ordinary Shares as part of a hedging transaction, “straddle,” wash sale, conversion transaction or integrated transaction or
persons entering into a constructive sale with respect to the Class A Ordinary Shares;
● persons whose “functional currency” for U.S. federal income tax purposes is not the U.S. dollar;
● tax exempt entities, including “individual retirement accounts” and “Roth IRAs”;
● former citizens or long-term residents of the United States;
● entities or arrangements classified as partnerships for U.S. federal income tax purposes;
● regulated investment companies or real estate investment trusts;
● persons who acquired our Class A Ordinary Shares pursuant to the exercise of an employee share option or otherwise as compensation;
● persons that own or are deemed to own ten percent or more of our shares; and
● persons holding Class A Ordinary Shares in connection with a trade or business conducted outside the United States.
118
If an entity or arrangement that is classified as a partnership for U.S. federal income tax purposes holds Class A Ordinary Shares, the U.S. federal income tax
treatment of such partnership and each partner thereof will generally depend on the status of the partner and the activities of the partnership. Partnerships holding Class
A Ordinary Shares and partners in such partnerships are encouraged to consult their tax advisors as to the particular U.S. federal income tax consequences of
purchasing, holding and disposing of Class A Ordinary Shares.
The discussion is based on the Code, the Treasury Regulations issued thereunder, and administrative and judicial interpretations thereof, all as in effect on the
date hereof and all of which are subject to change, possibly with retroactive effect, or to different interpretation. Such change could materially and adversely affect the
tax consequences described below.
For purposes of this discussion, a “U.S. Holder” is a holder who, for U.S. federal income tax purposes, is a beneficial owner of Class A Ordinary Shares and
that is:
(1) an individual citizen or resident of the United States;
(2) a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of
Columbia;
(3) an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
(4) a trust, (i) if a court within the United States is able to exercise primary supervision over its administration and one or more “U.S. persons” (within the
meaning of the Code) have the authority to control all of its substantial decisions, or (ii) if a valid election is in effect for the trust to be treated as a U.S.
person.
U.S. Holders are encouraged to consult their tax advisors concerning the U.S. federal, state, local and foreign tax consequences of purchasing, owning and
disposing of Class A Ordinary Shares in their particular circumstances.
Taxation of Distributions
Subject to the discussion below under “Passive Foreign Investment Company Rules,” a U.S. Holder will be required to include in gross income as dividend
income the gross amount of any distributions paid on Class A Ordinary Shares (including any amount of taxes withheld), other than certain pro rata distributions of
Class A Ordinary Shares, to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles).
Distributions in excess of our current and accumulated earnings and profits would be treated as a non-taxable return of capital to the extent of the U.S. Holder’s
adjusted tax basis in the Class A Ordinary Shares and thereafter as a gain from the sale of the Class A Ordinary Shares. However, because we do not calculate our
earnings and profits under U.S. federal income tax principles, we expect that distributions generally will be reported to U.S. Holders as dividends.
In case of a U.S. Holder that is a corporation, dividends paid on the Class A Ordinary Shares will be subject to regular corporate rates and will not be eligible
for the “dividends received” deduction generally allowed to corporate shareholders with respect to dividends received from U.S. corporations.
Dividends received by an individual, trust or estate will be subject to taxation at standard tax rates. A reduced income tax rate applies to dividends paid by a
“qualified foreign corporations” (if certain holding period requirements and other conditions are met). A non-U.S. corporation generally will be considered to be a
qualified foreign corporation (i) if it is eligible for the benefits of a comprehensive tax treaty with the United States which includes an exchange of information
program or (ii) with respect to any dividend it pays on stock which is readily tradable on an established securities market in the United States. US. Treasury
Department guidance indicates that our Class A Ordinary Shares, which is listed on the NASDAQ Global Market is readily tradable on an established securities
market in the United States. There can be no assurance, however, that our Class A Ordinary Shares will be considered readily tradable on an established securities
market in later years.
Non-corporate U.S. Holders will not be eligible for reduced rates of taxation on any dividends received from us if we are a PFIC in the taxable year in which
such dividends are paid or in the preceding taxable year (See “Item 10. Additional Information – E. Taxation – Material U.S. Federal Income Tax Considerations for
U.S. Holders – Passive Foreign Investment Company Rules” below).
A U.S. Holder may be eligible, subject to a number of complex limitations, to claim a foreign tax credit in respect of any foreign withholding taxes imposed
on dividends received on the Class A Ordinary Shares. A U.S. Holder who does not elect to claim a foreign tax credit for foreign income tax withheld may instead
claim a deduction for U.S. federal income tax purposes in respect of such withholding, but only for a year in which such investor elects to do so for all creditable
foreign income taxes. For purposes of calculating the foreign tax credit limitation, dividends paid by us will, depending on the circumstances of the U.S. Holder, be
either general or passive income.
119
While we do not expect to pay dividends in the near future, in the event any dividends are paid and if a dividend is paid in non-U.S. currency, it must be
included in a U.S. Holder’s income as a U.S. dollar amount based on the exchange rate in effect on the date such dividend is actually or constructively received,
regardless of whether the dividend is in fact converted into U.S. dollars. If the dividend is converted to U.S. dollars on the date of receipt, a U.S. Holder generally will
not recognize a foreign currency gain or loss. If the non-U.S. currency is converted into U.S. dollars on a later date, however, the U.S. Holder must include in income
any gain or loss resulting from any exchange rate fluctuations. Such gain or loss will generally be ordinary income or loss and will be from sources within the United
States for foreign tax credit limitation purposes. U.S. Holders should consult their own tax advisors regarding the tax consequences to them if we pay dividends in
non-U.S. currency.
Sale or Other Taxable Disposition of Ordinary Shares
Subject to the discussion below under “Passive Foreign Investment Company Rules,” gain or loss realized on the sale or other taxable disposition of Class A
Ordinary Shares will be capital gain or loss, and will be long-term capital gain or loss if the U.S. Holder held the Class A Ordinary Shares for more than one year. The
amount of the gain or loss will equal the difference between the U.S. Holder’s tax basis in the Class A Ordinary Shares disposed of and the amount realized on the
disposition. Long-term capital gain of a non-corporate U.S. Holder is generally taxed at preferential rates. This gain or loss will generally be U.S.-source gain or loss
for foreign tax credit purposes. The deductibility of capital losses is subject to limitations. U.S. Holders are urged to consult their tax advisors regarding the tax
consequences if a foreign tax is imposed on the disposition of Class A Ordinary Shares, including the availability of the foreign tax credit under an investor’s own
particular circumstances.
A U.S. Holder that receives non-U.S. currency on the disposition of the Class A Ordinary Shares will realize an amount equal to the U.S. dollar value of the
foreign currency received on the date of disposition (or in the case of cash basis and electing accrual basis taxpayers, the settlement date) whether or not converted into
U.S. dollars at that time. Very generally, the U.S. Holder will recognize currency gain or loss if the U.S. dollar value of the currency received on the settlement date
differs from the amount realized with respect to the Class A Ordinary Shares. Any currency gain or loss on the settlement date or on any subsequent disposition of the
foreign currency generally will be U.S.-source ordinary income or loss.
Passive Foreign Investment Company Rules
Special U.S. federal income tax rules apply to a U.S. Holder that holds stock in a foreign corporation classified as a PFIC for U.S. federal income tax
purposes. In general, a non-U.S. corporation will be classified as a PFIC for any taxable year in which, after applying certain look-through rules, either:
● at least 75% of its gross income for such taxable year is passive income (e.g., dividends, interest, capital gains and rents derived other than in the active
conduct of a rental business); or
● at least 50% of its gross assets (determined on the basis of a quarterly average) is attributable to assets that produce passive income or are held for the
production of passive income.
We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we
own, directly or indirectly, 25% or more (by value) of the equity.
A separate determination must be made after the close of each taxable year as to whether we are a PFIC for that year. As a result, our PFIC status may
change. In particular, the total value of our assets generally will be calculated using the market price of our Class A Ordinary Shares, which may fluctuate
considerably. Fluctuations in the market price of our Class A Ordinary Shares may result in our being a PFIC for any taxable year.
Due to the amount of restricted and unrestricted cash and investments that we had on hand during our year ending December 31, 2021, we believe that we
were classified as a PFIC for that tax year. Depending on the future composition and value of our assets, we may be classified as a PFIC for future years.
120
If we were to be classified as a PFIC, a U.S. Holder would be subject to different taxation rules depending on whether the U.S. Holder (i) takes no action, (ii)
makes an election to treat us as a “Qualified Electing Fund” (a “QEF election”) or (iii) if permitted, makes a “mark-to-market” election with respect to our Class A
Ordinary Shares. A U.S. Holder of our Class A Ordinary Shares will also be required under applicable Treasury Regulations to file an annual information return (Form
8621) containing information regarding our company. Additional explanations of the PFIC rules are set forth below: this material is complex and may affect different
U.S. Holders differently. Accordingly, U.S. Holders should consult their own tax advisors about the consequences of our company being classified as a PFIC and
about what steps, if any, they might take to lessen the tax impact of our PFIC status on them.
A U.S. Holder who does not make a timely QEF or mark-to-market election (a “Non-Electing Holder”), as discussed below, will be subject to special tax
rules with respect to any “excess distribution” that you receive and any gain you realize from a sale or other disposition (including a pledge) of Class A Ordinary
Shares. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding
taxable years or your holding period for the Class A Ordinary Shares will be treated as an excess distribution. Under these special tax rules:
● the excess distribution or gain will be allocated ratably over your holding period for the Class A Ordinary Shares;
● the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we became a PFIC, will be treated as
ordinary income; and
● the amount allocated to each other year will be subject to the highest tax rate in effect for that year and the interest charge generally applicable to
underpayments of tax will be imposed on the resulting tax attributable to each such year.
It should be noted that, until such time as we make a distribution, there are no tax consequences to Non-Electing Holders. However, if we ever did make a
distribution it would in all likelihood be an excess distribution (because we would not have previously made any distributions to holders of Class A Ordinary Shares).
At that point, and for all subsequent distributions, the rules described above would apply to Non-Electing Holders. The tax liability for amounts allocated to years prior
to the year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of the Class
A Ordinary Shares cannot be treated as capital, even if you hold the Ordinary Shares as capital assets.
Certain elections may be available that would result in alternative treatments. The adverse consequences of owning stock in a PFIC could be mitigated if a
U.S. Holder makes a valid QEF election (a U.S. Holder which we refer to as an “Electing Holder”) which, among other things, would require the Electing Holder to
include currently in income its pro rata share of the PFIC’s net capital gain and ordinary earnings, if any, for our taxable year that ends with or within the taxable year
of the Electing Holder, regardless of whether or not the Electing Holder actually received distributions from us. When an Electing Holder makes a QEF election, its
adjusted tax basis in our Class A Ordinary Shares is increased to reflect taxed but undistributed earnings and profits. Distributions of earnings and profits that had been
previously taxed will result in a corresponding reduction in the adjusted tax basis in our Class A Ordinary Shares and will not be taxed again once distributed. An
Electing Holder would generally recognize capital gain or loss on the sale, exchange or other disposition of our Class A Ordinary Shares.
A U.S. Holder can make a QEF election with respect to any year that we are a PFIC by filing IRS Form 8621 with its U.S. federal income tax return. This
election must be made by the deadline (including extensions) for filing the U.S. Holder’s federal tax return for the year in question. U.S. Holders should discuss their
election alternatives with their own tax advisors. Once an election is made, the Electing Holder is subject to the QEF rules for as long as we are a PFIC.
It should be noted that in order to make a QEF election a U.S. Holder needs information from us concerning our PFIC status and our financial results for the
year. We cannot assure our U.S. Holders that we will provide such information.
As an alternative to making a QEF election, a U.S. Holder may make a “mark-to-market” election with respect to our Class A Ordinary Shares provided our
Class A Ordinary Shares are treated as “marketable stock.” The Class A Ordinary Shares generally will be treated as marketable stock if they are regularly traded on a
“qualified exchange or other market” (within the meaning of applicable Treasury Regulations) on at least 15 days during each calendar quarter (other than in de
minimis amounts).
121
If a U.S. Holder makes an effective mark-to-market election, for each taxable year that we are a PFIC, the U.S. Holder will include as ordinary income the
excess of the fair market value of its Class A Ordinary Shares at the end of the year over its adjusted tax basis in the Class A Ordinary Shares. You will be entitled to
deduct as an ordinary loss in each such year the excess of your adjusted tax basis in the Class A Ordinary Shares over their fair market value at the end of the year, but
only to the extent of the net amount previously included in income as a result of the mark-to-market election. A U.S. Holder’s adjusted tax basis in the Class A
Ordinary Shares will be increased by the amount of any income inclusion and decreased by the amount of any deductions under the mark-to-market rules. In addition,
upon the sale or other disposition of your Class A Ordinary Shares in a year that we are PFIC, any gain will be treated as ordinary income and any loss will be treated
as ordinary loss, but only to the extent of the net amount of previously included income as a result of the mark-to-market election.
If a U.S. Holder makes a mark-to-market election, it will be effective for the taxable year for which the election is made and all subsequent taxable years
unless the Class A Ordinary Shares are no longer regularly traded on a qualified exchange or other market, or the IRS consents to the revocation of the election. You
are urged to consult your tax advisor about the availability of the mark-to-market election, and whether making the election would be advisable in your particular
circumstances.
Information Reporting and Backup Withholding
Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject
to information reporting, and may be subject to backup withholding, unless (i) the U.S. Holder is a corporation or other exempt recipient or (ii) in the case of backup
withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding.
Backup withholding is not an additional tax. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the
holder’s U.S. federal income tax liability and may entitle it to a refund, provided that the required information is timely furnished to the IRS.
Information with Respect to Foreign Financial Assets
Certain U.S. Holders may be required to report information relating to the Class A Ordinary Shares, subject to certain exceptions (including an exception for
Class A Ordinary Shares held in accounts maintained by certain U.S. financial institutions). U.S. Holders should consult their tax advisors regarding their reporting
obligations with respect to their purchase, ownership and disposition of the Class A Ordinary Shares.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We have previously filed the Registration Statement with the SEC.
We are subject to the periodic reporting and other informational requirements of the Exchange Act. Under the Exchange Act, we are required to file reports
and other information with the SEC. Specifically, we are required to file annually a Form 20-F within four months after the end of each fiscal year. Copies of reports
and other information, when so filed, may be inspected without charge and may be obtained at prescribed rates at the public reference facilities maintained by the SEC
at Judiciary Plaza, 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information regarding the Washington, D.C. Public Reference Room by calling
the SEC at 1-800-SEC-0330. The SEC also maintains a web site at http://www.sec.gov that contains reports, proxy and information statements, and other information
regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt from the rules of the Exchange Act
prescribing, among other things, the furnishing and content of proxy statements to shareholders, and our executive officers, directors and principal shareholders are
exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
We also maintain a corporate website at www.aptorumgroup.com. Information contained on, or that can be accessed through, our website does not constitute
a part of this report.
I. Subsidiary Information
For a listing of our subsidiaries, see “Item 4. Information on the Company — A. History and Development of the Company.”
122
Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For purposes of Item 11, reference to the “Group” means Aptorum Group Limited and all of its subsidiaries.
Foreign Exchange Risk
Currency risk is the risk that the value of financial assets or liabilities will fluctuate due to changes in foreign exchange rates.
Currency risk sensitivity analysis
At December 31, 2021 and 2020, the Group has no significant foreign currency risk because most of the transactions are denominated in Hong Kong dollar or
the United States dollar. Since the Hong Kong dollar is pegged to the United States dollar, the Group’s exposure to foreign currency risk in respect of the balances
denominated in Hong Kong dollars is considered to be minimal.
Credit Risk
Financial assets which potentially subject the Group to concentrations of credit risk consist principally of bank deposits and balances.
The Group takes on exposure to credit risk on cash and restricted cash balances held with HSBC, DBS Bank Ltd, Industrial and Commercial Bank of China
(Macao) Limited, Bank of China (Hong Kong) Limited and Silicon Valley Bank for the purposes of payments of Group expenses.
All transactions in listed securities are settled or paid for upon delivery using approved and reputable brokers. The risk of default is considered minimal, as
delivery of securities sold is only made when the broker has received payment. Payment is made on a purchase when the securities have been received by the broker.
The trade will fail if either party fails to meet its obligation. The Group limits its exposure to credit risk by transacting all of its securities and contractual commitment
activities with broker-dealers, banks and regulated exchanges with high credit ratings and that the Group considers to be well established.
Liquidity Risk
Liquidity risk is the risk that the Group will encounter difficulty in raising funds to meet commitments associated with financial assets and liabilities.
Liquidity risk may result from an inability to sell a financial asset quickly at an amount close to its fair value.
The Group invests in private equities which are generally unquoted and not readily marketable. The Group manages its liquidity risk by setting investment
limits on unlisted securities that cannot be readily disposed of. Investment of the Group’s assets in unquoted securities may restrict the ability of the Group to dispose
of its investment at a price and time it wishes to do so.
Interest Rate Risk
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of financial instruments.
Interest rate risk sensitivity analysis
The Group’s cash held with the banks are exposed to interest rate risk. However, Management considers the risk to be minimal as they are short-term with
terms less than one month.
Inflation Risk
In recent years, inflation has not had a material impact on our results of operations.
Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Items 12.D.3 and 12.D.4 of this Item 12 is not applicable, as the Company does not have any American Depositary Shares; all other applicable information
required by this Item 12 is included in Exhibit 2.3.
123
Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
Part II
Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
See “Item 10. Additional Information” for a description of the rights of securities holders, which remain unchanged.
Use of Proceeds
The following “Use of Proceeds” information relates to the Registration Statement (File No. 333-227198), which was initially filed on September 5, 2018 and
which became effective on December 3, 2018, in relation to our initial public offering of 761,419 Class A Ordinary Shares, at an initial offering price of $15.8 per
share, and the issuance to the underwriter in the initial public offering of warrants to purchase up to 38,071 Class A Ordinary Shares. Our initial public offering closed
in December 17, 2018, for which Boustead Securities LLC, China Renaissance Securities (HK) Limited and AMTD Global Markets Limited served as underwriters.
We received gross proceeds of approximately $12.0 million from our initial public offering. As of the date of this annual report, in addition to our expenses
relating to our IPO, all IPO proceeds have been used on our lead projects and other projects.
Item 15. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, we carried out an
evaluation of the effectiveness of our disclosure controls and procedures, which is defined in Rules 13a-15(e) of the Exchange Act, as of December 31, 2021. Based on
that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures, as of December 31, 2021, were effective.
(b) Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-
15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with Generally Accepted Accounting
Principles (GAAP) in the United States of America and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of our company; (2) provide reasonable assurance that transactions are recorded as necessary
to permit preparation of consolidated financial statements in accordance with GAAP, and that receipts and expenditures of our company are being made only in
accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of the unauthorized
acquisition, use or disposition of our company’s assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
As required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules as promulgated by the Securities and Exchange Commission, our
management including our Chief Executive Officer and Chief Financial Officer assessed the effectiveness of internal control over financial reporting as of December
31, 2021 using the criteria set forth in the report “Internal Control—Integrated Framework (2013)” published by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2021.
In connection with the previous audit of our financial statements for the year ended December 31, 2018, we and our independent registered public accounting
firm identified one material weakness in our internal control over financial reporting, as defined in the standards established by the Public Company Accounting
Oversight Board of the United States. The material weakness identified was the lack of dedicated resources to take responsibility for the finance and accounting
functions and the preparation of financial statements in compliance with generally accepted accounting principles in the United States, or U.S. GAAP.
124
Since 2019, we took actions to remediate the abovementioned material weakness, and we believe we have remediated the material weakness by implementing
the following measures:
● provide trainings to staff regarding to the preparation of financial statements in compliance with generally accepted accounting principles in the United
States;
● change to a new and well-established accounting system to enhance effectiveness and financial and system control;
● establish clear roles and responsibilities for accounting and financial reporting staff to address finance and accounting issues; and
● continue to monitor the improvement on internal control over financial reporting.
As of December 31, 2021 and 2020, we determined that the aforementioned measures remediated the material weakness. However, since we are still in the
process of replenishing and building up a qualified finance and accounting team with sufficient dedicated resources, our management assessed that the deficiency
related to the lack of dedicated resources to take responsibility for the finance and accounting functions and the preparation of financial statements in compliance with
generally accepted accounting principles in the United States, or U.S. GAAP, still existed as of December 31, 2021. Based on the definition of “material weakness”
and “significant deficiency” in the standards established by the Public Company Accounting Oversight Board of the United States, our management concluded that the
deficiency now only rises to the level of a significant deficiency.
We cannot assure you that we will not identify additional material weaknesses or significant deficiencies in the future. See “Item 3. Key Information—D.
Risk Factors— Risks Related to Our Industry, Business and Operation — If we fail to establish and maintain proper internal financial reporting controls, our ability to
produce accurate financial statements or comply with applicable regulations could be impaired.”
Notwithstanding there is a significant deficiency identified as described above, we believe that our consolidated financial statements contained in this annual
report on Form 20-F fairly present our financial position, results of operations and cash flows for the years covered thereby in all material respects.
(c) Attestation Report of the Company’s Registered Public Accounting Firm
We did not include an attestation report of the company’s registered public accounting firm due to rules of the SEC where domestic and foreign registrants
that are non-accelerated filers, which we are, and “emerging growth companies” which we also are, are not required to provide the auditor attestation report.
(d) Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report on Form 20-F that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 16. [RESERVED]
Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT
We have one financial expert as of the date of this report. Our Board of Directors has determined that Mr. Charles Bathurst, Chair of our audit committee,
qualifies as an “audit committee financial expert” as defined in the SEC rules and satisfies the financial sophistication requirements of The NASDAQ Global Market.
Mr. Bathurst is “independent” as that term is defined in the rules of the SEC and the applicable rules of the NASDAQ Global Market.
125
Item 16B. CODE OF ETHICS
The Company’s Code of Ethics became effective on the effective date of the Registration Statement. The Code of Ethics is incorporated by reference to
exhibit 14.1 of the Registration Statement.
Item 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by our principal
external auditors, for the periods indicated.
Audit fees
Audit-related fees
Tax fees
All other fees
Total
For the years ended
December 31,
2021
2020
(In thousand)
258 $
37
-
-
295 $
253
45
-
-
298
$
$
“Audit fees” represents the aggregate fees billed or to be billed for each of the fiscal years listed for professional services rendered by our principal auditor for
the audit of our annual financial statements.
“Audit-related fees” are the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit and are not
reported under audit fees. These fees primarily include review of documents filed with the SEC.
“Tax fees” include fees for professional services rendered by our principal auditor for tax compliance and tax advice on actual or contemplated transactions.
“Other fees” include fees for services rendered by our independent registered public accounting firm with respect to other matters not reported under “Audit
fees”, “Audit-related fees” and “Tax fees”.
The policy of our audit committee is to pre-approve all audit and non-audit services provided by our principal auditor including audit services, audit-related
services, tax services and other services.
Item 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
Item 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
Item 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
Item 16G. CORPORATE GOVERNANCE
See “Item 6. Directors, Senior Management and Employees” for more information.
Item 16H. MINE SAFETY DISCLOSURE
Not applicable.
Item 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
126
Item 17. FINANCIAL STATEMENTS
We have elected to provide financial statements pursuant to Item 18.
Item 18. FINANCIAL STATEMENTS
Part III
The consolidated financial statements of Aptorum Group Limited, and its subsidiaries are included at the end of this annual report.
Item 19. EXHIBITS
Exhibit
No.
1.1
2.1
2.2
2.3
2.4
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
4.21
EXHIBIT INDEX
Description
Second Amended and Restated Articles of Association, as amended**
Registrant’s Specimen Certificate for Ordinary Shares*
Form of Underwriter’s Warrant+++
Description of Securities registered under Section 12 of the Exchange Act of 1934, as amended**
Form of Warrant+
Form of Underwriting Agreement+++
Appointment Letter between the Company and Ian Huen (Founder, Chief Executive Officer & Executive Director), dated September 25, 2017*
Employment Letter between the Company and Sabrina Khan (Chief Financial Officer), dated September 1, 2017*
Addendum to Employment Letter between Company and Sabrina Khan (Chief Financial Officer) dated April 24, 2018*
Appointment Letter between the Company and Darren Lui (Chief Business Officer, President & Director), dated September 25, 2017*
Employment Letter between the Company and Clark Cheng (Chief Medical Officer & Director), dated August 31, 2017*
Addendum to Appointment Letter between the Company and Clark Cheng (Chief Medical Officer & Director), dated September 25, 2017*
Second Addendum to Appointment Letter between the Company and Clark Cheng (Chief Medical Officer & Director), dated October 30, 2017*
Third Addendum to Appointment Letter between the Company and Clark Cheng (Chief Medical Officer & Director), dated January 2, 2018*
Appointment letter between the Company and Keith Chan (former Chief scientific officer) (Terminated March 13, 2019)*
Appointment Letter between the Company and Charles Bathurst (Independent Non-Executive Director), dated September 24, 2017*
Appointment Letter between the Company and Mirko Scherer (Independent Non-Executive Director), dated September 24, 2017*
Employment Agreement between the Company and Justin Wu (Independent Non-Executive Director), dated September 18, 2017*
Employment Agreement between the Company and Douglas Arner (Independent Non-Executive Director), dated February 13, 2018*
2017 Share Option Plan, as amended (15)
Service Agreement Between Covar Pharmaceuticals Incorporated and Videns Incorporation Limited*
Consulting Agreement between the Company and GloboAsia, LLC (includes provisions for the appointment of Keith Chan as member of the Scientific
Advisory Board) dated March 13, 2019(5)
Exclusive Patent License Agreement for ALS-4 dated October 18, 2017(3)
First Amendment to Exclusive License Agreement for ALS-4 dated June 7, 2018*
Second Amendment to Exclusive License Agreement for ALS-4 dated July 10, 2019(6)
Exclusive License Agreement for ALS-4 dated January 11, 2019(4)
127
4.22
4.23
4.24
4.25
4.26
4.27
4.28
4.29
4.30
4.31
4.32
4.33
4.34
4.35
4.36
4.37
4.38
4.39
4.40
4.41
4.42
4.43
4.44
4.45
4.46
4.47
4.48
8.1
12.1
12.2
13.1
Employment Agreement with Dr. Lee dated March 13, 2019++
Master Collaboration Agreement by and between the Company, A*ccelerate Technologies Pte. Ltd, and AENEAS CAPITAL LIMITED dated April 24,
2019(1)
Bond Repurchase Agreement dated April 24, 2019(1)
Form of Line of Credit Agreement(2)
Form of Promissory Note(2)
Form of Securities Purchase Agreement+
Consulting agreement with CGY Investment Limited effective on January 10, 2020(6)
Administrative Consultant Services Agreement with Aeneas Management Limited dated January 1, 2019(6) (Terminated April 30, 2020)
Secondment Agreement between the Company and Aenco Limited dated January 1, 2019(6) (Replaced April 1, 2020)
Secondment Agreement (2) between the Company and Aenco Limited dated April 1, 2020(6) (Terminated September 30, 2020)
Evaluation Agreement with Illumina Inc. (portions of the exhibit have been omitted because they (i) are not material and (ii) would likely cause
competitive harm to the Registrant if publicly disclosed.)(7)
Placement Agency Agreement, dated February 25, 2020 between the Company and Alliance Global Partners(8)
Form of Securities Purchase Agreement(8)
Form of Warrant(8)
Form of Securities Purchase Agreement dates as of September 29, 2020, by and among the Company and the purchasers named therein(9)
Form of Warrant(9)
Form of Pre-Funded Warrant(9)
Form of Placement Agent Warrant(9)
Exclusive License Agreement with Accelerate Technologies Pte Ltd.’s dated September 25, 2020(11, 12)
Sales Agreement, dated March 26, 2021 between the Company and H.C. Wainwright(10)
Share Subscription and Shareholders Agreement dated as of September 25, 2020(11,12)
Contract Research Agreement between Aptorum Therapeutics Limited and Aeneas Technology (Hong Kong) Limited(12)
Loan Agreement between Aptorum Therapeutics Limited and Talem Medical Group Limited (portions of the exhibit have been omitted because they (i)
are not material and (ii) would likely cause competitive harm to the Company if publicly disclosed.)(11)(13)
Specific Security Deed between Aptorum Therapeutics Limited and Talem Medical Group Limited(13)
Private Placement Shares Purchase Agreement with Jurchen Investment Corporation(14)
Concerted Action Agreement between Aptorum Therapeutics Limited and Peace Range Limited dated December 30, 2021 regarding to Mios
Pharmaceuticals Limited **
Concerted Action Agreement between Aptorum Therapeutics Limited and Peace Range Limited dated December 30, 2021 regarding to Scipio Life
Sciences Limited **
List of Subsidiaries**
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)**
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)**
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002***
Consent of Marcum Bernstein & Pinchuk LLP**
Code of Business Ethics*
Inline XBRL Instance Document**
15.1
99.1
101.INS
101.SCH Inline XBRL Taxonomy Extension Schema Document**
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document**
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document**
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document**
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document**
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)**
*** Furnished with this annual report on Form 20-F
Filed with this annual report on Form 20-F
**
Incorporated by reference to our Registration Statement Filed on Form F-1 on September 5, 2018
*
128
+++ Incorporated by reference to our Registration Statement Filed on Form F-1 on November 15, 2018
++ Incorporated by reference to our Current Report on Form 6-K filed on April 1, 2019
+
Incorporated by reference to our Current Report on Form 6-K filed on February 26, 2020
(4)
(5)
(6)
(1)
(2)
(3)
Incorporated by reference to our Current Report on Form 6-K filed on April 24, 2019
Incorporated by reference to our Current Report on Form 6-K filed on August 14, 2019
Incorporated by reference to our Registration Statement Filed on Form F-1 on September 5, 2018; portions of the exhibit were previously omitted in reliance on
the confidential treatment provisions available pursuant to revised paragraph 4(a) of Instructions as to Exhibits of Form 20-F.
Incorporated by reference to our annual report on Form 20-F filed on April 15, 2019; portions of the exhibit were previously omitted in reliance on the
confidential treatment provisions available pursuant to revised paragraph 4(a) of Instructions as to Exhibits of Form 20-F.
Incorporated by reference to our annual report on Form 20-F filed on April 15, 2019
Incorporated by reference to our annual report on Form 20-F filed on April 29, 2020. Certain information from this exhibit has been excluded from this exhibit
because it both (i) is not material and (ii) would likely cause competitive harm to the Registrant if publicly disclosed.
Incorporated by reference to our Current Report on Form 6-K filed on January 25, 2021; portions of the exhibit were omitted because they (i) are not material
and (ii) would likely cause competitive harm to the Company if publicly disclosed.
Incorporated by reference to our Current Report on Form 6-K filed on February 26, 2020
(8)
(9)
Incorporated by reference to our Current Report on Form 6-K filed on October 2, 2020
(10) Incorporated by reference to our Current Report on Form 6-K filed on March 26, 2021
(11) Certain information from this exhibit has been excluded from this exhibit because it both (i) is not material and (ii) is the type that the registrant treats as private
(7)
or confidential.
(12) Incorporated by reference to our annual report on Form 20-F filed on April 19, 2021
(13) Incorporated by reference to our Current Report on Form 6-K filed on November 17, 2021
(14) Incorporated by reference to our Current Report on Form 6-K filed on May 26, 2021
(15) Incorporated by reference to our Current Report on Form 6-K filed on November 17, 2021
129
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign
SIGNATURES
this annual report on its behalf.
Date: April 29, 2022
Aptorum Group Limited
By:
/s/ Ian Huen
Ian Huen
Chief Executive Officer,
Chairman of the Board of Directors
(Principal Executive Officer)
/s/ Sabrina Khan
Sabrina Khan
Chief Financial Officer
Principal Accounting and Financial Officer
130
APTORUM GROUP LIMITED
Financial Statements
Table of Contents
Report of Independent Registered Public Accounting Firm (Marcum Bernstein & Pinchuk LLP PCAOB ID: 5395)
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2021, 2020 and 2019
Consolidated Statements of Equity for the years ended December 31, 2021, 2020 and 2019
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019
Notes to Consolidated Financial Statements
F-2
F-3
F-4
F-5
F-6
F-7
F-1
New York Office
7 Penn Plaza, Suite 830
New York, NY 10001
T 212.279.7900
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Aptorum Group Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Aptorum Group Limited (the “Company”) as of December 31, 2021 and 2020, the related
consolidated statements of operations and comprehensive income (loss), equity and cash flows for each of the three years in the period ended December 31, 2021, and
the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial
reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no
such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Marcum Bernstein & Pinchuk LLP
Marcum Bernstein & Pinchuk LLP
We have served as the Company’s auditor since 2017.
New York, New York
April 29, 2022
PCAOB ID. 5395
F-2
APTORUM GROUP LIMITED
CONSOLIDATED BALANCE SHEETS
December 31, 2021 and 2020
(Stated in U.S. Dollars)
ASSETS
Current assets:
Cash
Restricted cash
Digital currencies
Accounts receivable
Inventories
Marketable securities, at fair value
Investments in derivatives
Amounts due from related parties
Due from brokers
Loan receivable from a related party
Other receivables and prepayments
Total current assets
Property, plant and equipment, net
Operating lease right-of-use assets
Long-term investments
Intangible assets, net
Long-term deposits
Total Assets
LIABILITIES AND EQUITY
LIABILITIES
Current liabilities:
Amounts due to related parties
Accounts payable and accrued expenses
Finance lease liabilities current
Operating lease liabilities, current
Total current liabilities
Finance lease liabilities, non-current
Operating lease liabilities, non-current
Loan payables to related parties
Total Liabilities
Commitments and contingencies
EQUITY
Class A Ordinary Shares ($1.00 par value; 60,000,000 shares authorized, 13,202,408 and 11,584,324 shares issued and
outstanding as of December 31, 2021 and 2020, respectively)
Class B Ordinary Shares ($1.00 par value; 40,000,000 shares authorized, 22,437,754 shares issued and outstanding as of
December 31, 2021 and 2020)
Additional paid-in capital
Accumulated other comprehensive (loss) income
Accumulated deficit
Total equity attributable to the shareholders of Aptorum Group Limited
Non-controlling interests
Total equity
Total Liabilities and Equity
See accompanying notes to the consolidated financial statements.
F-3
December 31,
2021
December 31,
2020
$
$
$
$
8,131,217 $
130,270
-
78,722
35,775
236,615
-
47,754
76,380
3,358,089
593,478
12,688,300
3,731,116
154,439
4,156,907
880,256
296,225
21,907,243 $
3,495,231
130,125
1,539
62,221
39,133
28,384,944
4,289
-
160,337
-
1,378,996
33,656,815
4,686,323
547,389
4,079,707
964,857
296,225
44,231,316
11,389 $
4,172,565
47,923
145,391
4,377,268
-
23,853
-
4,401,121 $
145,926
3,240,772
49,396
432,600
3,868,694
47,923
155,121
2,007,285
6,079,023
-
-
$
13,202,408 $
11,584,324
22,437,754
43,506,717
(2,019)
(55,537,515)
23,607,345
(6,101,223)
17,506,122
21,907,243 $
22,437,754
38,247,903
53,296
(30,489,126)
41,834,151
(3,681,858)
38,152,293
44,231,316
$
APTORUM GROUP LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For Years Ended December 31, 2021, 2020 and 2019
(Stated in U.S. Dollars)
Revenue
Healthcare services income
Operating expenses
Cost of healthcare services
Research and development expenses
General and administrative fees
Legal and professional fees
Other operating expenses
Total operating expenses
Other (loss) income, net
(Loss) gain on investments in marketable securities, net
Gain on long-term investments
(Loss) gain on investments in derivatives, net
Gain on use of digital currencies
Gain on derecognition of non-financial assets
Gain on extinguishment of convertible debts
Changes in fair value of warrant liabilities
Interest expense, net
Rental income
Loss on disposal of subsidiaries
Sundry income
Total other (loss) income, net
Net (loss) income
Net loss attributable to non-controlling interests
Deemed dividend related to warrants down round provision
Year Ended
December 31,
2021
Year Ended
December 31,
2020
Year Ended
December 31,
2019
$
1,541,778 $
911,509 $
535,166
(1,459,924)
(10,869,642)
(5,409,302)
(2,617,834)
(392,511)
(20,749,213)
(1,015,023)
(11,586,923)
(4,853,488)
(2,854,225)
(877,391)
(21,187,050)
(794,545)
(6,939,051)
(7,373,425)
(3,405,705)
(220,891)
(18,733,617)
(8,031,595)
-
(4,289)
4,918
75,000
-
-
(93,601)
-
(3,638)
146,347
(7,906,858)
25,241,556
-
(199,031)
-
-
-
-
(243,628)
30,894
-
365,917
25,195,708
(81,839)
1,147,190
87,599
46,717
-
1,198,490
(866,300)
(3,699,672)
16,868
-
232,460
(1,918,487)
(27,114,293)
2,065,904
-
4,920,167
2,146,687
(755,514)
(20,116,938)
1,430,176
-
Net (loss) income attributable to Aptorum Group Limited
$
(25,048,389) $
6,311,340 $
(18,686,762)
Net (loss) income per share attributable to Aptorum Group Limited
- Basic
- Diluted
Weighted-average shares outstanding
- Basic
- Diluted
$
$
(0.71) $
(0.71) $
0.20 $
0.20 $
(0.64)
(0.64)
35,033,970
35,033,970
31,135,882
31,534,473
29,008,445
29,008,445
Net (loss) income
$
(27,114,293) $
4,920,167 $
(20,116,938)
Other comprehensive (loss) income
Exchange differences on translation of foreign operations
Other comprehensive (loss) income
Comprehensive (loss) income
Comprehensive loss attributable to non-controlling interests
Deemed dividend related to warrants down round provision
(55,315)
(55,315)
58,848
58,848
(10,897)
(10,897)
(27,169,608)
2,065,904
-
4,979,015
2,146,687
(755,514)
(20,127,835)
1,430,176
-
Comprehensive (loss) income attributable to the shareholders of Aptorum Group Limited
(25,103,704)
6,370,188
(18,697,659)
See accompanying notes to the consolidated financial statements.
F-4
APTORUM GROUP LIMITED
CONSOLIDATED STATEMENTS OF EQUITY
For Years Ended December 31, 2021, 2020 and 2019
(Stated in U.S. Dollars)
Class A Ordinary
Shares
Class B Ordinary
Shares
Shares
Amount
Shares
Amount
Additional
Paid-in
Capital
Amount
Accumulated
deficit
Amount
Accumulated
other
comprehensive
(loss) income
Non-
controlling
interests
Total
Amount
Amount
Amount
6,537,269 $ 6,537,269 22,437,754 $22,437,754 $23,003,285 $ (18,869,218) $
5,345 $ (368,533) $ 32,745,902
-
-
-
-
-
60,093
-
-
-
-
-
60,093
-
-
-
-
-
-
-
-
-
-
-
-
10,672
-
-
-
- (1,298,490)
-
-
- 1,612,832
- 1,559,325
-
-
-
-
-
-
-
-
-
-
-
-
(10,672)
300,000
-
(75)
-
300,000
(1,298,490)
(75)
- 1, 612,832
1,619,418
-
-
-
-
-
-
(18,686,762)
(10,897)
(10,897)
-
- (1,430,176) (20,116,938)
6,597,362 $ 6,597,362 22,437,754 $22,437,754 $24,887,624 $ (37,555,980) $
(5,552) $(1,509,456) $ 14,851,752
Balance, January 1, 2019
Issuance of shares to non-controlling
interest
Issuance of tokens
Reacquisition of convertible bonds
Disposal of a subsidiary
Share-based compensation
Exercise of warrants
Exchange difference on translation of
foreign operation
Net loss
Balance, December 31, 2019
Issuance of Class A Ordinary Shares and
warrants, net of issuance cost
4,120,581 4,120,581
Issuance of shares to non-controlling
interest
Warrant Exchange
Share-based compensation
Exercise of warrants
Exercise of options
Exchange difference on translation of
foreign operation
Net income (loss)
Balance, December 31, 2020
Issuance of Class A Ordinary Shares
Issuance of shares to non-controlling
interest
Disposal of subsidiaries under common
control transaction
Disposal of subsidiaries
Share-based compensation
Exercise of warrants
Exercise of options
Exchange difference on translation of
foreign operation
Net loss
-
540,540
-
313,513
12,328
-
540,540
-
313,513
12,328
-
-
-
-
-
-
-
-
-
-
-
-
- 12,661,754
25,715
-
-
(540,540)
- 1,478,565
(313,513)
-
48,298
-
-
-
-
-
-
-
-
-
-
-
-
-
- 16,782,335
(25,715)
-
-
-
-
-
-
1,478,565
-
60,626
-
-
-
-
-
7,066,854
58,848
-
- (2,146,687)
58,848
4,920,167
11,584,324 $ 11,584,324 22,437,754 $22,437,754 $38,247,903 $ (30,489,126) $
-
1,387,925 1,387,925
- 2,612,075
-
53,296 $(3,681,858) $ 38,152,293
4,000,000
-
-
-
-
-
-
-
40,000
190,159
-
-
-
40,000
190,159
-
-
-
-
-
-
-
-
-
-
-
-
-
66,783
303,419
-
-
-
- 1,682,460
-
90,012
504,065
-
-
-
-
-
-
-
-
(61,423)
5,360
(5,386)
-
-
-
-
(300,000)
7,962
-
-
-
(1,967)
7,962
1,682,460
130,012
694,224
-
-
-
-
-
(25,048,389)
(49,929)
(49,929)
-
- (2,065,904) (27,114,293)
Balance, December 31, 2021
13,202,408 $13,202,408 22,437,754 $22,437,754 $43,506,717 $ (55,537,515) $
(2,019) $(6,101,223) $ 17,506,122
See accompanying notes to the consolidated financial statements.
F-5
APTORUM GROUP LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Years Ended December 31, 2021, 2020 and 2019
(Stated in U.S. Dollars)
Cash flows from operating activities
Net (loss) income
Adjustments to reconcile net income (loss) to net cash used in operating activities
Amortization and depreciation
Share-based compensation
Loss (gain) on investments in marketable securities, net
Gain on non-marketable investments
Loss (gain) on investments in derivatives, net
Changes in fair value of warrant liabilities
Gain on derecognition of non-financial assets
Loss on disposal of subsidiaries
Gain on use of digital currencies
Settlement of service fee by tokens and digital currencies
Operating lease cost
Loss on disposal of property, plant and equipment
Impairment loss of property, plant and equipment
Impairment loss of intangible assets
Gain on extinguishment of convertible debts
Interest income
Interest expense and accretion of convertible debts
Accretion of finance lease obligation
Changes in operating assets and liabilities
Accounts receivable
Inventories
Other receivables and prepayments
Long-term deposits
Due from brokers
Amounts due from related parties
Amounts due to related parties
Accounts payable and accrued expenses
Operating lease liabilities
Net cash used in operating activities
Cash flows from investing activities
Purchase of digital currencies
Purchases of intangible assets
Purchases of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Disposal of subsidiaries, net of cash disposed
Proceeds from sales of investment securities
Loan to a third party
Loan to a related party
Repayment of loan to a third party
Net cash provided by (used in) investing activities
Cash flows from financing activities
Loan from related parties
Repayment of loan from related parties
Payment for settlement of convertible debts
Proceeds from issuance of Class A Ordinary Shares and warrants
Payments of offering costs
Exercise of share options
Exercise of warrants
Payment of finance lease obligations
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and restricted cash
Cash and restricted cash – Beginning of year
Cash and restricted cash – End of year
Supplemental disclosures of cash flow information
Interest paid
Income taxes paid
Proceeds in broker accounts
Non-cash operating, investing and financing activities
Right-of-use assets obtained in exchange for new operating lease liabilities
Issuance of token in exchange of services
Settlement of service fee by tokens and digital currencies
Deemed dividend related to warrants down round provision
Reconciliation of cash and restricted cash
Year Ended
December 31,
2021
Year Ended
December 31,
2020
Year Ended
December 31,
2019
$
(27,114,293) $
4,920,167 $
(20,116,938)
1,192,578
1,682,460
8,031,595
-
4,289
-
(75,000)
3,638
(4,918)
90,457
425,280
392
-
-
-
(41,246)
130,397
4,450
(16,501)
3,358
695,308
-
83,957
112,635
(264,934)
855,272
(450,807)
(14,651,633)
-
(6,026)
(131,750)
-
(113,830)
20,116,734
-
(3,358,089)
-
16,507,039
3,500,000
(5,489,665)
-
4,000,000
-
694,224
130,012
(53,846)
2,780,725
1,334,661
1,478,565
(25,241,556)
-
199,031
-
-
-
-
24,000
483,398
50,197
330,445
200,000
-
(825)
237,163
7,290
(21,678)
(4,948)
(358,365)
20
156,668
50,962
(120,560)
800,960
(457,508)
(15,931,913)
-
-
(161,314)
1,051,282
-
952,196
-
-
-
1,842,164
1,000,000
(5,306,558)
-
17,497,426
(715,091)
-
-
(53,845)
12,421,932
1,299,618
1,612,832
81,839
(1,147,190)
(87,599)
866,300
-
-
(46,717)
437,178
-
-
-
-
(1,198,490)
(79,558)
3,769,263
9,967
(37,716)
(3,543)
(427,541)
55,429
501,963
168,089
(26,060)
986,241
-
(13,382,633)
(200,000)
(70,109)
(837,062)
-
-
999,110
(1,400,000)
-
1,400,000
(108,061)
6,330,472
-
(13,600,000
-
-
-
-
(53,843)
(7,323,371)
4,636,131
3,625,356
8,261,487 $
(1,667,817)
5,293,173
3,625,356 $
(20,814,065)
26,107,238
5,293,173
273,155 $
- $
20,116,734 $
131,554 $
- $
952,196 $
- $
- $
90,457 $
- $
1,107,206 $
- $
24,000 $
755,514 $
557,333
-
999,110
-
300,000
437,178
-
$
$
$
$
$
$
$
$
Cash
Restricted cash
Total cash and restricted cash shown in the consolidated statements of cash flows
$
$
8,131,217 $
130,270
8,261,487 $
3,495,231 $
130,125
3,625,356 $
5,189,003
104,170
5,293,173
See accompanying notes to the consolidated financial statements.
F-6
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
1. ORGANIZATION
The consolidated financial statements include the financial statements of Aptorum Group Limited (the “Company”) and its subsidiaries. The Company and its
subsidiaries are hereinafter collectively referred to as the “Group”.
The Company, formerly known as APTUS Holdings Limited and STRIKER ASIA OPPORTUNITIES FUND CORPORATION, is a company incorporated on
September 13, 2010 under the laws of the Cayman Islands with limited liability.
The Company researches and develops life science and biopharmaceutical products within its wholly-owned subsidiary, Aptorum Therapeutics Limited, formerly
known as APTUS Therapeutics Limited (“Aptorum Therapeutics”) and its indirect subsidiary companies (collectively, “Aptorum Therapeutics Group”).
Below summarizes the list of the major subsidiaries consolidated as of December 31, 2021:
Name
Aptorum Therapeutics Limited
APTUS MANAGEMENT
LIMITED
Aptorum Medical Limited
Aptorum Innovations Holding
Limited
Aptorum Innovations Holding Pte.
Limited
Acticule Life Sciences Limited
Incorporation
date
June 30, 2016
May 16, 2017
August 28, 2017
April 15, 2019
June 5, 2019
June 30, 2017
Claves Life Sciences Limited
August 2, 2017
Nativus Life Sciences Limited
July 7, 2017
Videns Incorporation Limited
March 2, 2017
Ownership
100%
Place of
incorporation
Cayman Islands
Principle activities
Research and development of
life science and
biopharmaceutical products
100%
92%
100%
75%
80%
100%
100%
100%
Hong Kong
Provision of management services to its holding
Cayman Islands
Cayman Islands
company and fellow subsidiaries
Provision of medical clinic services
Investment holding company
Singapore
Research and development of
life science and
biopharmaceutical products
Cayman Islands
Research and development of
life science and
biopharmaceutical products
Cayman Islands
Research and development of
life science and
Cayman Islands
Research and development of
life science and
biopharmaceutical products
biopharmaceutical products
Cayman Islands
Research and development of
life science and
biopharmaceutical products
Mios Pharmaceuticals Limited
March 6, 2018
97.93%
Cayman Islands
Research and development of
life science and
biopharmaceutical products
mTOR (Hong Kong) Limited
November 4, 2016
90%
Hong Kong
Research and development of
life science and
Scipio Life Sciences Limited
July 19, 2017
97.93%
Cayman Islands
Research and development of
life science and
biopharmaceutical products
Signate Life Sciences Limited
August 28, 2017
100%
Cayman Islands
Research and development of
life science and
biopharmaceutical products
biopharmaceutical products
Deconsolidation of subsidiaries
On May 27, 2021, Aptorum Therapeutics Limited, which is a wholly owned subsidiary of Aptorum Group Limited, entered a Share Sale Agreement to sell all of the
shares of SMPTH Limited to Aeneas Group Limited, a related party, at the consideration $1. SMPTH Limited was previously a wholly owned subsidiary of Aptorum
Therapeutics Limited. The sale of SMPTH Limited was a common control transaction and resulted in $303,419 increase in additional paid-in capital in the
consolidated statement of changes in equity.
During 2021, the Group disposed various inactive subsidiaries in order to simplify the group structure. As a result, the Group recorded a loss of $3,638, which is
included in other loss, net in the Group’s consolidated statement of operations for the year ended December 31, 2021. The loss is primarily resulted from the net
reduction in deficit in non-controlling interest and carrying value of the assets and liabilities of these subsidiaries from the consolidated balance sheet.
F-7
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
2. LIQUIDITY
The Group reported a net loss of $27,114,293 and net operating cash outflow of $14,651,633 for the year ended December 31, 2021. In addition, the Group had an
accumulated deficit of $55,537,515 as of December 31, 2021. The Group’s operating results for future periods are subject to numerous uncertainties and it is uncertain
if the Group will be able to reduce or eliminate its net losses for the foreseeable future. If management is not able to generate significant revenues from its product
candidates currently in development, the Group may not be able to achieve profitability.
The Group’s principal sources of liquidity have been cash and line of credit facilities from related parties and banks. As of the date of issuance of the consolidated
financial statements, the Group has approximately $4.2 million of restricted and unrestricted cash, and $15 million and $3 million, respectively, of undrawn line of
credit facilities from related parties and banks. In addition, the Group will need to maintain its operating costs at a level through strictly cost control and budget to
ensure operating costs will not exceed such aforementioned sources of funds in order to continue as a going concern for a period within one year after the issuance of
its consolidated financial statements.
The Group believes that available cash, together with the efforts from aforementioned management plan and actions, should enable the Group to meet current
anticipated cash needs for at least the next 12 months after the date that the consolidated financial statements are issued and the Group has prepared the consolidated
financial statements on a going concern basis. We may, however, need additional capital in the future to fund our continued operations. If we determine that our cash
requirements exceed the amount of cash and cash equivalents we have at the time, we may seek to issue equity or debt securities or obtain credit facilities. The
issuance and sale of additional equity or convertible debts would result in further dilution to our shareholders. The incurrence of indebtedness would result in
increased fixed obligations and could result in operating covenants that might restrict our operations. We cannot assure you the financing will be available in amounts
or on terms acceptable to us, if at all.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of presentation and consolidation
The consolidated financial statements of the Group are presented on the accrual basis of accounting in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”) and include the accounts of the Company, its direct and indirect wholly and majority owned subsidiaries. In accordance with
the provisions of Accounting Standards Codification (“ASC”) 810, Consolidation, we consolidate any variable interest entity (“VIE”) of which we are the primary
beneficiary. The typical condition for a controlling financial interest ownership is holding a majority of the voting interests of an entity; however, a controlling
financial interest may also exist in entities, such as VIEs, through arrangements that do not involve controlling voting interests. ASC 810 requires a variable interest
holder to consolidate a VIE if that party has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the
obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant
to the VIE. We do not consolidate a VIE in which we have a majority ownership interest when we are not considered the primary beneficiary. We have determined that
we are not the primary beneficiary of the VIE (see Note 14, Variable Interest Entity). We evaluate our relationships with the VIE on an ongoing basis to determine
whether we become the primary beneficiary. All material intercompany balances and transactions have been eliminated in preparation of the consolidated financial
statements.
F-8
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
Non-controlling interests
Non-controlling interests are recognized to reflect the portion of the equity of majority-owned subsidiaries which are not attributable, directly or indirectly, to the
controlling shareholder. Non-controlling interests are classified as a separate line item in the equity section of the Group's consolidated balance sheets and have been
separately disclosed in the Group's consolidated statements of operations and comprehensive loss to distinguish the interests from that of the Group.
Use of estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements as well as income and
expenses during the reporting period. Significant accounting estimates reflected in the Group’s consolidated financial statements include valuation of equity securities,
fair value of investments in securities, convertible debts, finance lease, warrants and share options, the useful lives of intangible assets and property, plant and
equipment, impairment of long-lived assets, valuation allowance for deferred tax assets, and collectability of receivables. Actual results could differ from those
estimates.
Foreign currency translation and transaction
USD is the reporting currency. The functional currency of subsidiaries in the Cayman Islands, Seychelles, Samoa and the United States are USD, the functional
currency of subsidiaries in Hong Kong is Hong Kong Dollars (“HKD”), the functional currency of a subsidiary in Singapore is Singapore Dollars (“SGD”), the
functional currency of a subsidiary in the United Kingdom is Great British Pound (“GBP”), the functional currency of subsidiaries in Canada is Canadian Dollars
(“CAD”), and the functional currency of subsidiaries in Ireland is Euro (“EUR”). An entity’s functional currency is the currency of the primary economic environment
in which it operates, normally that is the currency of the environment in which it primarily generates and expends cash. The management considered various
indicators, such as cash flows, market expenses, financing and inter-company transactions and arrangements in determining the Group’s functional currency.
In the consolidated financial statements, the financial information of the Company and its subsidiaries, which use HKD, SGD, GBP, CAD and EUR as their functional
currency, has been translated into USD. Assets and liabilities are translated from each subsidiary’s functional currency at the exchange rates on the balance sheet dates,
equity amounts are translated at historical exchange rates, and revenues, expenses, gains, and losses are translated using the average exchange rates for the year.
Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of other comprehensive income or loss in the
consolidated statements of operations and comprehensive income or loss.
Cash
Cash consists of cash on hand and bank deposits, which is unrestricted as to withdrawal and use.
Restricted cash
Restricted cash represented time deposits pledged for banking facilities.
Digital currencies
Digital currencies represented BitCoin, Ethereum, or other virtual currencies that the Group purchased and used to settle certain token related expenses.
Digital currencies are included in current assets in the consolidated balance sheets. Digital currencies purchased are recorded at cost.
Digital currencies held are accounted for as intangible assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed
for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is
impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the digital currency at the time its fair value
is being measured. In testing for impairment, the Group has the option to first perform a qualitative assessment to determine whether it is more likely than not that an
impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Group
concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of
the asset. Subsequent reversal of impairment losses is not permitted.
Purchases of digital currencies by the Group are included within investing activities in the consolidated statements of cash flows. The utilization of digital currencies
in exchange of services are included within operating activities in the consolidated statements of cash flows and any gains or losses from such use are included in other
income (loss) in the consolidated statements of operations. The Company accounts for its gains or losses in accordance with the first in first out (FIFO) method.
F-9
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
Inventories
Inventories are stated at lower of cost and net realizable value. Cost is determined using the weighted average method.
Where there is evidence that the utility of inventories, in their disposal in the ordinary course of business, will be less than cost, whether due to physical deterioration,
obsolescence, changes in price levels, or other causes, the inventories are written down to net realizable value.
Accounts receivable
Accounts receivable are stated at the original amount less an allowance for doubtful receivables, if any, based on a review of all outstanding amounts at period end. An
allowance is estimated in accordance with ASC Topic 326, Credit Losses and records the allowance for credit losses as an offset to accounts receivable, and the
expected credit losses charged to the allowance is included in other operating expenses in the consolidated statements of operations. In determining expected credit
losses, the Group consider the historical level of credit losses, current economic trends, and reasonable and supportable forecasts that affect the collectability of the
future cash flows. As of December 31, 2021 and 2020, no allowance for doubtful receivables were made.
Marketable securities
Marketable securities are publicly traded stocks measured at fair value and classified within Level 1 and 2 in the fair value hierarchy because the Group either uses
quoted prices for identical assets in active markets, inputs that are based upon quoted prices for similar instruments in active markets, or quoted prices for identical
assets in markets with insufficient volume or infrequent transaction (less active markets).
Investments in derivatives
Investments in derivatives are warrants measured at fair value, with gains or losses from changes in fair value recognized in other (loss) income, net in the
consolidated statement of operations. The fair value of these warrants have been determined using the Black-Scholes pricing mode. The Black-Scholes pricing model
provides for assumptions regarding volatility, call and put features and risk-free interest rates within the total period to maturity.
Long-term investments
The Group’s long-term investments consist of equity method investment in common stocks and non-marketable investments in non-redeemable preferred shares of
privately-held companies that are not required to be consolidated under the variable interest or voting models. Long-term investments are classified as non-current
assets on the consolidated balance sheets as those investments do not have stated contractual maturity dates.
Non marketable investments
The non-marketable equity securities not accounted for under the equity method are measured at cost, less any impairment, plus or minus changes resulting from
observable price changes in orderly transactions for identical or similar investments of the same issuer. Adjustments are determined primarily based on a market
approach as of the transaction date.
Equity method investment – Fair value option
The Group elects the fair value option for an investment that would otherwise be accounted for using the equity method of accounting. Such election is irrevocable and
is applied on an investment by investment basis at initial recognition. The fair value of such investments is based on quoted prices in an active market, if any, or recent
orderly transactions for identical or similar investment of the same issuer. Changes in the fair value of these equity method investments are recognized in other (loss)
income, net in the consolidated statement of operations.
F-10
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
Fair value measurement
Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the
principal or most advantageous market in which it would transact its business, and it considers assumptions that market participants would use when pricing the asset
or liability.
As a basis for considering such assumptions, a three-tier fair value hierarchy prioritizes the inputs utilized in measuring fair value as follows:
● Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
● Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability
such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or
infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or
corroborated by, observable market data.
● Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair
value of the assets or liabilities.
The hierarchy requires the Group to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial
instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Group has
estimated the fair value amounts of its financial instruments using the available market information and valuation methodologies considered to be appropriate and has
determined that the carrying value of the Group’s cash, restricted cash, accounts receivable, due from brokers, other receivables and prepayments, amounts due
from/to related parties, accounts payable and accrued expenses, and loan receivables from related parties as of December 31, 2021 and 2020 approximate fair value
due to the short-term nature of these assets and liabilities.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation and impairment losses. Cost represents the purchase price of the asset and other costs
incurred to bring the asset into its existing use. Maintenance, repairs and betterments, including replacement of minor items, are charged to expense; major additions to
physical properties are capitalized.
Assets under construction are stated at cost less impairment losses. Cost comprises of cost of laboratory equipment delivered but not ready to be used, together with
interest expense capitalized during the period of construction or installation and testing. Capitalization of these costs ceases and the asset concerned is transferred to
the appropriate fixed assets category when substantially all the activities necessary to prepare the asset for its intended use are completed.
Depreciation of property, plant and equipment is provided using the straight-line method over their estimated useful lives:
Building
Computer equipment
Furniture, fixture, and office and medical equipment
Leasehold improvements
Laboratory equipment
Motor vehicle
29 years
3 years
5 years
Shorter of the remaining lease terms or 5 years
5 years
5 years
Upon sale or disposal, the applicable amounts of asset cost and accumulated depreciation are removed from the accounts and the net amount less proceeds from
disposal is charged or credited to income.
F-11
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
Intangible assets
Indefinite-lived intangible assets are tested for impairment at least annually and are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Indefinite-lived intangible assets are impaired if their estimated fair values are less than their carrying
values.
Finite-lived intangible assets are carried at cost less accumulated amortization and impairment if any. The finite intangible assets are amortized over their estimated
useful life, which is the period over which the assets are expected to contribute directly or indirectly to the future cash flows of the Group. These intangible assets are
tested for impairment at the time of a triggering event, if one were to occur. Finite-lived intangible assets may be impaired when the estimated undiscounted future
cash flows generated from the assets are less than their carrying amounts.
The Group may rely on a qualitative assessment when performing its intangible asset impairment test. Otherwise, the impairment evaluation is performed at the lowest
level of identifiable cash flows independent of other assets.
The Group’s intangible assets mainly consist of computer software, exclusive rights in prepaid patented and unpatented licenses. The prepaid patented licenses are for
clinical purpose or further development into other products. Prepaid unpatented license is for further development, once the associated research and development
efforts are completed, the prepaid unpatented license will be reclassified as a finite-lived asset and is amortized over its useful life. The estimated useful life of the
exclusive rights in using patents is generally the remaining patent life from the acquisition date to expiration date under the law, which is 17 to 20 years, the Group
will reassess the remaining patent life on annual basis, and the Group will assess the intangible assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may no longer be recoverable.
Impairment of long-lived assets
The Group reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be
recoverable. When these events occur, the Group measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future
cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying
amount of the assets, the Group would recognize an impairment loss, which is the excess of carrying amount over the fair value of the assets, using the expected future
discounted cash flows.
Convertible debts
The Group determines the appropriate accounting treatment of its convertible debts in accordance with the terms in relation to the conversion feature, call and put
option, beneficial conversion feature (“BCF”) and settlement feature. After considering the impact of such features, the Group concluded that, the convertible debts
contained a contingent beneficial conversion feature, which shall not be recognized in earnings until the contingency is resolved, and therefore accounted for such
instrument as a liability in its entirety.
Convertible debts were subsequently measured at amortized cost, using the effective interest rate method. Amortized cost is calculated by taking into account any
discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortization is included in interest
expense in the consolidated statements of operations.
Management concluded that the contingency was effectively resolved upon the completion of the IPO on December 17, 2018 so that part of the convertible debts were
converted automatically accordingly. The BCF derecognized upon automatic conversion was recorded as interest expense with a corresponding increase to additional
paid-in capital. The remaining BCF was recorded as debt discount, which was amortized through the maturity of the convertible debts, with a corresponding increase
to additional paid-in capital.
On April 24, 2019, the Group repurchased its convertible debts at approximately $13.6 million with carrying amount of approximately $13.5 million and a gain on
extinguishment on convertible debts of approximately $1.2 million was recognized. The repurchasing of convertible debts is considered an extinguishment and the
difference between the repurchasing price of debt, the net carrying amount of the extinguished debt and the intrinsic value of BCF is recognized in the consolidated
statements of operations. The intrinsic value of BCF of approximately $1.3 million at the extinguishment date was recorded as a reduction of additional paid-in capital.
F-12
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
Operating leases
Prior to the adoption of ASU No. 2016-02, Leases (Topic 842) and subsequent amendments to the initial guidance including ASU No. 2017-13, ASU No. 2018-10,
ASU No. 2018-11, ASU No. 2018-20, and ASU No. 2019-01 (collectively, “Topic 842”), operating leases were not recognized on the consolidated balance sheets,
instead, rental expenses with fixed payments were recognized on a straight-line basis over the lease term.
Effective January 1, 2020, the Group adopted Topic 842 using a modified retrospective transition approach for leases that exist at, or are entered into after January 1,
2020, and has not recast the comparative periods presented in the consolidated financial statements. At the inception of a contract, the Group determines if the
arrangement is, or contains, a lease. Operating lease liabilities are recognized at lease commencement based on the present value of lease payments over the lease
term. Operating lease right-of-use assets are initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or
before the lease commencement date, plus any initial direct costs incurred and less any lease incentives received. As the rate implicit in the lease cannot be readily
determined, the Group uses incremental borrowing rate at the lease commencement date in determining the imputed interest and present value of lease payments. The
incremental borrowing rate is determined based on the rate of interest that the Group would have to pay to borrow an amount equal to the lease payments on a
collateralized basis over a similar term in a similar economic environment. The lease term for all of the Group’s leases includes the non-cancellable period of the lease
plus any additional periods covered by either a Group’s option to extend (or not to terminate) the lease that the Group is reasonably certain to exercise, or an option to
extend (or not to terminate) the lease controlled by the lessor. For operating leases, the Group recognizes a single lease cost on a straight-line basis over the remaining
lease term.
The Group has elected not to recognize right-of-use assets or lease liabilities for leases with an initial term of 12 months or less and the Group recognizes lease
expense for these leases on a straight-line basis over the lease terms.
Finance lease
Leases that transfer substantially all the rewards and risks of ownership of assets to the Group, other than legal title, are accounted for as finance leases. At the
inception of a finance lease, the cost of the leased asset is capitalized at the present value of the minimum lease payments and recorded together with the obligation,
excluding the interest element, to reflect the purchase and financing. Assets held under capitalized finance leases are included in property, plant and equipment, and
depreciated over the shorter of the lease terms and the estimated useful lives of the assets. The interest expenses of such leases are charged to the consolidated
statements of operations to provide a constant periodic rate of charge over the lease terms.
Warrants
In connection of the issuance of Class A Ordinary Shares, the Company may issue warrants to purchase Class A Ordinary Shares. Warrants classified as equity are
initially recorded at fair value and subsequent changes in fair value are not recognized as long as the warrants continue to be classified as equity.
Revenue recognition
Revenues are derived from healthcare services rendered to patients for healthcare consultation and medical treatment. Revenue is reported at the amount that reflects
the consideration to which the Group expects to be entitled in exchange for providing healthcare services.
The Group recognizes revenue as its performance obligations are completed. Healthcare services are treated as a single performance obligation satisfied at a point in
time because the performance obligations are generally satisfied over a period of less than one day.
The Group determines the transaction price based on established billing rates. The Group considers the patient's ability and intent to pay the amount of consideration
upon admission. Subsequent changes resulting from a patient’s ability to pay are recorded as bad debt expense, which is included as a component of other operating
expenses in the consolidated statements of operations. During the years ended December 31, 2021, 2020, and 2019, there were no bad debt expenses were recorded.
Cost of healthcare services
Cost of healthcare services rendered represents cost in relation to the medical services provided including the compensation of the physicians and cost of
pharmaceutical supplies and medicine.
Research and development expenses
Research and development costs are expensed as incurred. Research and development expenses are comprised of costs incurred in performing research and
development activities, including amortization of the patent license, depreciation of laboratory equipment, costs of engaging external consultants, advisors and
contracted research organization to conduct preclinical development activities and trials, payroll expenses to research and development staff, and sponsored research
expenses to universities and research institutions.
F-13
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
Share-based compensation
The Group uses the fair value method of accounting for the share options granted to directors, employees, external consultants and advisors to measure the cost
services received in exchange for the share based awards. The fair value of share option awards with only service condition is estimated on the grant or offering date
using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires inputs such as the risk-free interest rate, expected term and expected
volatility. These inputs are subjective and generally require significant judgment. The resulting cost is recognized over the period during which a director, employee,
external consultant or advisor is required to provide service in exchange for the awards, usually the vesting period, which is generally from 9.5 months to 21.5 months.
Share-based compensation expense is recognized on a graded vesting basis, net of actual forfeitures in the period.
Share-based compensation expense is recorded in cost of healthcare services, research and development expenses, general and administrative fees and legal and
professional fees in the consolidated statements of operations.
Gain or loss on derecognition of non-financial asset
The Group determines if a contract exists, identifies the distinct non-financial assets, and determines when control transfers and, therefore, when to derecognize the
asset. Additionally, the Group applies the measurement principles of revenue from contracts with customers within U.S. GAAP to determine the amount of
consideration to include in the calculation of the gain or loss for the non-financial asset. Any gains or losses have been included within other income (loss).
Income taxes
The Group accounts for income taxes under the asset and liability method. Under this method, deferred income taxes are determined based on differences between the
financial carrying amounts of existing assets and liabilities and their tax bases. Income taxes are provided for in accordance with the laws of the relevant taxing
authorities.
A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before the Group is able to realize their benefits,
or that future deductibility is uncertain. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
Uncertain tax positions
The Group accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the
tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit,
including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of
being realized upon settlement. Interest and penalties related to uncertain tax positions are recognized and recorded as necessary in the provision for income taxes. The
Group recognizes interest on non-payment of income taxes and penalties associated with tax positions when a tax position does not meet more likely than not
thresholds be sustained under examination. The tax returns of the Group’s Hong Kong subsidiaries are subject to examination by the relevant tax authorities.
According to the Hong Kong Inland Revenue Department, the statute of limitation is six years if any company chargeable with tax has not been assessed or has been
assessed at less than the proper amount, the statute of limitation is extended to ten years if the underpayment of taxes is due to fraud or willful evasion. According to
United Kingdom, Singapore, the United States and Samoa tax rule, trading losses are available to be carried forward indefinitely. According to the Seychelles tax rule,
net operating losses are available to be carried forward for 5 years. The Group did not have any material interest or penalties associated with tax positions for the years
ended December 31, 2021, 2020 and 2019, and did not have any significant unrecognized uncertain tax positions as of December 31, 2021 and 2020. The Group does
not believe that its assessment regarding unrecognized tax benefits will materially change over the next twelve months.
Comprehensive income or loss
U.S. GAAP generally requires that recognized revenue, expenses, gains and losses be included in net income or loss. Although certain changes in assets and liabilities
are reported as separate components of the equity section of the consolidated balance sheets, such items, along with net income or loss, are components of
comprehensive income or loss. The components of other comprehensive income or loss consist of exchange differences on translation of foreign operations.
Net income or loss per share
Basic net income or loss per share is computed by dividing net income or loss attributable to ordinary shareholders by the weighted average number of ordinary shares
outstanding during the period. Diluted net income or loss per share reflects the potential dilution that could occur if securities or other contracts to issue ordinary
shares were exercised or converted into ordinary shares. Potential dilutive securities are excluded from the calculation of diluted loss per share in loss periods as their
effect would be anti-dilutive.
F-14
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
Risks and uncertainties
The Group is subject to a number of risks associated with companies at a similar stage, including dependence on key individuals, competition from similar services
and larger companies, volatility of the industry, ability to obtain regulatory clearance, ability to obtain adequate financing to support growth, the ability to attract and
retain additional qualified personnel to manage the anticipated growth of the Group and general economic conditions.
The Group is currently evaluating the impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative
effect on the Group’s financial position and results of its operations, the specific impact is not readily determinable as of the date of these financial statements. The
consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Recently adopted accounting pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses. Subsequently, the FASB issued ASU 2019-05, Financial Instruments- Credit
Losses (Topic 326): Targeted Transition Relief. The amendments in ASU 2016-13 update guidance on reporting credit losses for financial assets. These amendments
affect loans, debt securities, accounts receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets
not excluded from the scope that have the contractual right to receive cash. The amendments are effective for fiscal years beginning after December 15, 2020, and
interim periods within those fiscal years. We adopted the ASU during 2021 as of the beginning of our fiscal year, which did not have a material impact on our
consolidated financial statements.
Recently issued accounting standards which have not yet been adopted
The Group is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2010 (the “JOBS Act”). Under the JOBS Act, the emerging
growth companies (“EGCs”) can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those
standards apply to private companies.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): “Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which simplifies
the accounting for income taxes. This standard will be effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning
after December 15, 2022, on a prospective basis, and early adoption is permitted. The ASU is currently not expected to have a material impact on our consolidated
financial statements.
In May 2021, the FASB issued ASU No. 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call
Options. The ASU addresses the previous lack of specific guidance in the accounting standards codification related to modifications or exchanges of freestanding
equity-classified written call options (such as warrants) by specifying the accounting for various modification scenarios. The ASU is effective for interim and annual
periods beginning after December 15, 2021, with early adoption permitted for any periods after issuance to be applied as of the beginning of the fiscal year that
includes the interim period. The ASU is currently not expected to have a material impact on our consolidated financial statements.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832). This ASU requires business entities to disclose information about
government assistance they receive if the transactions were accounted for by analogy to either a grant or a contribution accounting model. The disclosure requirements
include the nature of the transaction and the related accounting policy used, the line items on the balance sheets and statements of operations that are affected and the
amounts applicable to each financial statement line item and the significant terms and conditions of the transactions. The ASU is effective for annual periods
beginning after December 15, 2021. The disclosure requirements can be applied either retrospectively or prospectively to all transactions in the scope of the
amendments that are reflected in the financial statements at the date of initial application and new transactions that are entered into after the date of initial application.
The ASU is currently not expected to have a material impact on our consolidated financial statements.
The Group does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material impact on the consolidated
balance sheets, consolidated statements of operations and cash flows.
F-15
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
4. REVENUE
For the years ended December 31, 2021, 2020 and 2019, all revenue came from provision of healthcare services in Hong Kong.
5. INVESTMENT AND FAIR VALUE MEASUREMENT
Assets Measured at Fair Value on a Recurring Basis
The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2021 and 2020:
December 31, 2021
Current Assets
Marketable securities
Common stocks
Non current Assets
Long-term investments
Common stocks
Total assets at fair value
December 31, 2020
Current Assets
Marketable securities
Common stocks
Investments in derivatives
Warrants
Total assets at fair value
Level 1
Level 2
Level 3
Total
23,527 $
213,088 $
- $
236,615
- $
23,527 $
- $
213,088 $
77,200 $
77,200 $
77,200
313,815
Level 1
Level 2
Level 3
Total
66,062 $
28,318,882 $
- $
28,384,944
-
66,062 $
-
28,318,882 $
4,289
4,289 $
4,289
28,389,233
$
$
$
$
$
The following is a reconciliation of Level 3 assets measured and recorded at fair value on a recurring basis during the years ended December 31, 2021 and 2020:
Balance at January 1, 2021
Change in unrealized (depreciation) appreciation, net
Additions
Balance at December 31, 2021
Net change in unrealized appreciation relating to investments still held at December 31, 2021
Balance at January 1, 2020
Change in unrealized depreciation
Balance at December 31, 2020
Net change in unrealized depreciation relating to investments still held at December 31, 2020
F-16
Warrants
$
Common Stock
-
-
77,200
77,200
4,289 $
(4,289)
-
- $
-
203,320 $
(199,031)
4,289 $
(198,549)
-
-
-
-
-
$
$
$
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
The following table presents the quantitative information about the Group’s Level 3 fair value measurements of investment as of December 31, 2021 and 2020, which
utilized significant unobservable internally-developed inputs:
December 31, 2021
Valuation technique
Unobservable input
Range
(weighted average)
Common stocks
Recent transactions
Recent transaction price
$0.0001 - $0.01
December 31, 2020
Valuation technique
Unobservable input
Warrants
Black-Scholes Model
Estimated time to exit
Historical Volatility
F-17
Range
(weighted average)
6 months
122%
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
Non-marketable investments
The Group’s non-marketable investments are investments in privately held companies without readily determinable fair values. The carrying value of the non-
marketable investments are adjusted based on price changes from observable transactions of identical or similar securities of the same issuer (referred to as the
measurement alternative) or for impairment. Any changes in carrying value are recorded within other income (loss), net in the consolidated statements of operations.
The following is a summary of unrealized gains and losses recorded in other income (loss), net, and included as adjustments to the carrying value of non-marketable
investments held as of December 31, 2021, 2020 and 2019 based on the observable price in an orderly transaction for the same or similar security of the same issuers:
Upward adjustments
Total unrealized gain for non-marketable investments
Year ended
December 31,
2021
- $
- $
Year ended
December 31,
2020
- $
- $
Year ended
December 31,
2019
1,017,468
1,017,468
$
$
The Group did not record any realized gains or losses for the non-marketable investments measured at fair value on a non-recurring basis during the years ended
December 31, 2021, 2020 and 2019.
The following table summarizes the total carrying value of the non-marketable investments held as of December 31, 2021 and 2020 including cumulative unrealized
upward and downward adjustments made to the initial cost basis of the investments:
Initial cost basis
Upward adjustments
Total carrying value at the end of the year
December 31,
2021
4,079,707 $
-
4,079,707 $
December 31,
2020
4,079,707
-
4,079,707
$
$
For the year ended December 31, 2020, non-marketable investments with initial cost of $2,015,005 and accumulated upward adjustments of $1,017,468 were
transferred into marketable securities, at fair value. There was no transferred of non-marketable investments into marketable securities for the year ended December
31, 2021.
Equity method investment, fair value option
In December 2021, one of the Group’s subsidiaries, Libra Sciences Limited (“Libra”, formerly known as Aptorum Pharmaceutical Development Limited), issued
Class A and Class B ordinary shares to various parties in exchange of licenses or cash. Each Class A share of Libra is entitled to 1 vote while each Class B share of
Libra is entitled to 10 votes. Upon the share issuance, the Group was holding 97.27% economic interest and 31.51% voting power in Libra. The Group lost the
controlling interest in Libra because it was transferred to a third party, and therefore deconsolidated Libra. However, the Group still owns 97.27% economic interest
and 31.51% voting power, which is deemed as having significant influence over Libra. As a result, the Group’s investment in Libra is subject to the equity method of
accounting. The Group assessed that the fair value option can better reflect the true value of Libra. Pursuant to ASC 825 – Financial Instruments (“ASC 825”), the
Group elected to apply the fair value option for its investments in Libra and will remeasure its investments in Libra at fair value every reporting period. For the year
ended December 31, 2021, there was no change in fair value of equity method investment, at fair value.
F-18
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
6. OTHER RECEIVABLES AND PREPAYMENTS
Other receivables and prepayments as of December 31, 2021 and 2020 consisted of:
Prepaid research and development expenses
Prepaid insurance
Prepaid service fee
Rental deposits
Prepaid rental expenses
Other receivables
Others
7. DIGITAL CURRENCIES
The following table presents additional information about digital currencies:
Beginning balance
Utilization of digital currencies to settle service fee
Gain on use of digital currencies
Ending balance
8. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment as of December 31, 2021 and 2020 consisted of:
Computer equipment
Furniture, fixture, and office and medical equipment
Leasehold improvements
Laboratory equipment
Motor vehicle
Assets in construction
Less: accumulated depreciation
Property, plant and equipment, net
December 31,
2021
December 31,
2020
$
$
314,165 $
92,035
90,857
12,011
13,205
47,697
23,508
593,478 $
978,044
82,060
174,114
12,022
14,251
74,176
44,329
1,378,996
December 31,
2021
December 31,
2020
$
$
1,539 $
(6,457)
4,918
- $
1,539
-
-
1,539
December 31,
2021
December 31,
2020
$
$
85,495 $
264,123
542,514
4,179,064
239,093
1,899,169
7,209,458
3,478,342
3,731,116 $
77,611
262,664
542,514
4,058,538
239,093
1,899,169
7,079,589
2,393,266
4,686,323
Depreciation expenses for property, plant and equipment amounted to $1,086,564, $1,128,867 and $1,071,799 for the years ended December 31, 2021, 2020 and 2019,
respectively.
For the year ended December 31, 2020, the Group recorded $330,445 of impairment loss of buildings in other operating expenses due to the management assessed that
its carrying amount may not be recoverable. On July 20, 2020, the Group signed a sales and purchase agreement to sell its property in Fo Tan, Hong Kong, at
approximately $1.1 million to a third party buyer. The property was assigned to the buyer on September 1, 2020. For the year ended December 31, 2021 and 2019, no
impairment loss was recorded.
For the year ended December 31, 2021, the Group recorded $392 of loss on disposal of office equipment in other operating expenses. For the year ended December
31, 2020, the Group disposed certain leasehold improvement and furniture, fixture, and office equipment as a result of the relocation of office, incurred a disposal loss
of $50,197 in other operating expenses. For the year ended December 31, 2019, no gain or loss from disposal was recorded.
F-19
9. INTANGIBLE ASSETS, NET
Gross carrying amount
Prepaid patented licenses
Computer software
Less: accumulated amortization
Prepaid patented licenses
Computer software
Intangible assets, net
Prepaid patented licenses
Computer software
Intangible assets, net
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
December 31,
2021
December 31,
2020
$
1,338,205 $
31,667
1,369,872
1,322,820
26,985
1,349,805
462,803
26,813
489,616
875,402
4,854
880,256 $
360,212
24,736
384,948
962,608
2,249
964,857
$
As of December 31, 2021 and 2020, the Group has capitalized eight and seven of the exclusive licenses respectively, which includes seven patented technologies in
relation to the Group’s therapeutics segment respectively. Pursuant to the license agreements, the Group paid upfront payments and became the exclusive licensee to
prosecute certain patents developed or licensed under the applicable agreements.
Prepaid patented licenses and computer software are finite-lived intangible assets which are amortized over their estimated useful life. Amortization expenses for
finite-lived intangible assets amounted to $106,014, $145,961 and $167,985 for the years ended December 31, 2021, 2020 and 2019, respectively.
For the year ended December 31, 2020, an impairment loss of $200,000 was recognized in research and development expenses as the Group considered that the
carrying amount of an intangible asset related to an unpatented license may not be recoverable. This license agreement was terminated on February 19, 2021. For the
year ended December 31, 2021 and 2019, no impairment loss was recorded.
The Group wrote off the cost and the related amortization of $1,344, $70,477 and $34,400 after the expiration of the computer software for the years ended December
31, 2021, 2020 and 2019, respectively.
The Group expects amortization expense related to its finite-lived intangible assets for the next five years and thereafter to be as follows as of December 31, 2021:
For the years ending December 31,
2022
2023
2024
2025
2026
Thereafter
Total
F-20
Amount
$
$
105,911
105,911
99,245
81,925
81,924
405,340
880,256
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
10. LONG-TERM DEPOSITS
Long-term deposits as of December 31, 2021 and 2020 consisted of:
Rental deposits
Prepayments for equipment
11. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses as of December 31, 2021 and 2020 consisted of:
Deferred bonus and salaries payable
Research and development expenses payable
Professional fees payable
Cost of healthcare services payable
Insurance expenses payable
Others
12. INCOME TAXES
The Company and its subsidiaries file tax returns separately.
Income taxes
December 31,
2021
December 31,
2020
$
$
149,175 $
147,050
296,225 $
149,175
147,050
296,225
December 31,
2021
December 31,
2020
$
$
3,173,739 $
519,012
166,190
142,968
35,010
135,646
4,172,565 $
2,078,958
750,989
185,838
104,457
33,152
87,378
3,240,772
Cayman Islands: under the current laws of the Cayman Islands, the Company and its subsidiaries in the Cayman Islands are not subject to taxes on their income and
capital gains.
Hong Kong: in accordance with the relevant tax laws and regulations of Hong Kong, a company registered in Hong Kong is subject to income taxes within Hong
Kong at the applicable tax rate on taxable income. In March 2018, the Hong Kong Government introduced a two-tiered profit tax rate regime by enacting the Inland
Revenue (Amendment) (No.3) Ordinance 2018 (the “Ordinance”). Under the two-tiered profits tax rate regime, the first $2 million of assessable profits of qualifying
corporations is taxed at 8.25% and the remaining assessable profits at 16.5%. The Ordinance is effective from the year of assessment 2018-2019. According to the
policy, if no election has been made, the whole of the taxpaying entity’s assessable profits will be chargeable to Profits Tax at the rate of 16.5% or 15%, as applicable.
Because the preferential tax treatment is not elected by the Group, all the subsidiaries registered in Hong Kong are subject to income tax at a rate of 16.5%. The
subsidiaries registered in Hong Kong did not have assessable profits that were derived Hong Kong during the years ended December 31, 2021, 2020 and 2019.
Therefore, no Hong Kong profit tax has been provided for in the periods presented. Our returns for 2015 and subsequent tax years remain subject to examination by
Hong Kong Inland Revenue Department.
F-21
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
United Kingdom: in accordance with the relevant tax laws and regulations of United Kingdom, a company registered in the United Kingdom is subject to income taxes
within United Kingdom at the applicable tax rate on taxable income. All the United Kingdom subsidiaries that are not entitled to any tax holiday were subject to
income tax at a rate of 19%. The subsidiary in United Kingdom did not have assessable profits that were derived from United Kingdom during the years ended
December 31, 2021, 2020 and 2019. Therefore, no United Kingdom profit tax has been provided for in the periods presented. Our returns for 2017 and subsequent tax
years remain subject to examination by the UK tax authority.
Singapore: in accordance with the relevant tax laws and regulations of Singapore, a company registered in the Singapore is subject to income taxes within Singapore at
the applicable tax rate on taxable income. All the Singapore subsidiaries that are not entitled to any tax holiday were subject to income tax at a rate of 17%. The
subsidiary in Singapore did not have assessable profits that were derived from Singapore during the years ended December 31, 2021, 2020 and 2019. Therefore, no
Singapore profit tax has been provided for in the periods presented. Our returns for 2017 and subsequent tax years remain subject to examination by the Singapore tax
authority.
United States (Nevada): in accordance with the relevant tax laws and regulations of the United States, a company registered in the United States is subject to income
taxes within the United States at the applicable tax rate on taxable income. All the United States subsidiaries in Nevada that are not entitled to any tax holiday were
subject to income tax at a rate of 21%. The subsidiary in the United States did not have assessable profits that were derived from the United States during the years
ended December 31, 2021, 2020 and 2019. Therefore, no United States profit tax has been provided for in the periods presented. Our returns for 2018 and subsequent
tax years remain subject to examination by Internal Revenue Service.
Canada: in accordance with the relevant tax laws and regulations of Canada, a company registered in Canada is subject to income taxes within Canada at the
applicable tax rate on taxable income. All the Canada subsidiaries that are not entitled to any tax holiday were subject to income tax at a rate of 15%. The subsidiary in
Canada did not have assessable profits that were derived from Canada during the years ended December 31, 2021, 2020 and 2019. Therefore, no Canada profit tax has
been provided for in the periods presented. Our returns for 2017 and subsequent tax years remain subject to examination by the Canada tax authority.
Ireland: in accordance with the relevant tax laws and regulations of Ireland, a company registered in Ireland is subject to income taxes within Ireland at the applicable
tax rate on taxable income. All the Ireland subsidiaries that are not entitled to any tax holiday were subject to income tax at a rate of 12.5%. The subsidiary in Ireland
did not have assessable profits that were derived from Ireland during the years ended December 31, 2021, 2020 and 2019. Therefore, no Ireland profit tax has been
provided for in the periods presented. Our returns for 2017 and subsequent tax years remain subject to examination by the Ireland tax authority.
The components of the provision for income taxes expenses are:
Current
Deferred
Total income taxes expense
Year ended
December 31,
2021
Year ended
December 31,
2020
Year ended
December 31,
2019
$
$
- $
-
- $
- $
-
-
-
-
-
The reconciliation of income taxes expenses computed at the Hong Kong statutory tax rate applicable to income tax expense is as follows:
Net income (loss) before tax
Provision for income taxes at Hong Kong statutory income tax rate (16.5%)
Impact of different tax rates in other jurisdictions
Non-taxable income
Non-deductible expenses
Change in valuation allowance
Effective income tax expense
F-22
Year ended
December 31,
2021
Year ended
December 31,
2020
Year ended
December 31,
2019
$
$
(27,114,293) $
(4,473,859)
(214,135)
(716,628)
1,992,463
3,412,159
- $
4,920,167 $
811,828
(18,869)
(4,281,521)
79,200
3,409,362
- $
(20,116,938)
(3,319,294)
(91,623)
(389,714)
702,433
3,098,198
-
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
Deferred tax asset, net
Deferred tax assets and deferred tax liabilities reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purpose and the tax bases used for income tax purpose. The following represents the tax effect of each major type of temporary difference.
Deferred tax asset:
Tax loss carry forward
Share-based payment expenses
Deferred tax liability:
Depreciation and amortization
Net deferred tax assets before valuation allowance
Valuation allowance
Deferred tax asset, net
December 31,
2021
December 31,
2020
$
12,189,424 $
698,564
12,887,988
9,461,421
497,808
9,959,229
(255,824)
12,632,164
(12,632,164)
- $
(397,669)
9,561,560
(9,561,560)
-
$
As of December 31, 2021 and 2020, the Group had net operating loss carry-forwards of $73,785,041 and $57,065,283, respectively, including its Hong Kong,
Singapore, the United States, the United Kingdom, Canada and Ireland operations, which are available to reduce future taxable income and have an unlimited
carryover period. For the year ended December 31, 2021, there was no tax loss carried forward expired, while tax loss brought forward of $1,805,527 was cancelled
due to the disposal of various subsidiaries.
Valuation allowance was provided against deferred tax assets in entities where it was determined, it was more likely than not that the benefits of the deferred tax assets
will not be realized. The Group had deferred tax assets which consisted of tax loss carry forward, which can be carried forward to offset future taxable income. The
Group maintains a full valuation allowance on its net deferred tax assets. The management determines it is more likely than not that all of its deferred tax assets will
not be utilized.
Changes in valuation allowance are as follows:
Balance as of January 1
Additions
Disposal
Balance as of December 31
Year ended
December 31,
2021
Year ended
December 31,
2020
Year ended
December 31,
2019
$
$
9,561,560 $
3,412,159
(341,555)
12,632,164 $
6,152,198 $
3,409,362
-
9,561,560 $
3,054,000
3,098,198
-
6,152,198
F-23
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
13. RELATED PARTY BALANCES AND TRANSACTIONS
The following is a list of a director and related parties to which the Group has transactions with:
Ian Huen, the Chief Executive Officer and an Executive Director of the Group;
(a)
(b) Darren Lui, the President and an Executive Director of the Group
(c) Clark Cheng, an Executive Director of the Group;
(d) Sabrina Khan, the Chief Financial Officer of the Group.
(e) Aeneas Group Limited, an entity controlled by Ian Huen;
(f) Aeneas Management Limited, an entity controlled by Ian Huen;
(g) Aenco Solutions Limited, an entity controlled by Ian Huen. In 2020, it is no longer the Group’s related party as it is disposed to a third party;
(h) Aenco Limited, an entity controlled by Ian Huen;
(i) Aeneas Technology (Hong Kong) Limited, an entity controlled by Ian Huen;
(j)
(k) CGY Investment Limited, an entity jointly controlled by Darren Lui;
(l) ACC Medical Limited, an entity controlled by Clark Cheng;
(m) Talem Medical Group Limited, an entity which Clark Cheng is a director;
(n) Libra Sciences Limited, an entity which was originally a wholly owned subsidiary of ATL. Since December 30, 2021, Libra has been turned into a related party to
Jurchen Investment Corporation, the holding company and an entity controlled by Ian Huen;
the Group due to the voting power owned by ATL is decreased to below 50% but more than 20%. (Note 14)
Amounts due from related parties
Amounts due from related parties consisted of the following as of December 31, 2021 and 2020:
Current
Libra Sciences Limited
Jurchen Investment Corporation
CGY Investment Limited
Talem Medical Group Limited
Amounts due to related parties
Amounts due to related parties consisted of the following as of December 31, 2021 and 2020:
Current
Ian Huen
Darren Lui
Clark Cheng
Sabrina Khan
Aeneas Group Limited
Jurchen Investment Corporation
Total
Non-current
Aeneas Group Limited (Note a)
Jurchen Investment Corporation (Note a)
F-24
December 31,
2021
December 31,
2020
$
$
4,193 $
2,000
2,000
3,397,650
3,405,843 $
-
-
-
-
-
December 31,
2021
December 31,
2020
$
$
$
$
1,397 $
3,449
5,699
844
-
-
11,389 $
2,110
-
401
39
123,922
19,454
145,926
- $
-
- $
1,507,285
500,000
2,007,285
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
Related party transactions
Related party transactions consisted of the following for the years ended December 31, 2021, 2020 and 2019:
Year ended
December 31,
2021
Year ended
December 31,
2020
Year ended
December 31,
2019
Loan from related parties (Note a)
- Aeneas Group Limited
- Jurchen Investment Corporation
Interest expenses (Note a)
- Aeneas Group Limited
- Jurchen Investment Corporation
Loan repayment and interest paid to related parties (Note a)
- Aeneas Group Limited
- Jurchen Investment Corporation
Loan to a related party (Note b)
- Talem Medical Group Limited
Interest income (Note b)
- Talem Medical Group Limited
Consultant, secondment, management and administrative services fees (Note c)
- CGY Investments Limited
- ACC Medical Limited
- Aenco Limited
- Aeneas Technology (Hong Kong) Limited
- Aeneas Management Limited
Rental expense (Note d)
- Jurchen Investment Corporation
Issuance of tokens for tokens creation, offering and consultancy services (Note e)
- Aenco Solutions Limited
Tokens creation, offering and consultancy services expense (Note e)
- Aenco Solutions Limited
Prepayment of tokens consultancy services (Note e)
- Aenco Solutions Limited
Healthcare services income
- Aeneas Management Limited
F-25
1,000,000 $
2,500,000 $
500,000 $
500,000 $
3,330,472
3,000,000
64,753 $
65,644 $
155,633 $
81,530 $
14,247
20,055
2,673,389 $
3,085,097 $
2,356,080 $
3,082,131 $
$
3,358,089 $
- $
- $
-
-
-
-
39,561 $
173,333 $
157,511 $
- $
- $
- $
169,462 $
13,018 $
746,153 $
617,794 $
231,795 $
-
-
830,769
-
698,152
- $
96,300 $
227,729
- $
- $
- $
- $
300,000
- $
192,000
- $
108,000
7,564 $
321 $
1,923
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
Note a: On August 13, 2019, the Group entered into financing arrangements with Aeneas Group Limited, a related party, and Jurchen Investment Corporation, the
ultimate parent of the Group, allowing the Group to access up to a total $15.0 million in line of credit debt financing. The line of credit will initially mature on August
12, 2022, extendable for up to an additional three years period upon mutual written consent. The interest on the outstanding principal indebtedness is at the rate of 8%
per annum. The Group may early repay, in whole or in part, the principal indebtedness and all interest accrued at any time prior to the maturity date without the prior
written consent of the lender and without payment of any premium or penalty.
Note b: On November 17, 2021, Aptorum Therapeutics Limited (the “Lender”) entered into a loan agreement with Talem Medical Group Limited (the “Borrower”).
According to the loan agreement, the Lender granted a loan of up to AUD4,700,000 for the Borrower for general working capital purposes of the Borrower and its
subsidiaries. The loan is interest-bearing at a rate of 10% per annum and secured by the entire issued shares of Talem Medical Group (Australia) Pty Limited held by
the Borrower. The loan is initially matured 6 months from the date of the first drawdown. The maturity date may be extended for 6 months to the first extended
maturity date, and further extended for another 6 months to the second extended maturity date, if certain conditions stated in loan agreement are satisfied.
Note c: Aenco Limited provided certain information technology services to the Group. For the year ended December 31, 2019, Aenco Limited was entitled to receive a
fixed amount of services fees of HKD 540,000 (approximately $69,231) per calendar month with the expiry date on December 31, 2019. The agreement was originally
renewed under the same terms with the expiry date on December 31, 2020. The agreement was replaced by another agreement on April 1, 2020. Pursuant to the
replaced agreement, Aenco Limited is entitled to receive a fixed amount of services fee of HKD 700,000 (approximately $89,744) per calendar month. On September
30, 2020, the replaced agreement was terminated as mutually agreed.
Aeneas Technology (Hong Kong) Limited provided research to the Group to assist the Group in computerized drug screening process of Smart-ACT® platform.
Aeneas Technology (Hong Kong) Limited is entitled to receive a fixed amount of research fees of HKD 963,760 (approximately $123,559) per calendar month with
the expiry date on October 30, 2021. On September 30, 2020, the agreement was terminated as mutually agreed.
Aeneas Management Limited provided certain documentation and administrative services to the Group. For the year ended December 31, 2019, Aeneas Management
Limited was entitled to receive a fixed amount of services fees of HKD 452,000 (approximately $57,949) per calendar month with the expiry date on December 31,
2019. The agreement was originally renewed under the same terms with the expiry date on December 31, 2020. On April 30, 2020, the agreement was terminated as
mutually agreed.
CGY Investment Limited provided certain consultancy, advisory and management services to the Group on potential investment projects related to healthcare or R&D
platforms. CGY Investment Limited is initially entitled to receive HK $104,000 (approximately $13,333) per calendar month plus reimbursement; such the monthly
service fee is adjusted to HK$171,200 (approximately US$21,949) with effect from March 1, 2022. The agreement will be remained in effect until 1 month’s notice in
writing is given by either party.
ACC Medical Limited provided certain consultancy, advisory, and management services to the Group on clinic operations and other related projects for clinics’
business development. ACC Medical Limited is initially entitled to receive HK $101,542 (approximately $13,018) per calendar month plus reimbursement; such
monthly service fee is adjusted to HK$143,200 (approximately US$18,359 per month) effective from March 1, 2022. The agreement will be remained in effect until 1
month’s notice in writing is given by either party.
Note d: Jurchen Investment Corporation entered into a sub-tenancy agreement with a subsidiary of the Group for the rental arrangement of an office in Hong Kong.
For the period February 1, 2018 through January 31, 2021, Jurchen Investment Corporation was entitled to receive a fixed amount of rental fee of HK $130,000
(approximately USD 16,667) per calendar month. In May 2020, Jurchen Investment Corporation and the Group mutually agreed to early terminate the rental
agreement and returned the office on May 31, 2020.
Note e: In July 2019, Smart Pharmaceutical Limited Partnership (“SPLP”), a wholly owned subsidiary of the Group, transferred 100,000,000 SMPT token to Aenco
Solutions Limited, a related party, in exchange of the services related to token creation and offering and consulting services for five years for an amount of $300,000.
On March 5, 2021, all agreements regarding the SMPT tokens, including the agreement between SPLP and Aenco Solutions Limited in exchange of the service to deal
with the token creation, have been terminated.
Note f: On March 29, 2019, Aptorum Medical Limited issued 112 shares to Clark Cheng in according to the appointment agreement, decreasing the equity interest of
the Company from 95% to 94%. On January 2, 2020, Aptorum Medical Limited further issued 115 shares to Clark Cheng in according to the appointment agreement,
decreasing the equity interest of the Company from 94% to 93%. On January 2, 2021, Aptorum Medical Limited further issued 117 shares to Clark Cheng in according
to the appointment agreement, decreasing the equity interest of the Company from 93% to 92%.
Note g: On May 27, 2021, Aptorum Therapeutics Limited, which is a wholly owned subsidiary of Aptorum Group Limited, entered a Share Sale Agreement to sell all
of the shares of SMPTH Limited to Aeneas Group Limited at the consideration $1. The sale of SMPTH Limited was a common control transaction and resulted in
$303,419 increase in additional paid-in capital in the condensed consolidated statement of changes in equity.
Note h: On January 1, 2022, the Group entered into an administrative management services agreement with Libra Sciences Limited. According to the agreement, the
Group will provide documentation and administrative services, include but are not limited to human resources and payroll administration, general secretarial and
administrative support, and accounting and financial reporting services. The Group is entitled to receive a fixed amount of services fees of HKD 25,000
(approximately $3,205) per calendar month with the expiry date on December 31, 2023.
Note i: On January 13, 2022, the Group entered a line of credit facility with Libra Sciences Limited to provide up to a total $1 million line of credit for its daily
operation. The line of credit will mature on July 12, 2022, extendable for up to twelve months, and the interest on the outstanding principal indebtedness will be at the
rate of 10% per annum.
F-26
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
14. VARIABLE INTEREST ENTITY
The Company consolidates VIEs in which the Group has a variable interest and is determined to be the primary beneficiary. This determination is based on whether
the Group has a variable interest (or combination of variable interests) that provides the Company with (a) the power to direct the activities that most significantly
impact the VIE’s economic performance and (b) the obligation to absorb losses or right to receive benefits that could be potentially significant to the VIE. The Group
continually reassesses whether it is the primary beneficiary of a VIE throughout the entire period the Group is involved with the VIE.
On December 30, 2021, three of the Group’s subsidiaries, Libra Sciences Limited (“Libra”, formerly known as Aptorum Pharmaceutical Development Limited),
Mios Pharmaceuticals Limited (“Mios”) and Scipio Life Sciences Limited (“Scipio”), issued Class A and Class B ordinary shares to various parties; for each such
entity, each Class A ordinary share is entitled to 1 vote and 1 share of economic benefit of the respective company, while each Class B ordinary share is entitled to 10
votes and 0.001 share of economic benefit of the respective company. Following such share issuances, the Group lost its majority voting rights in each of these three
companies and only holds 48.33%, 48.39% and 48.36% economic interest in Libra, Mios and Scipio, respectively. However, the Group still holds a majority of each of
these three company’s outstanding Class A ordinary shares and therefore will absorb/receive portions of these subsidiaries’ expected losses or residual returns. In
addition, none of these three companies have sufficient equity to sustain its own activities, and they have two classes of ordinary shares which have different rights,
benefits and obligations. We determined that all these three companies are variable interest entities (“VIE”). On December 31, 2021, Libra, Mios and Scipio further
issued Class A ordinary shares to the Group in exchange of certain projects licenses. Upon these share issuances, the Group was holding 97.27% economic interest and
31.51% voting power in Libra, 97.93% economic interest and 36.17% voting power in Mios, and 97.93% economic interest and 35.06% voting power in Scipio,
respectively.
We have considered each of these entity’s Memorandum and Article of Association and their respective board of directors (the sole director of each of Mios and Scipio
is an executive director of the Group), and determined that we have the power to manage and make decisions that affect Mios and Scipio’s research and development
activities, which activities most significantly impact Mios and Scipio’s economic performance. However, we do not have such power over Libra’s research and
development activities, which activities most significantly impact Libra’s economic performance. Accordingly, we determined that we are the primary beneficiary of
Mios and Scipio, but not the primary beneficiary of Libra.
The following tables summarize the aggregate carrying value of VIEs’ assets and liabilities in the consolidated balance sheets that are consolidated
December 31, 2021
Total
Assets
Liabilities
Net Assets
$
5,361 $
2,266 $
3,095
The following tables summarize the aggregate carrying value of assets and liabilities in the Group’s consolidated balance sheets that relate to the VIE in which the
Group holds a variable interest but is not the primary beneficiary.
December 31, 2021
Total
Assets
Liabilities
Net Assets
Maximum
Exposure to
Losses
$
4,195 $
- $
4,195 $
4,195
F-27
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
The Group’s maximum exposure to loss from its involvement with unconsolidated VIE represents the estimated loss that would be incurred if the VIE is liquidated, so
that the fair value of the equity investment in VIE is zero and the amounts due from the VIE have to be fully impaired.
On January 1, 2022, the Group entered into an administrative management services agreement with Libra. According to the agreement, the Group will provide
documentation and administrative services, including but are not limited to human resources and payroll administration, general secretarial and administrative support,
and accounting and financial reporting services. The Group is entitled to receive a fixed amount of services fees of HKD 25,000 (approximately $3,205) per calendar
month with the expiry date on December 31, 2023.
On January 13, 2022, the Group entered a line of credit facility with Libra to provide up to a total $1 million in line of credit debt financing for its daily operation. The
line of credit will mature on July 12, 2022, extendable for up to twelve months, and the interest on the outstanding principal indebtedness will be at the rate of 10% per
annum.
15. LEASE
As of December 31, 2021, the Group has three non-short-term operating leases for office, laboratories and clinic with remaining terms expiring from 2022 through
2023 and a weighted average remaining lease term of 1.0 years. Weighted average discount rates used in the calculation of the operating lease liability is 8%. The
discount rates reflect the estimated incremental borrowing rate, which includes an assessment of the credit rating to determine the rate that the Group would have to
pay to borrow, on a collateralized basis for a similar term, an amount equal to the lease payments in a similar economic environment.
Lease cost
Finance lease cost:
Depreciation
Interest on lease liabilities
Operating lease cost
Short-term lease cost
Variable lease cost
Sublease income
Total lease cost
Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
Financing cash flows from finance leases
Right-of-use assets obtained in exchange for new operating lease liabilities
Weighted-average remaining lease term – finance leases
Weighted-average remaining lease term – operating leases
Weighted-average discount rate – finance leases
Weighted-average discount rate – operating leases
The maturity analysis of operating leases liabilities as of December 31, 2021 is as follows:
Remaining periods ending December 31,
2022
2023
Total future undiscounted cash flow
Less: Discount on operating lease liabilities
Present value of operating lease liabilities
Less: Current portion of operating lease liabilities
Non-current portion of operating lease liabilities
F-28
For the year
ended
December 31,
2021
For the year
ended
December 31,
2020
$
$
$
$
$
$
47,819
4,450
425,280
86,125
-
-
563,674
450,807
53,846
-
0.9 years
1.0 years
2.5%
8.0%
47,819
7,290
483,398
68,472
-
-
606,979
457,508
53,845
1,107,206
1.9 years
1.5 years
2.5%
8.0%
December 31,
2021
$
$
149,539
26,001
175,540
(6,296)
169,244
(145,391)
23,853
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
On May 14, 2018, the Group leased a vehicle for its operation with a lease term of 54 months, and the lease was classified as a finance lease. The following lists the
components of the net present value of finance leases liabilities:
Remaining periods ending December 31,
2022
Total future undiscounted cash flow
Less: Discount on finance lease liabilities
Present value of finance lease liabilities
16. ORDINARY SHARES
December 31,
2021
$
$
49,358
49,358
(1,435)
47,923
On February 28, 2020, the Group entered into securities purchase agreement (the “Purchase Agreement”) with certain non-affiliated institutional investors and Jurchen
Investment Corporation, the ultimate parent of the Group, pursuant to which the Company agreed to sell a total of 1,351,350 Class A Ordinary Shares and warrants to
purchase 1,351,350 of the Class A Ordinary Shares, for gross proceeds of approximately $10 million. At the completion of the offering, approximately $1.0 million
offering costs was charged to additional paid-in capital. Each warrant entitled their holders to purchase 1 Class A Ordinary Shares and is exercisable immediately as of
the date of issuance at an exercise price of $7.40 per Class A Ordinary Share and expire seven years from the date of issuance. Additionally, the Group issued 43,243
warrants to placement agent on terms substantially the same as the warrants issued to investors, except that the exercise price of the warrants issued to the placement
agent is $8.88.
On August 27, 2020, the Group entered into warrant exchange agreements (the “Purchaser Exchange Agreements”) with two non-affiliated purchasers to exchange
their warrant of the Company by Class A Ordinary Shares of the Company (the “Purchaser Warrant Exchange”). Pursuant to the Purchaser Exchange Agreements, the
Company and the Non-affiliated Purchasers have agreed that in consideration for exchanging in full all of the warrants held by the Non-affiliated Purchasers, the
Company will exchange one (1) Class A Ordinary Share for each one (1) Purchaser Exchange Warrant. Total 540,540 Class A Ordinary Shares are issued to two non-
affiliated purchasers in exchange for 540,540 warrants. For other warrant holders did not participate in the Purchaser Warrant Exchange, the exercise prices of their
respective warrants will be reduced to a nominal amount pursuant to the anti-dilution provisions in such warrants (a “Down Round”). As a result of this Down Round
being triggered, the Group recorded a deemed dividend of $755,514 as a decrease to net income attributable to Aptorum Group Limited in computing basic net income
per share on the consolidated statements of operations.
On October 2, 2020, the Group completed a public offering, issuing 2,769,231 Class A Ordinary Shares and warrants to purchase an aggregate of 2,769,231 Class A
Ordinary Shares, for gross proceeds of approximately $9 million. At the completion of the offering, approximately $1.2 million offering costs was charged to
additional paid-in capital. The warrants have an exercise price of $3.25 per Class A Ordinary Share, are exercisable upon issuance and will expire five years from the
date of issuance. Additionally, the Group issued 147,538 warrants to placement agent on terms substantially the same as the warrants issued to investors, except that
the exercise price of the warrants issued to the placement agent is $4.0625. Following the public offering completed on October 2, 2020, the placement agent of the
offering on February 28, 2020 was further received 65,406 warrants as a tail fee, with an exercise price of $3.9 and expire seven years from the date of issuance.
On March 26, 2021, the Company entered into an at-the-market offering agreement (the “Sales Agreement”), with H.C. Wainwright & Co., LLC, acting as our sales
agent (the “Sales Agent”), relating to the sale of our Class A Ordinary Shares, offered pursuant to the prospectus supplement and the accompanying prospectus to the
registration statement on Form F-3 (File No. 333-235819) (such offering, the “ATM Offering”, or “At The Market Offering”). In accordance with the terms of the
Sales Agreement, we may offer and sell shares of our Class A Ordinary Shares having an aggregate offering price of up to $15,000,000 from time to time through the
Sales Agent under such prospectus supplement and the accompanying prospectus. As of the date of issuance of the consolidated financial statements, we have not yet
issued any Class A Ordinary Shares pursuant to the ATM Offering.
On May 26, 2021, the Company entered into a private placement shares purchase agreement with Jurchen Investment Corporation, issuing 1,387,925 Class A
Ordinary Shares at $2.882 per share, representing a 10% premium to the last closing price of the Company’s Class A Ordinary Shares on the NASDAQ stock
exchange on that date. The Company received aggregate gross proceeds of $4,000,000 from the purchase of these shares.
All the above issued warrants are classified as equity in accordance with ASC 815, Derivatives and Hedging. This ASC provides a scope exception from classifying
and measuring as a financial liability a contract that would otherwise meet the definition of a derivative if the contract is both (i) indexed to the entity’s own stock and
(ii) meets the equity classifications conditions. The Group concluded all above issued warrants should be equity-classified since they contain no provisions which
would require the Group to account for the warrants as a derivative liability and therefore were initially measured at fair value in permanent equity with subsequent
changes in fair value not measured.
For the year ended December 31, 2021, the Group issued 40,000 and 190,159 Class A Ordinary Shares to warrant holders and share option holders respectively as a
result of exercise of warrants or options. For the year ended December 31, 2020, the Group issued 313,513 and 12,328 Class A Ordinary Shares to warrant holders and
share option holders respectively as a result of exercise of warrants or options. For the year ended December 31, 2019, the Group issued 60,093 Class A Ordinary
Shares to warrant holders as a result of exercise of warrants.
Holders of Class A Ordinary Shares and Class B Ordinary Shares have the same rights except for the following: (i) each Class A Ordinary Share is entitled to one vote
while each Class B Ordinary Share is entitled to ten votes; and (ii) each Class B Ordinary Share is convertible into one Class A Ordinary Share at any time while Class
A Ordinary Shares are not convertible under any circumstances.
F-29
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
17. SHARE BASED COMPENSATION
Share option plan
On October 13, 2017, the Group adopted the 2017 Share Option Plan (the “Option Plan”) and on November 5, 2021, the Group amended the Option Plan. A total of
5,500,000 Class A Ordinary Shares (subject to subsequent adjustments described more fully below) may be issued pursuant to awards under the Option Plan.
Subsequent adjustments include that on each January 1, starting with January 1, 2020, an additional number of shares equal to the lesser of (i) 2% of the outstanding
number of Class A Ordinary Shares (on a fully diluted basis) on the immediate preceding December 31, and (ii) such lower number of Class A Ordinary Shares as
may be determined by the board of directors, subject in all cases to adjustments as provided in Section 10 of the Option Plan. Awards will be made pursuant to
agreements and may be subject to vesting and other restrictions as determined by the board of directors.
218,222 options were granted on March 15, 2019 to directors, employees, external consultants and advisors of the Group. One-half of each option grant vests on
January 1, 2020 and expires on December 31, 2030, and the other half vests on January 1, 2021 and expires on December 31, 2031. The exercise price is $12.91 per
share, which was based on the closing price of the shares traded on the NASDAQ stock exchange on the trading day preceding the grant date.
536,777 options were granted on March 16, 2020 to directors, employees, external consultants and advisors of the Group. One-half of each option grant vests on
January 1, 2021 and expires on December 31, 2031 and the other half vests on January 1, 2022 and expires on December 31, 2032. The exercise price is $2.99 per
share, which was based on the average closing price of the shares traded on the NASDAQ stock exchange for the five trading days immediately preceding the grant
date.
148,792 options were granted on June 1, 2020 to directors and employees of the Group. Nearly one-half of each option grant vests on December 1, 2020 and expires
on November 30, 2030 and the remaining vests on January 1, 2021 and expires on December 31, 2031. The exercise price is US$3.11 per share, which was based on
the average closing price of the shares traded on the NASDAQ stock exchange for the five trading days immediately preceding the grant date.
27,473 options were granted on August 10, 2020 to Dr. Weiss, which vest on August 10, 2021 and expire on August 9, 2031. The exercise price is $3.64 per share,
which was based on the average closing price of the shares traded on the NASDAQ stock exchange for the five trading days immediately preceding the grant date.
752,185 options were granted on March 11, 2021 to directors, employees, external consultants and advisors of the Group with an exercise price of $2.76 per share,
which was based on the average closing price of the shares traded on the NASDAQ stock exchange for the five trading days immediately preceding the grant
date. 367,950 options vest on January 1, 2022 and expire on December 31, 2032; 367,930 options vest on January 1, 2023 and expire on December 31, 2033; 9,058
options vest on June 8, 2021 and expire on June 7, 2032; and 7,247 options vest on July 14, 2021 and expire on July 13, 2032.
1,531,332 options were granted on March 8, 2022 to directors, employees, external consultants and advisors of the Group with an exercise price of $1.34 per share,
which was based on the average closing price of the shares traded on the NASDAQ stock exchange for the five trading days immediately preceding the grant
date. 748,881 options vest on January 1, 2023 and expire on December 31, 2033; 748,868 options vest on January 1, 2024 and expire on December 31, 2034; 18,657
options vest on June 8, 2022 and expire on June 7, 2033; and 14,926 options vest on July 14, 2022 and expire on July 13, 2033.
A summary of the option activity as of December 31, 2021, 2020 and 2019 and changes during the period is presented below:
Outstanding, January 1, 2021
Granted
Exercised
Forfeited
Outstanding, December 31, 2021
Exercisable, December 31, 2021
Weighted
average
exercise
price
$
Number of
share options
Remaining
contractual
term in
years
Aggregate
Intrinsic
value
717,717
3.76
11.22
752,185
(190,159)
(6,037)
1,273,706
314,560
2.76
3.65
2.91
3.19
4.26
12.29
11.01
9.63
-
-
-
F-30
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
Weighted
average
exercise
price
$
Number of
share options
Remaining
contractual
term in
years
Aggregate
Intrinsic
value
218,222
12.91
11.51
713,042
(12,328)
(52,427)
(148,792)
717,717
84,671
3.04
4.92
5.80
12.91
3.76
6.12
11.99
11.22
9.95
-
-
-
Weighted
average
exercise
price
$
Number of
share options
Remaining
contractual
term in
years
Aggregate
Intrinsic
value
218,222
218,222
-
12.91
12.91
-
12.31
11.51
-
641,573
-
Outstanding, January 1, 2020
Granted
Exercised
Forfeited
Cancelled
Outstanding, December 31, 2020
Exercisable, December 31, 2020
Granted, March 15, 2019
Outstanding, December 31, 2019
Exercisable, December 31, 2019
The weighted-average grant date fair value of share option grants during the years ended December 31, 2021, 2020 and 2019 was $2.57, $1.76 and $10.31,
respectively. The maximum contractual term for share option was 12.8 years.
The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model under the following assumptions.
Expected volatility
Risk-free interest rate
Expected term from grant date (in years)
Dividend rate
Dilution factor
Fair value
Granted in 2021
97.70%
1.64%
5.62-6.41
-
1
$2.51-$2.60
Granted in 2020
88.44%-96.55%
0.59%-0.69%
5.25-7.29
-
0.9909-1
$1.55-$2.66
Granted in 2019
95.02%-95.15%
2.46%-2.49%
6.29-7.29
-
0.9962
$10.1-$10.52
In connection with the grant of share options to employees and non-employees, the Group recorded share-based compensation charges of $1,203,000 and $479,460,
respectively, for the year ended December 31, 2021, $1,191,957 and $286,608, respectively, for the year ended December 31, 2020, and $1,180,477 and $432,355,
respectively, for the year ended December 31, 2019.
F-31
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
18. NON-CONTROLLING INTEREST
On March 29, 2019, AML, a majority-owned subsidiary of the Group, issued 112 shares to a director of the Group, which resulted an increase of his equity interest of
AML from 5% to 6%. A deficit of $10,672 was reclassified from additional paid-in capital to non-controlling interests within the Group’s consolidated financial
statements. On January 2, 2020, AML further issued 115 shares to a director of the Group, which resulted an increase of his equity interest of AML from 6% to 7%. A
deficit of $22,325 was reclassified from additional paid-in capital to non-controlling interests within the Group’s consolidated financial statements. On January 2,
2021, AML further issued 117 shares to a director of the Group, which resulted an increase of his equity interest of AML from 7% to 8%. A deficit of $34,130 was
reclassified from additional paid-in capital to non-controlling interests within the Group’s consolidated financial statements.
On April 24, 2019, the Smart Pharma Tokens (“SMPT tokens”) was announced to be launched. The SMPT tokens are secured by way of a floating charge against the
Project intellectual property (“IP”) to guarantee the distribution of accrued sales-based royalties, sublicensing income or additional cash flow generated by drug
candidates developed by the Smart-ACTTM platform. SMPT token holders will only be eligible to receive a token distribution if any sales-based royalties,
sublicensing income or additional cash flow is generated by drug candidates developed by the Smart-ACTTM platform, as and when SPLP declares the distribution.
Because the token distribution is secured by a security interest in such intellectual property rights, if and when SPLP defaults in its distribution obligations to the
SMPT token holders, or in the event of liquidation, dissolution or winding up of SPLP, the floating charge may crystallize into a fixed charge over the charged assets
(i.e., the Project IP owned by SPLP).
Total 1 billion SMPT tokens are offered by Smart Pharmaceutical Limited Partnership (“SPLP”), a wholly owned subsidiary of the Group. In July 2019, SPLP
transferred 100,000,000 SMPT tokens to Aenco Solutions Limited, a related party of the Group, in exchange for the services related to the tokens creation, offering
and 5-year consultancy service. Amount of $300,000 were classified as a component of non-controlling interests within the Group’s consolidated financial statements.
The remaining 900,000,000 SMPT tokens are remained and kept by SPLP. On May 27, 2021, Aptorum Therapeutics Limited, which is a wholly owned subsidiary of
Aptorum Group Limited, entered into a Share Sale Agreement to sell all of the shares of SMPTH Limited to Aeneas Group Limited at the consideration $1. The
$300,000 non-controlling interests was included in the calculation of amount to be reclassified to additional paid-in capital as a result of common control transaction.
On September 25, 2020, Aptorum Innovation Holding Limited (“AIHL”), a wholly-owned subsidiary of the Group, signed a share subscription and shareholders
agreement with certain new individuals and institutions to subscribe ordinary shares of Aptorum Innovation Holding Pte. Limited, a wholly-owned subsidiary of AIHL
before the share subscription agreement. As a result, AIHL’s equity interest in Aptorum Innovation Holding Pte. Limited was decreased from 100% to 75%. A deficit
of $3,090 was reclassified from additional paid-in capital to non-controlling interests within the Group’s consolidated financial statements.
On December 30, 2021, two of the Group’s subsidiaries, Mios Pharmaceuticals Limited (“Mios”) and Scipio Life Sciences Limited (“Scipio”), issued Class A and
Class B ordinary shares to various parties; for each such entity, each Class A ordinary share is entitled to 1 vote and 1 share of economic interest of the respective
company, while each Class B ordinary share is entitled to 10 votes and 0.001 share of economic interest of the respective company. On December 31, 2021, Mios and
Scipio further issued Class A ordinary shares to the Group in exchange of certain projects licenses. Upon these share issuances, the Group was holding 97.93%
economic interest and 36.17% voting power in Mios, and 97.93% economic interest and 35.06% voting power in Scipio, respectively. Since the sole director of Mios
and Scipio is an executive director of the Group, the Group can effectively participate in all significant financial and operating decisions in these two companies
through the power granted to the sole director in Mios and Scipio’s Articles of Association. The Group is deemed to have control over Mios and Scipio and hence
these two companies are still within the Group. As a result, a total deficit of $27,293 was reclassified from additional paid-in capital to non-controlling interests within
the Group’s consolidated financial statements.
As of December 31, 2021, non-controlling interest related to 25% equity interest in Aptorum Innovations Holding Pte. Limited, 10% equity interest in mTOR (Hong
Kong) Limited, 8% equity interest in Aptorum Medical Limited, 2.07% equity interest in Mios Pharmaceuticals Limited, 2.07% equity interest in Scipio Life Sciences
Limited and 20% equity interest in Acticule Life Sciences Limited in the consolidated balance sheets was deficit of $6,101,223 in total. As of December 31, 2020,
non-controlling interest related to 25% equity interest in Aptorum Innovations Holding Pte. Limited, 10% equity interest in mTOR (Hong Kong) Limited, 7% equity
interest in Aptorum Medical Limited, 20% equity interest in Acticule Life Sciences Limited, 20% equity interest in the Lanither Life Sciences Limited and the token
issued by SPLP in the consolidated balance sheets was deficit of $3,681,858 in total.
For the years ended December 31, 2021, 2020 and 2019, non-controlling interest in the consolidated statements of operations were loss of $2,065,904, $2,146,687 and
$1,430,176, respectively.
F-32
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
19. NET (LOSS) INCOME PER SHARE
The following table sets forth the computation of basic and diluted (loss) income per share:
Numerator:
Net (loss) income attributable to Aptorum Group Limited
Denominator:
Weighted average shares outstanding
– Basic
– Diluted
Net (loss) income per share attributable to Aptorum Group Limited
– Basic
– Diluted
Year ended
December 31,
2021
Year ended
December 31,
2020
Year ended
December 31,
2019
$
(25,048,389) $
6,311,340 $
(18,686,762)
35,033,970
35,033,970
31,135,882
31,534,473
29,008,445
29,008,445
$
$
(0.71) $
(0.71) $
0.20 $
0.20 $
(0.64)
(0.64)
Basic net (loss) income per share is computed by dividing net (loss) income attributable to ordinary shareholders by the weighted average number of ordinary shares
outstanding during the period. Diluted net (loss) income per share reflects the potential dilution that could occur if securities or other contracts to issue ordinary shares
were exercised or converted into ordinary shares. Potential dilutive securities are excluded from the calculation of diluted loss per share in loss periods as their effect
would be anti-dilutive.
F-33
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
20. COMMITMENTS AND CONTINGENCIES
Contingent Payment Obligations
The Group has entered into agreements with independent third parties for purchasing office and laboratory equipment. As of December 31, 2021, the Group had non-
cancellable purchase commitments of $49,166.
The Group has additional contingency payment obligations under each of the license agreements, such as milestone payments, royalties, research and development
funding, if certain condition or milestone is met.
Milestone payments are to be made upon achievements of certain conditions, such as Investigational New Drugs (“IND”) filing or U.S. Food and Drug Administration
(“FDA”) approval, first commercial sale of the licensed products, or other achievements. The aggregate amount of the milestone payments that the Group are required
to pay up to different achievements of conditions and milestones for all the license agreements signed as of December 31, 2021 are below:
Drug molecules: up to the conditions and milestones of
Preclinical to IND filing
From entering phase 1 to before first commercial sale
First commercial sale
Net sales amount more than certain threshold in a year
Subtotal
Diagnostics technology: up to the conditions and milestones of
Before FDA approval
Amount
282,564
22,276,410
14,982,051
70,769,231
108,310,256
201,155
108,511,411
$
$
$
$
For the years ended December 31, 2021, 2020 and 2019, the Group incurred $nil, $129,203 and $nil milestone payments, respectively. For the years ended December
31, 2021, 2020 and 2019, the Group did not incur any royalties or research and development funding, respectively.
F-34
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
21. SEGMENT REPORTING
The Group’s chief operating decision maker, the Chief Executive Officer, reviews the consolidated results when making decisions about allocating resources and
accessing performance of the Group as a whole and hence, the Group has only one reportable segment. The Group does not distinguish between markets or segments
for the purpose of internal reporting. The Group’s long-lived assets are substantially located in Hong Kong and majority of the Group’s expense is derived from within
Hong Kong. Therefore, no geographical segments are presented.
22. SUBSEQUENT EVENTS
The Group has evaluated subsequent events through the date of issuance of the consolidated financial statements. Except for the events disclosed elsewhere in the
consolidate financial statements and the following events with material financial impact on the Group’s consolidated financial statements, no other subsequent event is
identified that would have required adjustment or disclosure in the consolidated financial statements.
In April 2022, the Group accepted a banking facilities agreement offered by a bank. According to the banking facilities agreement, the bank offers a revolving loan of
up to $3 million to the Group. The Group may draw down from the revolving loan at any time through the day immediately preceding 12 months of the agreement
effective date. Interest will be payable on demand on the outstanding loans at the rate of either Hong Kong Interbank Offered Rate (“HIBOR”) plus 1.5% per annum
for loan in Hong Kong Dollars, or Secured Overnight Financing Rate (“SOFR”) compounded rate plus 1.5% per annum for loan in the United State Dollars. The loan
will be secured by a charge over deposits of up to $3 million when the Group draw down.
F-35
Extract of Written Resolutions
Exhibit 1.1
We, Campbells Secretaries Limited, Assistant Secretary of Aptorum Group Limited (the “Company”) hereby certify that the following is a true extract from the
Minutes of the 2021 Annual General Meeting of the Company duly convened and held on 2 December 2021:
“(3) APPROVAL OF THE AMENDMENTS OF ARTICLE 49.1 AND ARTICLES 49.2 OF THE COMPANY’S SECOND AMENDED AND
RESTATED MEMORANDUM AND ARTICLES OF ASSOCIATION
Article 49.1 and Article 49.2 of the Company’s Second Amended and Restated Memorandum and Articles of Association shall be revised as follows (new
language in bold underline):
49.1 For the purpose of determining members entitled to attend meetings, receive payment of any dividend or capitalisation or for any other purpose,
the Directors may provide that the Register may, after compliance with any notice requirement of the Designated Stock Exchange, be suspended or closed for
transfers for a stated period which shall not in any case exceed thirty (30) days in any year as the Board may determine. In lieu of, or apart from, closing the
Register, the Directors may fix in advance or arrears a date as the record date for any such determination of members.
49.2 If the Register is not so closed and no record date is fixed in accordance with Article 49.1, the date on which the notice of the meeting is given
or resolution of the Directors declaring a dividend or capitalisation is adopted, as the case may be, shall be the record date for such determination of members
or such other date approved by the Directors.”
Dated this 7 day of December 2021
/s/ Katherine Francis
Katherine Francis
for and on behalf of
Campbell Secretaries Limited
Secretary
www.verify.gov.ky File#: 245310
Filed: 09-Dec-2021 12:24 EST
Auth Code: C60789884590
Aptorum Group Limited
Second Amended and Restated Memorandum and Articles of Association
(Amended and Restated by special resolutions dated 13 October 2017)
Floor 4, Willow House, Cricket Square
Grand Cayman KY1-9010
Cayman Islands
campbellslegal.com
12574-27374
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
Aptorum Group Limited
Companies Law (as revised)
Company Limited by Shares
Second Amended and Restated Memorandum of Association
(Amended and Restated by special resolutions dated 13 October 2017)
1
2
3
4
Company Name
The name of the Company is Aptorum Group Limited.
Registered Office
The registered office of the Company will be situate at the offices of Campbells Corporate Services Limited, Floor 4, Willow House, Cricket Square, Grand
Cayman KY1-9010, Cayman Islands or such other place as the Directors may from time to time decide.
Objects
The objects for which the Company is established are unrestricted and the Company shall have full power and authority to carry out any object not prohibited
by law as provided by Section 7(4) of the Companies Law (as revised).
Powers of Company
Except as prohibited or limited by the Companies Law (as revised) (as amended from time to time) and subject to the rules and regulations of the trading
market on which the Company’s outstanding shares then trade, if any, the Company shall have and be capable of from time to time and all times exercising
any and all of the powers at any time or from time to time exercisable by a natural person or body corporate in doing in any part of the world whether as
principal, agent, contractor or otherwise whatever may be considered by it necessary for the attainment of its objects and whatever else may be considered by
it as incidental or conducive thereto or consequential thereon, including, but without in any way restricting the generality of the foregoing, the power to make
any alterations or amendments to this memorandum of association and the articles of association of the Company and the power to pay all expenses of and
incidental to the promotion, formation and incorporation of the Company; to register the Company to do business in any other jurisdiction; to sell, lease or
dispose of any property of the Company; to draw, make, accept, endorse, discount, execute and issue promissory notes, debentures, bills of exchange, bills of
lading, options, warrants and other negotiable or transferable instruments; to lend money or other assets and to act as guarantors; to borrow or raise money on
the security of the undertaking or on all or any of the assets of the Company or without security; to invest monies of the Company in such manner as the
directors determine; to promote other companies; to sell the undertaking of the Company for cash or any other consideration; to distribute assets in specie to
shareholders of the Company; to make charitable or benevolent donations; to pay pensions or gratuities or provide other benefits in cash or kind to directors,
officers, employees, past or present, and their families; to carry on any trade or business and generally to do all acts and things which, in the opinion of the
Company or the directors, may be conveniently or profitably or usefully acquired and dealt with, carried on, executed or done by the Company in connection
with the business aforesaid.
1
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
5
6
Limited Liability
The liability of each member is limited to the amount from time to time unpaid on such member’s shares.
Authorised Capital
The capital of the Company is USD 100,000,000.00 divided into 60,000,000 Class A Ordinary Shares with a nominal or par value of USD 1.00 each and
40,000,000 Class B Ordinary Shares with a nominal or par value of USD 1.00 each, provided always that the Company acting by its board of directors shall
have power to purchase and/or redeem any or all of such shares and to increase or reduce the said capital of the Company and to sub-divide or consolidate the
said shares or any of them subject to the provisions of the Companies Law and the articles of association and the rules of the applicable trading market on
which the capital is then traded and to issue all or any part of its capital whether original, purchased, redeemed, increased or reduced with or without any
preference, priority or special privilege or subject to any restrictions whatsoever and so that unless the conditions of issue shall otherwise expressly provide
every issue of shares whether stated to be ordinary, preference or otherwise shall be subject to the powers on the part of the Company hereinbefore provided.
7
Part VII of the Companies Law (as revised)
If the Company is registered as an exempted company in accordance with Part VII of the Companies Law (as revised), the Company will comply with the
provisions of such law relating to exempted companies and, subject to the provisions of the Companies Law and the Articles of Association, it shall have the
power to register by way of continuation as a body corporate limited by shares under the laws of any jurisdiction outside the Cayman Islands and to be
deregistered in the Cayman Islands.
8
Amendment
The Company shall have power to amend this memorandum of association by special resolution.
2
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
Aptorum Group Limited
Companies Law (as revised)
Company Limited by Shares
Second Amended and Restated Articles of Association
(Amended and Restated by special resolutions dated 13 Ocotober 2017)
1
1.1
Preliminary
The regulations contained in Table A of the Companies Law (as revised) do not apply to the Company and the following are the articles of association of the
Company.
1.2
In these Articles:
(a)
the following terms shall have the meanings set opposite if not inconsistent with the subject context:
“Articles”
means the articles of association of the Company as originally framed as from time to time amended by Special
Resolution;
“Audit Committee”
means the committee appointed by the Board in accordance with Article 35 or a successor committee;
“Auditors”
“Board”
means the persons for the time being performing the duties of auditors of the Company;
means the board of Directors of the Company or the Directors present at a meeting of Directors of the Company
at which a quorum is present;
“Chairman”
means the Chairman of the board of Directors from time to time;
“Class A Ordinary Shares”
means the Class A Ordinary Shares in the capital of the Company having a par value of USD 1.00 each having
the rights, and subject to the restrictions, provided in these Articles;
“Class B Ordinary Shares”
means the Class B Ordinary Shares in the capital of the Company having a par value of USD 1.00 each having
the rights, and subject to the restrictions, provided in these Articles;
“Clearing House”
means a clearing house recognised by the laws of a jurisdiction in which the shares of the Company (or
depository receipts therefor) are listed or quoted on a stock exchange or interdealer quotation system in such
jurisdiction;
1
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
“Company”
means the above-named Company;
“Companies Law”
means the Companies Law (2016 Revision) as amended, of the Cayman Islands;
“debenture”
includes debenture stock, mortgages, bonds and any other securities of the Company whether constituting a
charge on the assets of the Company or not;
“Designated Stock Exchange”
means the Nasdaq Global Market or such other exchange or interdealer system upon which the Company’s
securities are listed or quoted;
“Directors”
means the persons for the time being occupying the position of directors of the Company, or as the case may be,
the directors assembled as a board and the term a “Director” shall be construed accordingly and shall, where the
context admits, include an alternate Director;
“dividend”
includes a distribution or interim dividend or interim distribution;
“Electronic Record”
has the same meaning as in the Electronic Transactions Law;
“Electronic Transactions Law” means the Electronic Transactions Law of the Cayman Islands;
“Exchange Act”
means the United States Securities Exchange Act of 1934, as amended;
“Head Office”
“Issue Price”
“Law”
means such office of the Company as the Directors may from time to time determine to be the principal office of
the Company;
means the total consideration payable for the issue of Shares including for the avoidance of doubt both the par
value and any premium payable;
means all applicable laws, rules and regulations, domestic or foreign, state, provincial, local or self- regulatory,
including without limitation as to all applicable laws, rules and regulations of or related to the Companies Law,
the United States, the SEC and the Designated Stock Market;
“member”
has the meaning assigned to it in the Companies Law and the term “shareholder” shall also mean a member;
2
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
“Memorandum”
means the Memorandum of Association of the Company;
“Month”
“NASDAQ”
means calendar month;
means the National Association of Securities Dealers Automated Quotations;
“Ordinary Resolution”
means a resolution:
(i)
(ii)
passed by simple majority of such members as, being entitled to do so, vote in person or, where proxies
are allowed, by proxy at a general meeting of the Company on a show of hands or a poll and where a
poll is taken regard shall be had in computing a majority to the number of votes to which each member
is entitled; or
approved in writing by all of the members entitled to vote at a general meeting of the Company in one or
more instruments each signed by one or more of the members and the effective date of the resolution so
adopted shall be the date on which the instrument, or the last of such instruments, if more than one, is
executed.
has the meaning assigned to it in the Companies Law currently meaning paid-up and/or credited as paid-up as to
the nominal or par value only excluding any premium payable in respect of the issue of any shares;
means the register of members of the Company required to be kept by the Companies Law; and includes (except
where otherwise stated or the context otherwise requires) any branch or duplicate register of members;
“paid-up”
“Register”
“registered office”
means the registered office for the time being of the Company;
“Registration Office”
means in respect of any class of share capital such place as the Board may from time to time determine to keep a
branch Register in respect of that class of share capital and where (except in cases where the Board otherwise
directs the transfers or other documents of title or such class of share capital are to be lodged for registration and
are registered;
3
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
“SEC”
“Seal”
“Secretary”
“share”
means the United States Securities Exchange Commission;
means the common seal of the Company and includes every duplicate seal;
includes an assistant secretary and any persons appointed to perform the duties of the secretary of the Company;
means a share in the Company and shall, where the context so permits, includes fractions of a share in the
Company;
“Special Resolution”
has the meaning assigned to it in the Companies Law;
“Treasury Share”
means a share held in the name of the Company as a treasury share in accordance with the Companies Law.
words importing the singular include the plural and vice versa;
words importing any gender include all genders;
words importing persons include corporations as well as any other legal or natural person;
expressions referring to writing shall, unless the contrary intention appears, be construed as including references to printing, lithography,
photography and other modes of representing or reproducing words in a visible form and include all modes of representing or reproducing words in
visible form, including in the form of an Electronic Record;
references to provisions of any law or regulation shall be construed as references to those provisions as amended, modified, re-enacted or replaced;
any phrase commencing with the words “including”, “include”, “in particular” or any similar expression shall be deemed to be followed by the
words “without limitation”;
headings are inserted for reference only and shall be ignored in construing the Articles;
subject as aforesaid, any words or expressions defined in the Companies Law shall, if not inconsistent with the subject or context hereof, bear the
same meanings as in the Articles;
the word “may” shall be construed as permissive and the word “shall” shall be construed as imperative;
where an Ordinary Resolution is expressed to be required for any purpose, a Special Resolution is also effective for that purpose; and
where any period to lapse under the provisions of these Articles is counted by a number of days, the first day of such period counted shall be the day
immediately after the notice is given or deemed to be given and the period of such notice shall be deemed to be complete and final at the end of the
last day of such period. The relevant then permitted actions shall be effected the day immediately following such last day.
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
4
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
2
2.1
2.2
Commencement of Business
The business of the Company may be commenced as soon after incorporation as the Directors shall see fit, notwithstanding that part only of its shares may
have been allotted.
The Directors may pay, out of the capital or any other monies of the Company, all expenses incurred in or about the formation and establishment of the
Company including the expenses of registration.
3
Alteration of Articles
Subject to any other provision of these Articles, the Company may from time to time alter or add to these Articles by passing a Special Resolution so long as
such alteration does not disparately impact the members’ voting rights.
Issue of Shares, Principal and Branch Registers and Offices
Subject to the Law and to any direction that may be given by the Company in general meeting and without prejudice to any special rights previously
conferred on the holders of any existing shares or class of shares, the shares of the Company shall be under the Directors’ general and unconditional authority
to allot and/or issue (with or without rights of renunciation), grant options over, offer or otherwise deal with or dispose of any unissued shares of the
Company (whether forming part of the original or any increased share capital), either at a premium or at par, with or without preferred, deferred or other
special rights or restrictions, whether in regard to dividend, voting, return of capital or otherwise and to such persons, on such terms and conditions, and at
such times as the Directors may decide and they may allot or otherwise dispose of them to such persons (including any Director) on such terms and
conditions and at such time as the Directors may determine.
The Company may, at its discretion, issue fractions of a share and, save where the Articles otherwise provide, a fraction of a share shall have proportionately
the same rights as a whole share of the same class.
The Directors may accept non-cash consideration for the issue of Shares.
The Company shall be prohibited from issuing shares, certificates or coupons in bearer form.
The Directors may accept contributions to the capital of the Company otherwise than in consideration of the issue of shares and the amount of any such
contribution may be treated as share premium (in which case it shall be subject to the provisions of the Companies Law and these Articles applicable to share
premium).
4
4.1
4.2
4.3
4.4
4.5
4.6
The Company shall maintain or cause to be maintained the Register in accordance with the Companies Law.
5
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
4.7
4.8
4.9
5
5.1
5.2
The Directors may determine that the Company shall maintain one or more branch registers of members in accordance with the Companies Law provided that
a duplicate of such branch registers shall be maintained with the principal register in accordance with the Companies Law. The Directors shall also determine
which register of members shall constitute the principal register and which shall constitute the branch register or registers, and may vary such determination
from time to time.
Subject to the provisions of the Law, the Company by resolution of the Directors may change the location of its registered office.
The Company, in addition to its registered office, may establish and maintain such other offices, places of business and agencies in the Islands and elsewhere
as the Directors may from time to time determine.
Treasury Shares
The Directors may, prior to the purchase, redemption or surrender of any share, determine that such share shall be held as a Treasury Share.
The Directors may resolve to cancel a Treasury Share or transfer a Treasury Share on such terms as they think proper (including, without limitation, for nil
consideration).
6
Redemption, Purchase and Surrender of Own Shares
6.1
Subject to the provisions of the Companies Law, the Memorandum and these Articles:
(a)
(b)
(c)
(d)
shares may be issued on the terms that they are, or at the option of the Company or the member are, liable to be redeemed on such terms and in such
manner as the Company, by resolution, or as the Directors, before the issue of the shares, may determine; and
the Company may purchase shares, including any redeemable shares, issued by the Company upon the terms and in such manner as the Directors or
the Company, by resolution, may from time to time determine, and such authority may be general in respect of any number of purchases, for a set
period, or indefinite;
the Company may make payment in respect of any redemption or purchase of its own shares in any manner authorised by the Companies Law,
including out of capital
Subject to the provisions of these Articles, the rights attaching to any issued shares may, by Special Resolution, be varied so as to provide that such
shares are, or at the option of the Company or the member are, liable to be redeemed on such terms and in such manner as the Company may,
determine.
6.2
6.3
6.4
The Directors may accept the surrender for no consideration of any fully paid-up share.
The Directors may, when making a payment in respect of the redemption or purchase of shares, make such payment in cash or in specie (or partly in one and
partly in the other).
Upon the date of redemption or purchase of a share, the holder shall cease to be entitled to any rights in respect thereof (excepting always the right to receive
(i) the price therefor and (ii) any dividend which had been declared in respect thereof prior to such redemption or purchase being effected) and accordingly
his name shall be removed from the Register with respect thereto and the share shall be cancelled.
6
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
7
Class A Ordinary Shares
7.1
Voting Rights
The holder of Class A Ordinary Shares shall have the right to one (1) vote for each such share and shall be entitled to notice of any shareholders’ meeting
and, subject to the terms of these Articles, to vote thereat.
7.2
Redemption
The Class A Ordinary Shares are not redeemable at the option of the holder.
7.3
Conversion
The Class A Ordinary Shares are not convertible into shares of any other class.
8
Class B Ordinary Shares
8.1
Voting Rights
The holder of Class B Ordinary Shares shall have the right to ten (10) votes for each such share, and shall be entitled to notice of any shareholders’ meeting
and, subject to the terms of these Articles, to vote thereat.
8.2
Redemption
The Class B Ordinary Shares are not redeemable at the option of the holder.
8.3
Conversion
The holders of the Class B Ordinary Shares shall have the conversion rights set out in the following paragraphs (the “Conversion Rights”).
(a)
Right to Convert
Each Class B Ordinary Share shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the Head
Office of the Company or the office of any transfer agent for such shares, into such number of fully paid and non-assessable Class A Ordinary
Shares on the basis that one (1) Class B Ordinary Share shall be converted into one (1) Class A Ordinary Share (being a 1:1 ratio and hereafter
referred to as the “Conversion Rate”), on the date the written notice to convert (together with any certificate representing the Class B Ordinary
Shares to which it relates, if any) is received, as provided for in these Articles, by the Company at its Head Office or by any transfer agent for the
Class B Ordinary Shares. The Conversion Rate for Class B Ordinary Shares shall be subject to adjustment as set out in this Article 8.3.
7
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
(b)
Mechanics of Conversion
Before any holder of Class B Ordinary Shares shall be entitled to voluntarily convert the same into Class A Ordinary Shares, such holder shall lodge,
at the Company’s Head Office or at the office of any transfer agent for the Class B Ordinary Shares, a written notice of the election to convert the
same (together with any certificate, if any, representing the Class B Ordinary Shares to which it relates) and such written notice shall state therein the
name or names that shall be entered on the Register and, if certificates are to be issued, the name or names in which the certificate or certificates for
Class A Ordinary Shares are to be issued. A conversion shall be effected as a simultaneous redemption of the relevant Class B Ordinary Shares and
the allotment and issue of the new Class A Ordinary Shares with the proceeds of such redemption of Class B Ordinary Shares being applied to
purchase the new Class A Ordinary Shares. Such conversion shall be deemed to have been made immediately prior to the close of business on the
date of delivery of notice of conversion and, if certificates are then issued, such surrender of the certificate or certificates for the Class B Ordinary
Shares to be converted, and the person or persons entitled to receive the Class A Ordinary Shares issuable upon such conversion shall be entered on
the Register as the holder or holders of such Class A Ordinary Shares on such date. Certificates evidencing the Class A Ordinary Shares issued on
conversion, and any remaining Class B Ordinary Shares of such Member may be issued in accordance with the terms of these Articles.
(c)
Conversion Price Adjustments of Class B Ordinary Shares for Certain Dilutive Splits, and Consolidations
The Conversion Rate of the Class B Ordinary Shares shall be subject to adjustment from time to time as follows:
(i)
(ii)
If the Company on or after the date of the adoption of these Articles (the “Adoption Date”), fixes a record date for the effectuation of a
split or subdivision of the outstanding Class A Ordinary Shares then, as of such record date (or the date of such split or subdivision if no
record date is fixed), the Conversion Rate of the Class B Ordinary Shares shall be appropriately adjusted so that the number of Class A
Ordinary Shares issuable on conversion of each share shall be increased in proportion to such increase of the aggregate of Class A Ordinary
Shares outstanding.
If the number of Class A Ordinary Shares outstanding at any time after the Adoption Date is decreased by a consolidation or other
combination of the outstanding Class A Ordinary Shares, then, following the record date of such combination, the Conversion Rate for the
Class B Ordinary Shares shall be appropriately adjusted so that the number of Class A Ordinary Shares issuable on conversion of each
share shall be decreased in proportion to such decrease in outstanding shares.
(d)
Recapitalisations
If at any time or from time to time there shall be a recapitalisation of the Class A Ordinary Shares (other than a subdivision or combination provided
for elsewhere in this Article 8.3), provision shall be made so that the holders of the Class B Ordinary Shares shall thereafter be entitled to receive
upon conversion of the Class B Ordinary Shares the number of shares of the Company, to which a holder of Class A Ordinary Shares deliverable
upon conversion would have been entitled on such recapitalisation. In any such case, appropriate adjustment shall be made in the application of the
provisions of this Article 8.3 with respect to the rights of the holders of the Class B Ordinary Shares after the recapitalisation to the end that the
provisions of this Article 8.3 (including adjustment of the Conversion Rate then in effect and the number of shares purchasable upon conversion of
the Class B Ordinary Shares) shall be applicable after that event as nearly equivalent as may be practicable.
8
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
(e)
No Fractional Shares and Certificate as to Adjustments
(i)
(ii)
No fractional shares shall be issued upon the conversion of any Class B Ordinary Shares, and the aggregate number of Class A Ordinary
Shares to be issued to particular shareholders shall be rounded down to the nearest whole share and the Company shall pay in cash the fair
market value of any fractional shares as of the time when entitlement to receive such fractions is determined. Whether or not fractional
shares would be issuable upon such conversion shall be determined on the basis of the total number of Class B Ordinary Shares the holder
is at the time converting into Class A Ordinary Shares and the number of Class A Ordinary Shares issuable upon such conversion.
Upon the occurrence of each adjustment or readjustment of the Conversion Price of the Class B Ordinary Shares pursuant to this Article
8.3, the Company, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare
and furnish to each holder of Class B Ordinary Shares a certificate setting forth such adjustment or readjustment and showing in detail the
facts upon which such adjustment or readjustment is based. The Company shall, upon the written request at any time of any holder of Class
B Ordinary Shares, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B)
the Conversion Rate for such Class B Ordinary Shares at the time in effect, and (C) the number of Class A Ordinary Shares that at the time
would be received upon the conversion of a Class B Ordinary Share.
(f)
Reservation of Shares Issuable Upon Conversion
(i)
The Company shall at all times reserve and keep available out of its authorised but unissued Class A Ordinary Shares, solely for the
purpose of effecting the conversion of the Class B Ordinary Shares, such number of its Class A Ordinary Shares as shall from time to time
be sufficient to effect the conversion of all outstanding Class B Ordinary Shares; and if at any time the number of authorised but unissued
Class A Ordinary Shares shall not be sufficient to effect the conversion of all then outstanding Class B Ordinary Shares, in addition to such
other remedies as shall be available to the holder of such Class B Ordinary Shares, the Company will take such corporate action as may, in
the opinion of its counsel, be necessary to increase its authorised but unissued Class A Ordinary Shares to such number of shares as shall be
sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite shareholder approval of any
necessary amendment to the Memorandum and Articles.
(g)
No Impairment
Subject to the right of the Company to amend its Memorandum and Articles or take any other corporate action upon obtaining the necessary
approvals required by these Articles and applicable law, the Company will not, by amendment of these Articles or through any reorganisation,
recapitalisation, transfer of assets, consolidation, merger, amalgamation, scheme of arrangement, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company,
but will at all times in good faith assist in the carrying out of all the provisions of this Article 8.3 and in the taking of all such action as may be
necessary or appropriate to protect the conversion rights of the holders of Class B Ordinary Shares against impairment.
9
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
(h)
Waiver of Adjustment to Conversion Rate
Notwithstanding anything herein to the contrary, any downward adjustment of the Conversion Rate of any of the Class B Ordinary Shares may be
waived, either prospectively or retroactively and either generally or in a particular instance, by the consent or vote of the holders of Class B Ordinary
Shares representing a majority of the votes attributable to all then outstanding Class B Ordinary Shares (voting together as a single class and on an
as-converted basis). Any such waiver shall bind all future holders of Class B Ordinary Shares.
9
9.1
9.2
9.3
Variation of Rights of Shares
If at any time the share capital of the Company is divided into different classes of shares, the rights attached to any class (unless otherwise provided by the
terms of issue of the shares of that class) may, whether or not the Company is being wound up, be varied with the consent in writing of the holders of at least
two-thirds of the issued shares of that class or with the sanction of a resolution passed at a meeting of the holders of such class of shares by the holder or
holders of at least two-thirds of such shares present in person or by proxy at such meeting. To the extent not inconsistent with this Article, the provisions of
these Articles relating to general meetings shall apply to every such meeting of the holders of one class of shares except that the necessary quorum shall be
one person holding or representing by proxy at least one third of the issued shares of the class and that any holder of shares of the class present in person or
by proxy may demand a poll.
The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, unless otherwise expressly provided by the
terms of the issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith and, for the
avoidance of doubt shall not be varied by the increase in the number of shares issuable under any employee share plan adopted by the Company from time to
time.
For the purposes of a separate class meeting, the Directors may treat two or more or all the classes of Shares as forming one class of Shares if the Directors
consider that such class of Shares would be affected in the same way by the proposals under consideration, but in any other case shall treat them as separate
classes of Shares.
10
Commission on Sale of Shares
When permitted by Law the Company may pay to any person a commission in consideration of his subscribing or agreeing to subscribe (whether absolute or
conditional) for any shares or debentures of the Company, or procuring or agreeing to procure subscriptions (whether absolute or conditional) for any shares
or debentures in the Company. Any such commission may be satisfied by the payment of cash or in fully paid-up shares or debentures of the Company or
partly in one way and partly in the other.
10
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
11
Non-Recognition of Trusts
Except as required by law or otherwise provided by these Articles, no person shall be recognised by the Company as holding any shares upon any trust, and
the Company shall not be bound by or be compelled in any way to recognise (even when having notice thereof) any equitable, contingent, future or partial
interest in any share or any interest in any fractional part of a share or any other rights in respect of any share except an absolute right to the entirety thereof in
the registered holder.
12
Certificates for Shares
12.1
12.2
Share certificates shall generally not be issued, unless the Directors determine to so issue either generally or in a specific circumstance. A certificate may be
issued under Seal or executed in such other manner as the Directors may prescribe. Provided that in respect of a share or shares held jointly by several
persons the Company shall not be bound to issue more than one certificate and delivery of a certificate for a share to one of several joint holders shall be
sufficient delivery to all such holders.
Certificates representing shares shall be in such form as shall be determined by the Directors. Such certificates shall be signed by such person or persons as
are authorised from time to time by the Directors or by the Articles. All certificates for shares shall be consecutively numbered or otherwise identified. The
name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered in the
Register. All certificates surrendered to the Company for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and cancelled. Notwithstanding the foregoing, if a share certificate is defaced, lost or destroyed, it may be
renewed on such terms (if any) as to evidence and indemnity and the payment of out of pocket expenses of the Company incurred in investigating evidence as
the Directors think fit.
13
Joint Ownership of Shares
If several persons are registered as joint holders of any shares they shall be severally as well as jointly liable for any liability in respect of such shares, but the
first named upon the Register shall, as regards service or notices, be deemed the sole owner thereof. Any of such persons may give effectual receipt for any
dividend or other distribution.
14
Lien
14.1
The Company shall have a first and paramount lien and charge on every share for all monies, whether presently payable or not, called or payable at a fixed
time in respect of that share, and the Company shall also have a first and paramount lien and charge on all shares standing registered in the name of a member
(whether solely or jointly with others) for all monies, liabilities or engagements presently owing by him or his estate to the Company either alone or jointly
with any other person, whether a member or not; but the Directors may at any time declare any share to be wholly or in part exempt from the provisions of
this Article. The Company’s lien and charge, if any, on a share shall extend to all dividends or other monies payable in respect thereof. The registration of a
transfer of any such share shall operate as a waiver of the Company’s lien and charge (if any) thereon.
11
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
14.2
14.3
14.4
The Company may sell, in such manner as the Directors think fit, any shares on which the Company has a lien and charge, but no sale shall be made unless a
sum in respect of which the lien and charge exists is presently payable, nor until the expiration of fourteen days after a notice in writing, stating and
demanding payment of such part of the amount in respect of which the lien and charge exists as is presently payable, has been given to the registered holder
or holders for the time being of the share, or the person, of which the Company has notice, entitled thereto by reason of his death or bankruptcy.
To give effect to any such sale the Directors may authorise some person to transfer the shares sold to the purchaser thereof. The purchaser shall be registered
as the holder of the shares comprised in any such transfer, and he shall not be bound to see to the application of the purchase money, nor shall his title to the
shares be affected by any irregularity or invalidity in the proceedings in reference to the sale.
The proceeds of the sale shall be received by the Company and applied in payment of such part of the amount in respect of which the lien and charge exists as
is presently payable, and the residue, if any, shall (subject to a like lien and charge for sums not presently payable as existed upon the shares before the sale)
be paid to the person entitled to the shares prior to the sale.
15
Calls on Shares
15.1
15.2
15.3
15.4
The Directors may from time to time make calls upon the members in respect of any monies unpaid on their shares for the Issue Price (whether on account of
the nominal value of the shares or by way of premium or otherwise) and not by the conditions of allotment thereof made payable at fixed times. Each member
shall (subject to receiving at least fourteen days’ notice specifying the time or times and place of payment) pay to the Company at the time or times and place
so specified the amount called on his shares. A call may be revoked or postponed as the Directors may determine. A person upon whom a call is made shall
remain liable for calls made upon him notwithstanding the subsequent transfer of the shares in respect of which the call was made.
A call shall be deemed to have been made at the time when the resolution of the Directors authorising the call was passed and may be required to be paid by
instalments. The joint holders of a share shall be jointly and severally liable to pay all calls in respect thereof.
If a sum called in respect of a share is not paid before or on the day appointed for payment thereof, the person from whom the sum is due shall pay interest on
the sum from the day appointed for payment thereof to the time of actual payment at such rate fixed by the terms of allotment or issue of the share or in the
notice of the call or at such rate as prescribed by the Designated Stock Exchange or as the Directors may otherwise determine, but the Directors shall be at
liberty to waive payment of such interest wholly or in part.
Any sum which by the terms of issue of a share becomes payable on allotment or at any fixed date (whether on account of the nominal value of the share or
by way of premium or otherwise) shall for the purposes of the Articles be deemed to be a call duly made and payable on the date on which by the terms of
issue the same becomes payable, and in case of non-payment all the relevant provisions of the Articles as to payment of interest and expenses, forfeiture or
otherwise shall apply as if such sum had become payable by virtue of a call duly made and notified.
15.5
The Directors may, on the issue of shares, differentiate between the holders as to the amount of calls or interest to be paid and the times of payment.
12
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
15.6
The Directors may, if they think fit, receive from any member willing to advance the same, all or any part of the monies uncalled and unpaid upon any shares
held by him, and upon all or any of the monies so advanced may (until the same would, but for such advance, become payable) pay interest at such rate as
may be agreed upon between the Directors and the member paying such sum in advance.
15.7
No such sum paid in advance of calls shall entitle the member paying such sum to any portion of a dividend declared in respect of any period prior to the date
upon which such sum would but for such payment become presently payable.
16
Transfer of Shares
16.1
16.2
16.3
Every instrument of transfer shall be left at the registered office for registration, accompanied by the certificate (if any) covering the shares to be transferred
and such other evidence as the Directors may require to prove the title of the transferor to, or his right to transfer, the shares.
The instrument of transfer of any share (which need not be under Seal) shall be signed by or on behalf of the transferor and, unless the share is fully paid up
or the transferee otherwise consents or agrees thereto, by or on behalf of the transferee. The transferor shall be deemed to remain the holder of the share until
the name of the transferee is entered in the Register in respect thereof. If the transferor or the transferee is a Clearing House or central depository house or its
nominee(s), by hand or by machine imprinted signature or by such other manner of execution as the Board may approved from time to time.
Subject to such of the restrictions of the Articles as may be applicable, any member may transfer all or any of his shares by instrument in writing in any usual
or common form or any other form which the Directors may approve or in a form prescribed by the Designated Stock Exchange. Upon every transfer of
shares any certificate held by the transferor shall be given up to be cancelled and shall forthwith be cancelled accordingly and a new certificate may be issued.
The Company shall also retain the transfer.
16.4
The Directors may, in their absolute discretion and without assigning any reason therefor, refuse to register any transfer of any share, whether or not it is a
fully paid up share as to Issue Price.
16.5 Without limitation, the Directors may decline to recognise any instrument of transfer if:
(a)
the instrument of transfer is not accompanied by the certificate covering shares to which it relates (if any), and/or such other evidence as the
Directors may require to prove the title of the transferor to, or his right to transfer, the shares; or
(b)
the instrument of transfer is in respect of more than one class of share.
16.6
16.7
If the Directors refuse to register a transfer they shall within two months after the date on which the transfer was lodged with the Company send to the
transferee notice of the refusal.
The registration of transfers may be suspended at such times and for such periods as the Directors may from time to time determine, provided always that
such registration shall not be suspended for more than thirty days in any year.
13
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
17
Transmission of Shares
17.1
17.2
17.3
In case of the death of a member, the survivor or survivors where the deceased was a joint holder, and the legal personal representatives of the deceased
where he was a sole holder, shall be the only persons recognised by the Company as having any title to his interest in the shares but nothing herein contained
shall release the estate of a deceased holder from any liability in respect of any share which had been held by him solely or jointly with other persons.
Any person becoming entitled to a share in consequence of the death or bankruptcy of a member may, upon such evidence being produced as may from time
to time be properly required by the Directors to show his title to the share, elect either to be registered himself as holder of the share or to make such transfer
of the share to such other person nominated by him as the aforesaid member could have made and to have such person registered as the transferee thereof, but
the Directors shall, in either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the share by that
member before his death or bankruptcy, as the case may be.
A person becoming entitled to a share by reason of the death or bankruptcy of a member shall be entitled to the same dividends and other advantages to which
he would be entitled if he were the registered holder of the share, except that he shall not, before being registered as a member in respect of the share, be
entitled in respect of it to exercise any right conferred by membership in relation to meetings of the Company; provided always that the Directors may at any
time give notice requiring any such person to elect either to be registered himself or to transfer the share, and if the notice is not complied with within
fourteen days the Directors may thereafter withhold payment of all dividends, bonuses or other monies payable in respect of the share until the requirements
of the notice have been complied with.
18
Forfeiture of Shares
18.1
18.2
18.3
If a member fails to pay any call or instalment of a call for any part of the Issue Price on the day appointed for payment thereof, the Directors may, at any
time thereafter during such time as any part of the call or instalment remains unpaid, serve a notice on him requiring payment of so much of the call or
instalments together with any interest which may have accrued and all expenses that may have been incurred by the Company by reason of such non-
payment.
The aforesaid notice shall name a further day (not earlier than the expiration of fourteen days from the date of service of the notice) on or before which the
payment required by the notice is to be made, and shall state that in the event of non-payment at or before the time appointed the shares in respect of which
the call was made will be liable to be forfeited.
If the requirements of any such notice as aforesaid are not complied with, any share in respect of which the notice has been given may at any time thereafter,
before the payment required by the notice has been made, be forfeited, by a resolution of the Directors to that effect. Such forfeiture shall include all
dividends declared or other monies due in respect of the forfeited shares and not actually paid before forfeiture.
18.4
A forfeited share may be sold or otherwise disposed of on such terms and in such manner as the Directors think fit, and at any time before a sale or
disposition the forfeiture may be cancelled on such terms as the Directors think fit.
14
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
18.5
18.6
A person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares but shall, notwithstanding, remain liable to pay to the
Company all monies (including any unpaid component of the Issue Price and interest which shall continue to accrue) which, at the date of forfeiture, were
payable by him to the Company in respect of the shares, but his liability shall cease if and when the Company shall have received payment in full of all such
monies in respect of the shares. The Directors may waive payment wholly or in part or enforce payment without any allowance for the value of the shares at
the time of forfeiture or for any consideration received on their disposal. When any share shall have been forfeited, notice of the Directors’ resolution to that
effect shall be given to the member in whose name it stood immediately prior to the forfeiture, and an entry of the forfeiture, with the date thereof, shall
forthwith be made in the Register. Where for the purposes of its disposal a forfeited share is to be transferred to any person the Directors may authorize any
person to execute an instrument of transfer of the share to that person.
A declaration in writing that the declarant is a Director or Secretary of the Company, and that a share in the Company has been duly forfeited on a date stated
in the declaration, shall be conclusive evidence of the facts therein stated as against all persons claiming to be entitled to the share. The Company may receive
the consideration, if any, given for the share on any sale or disposition thereof and may execute a transfer of the share in favour of the person to whom the
share is sold or disposed of and he shall thereupon be registered as the holder of the share, and shall not be bound to see to the application of the purchase
money, if any, nor shall his title to the share be affected by any irregularity or invalidity in the proceedings in reference to the forfeiture, sale or disposal of the
share.
19
Amendment of Memorandum of Association and Alteration of Capital
19.1
Subject to and insofar as permitted by provisions of the Companies Law, the Company may from time to time by Ordinary Resolution (or where an Ordinary
Resolution is disallowed by the Companies Law and a Special Resolution is required, by Special Resolution) alter or amend its memorandum of association
otherwise than with respect to its name and objects and may hereby, without restricting the generality of the foregoing:
(a)
(b)
(c)
(d)
(e)
increase the share capital by such sum to be divided into shares of such amount or without nominal or par value as the resolution shall prescribe and
with such rights priorities and privileges annexed thereto as may be determined;
consolidate and divide all or any of its share capital into shares of larger amount than its existing shares;
convert all or any of its paid-up shares into stock, and reconvert that stock into paid-up shares of any denomination;
by subdivision of its existing shares or any of them divide the whole or any part of its share capital into shares of smaller amount than is fixed by the
memorandum of association of the Company or into shares without nominal or par value;
cancel any shares which at the date of the passing of the resolution have not been taken or agreed to be taken by any person and diminish the amount
of its share capital by the amount of any shares so cancelled; and
(f)
reduce its share capital and any capital redemption reserve fund subject to any consent, order, Court approval or other matter required by law.
15
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
19.2
All new shares created hereunder shall be subject to the same provisions with reference to the payment of calls, liens, transfer, transmission, forfeiture and
otherwise as the shares in the original share capital.
19.3
Subject to the provisions of the Companies Law, the Company may by Special Resolution change its name or alter its objects.
20
General Meetings
20.1
20.2
20.3
20.4
20.5
20.6
The annual general meeting of the Company shall be held in each year other than the year in which these Articles were adopted at such time and place as
determined by the Directors. The Directors may, whenever they think fit, convene an extraordinary general meeting. If at any time there are not sufficient
Directors capable of acting to form a quorum, any Director or any one or more members may convene an extraordinary general meeting in the same manner
as nearly as possible as that in which meetings may be convened by the Directors.
The Directors shall, upon the requisition in writing of one or more members holding in the aggregate not less than one-tenth of such paid-up capital (as to
Issue Price) of the Company as at the date of the requisition carries the right of voting at general meetings, convene an extraordinary general meeting. Any
such requisition shall express the object of the meeting proposed to be called, and shall be left at or posted to the registered office and may consist of several
documents in like form each signed by one or more requisitionists.
If the Directors do not proceed to convene a general meeting within twenty-one days from the date of such requisition being left as aforesaid, the
requisitionist(s) or any one or more of them or any other member or members holding in the aggregate not less than one-tenth of such paid- up capital (as to
Issue Price) of the Company as at the date of the requisition carries the right of voting at general meetings, may convene an extraordinary general meeting to
be held at the registered office or at some convenient place at such time, subject to the Articles as to notice, as the person(s) convening the meeting fix. The
requisitionists shall be reimbursed by the Company for all reasonable expenses incurred by them as a result of the failure by the Directors to convene the
general meeting.
Subject to the provisions of the Companies Law relating to Special Resolutions, seven days’ notice at the least specifying the place, the day and the hour of
meeting and, in case of special business, the general nature of that business shall be given in manner hereinafter provided, or in such other manner (if any) as
may be prescribed by the Company in general meeting, to such persons as are, under the Articles, entitled to receive such notices from the Company; but with
the consent of members entitled to receive notice of some particular meeting or their proxies holding at least in the aggregate not less than ninety percent
(90%) of the paid-up share capital of the Company (as to Issue Price) giving the right to attend and vote at general meetings of the Company, that meeting
may be convened by such shorter notice and in such manner as those members or their proxies may think fit.
The accidental omission to give notice of a meeting to, or the non-receipt of a notice of a meeting by, any member entitled to receive notice shall not
invalidate the proceedings at any meeting.
All business that is transacted at an extraordinary general meeting and all that is transacted at any annual general meeting, with the exception of the
sanctioning of a dividend and the consideration of the accounts, balance sheet, the annual report of the Directors and the Auditors’ report shall be deemed to
be special.
16
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
20.7 When all members entitled to be present and vote sign either personally or by proxy the minutes of a general meeting, the same shall be deemed to have been
duly held notwithstanding that the members have not actually come together or that there may have been technical defects in the proceedings and a resolution
in writing (in one or more counterparts) signed by all members personally or by proxy as aforesaid (a person being a proxy for one or more members being
entitled to sign such resolution on behalf of each such member) shall be as valid and effectual as if it had been passed at a meeting of the members duly called
and constituted.
21
Proceedings at General Meetings
21.1
21.2
21.3
21.4
21.5
No business shall be transacted at any general meeting unless a quorum of members is present at the time when the meeting proceeds to business; two (2)
members present in person or by proxy, one of whom shall be the holder of the majority of the shares in the Company, shall be a quorum provided always that
if the Company has one member of record the quorum shall be that one (1) member present in person or by proxy.
If, within half an hour from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of member(s), shall be
dissolved; in any other case it shall stand adjourned to the same day in the next week, at the same time and place or to such other day and at such other time
and place as the Directors may determine and if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting
the members present shall be a quorum.
The Chairman, if any, of the board of Directors shall preside as Chairman at every general meeting of the Company, or if there is no such Chairman, or if he
shall not be present within fifteen minutes after the time appointed for the holding of the meeting or is unwilling to act, the Directors present shall elect one of
their number to be Chairman of the meeting.
If at any meeting no Director is willing to act as Chairman or if no Director is present within fifteen minutes after the time appointed for holding the meeting,
the members present shall choose one of their number to be Chairman of the meeting.
The Chairman may, with the consent of any meeting at which a quorum is present (and shall if so directed by the meeting), adjourn the meeting from time to
time and from place to place but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which
the adjournment took place. When a meeting is adjourned for thirty days or more, notice of the adjourned meeting shall be given as in the case of an original
meeting. Save as aforesaid, it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting.
21.6
At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is (before or on the declaration of the
result of the show of hands) demanded
(a)
(b)
by the Chairman; or
by any member or members present in person or by proxy and representing not less than one tenth of the total voting rights of all the members
having the right to vote at the meeting; or
17
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
21.7
21.8
21.9
(c)
by a member or members holding shares conferring a right to vote at the meeting being shares on which an aggregate sum has been paid-up (as to
Issue Price) equal to not less than one tenth of the total sum paid up (as to Issue Price) on all the shares conferring that right.
Unless a poll be so demanded, a declaration by the Chairman that a resolution has on a show of hands been carried, or carried unanimously, or by a particular
majority, or lost, and an entry to that effect in the book containing the minutes of the proceedings of the Company shall be conclusive evidence of the fact
without proof of the number or portion of the votes recorded in favour of or against such resolution. A demand for a poll may be withdrawn.
In the case of an equality of votes, whether on a show of hands or on a poll, the Chairman of the meeting at which the show of hands takes place or at which
the poll is demanded, shall be entitled to a casting vote.
A poll demanded on the election of a Chairman or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be
taken at such time and in such manner as the Chairman of the meeting directs and the result of the poll shall be deemed to be the resolution of the meeting at
which the poll was demanded. Any business other than that upon which a poll has been demanded may be proceeded with pending the taking of the poll.
21.10
If for so long as the Company has only one member:
(a)
(b)
(c)
in relation to a general meeting, the sole member or a proxy for that member or (if the member is a corporation) a duly authorized representative of
that member is a quorum; and
the sole member may agree that any general meeting be called by shorter notice than that provided for by the Articles; and
all other provisions of the Articles apply with any necessary modification (unless the provision expressly provides otherwise).
22
Votes of Members
22.1
22.2
22.3
Subject to any rights or restrictions for the time being attached to any class or classes of shares, on a show of hands every member present in person or by
proxy at a general meeting shall have one vote and on a poll every member present in person or by proxy shall have one vote for each share registered in his
name on the Register.
In the case of joint holders the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other
joint holders; and for this purpose seniority shall be determined by the order in which the names stand in the Register.
A member of unsound mind, or in respect of whom an order has been made by any court having jurisdiction in lunacy, may vote, whether on a show of hands
or on a poll, by his committee, receiver, curator bonis, or other person in the nature of a committee, receiver or curator bonis appointed by that court, and any
such committee, receiver, curator bonis or other person may, on a poll, vote by proxy.
18
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
22.4
22.5
No person shall be entitled to vote at any general meeting unless he is registered as a member in the Register on the date of such meeting and unless all calls
or other sums presently payable by him in respect of shares of the Company have been paid.
No objection shall be raised to the qualifications of any voter except at the meeting or adjourned meeting at which the vote objected to is given or tendered
and every vote not disallowed at such meeting shall be valid for all purposes. Any such objection made in due time shall be referred to the Chairman of the
meeting, whose decision shall be final and conclusive.
22.6
On a poll or on a show of hands votes may be given either personally or by proxy. On a poll, a member entitled to more than one vote need not, if he votes,
use all his votes or cast all votes he uses the same way.
23
Proxies
23.1
23.2
The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a
corporation, either under seal or under the hand of an officer or attorney duly authorised. A proxy need not be a member of the Company. Deposit or delivery
of a form of appointment of a proxy does not preclude a member from attending and voting at the meeting or at any adjournment of it.
The instrument appointing a proxy shall be deposited at the registered office or the Registration Office or at such other place as is specified for that purpose in
the notice convening the meeting no later than four (4) hours prior to the commencement of the meeting at such time as scheduled,, or adjourned meeting,
provided that the Chairman of the meeting may at his discretion direct that an instrument of proxy shall be deemed to have been duly deposited upon receipt
of confirmation from the appointor that the instrument of proxy duly signed is in the course of transmission to the Company. The Directors may require the
production of any evidence which they consider necessary to determine the validity of any appointment pursuant to this Article.
23.3
The instrument appointing a proxy may be in any form acceptable to the Directors and may be expressed to be for a particular meeting and/or any
adjournment thereof or generally until revoked.
23.4
The instrument appointing a proxy shall be deemed to confer authority to demand and to join in demanding a poll.
23.5
A vote given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death or insanity of the principal or
revocation of the proxy or of the authority under which the proxy was executed or the transfer of the share in respect of which the proxy is given, provided
that no intimation in writing of such death, insanity, revocation or transfer as aforesaid shall have been received by the Company at the registered office
before the commencement of the meeting or adjourned meeting at which the proxy is used.
24
Corporations Acting by Representatives at Meetings and Clearing House
24.1
Any corporation which is a member may by resolution of its directors or other governing body authorise such person as it thinks fit to act as its representative
at any meeting of the Company or of any class of members and the person so authorised shall be entitled to exercise the same powers on behalf of the
corporation which he represents as that corporation could exercise if it were an individual member.
19
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
24.2
If a Clearing House (or its nominee(s)) or a central depository entity, being a corporation, is a member, it may authorise such persons at it thinks fit to act as
its representatives at any meeting of the Company or at any meeting of any class of member provided that the authorisation shall specify the number and class
of shares in respect of which each such representative is so authorised. Each person so authorised under the provisions of this Article shall be deemed to have
been duly authorised without further evidence of the facts and be entitled to exercise the same rights and powers on behalf of the Clearing House or central
depository entity (or its nominee(s)) as if such person was the registered holder of the shares of the Company held by the Clearing House or a central
depository entity (or its nominee(s)) including the right to vote.
25
Directors
25.1
25.2
The Company shall have a Board of Directors consisting of not less than three (3) Directors. The Board may impose a maximum or minimum number of
Directors required to hold office at any of time and vary such limits from time to time, so that the number of Directors shall not be less than three (3).
The remuneration to be paid to the Directors shall be such remuneration as the Directors shall determine and as is in accordance with the Charter of the
Compensation Committee of the Board (the “Compensation Charter”), as applicable and the Company’s other corporate governance documents. Such
remuneration shall be deemed to accrue from day to day. The Directors may also be paid travelling, hotel and other expenses properly incurred by them in
attending and returning from meetings of the Directors or any committee of the Directors or general meetings of the Company or in connection with the
business of the Company or the discharge of their duties as a Director, or receive a fixed allowance in respect thereof as may be determined by the Directors
from time to time or a combination of partly of one such method and partly the other. The Directors may provide benefits, whether by the payment of
gratuities or pensions or by insurance or otherwise, for any existing Director or any Director who has held but no longer holds any executive office or
employment with the Company or with any body corporate which is or has been a subsidiary of the Company or a predecessor in business of the Company or
of any such subsidiary, and for any member of his family (including a spouse and a former spouse) or any person who is or was dependent on him, and may
(as well before as after he ceases to hold such office or employment) contribute to any fund and pay premiums for the purchase or provision of any such
benefit.
25.3
The shareholding qualification for Directors may be fixed by the Company in general meeting, and unless and until so fixed no qualification shall be required.
25.4
Subject to the Company’s Code of Ethics, especially Article III thereof, a Director or alternate Director may be or become a Director or other officer of, or
otherwise interested in, any company promoted by the Company or in which the Company may be interested as shareholder or otherwise, and no such
Director shall be accountable to the Company for any remuneration or other benefits received by him as a Director or officer of, or from his interest in, such
other company unless the Company otherwise directs in general meeting. Notwithstanding the foregoing, no “Independent Director” as defined in the rules of
the Designated Stock Exchange or in Rule 10A-3 under the Exchange Act and with respect of whom the Board has determined constitutes an “Independent
Director” for purposes of compliance with applicable law or the Company’s listing requirements, shall without the consent of the Audit Committee take any
of the foregoing actions or any other action that would reasonably be likely to affect such Director’s status as an “Independent Director” of the Company;
20
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
25.5
25.6
The Directors may by resolution award special remuneration to any Director undertaking any special work or services which in the opinion of the Directors
are beyond his ordinary routine work as a Director. Any fees paid to a Director who is also counsel or attorney-at-law to the Company, or otherwise serves it
in a professional capacity, shall be in addition to his remuneration as a Director.
A Director or alternate Director may act by himself or his firm in a professional capacity for the Company, and he or his firm shall be entitled to remuneration
for professional services as if he were not a Director or alternate Director; provided that nothing herein obtained shall authorise a Director or alternate
Director or his firm to act as Auditor of the Company; provided, further that such Director or alternate Director, as the case may be, obtains written approval
from the Audit Committee before performing any such act or providing such services and accepting any remuneration therefor. All fees paid pursuant to this
Article 25.6 are subject to, and shall be paid in accordance with the Compensation Charter.
26
Alternate Directors and Proxy Directors
26.1
26.2
26.3
A Director may by writing appoint any person to be an alternate Director in his place. Any appointment or removal of an alternate Director shall be by notice
to the Company signed by the Director making or revoking the appointment or in any other manner approved by the Directors. The person so appointed shall
be entitled to attend, speak and vote at meetings of the Directors, and at all meetings of committees of Directors that his appointor is a member of, when the
Director appointing him is not personally present and to sign any written resolution of the Directors and shall automatically vacate his office on the expiration
of the term for or the happening of the event until which he is by the terms of his appointment to hold office or if the appointor in writing revokes the
appointment or himself ceases for any reason to hold office as a Director. An appointment of an alternate Director under this Article shall not prejudice the
right of the appointor to attend and vote at meetings of the Directors and the powers of the alternate Director shall automatically be suspended during such
time as the Director appointing him is himself present in person at a meeting of the Directors. An alternate Director shall be deemed to be appointed by the
Company and not deemed to be the agent of the Director appointing him and shall alone be responsible for his own acts and defaults.
A Director may be represented at any meetings of the Directors by a proxy appointed by him in which event the presence or vote of the proxy shall for all
purposes be deemed to be that of the Director.
The provisions of these Articles applicable to alternate Directors shall mutatis mutandis apply to the appointment of proxies by Directors, save that any
person appointed as a proxy pursuant to paragraph 26.2 above shall be the agent of the Director, and not an officer of the Company.
27
Powers and Duties of Directors
27.1
The business of the Company shall be managed by the Directors (or a sole Director if only one is appointed) who may exercise all the powers of the
Company save where inconsistent with the Companies Law or these Articles PROVIDED HOWEVER that no regulations made by the Company in general
meeting shall invalidate any prior act of the Directors which would have been valid if that regulation had not been made. The powers given by this Article
shall not be limited by any special power given to the Directors by the Articles and a meeting of Directors at which a quorum is present may exercise all
powers exercisable by the Directors.
21
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
27.2 Without limitation, the Directors may exercise all the powers of the Company to borrow or raise monies, and to mortgage or charge its undertaking, property
and uncalled capital, or any part thereof, and to issue debentures, debenture stock, and other securities whether outright or as security for any debt liability or
obligation of the Company or of any third party.
27.3
All cheques, promissory notes, drafts, bills of exchange or other negotiable instruments, and all receipts for monies paid to the Company shall be signed,
drawn, accepted, endorsed or otherwise executed, as the case may be, in such manner as the Directors shall from time to time determine by resolution.
27.4
The Directors shall cause minutes to be made in books provided for the purpose:
(a)
(b)
(c)
of all appointments of officers made by the Directors;
of the names of the Directors or their alternates present at each meeting of the Directors and of any committee of the Directors;
of all resolutions and proceedings at all meetings of the Company, and of the Directors, and of committees of Directors.
27.5
The Directors on behalf of the Company may pay a gratuity or pension or allowance on retirement to any Director who has held any other salaried office or
place of profit with the Company or to his widow or dependents and make contributions to any fund and pay premiums for the purchase or provision of any
such gratuity, pension or allowance, in accordance with the Compensation Charter.
28
Director or Officer Contracting with Company
28.1
So long as it does not adversely affect such person’s performance of duties or responsibilities to the Company and so long as it is not in direct competition
with the Company and the Company’s business, no Director or officer shall be disqualified by his office from contracting and/or dealing with the Company as
vendor, purchaser or otherwise; nor shall any such contract or any contract or arrangement entered into by or on behalf of the Company in which any Director
or officer shall be in any way interested be or be liable to be avoided; nor shall any Director or officer so contracting or being so interested be liable to
account to the Company for any profit realised by any such contract or arrangement by reason of such Director or officer holding that office or the fiduciary
relationship thereby established. However, any such transaction that would reasonably be likely to affect a Director’s status as an “Independent Director”, or
that would constitute a “related party transaction” pursuant to the laws or rules promulgated by the SEC or Designated Stock Exchange shall require the
review and approval of the Audit Committee. The nature of the Director’s interest must be disclosed by him at the meeting of the Directors at which the
contract or arrangement is considered if his interest then exists, or in any other case, at the first meeting of the Directors after the acquisition of his interest. A
Director, having disclosed his interest as aforesaid, shall not be counted in the quorum and shall refrain from voting as a Director in respect of any contract or
arrangement in which he is so interested as aforesaid. .
22
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
28.2
A general written notice to the Board and the Audit Committee that a Director is a member of a specified firm or company and is to be regarded as interested
in all transactions with that firm or company shall be a sufficient disclosure under the immediately preceding Article as regards such Director and the said
transactions and after such general notice it shall not be necessary for such Director to give a special notice relating to any particular transaction with that firm
or company, so long as the transactions are approved by the Board. An interest of which a Director has no knowledge and of which it is unreasonable to
expect him to have knowledge shall not be treated as an interest of his.
28.3
A Director may hold any other office or place of profit under the Company (other than the office of Auditor) in conjunction with his office of Director for
such period and on such terms (as to remuneration and otherwise) as the Directors may determine.
29
Appointment and Removal of Directors
29.1
29.2
29.3
29.4
A Director may be appointed by Ordinary Resolution or by the Directors. Any appointment may be either to fill a casual vacancy or as an addition to the
existing Directors but so that the total number of Directors (exclusive of alternate Directors) shall not at any time exceed the number fixed in accordance with
these Articles.
A Director may be removed by the Directors or by Ordinary Resolution. In addition at any time and from time to time, the holder or holders of more than half
of the paid-up share capital of the Company (as to Issue Price) having the right to attend and vote at general meetings of the Company may appoint any
person to be a Director and may in like manner remove any Director and may in like manner appoint another person in his stead.
The Company may from time to time, by Ordinary Resolution, set, increase or reduce the maximum number of Directors who may constitute the board of
Directors.
For so long as shares are listed on a Designated Stock Exchange, the Directors shall include at least such number of independent directors as applicable law,
rules or regulations or the Designated Stock Exchange rules require as determined by the Board.
30
Board’s Power to appoint Directors
30.1 Without prejudice to the Company’s power to appoint a person to be a Director pursusant to these Articles, the Board shall have power at any time to appoint
any person who is willing to act as a Director, either to fill a vacancy or as an addition to the existing Board, sujbect to the total number of Directors not
exceeding any maximum number fixed by or in accordance with these Articles.
30.2
Any Director so appointed shall, if still a Director, retire at the next annual general meeting after his appointment and be eligible to stand for election as a
Director at such meeting.
31
Appointment at Annual General Meeting
Unless re-appointed pursuant to the provisions of Article 29.1 or removed from office pursuant to the provisions of Article 32.1, each Director shall be
appointed for a term expiring at the next- following annual general meeting of the Company. At any such annual general meeting, Directors will be elected by
Ordinary Resolution. At each annual general meeting of the Company, each Director elected at such meeting shall be elected to hold office for one-year term
and until the election of their respective successors in office or in removal pursuant to Articles 29.1 and 32.1.
23
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
32
Removal of Directors
32.1
Directors shall be removed in accordance with Article 29.2.
33
Resignation of Directors
33.1
A Director may at any time resign office by giving to the Company notice in writing or, if permitted pursuant to the notice provisions, in an Electronic Record
delivered in either case in accordance with those provisions.
33.2
Unless the notice specifies a different date, the Director shall be deemed to have resigned on the date that the notice is delivered to the Company.
34
Termination of Directors
34.1
A Director may retire from office as a Director by giving notice in writing to that effect to the Company at the registered office, which notice shall be
effective upon such date as may be specified in the notice, failing which upon delivery to the registered office.
34.2 Without prejudice to the provisions in these Articles for retirement, a Director’s office shall be terminated forthwith if the Director:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
is prohibited by law from serving as a Director;
becomes bankrupt or makes any arrangement or composition with his creditors; or
dies or is found to be or becomes of unsound mind;
resigns his office by notice in writing to the Company or otherwise pursuant to any agreement between the Company and such Director;
is removed from office by notice of the holder or holders of more than half of the paid- up share capital of the Company (as to Issue Price) having
the right to attend and vote at general meetings of the Company notwithstanding anything in the Articles or any agreement between the Company
and such Director;
is requested by all the other Directors (numbering at least two) to resign; or
if he absents himself (without being represented by proxy or an alternate Director appointed by him) from three consecutive meetings of the Board
without special leave of absence from the Directors, and they pass a resolution that he has by reason of such absence vacated office.
24
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
35
Proceedings of Directors
35.1
35.2
35.3
35.4
35.5
35.6
35.7
35.8
The Directors may meet together for the dispatch of business, adjourn and otherwise regulate their meetings as they think fit. The Directors shall meet at least
twice a year or more frequently as may be required. Questions arising at any meeting shall be decided by a majority of votes. In case of an equality of votes,
the Chairman shall have a second or casting vote. The Chairman or any Directors may, and the Secretary on the requisition of a Director shall, at any time
summon a meeting of the Directors. Every Director shall receive notice of a board meeting. Notice of a board meeting is deemed to be duly given to a
Director if it is given to him personally or by word of mouth or by electronic communication to an address given by him to the Company for that purpose or
sent in writing to him at his last known address or other address given by him to the Company for that purpose. A Director or his alternate may waive the
requirement that notice be given to the Director of a meeting of the board of Directors or committee of the Directors, either prospectively or retrospectively.
The quorum necessary for the transaction of the business of the Directors shall be two Directors present in person or by this alternate provided that at least
one (1) of whom shall be the Chairman. A Director and his appointed alternate Director being considered only one person for this purpose, PROVIDED
ALWAYS that if there shall at any time be only a sole Director the quorum shall be one. If within half an hour from the time appointed for a meeting of
Directors a quorum is not present the meeting shall be adjourned to such time and place as the Chairman may determine or failing which, to the same day of
the next week at the same time and place. If no quorum is present at the adjourned meeting the meeting shall be dissolved. One person may represent more
than one Director by alternate and for the purposes of determining whether or not a quorum is present and voting each appointment of an alternate shall be
counted.
The continuing Directors or sole continuing Director may act notwithstanding any vacancy in their body but, if and so long as their number is reduced below
the number fixed by or pursuant to the Articles as the necessary quorum of Directors, the continuing Directors or Director may act for the purpose of
increasing the number of Directors to that number, or of summoning a general meeting of the Company, but for no other purpose.
If no Chairman is appointed, Directors may elect a Chairman of their meetings and determine the period for which he is to hold office; but if no such
Chairman is elected, or if at any meeting the Chairman is not present within five minutes after the time appointed for holding the same, the Directors present
may choose one of their number to be Chairman of the meeting.
If not otherwise designated by the Board, a committee may elect a Chairman of its meetings; if no such Chairman is elected, or if at any meeting the
Chairman is not present the members present may choose one of their number to be Chairman of the Meeting, in accordance with the committee’s charter, if
any.
A committee may meet and adjourn as it thinks proper. Questions arising at any meeting shall be determined by a majority of votes of the members present,
and in the case of an equality of votes the Chairman shall have a second or casting vote.
All acts done by any meeting of the Directors or of a committee of the Directors (including any person acting as an alternate Director) shall, notwithstanding
that it is afterwards discovered that there was some defect in the appointment of any Director or alternate Director, and/or that they or any of them were
disqualified, and/or had vacated their office and/or were not entitled to vote, be as valid as if every such person had been duly appointed and/or not
disqualified to be a Director or alternate Director and/or had not vacated their office and/or had been entitled to vote, as the case may be.
A resolution in writing signed by all the Directors entitled to receive notice of a meeting of Directors (or their respective alternates) shall be as valid and
effective for all purposes as a resolution of Directors duly passed at a meeting of the Directors duly convened, held and constituted. Any such resolution may
consist of several documents, provided that each such document is signed by one or more Directors.
25
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
35.9
Any Director or Directors or any committee thereof may participate in any meeting of the board of Directors or of such committee by means of conference
telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and participation in a meeting
pursuant to this provision shall constitute presence in person at such meeting. All business transacted in this way by the Directors or a committee of Directors
is for the purpose of the Articles deemed to be validly and effectively transacted at a meeting of the Directors or of a committee of Directors although fewer
than two Directors or alternate Directors are physically present at the same place.
35.10
If and for so long as there is a sole Director of the Company:
(a)
(b)
(c)
he may exercise all powers conferred on the Directors by the Articles by any means permitted by the Articles or the Companies Law;
the quorum for the transaction of business is one; and
all other provisions of the Articles apply with any necessary modification (unless the provision expressly provides otherwise).
36
Managing Director
36.1
36.2
36.3
The Directors may from time to time appoint one or more of their body to the office of managing director for such period and on such terms as they think fit
and, subject to the terms of any agreement entered into in any particular case, may revoke such appointment. A Director so appointed shall be subject to the
same provisions as regards removal and disqualification as the other Directors and his appointment shall be automatically determined if he ceases for any
cause to be a Director.
A managing director shall receive such remuneration (whether by way of salary, commission or participation in profits, or partly in one way and partly in
another) as the Directors may determine.
The Directors may entrust to and confer upon a managing director any powers, authorities and discretions exercisable by them upon such terms and
conditions and with such restrictions as they may think fit, and either collaterally with or to the exclusion of their own powers and may from time to time
revoke, alter, withdraw or vary all or any of such powers.
37
Presumption of Assent
A Director who is present at a meeting of the board of Directors at which action on any Company matter is taken shall be presumed to have assented to the
action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as
secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary immediately after the adjournment of
the meeting. Such right to dissent shall not apply to a Director who voted in favour of such action.
26
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
38
Management
38.1
38.2
38.3
38.4
The Directors may from time to time provide for the management of the affairs of the Company in such manner as they think fit and the provisions contained
in the three next following Articles shall be without prejudice to the general powers conferred by this Article.
The Directors from time to time and at any time may establish any committees, (including without limitation on Audit Committee) boards or agencies, may
appoint any persons to be members of such committees or boards, may appoint any managers or agents, and may fix their remuneration. Any committee so
formed shall in the exercise of powers so delegated conform to any regulations that may be imposed on it by the Directors.
The Directors from time to time and at any time may delegate to any such committee, board, manager or agent any of the powers, authorities and discretions
for the time being vested in the Directors and may authorise the members for the time being of any such board, or any of them, to fill up any vacancy therein,
and to act notwithstanding vacancies, and any such appointment or delegation may be made on such terms and subject to such conditions as the Directors
may think fit, and the Directors may at any time remove any person so appointed, and may annul or vary any such delegation, but no person dealing in good
faith and without notice of any such annulment or variation shall be affected thereby. Where a provision of the Articles refers to the exercise of a power,
authority or discretion by the Directors and that power, authority or discretion has been delegated by the Directors to a committee, the provision shall be
construed as permitting the exercise of the power, authority or discretion by the committee.
The Directors may from time to time and at any time by power of attorney appoint any company, firm or person or body of persons, whether nominated
directly or indirectly by the Directors, to be the attorney or attorneys of the Company for such purposes and with such powers, authorities and discretions (not
exceeding those vested in or exercisable by the Directors under the Articles) and for such period and subject to such conditions as they may think fit, and any
such powers of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Directors may think
fit and may also authorise any such attorney to delegate all or any of the powers, authorities and discretions vested in him.
38.5
Any such delegates as aforesaid may be authorised by the Directors to sub-delegate all or any of the powers, authorities and discretions for the time being
vested in them.
39
Audit Committee
39.1 Without prejudice to the freedom of the Directors to establish any other committees, for so long as the shares of the Company (or depository receipts therefor)
are listed or quoted on the Designated Stock Exchange, the Board shall establish and maintain an Audit Committee as a committee of the Board, the
composition and responsibilities of which shall comply with the rules of the Designated Stock Exchange and the rules and regulations of the SEC.
39.2
The Board shall adopt a formal written audit committee charter and review and assess the adequacy of the formal written charter on an annual basis.
39.3
The Audit Committee shall meet at least once every financial quarter or more frequently as circumstances dictate.
27
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
39.4
For so long as the Shares of the Company (or depository receipts therefor) are listed or quoted on the Designated Stock Exchange, the Company shall conduct
an appropriate review of all related party transactions on an ongoing basis and shall utilize the Audit Committee for the review and approval of potential
conflicts of interest. Specifically, the Audit Committee shall approve any transaction or transactions between the Company and any of the following parties:
(i) any shareholder owning an interest in the voting power of the Company or any subsidiary of the Company that gives such shareholder significant influence
over the Company or any subsidiary of the Company, (ii) any Director or executive officer of the Company or any subsidiary of the Company and any
relative of such Director or executive officer, (iii) any person in which a substantial interest in the voting power of the Company is owned, directly or
indirectly, by any person described in (i) or (ii) or over which such a person is able to exercise significant influence, and (iv) any affiliate (other than a
subsidiary) of the Company.
40
Officers
40.1
Officers of the Company may be elected by the Company in general meeting by Ordinary Resolution or appointed by the Directors and may consist of a
president, one or more vice presidents, a Secretary, one or more assistant secretaries, a treasurer, one or more assistant treasurers and such other officers as the
Company in general meeting by Ordinary Resolution or the Directors may from time to time think necessary and all such officers shall perform such duties as
may be prescribed by the Company in general meeting by Ordinary Resolution or the Directors. They shall hold office until their successors are elected or
appointed but any officer may be removed at any time by the Company in general meeting by Ordinary Resolution or by the Directors. If any office becomes
vacant the Company in general meeting by Ordinary Resolution or the Directors may fill the same. Any person may hold more than one of these offices and
no officer need be a member or Director.
41
The Seal
41.1
The Company may, if the Directors so determine, have a Seal. The Directors shall provide for the safe custody of the Seal which shall only be used with the
authority of the Directors or a committee of the Directors authorised in that regard. Every instrument to which the Seal shall be affixed shall be signed by a
Director or other person authorised by the Directors for that purpose. Notwithstanding the provisions hereof, a Director, Secretary or other officer may affix
the Seal to returns, lists, notices, certificates or any other documents required to be authenticated by him under Seal or to be filed with the Registrar of
Companies in the Cayman Islands or elsewhere under his signature alone.
41.2
The Company may exercise the powers conferred by the Companies Law with regard to having a duplicate seal for use abroad and such powers shall be
vested in the Directors.
42
Dividends and Reserve
42.1
42.2
Subject to the Companies Law and these Articles, the Directors may from time to time declare dividends (including interim dividends) and distributions on
issued shares of the Company and authorise payment of the same out of funds of the Company lawfully available therefor.
No dividend or distribution shall be paid except out of the profits of the Company, realised or unrealised, or out of the share premium account or as otherwise
permitted by the Companies Law.
28
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
42.3
42.4
42.5
42.6
42.7
The Directors may, before declaring any dividends or distributions, set aside such sums as they think proper as a reserve or reserves which shall at the
discretion of the Directors be applicable for any purpose of the Company and pending such application may, at the like discretion, be employed in the
business of the Company.
Subject to the rights of persons, if any, entitled to shares with special rights as to dividends or distributions, if dividends or distributions are to be declared on
a class of shares they shall be declared and paid according to the amounts paid or credited as paid on the shares of such class issued on the record date for
such dividend or distribution but no amount paid or credited as paid on a share in advance of calls shall be treated for the purposes of this Article as paid on
the share. If at any time the share capital is divided into different classes of shares the Directors may pay dividends on shares which confer deferred or non-
preferred rights with regard to dividends as well as on shares which confer preferential rights with regard to dividends, but no dividend shall be paid on shares
carrying deferred or non-preferred rights if, at the time of payment, any preferential dividend is in arrears. The Directors may also pay at intervals settled by
them any dividend payable at a fixed rate if it appears that there are sufficient funds of the Company lawfully available for distribution to justify the payment.
Provided the Directors act in good faith they shall not incur any liability to the holders of shares conferring preferred rights for any loss they may suffer by
the lawful payment of a dividend on any shares having deferred or non-preferred rights.
The Directors may deduct from any dividend or distribution payable to any member all sums of money (if any) presently payable by him to the Company on
account of calls or otherwise.
The Directors may declare that any dividend or distribution be paid wholly or partly by the distribution of specific assets and in particular of paid-up shares
(as to issue price), debentures or debenture stock of any other company or in any one or more of such ways and where any difficulty arises in regard to such
distribution, the Directors may settle the same as they think expedient and in particular may issue fractional certificates and fix the value for distribution of
such specific assets or any part thereof and may determine that cash payments shall be made to any members upon the footing of the value so fixed in order to
adjust the rights of all members and may vest any such specific assets in trustees as may seem expedient to the Directors.
Any dividend, distribution, interest or other monies payable in cash in respect of shares may be paid by cheque or warrant sent through the post directed to
the registered address of the holder, or, in the case of joint holders, to the holder who is first named on the Register or to such person and to such address as
such holder or joint holders may in writing direct. Every such cheque or warrant shall be made payable to the order of the person to whom it is sent. Any one
of two or more joint holders may give effectual receipts for any dividends, distributions, bonuses or other monies payable in respect of the shares held by
them as joint holders.
42.8
No dividend or distribution shall bear interest against the Company, save as otherwise provided.
42.9
Except as otherwise provided by the rights attached to any shares, dividends and other distributions may be paid in any currency. The Directors may
determine the basis of conversion for any currency conversions that may be required and how any costs involved are to be met.
42.10
The Directors may, before resolving to pay any dividend or other distribution, set aside such sums as they think proper as a reserve or reserves which shall, at
the discretion of the Directors, be applicable for any purpose of the Company and pending such application may, at the discretion of the Directors, be
employed in the business of the Company.
29
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
42.11 Any dividend or distribution which cannot be paid to a member and/or which remains unclaimed after six months from the date on which such dividend or
distribution becomes payable may, in the discretion of the Directors, be paid into a separate account in the Company’s name, provided that the Company shall
not be constituted as a trustee in respect of that account and the dividend or distribution shall remain as a debt due to the Member. Any dividend or
distribution which remains unclaimed after a period of six years from the date on which such dividend or distribution becomes payable shall be forfeited and
shall revert to the Company.
43
Payment by allotment of Shares
43.1 Whenever the Board has resolved that a dividend be paid or declared on any class of the share capital of the Company, the Board may further resolve either:
(a)
that such dividend be satisfied wholly or in part in the form of an allotment of shares credited as fully paid up, provided that the members entitled
thereto will be entitled to elect to receive such dividend (or part thereof if the Board so determines) in cash in lieu of such allotment. In such case,
the following provisions shall apply:
(i)
(ii)
(iii)
(iv)
the basis of any such allotment shall be determined by the Board;
the Board, after determining the basis of allotment, shall give not less than ten (10) days’ notice in writing to the holders of the relevant
shares of the right of election accorded to them and shall send with such notice forms of election and specify the procedure to be followed
and the place at which and the latest date and time by which duly completed forms of election must be lodged in order to be effective;
the right of election may be exercised in respect of the whole or part of that portion of the dividend in respect of which the right of election
has been accorded; and
the dividend (or that part of the dividend to be satisfied by the allotment of shares as aforesaid) shall not be payable in cash on shares in
respect whereof the cash election has not been duly exercised (“the non-elected shares”) and in satisfaction thereof shares of the relevant
class shall be allotted credited as fully paid up to the holders of the non-elected shares on the basis of allotment determined as aforesaid and
for such purpose the Board shall capitalise and apply out of any part of the undivided profits of the Company (including profits carried and
standing to the credit of any reserves or other special account, share premium account, capital redemption reserve other than the
Subscription Rights Reserve) as the Board may determine, such sum as may be required to pay up in full the appropriate number of shares
of the relevant class for allotment and distribution to and amongst the holders of the non- elected shares on such basis; or
30
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
(b)
that the members entitled to such dividend shall be entitled to elect to receive an allotment of shares credited as fully paid up in lieu of the whole or
such part of the dividend as the Board may think fit. In such case, the following provisions shall apply:
(i)
(ii)
(iii)
(iv)
the basis of any such allotment shall be determined by the Board;
the Board, after determining the basis of allotment, shall give not less than ten (10) days’ notice in writing to the holders of the relevant
shares of the right of election accorded to them and shall send with such notice forms of election and specify the procedure to be followed
and the place at which and the latest date and time by which duly completed forms of election must be lodged in order to be effective;
the right of election may be exercised in respect of the whole or part of that portion of the dividend in respect of which the right of election
has been accorded; and
the dividend (or that part of the dividend in respect of which a right of election has been accorded) shall not be payable in cash on shares in
respect whereof the Share election has been duly exercised (“the elected shares”) and in satisfaction thereof shares of the relevant class
shall be allotted credited as fully paid up to the holders of the elected shares on the basis of allotment determined as aforesaid and for such
purpose the Board shall capitalise and apply out of any part of the undivided profits of the Company (including profits carried and standing
to the credit of any reserves or other special account, share premium account, capital redemption reserve other than the Subscription Rights
Reserve) as the Board may determine, such sum as may be required to pay up in full the appropriate number of shares of the relevant class
for allotment and distribution to and amongst the holders of the elected shares on such basis.
43.2
(a)
(b)
The shares allotted pursuant to the provisions this Article 43 shall rank pari passu in all respects with shares of the same class (if any) then in issue
save only as regards participation in the relevant dividend or in any other distributions, bonuses or rights paid, made, declared or announced prior to
or contemporaneously with the payment or declaration of the relevant dividend unless, contemporaneously with the announcement by the Board of
their proposal to apply the provisions of sub-paragraph (i) or (ii) of paragraph (b) of this Article 43 in relation to the relevant dividend or
contemporaneously with their announcement of the distribution, bonus or rights in question, the Board shall specify that the shares to be allotted
pursuant to the provisions of paragraph (a) of this Article shall rank for participation in such distribution, bonus or rights.
The Board may do all acts and things considered necessary or expedient to give effect to any capitalisation pursuant to the provisions of paragraph
(a) of this Article 39, with full power to the Board to make such provisions as it thinks fit in the case of shares becoming distributable in fractions
(including provisions whereby, in whole or in part, fractional entitlements are aggregated and sold and the net proceeds distributed to those entitled,
or are disregarded or rounded up or down or whereby the benefit of fractional entitlements accrues to the Company rather than to the members
concerned). The Board may authorise any person to enter into on behalf of all members interested, an agreement with the Company providing for
such capitalisation and matters incidental thereto and any agreement made pursuant to such authority shall be effective and binding on all concerned.
31
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
43.3
43.4
43.5
The Board may resolve in respect of any one particular dividend of the Company that notwithstanding the provisions of paragraph (a) of this Article 43 a
dividend may be satisfied wholly in the form of an allotment of shares credited as fully paid up without offering any right to shareholders to elect to receive
such dividend in cash in lieu of such allotment.
The Board may on any occasion determine that rights of election and the allotment of shares under this Article 39 shall not be made available or made to any
shareholders with registered addresses in any territory where, in the absence of a registration statement or other special formalities, the circulation of an offer
of such rights of election or the allotment of shares would or might, in the opinion of the Board, be unlawful or impracticable, and in such event the
provisions aforesaid shall be read and construed subject to such determination. Members affected as a result of the foregoing sentence shall not be or be
deemed to be a separate class of members for any purpose whatsoever.
Any resolution declaring a dividend on shares of any class may specify that the same shall be payable or distributable to the persons registered as the holders
of such shares at the close of business on a particular date, notwithstanding that it may be a date prior to that on which the resolution is passed, and thereupon
the dividend shall be payable or distributable to them in accordance with their respective holdings so registered, but without prejudice to the rights inter se in
respect of such dividend of transferors and transferees of any such shares. The provisions of this Article shall mutatis mutandis apply to bonuses,
capitalisation issues, distributions of realised capital profits or offers or grants made by the Company to the members.
44
Accounts
44.1
The Directors shall cause proper books of account to be kept with respect to:
(a)
(b)
(c)
all sums of money received and expended by the Company and the matters in respect of which the receipt and expenditure takes place;
all sales and purchases of goods by the Company; and
the assets and liabilities of the Company.
44.2
44.3
44.4
Proper books shall not be deemed to be kept if there are not kept such books of account as are necessary to give a true and fair view of the state of the
Company’s affairs and to explain its transactions.
The books of account shall be kept at such place or places as the Directors think fit, and shall always be open to the inspection of the Directors. The books of
accounts shall be retained for five (5) years from the date of their preparation, or such other period as specified by the Companies Law.
The Directors shall from time to time determine whether and to what extent and at what times and places and under what conditions or regulations the
accounts and books of the Company or any of them shall be open to the inspection of members not being Directors and no member (not being a Director)
shall have any right of inspecting any account or book or document of the Company except as conferred by Companies Law or authorised by the Directors or
by the Company in general meeting.
32
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
44.5
The Directors shall from time to time cause to be prepared and to be laid before the Company in general meeting profit and loss accounts, balance sheets,
group accounts (if any) and such other reports and accounts as may be required by Companies Law.
45
Audit
45.1
45.2
45.3
Subject to applicable law and the rules of the Designated Stock Exchange, the Directors may appoint an Auditor or Auditors on such terms as the Directors
determine who shall hold office until otherwise resolved.
Every Auditor shall have the right of access at all times to the books and accounts and vouchers of the Company and shall be entitled to require from the
Directors and officers of the Company such information and explanation as may be necessary for the performance of the duties of the auditors.
Auditors shall at any time during their term of office, upon request of the Directors or any general meeting of the members, make a report on the accounts of
the Company in general meeting during their tenure of office.
46
Fiscal Year
The fiscal year of the Company shall end on the 31st day of December in each year unless the Directors prescribe some other period therefor.
47
Capitalisation of Profit and Share Premium
47.1
The Directors or the Company in general meeting, by Ordinary Resolution upon the recommendation of the Directors, may resolve that it is desirable to
capitalise any part of the amount for the time being standing to the credit of any of the Company’s reserve accounts (including, without limitation, the share
premium account and capital redemption reserve fund) or to the credit of the profit and loss account or otherwise available for distribution, and accordingly
that such sum be set free from distribution amongst the members who would have been entitled thereto if distributed by way of dividend and in the same
proportions on condition that the same be not paid in cash but be applied in or towards paying up any amounts for the time being unpaid on any shares held
by such members respectively or paying up in full unissued shares or debentures of the Company to be allotted and distributed credited as fully paid-up (as to
Issue Price) to and amongst such members in the proportions aforesaid, or partly in the one way and partly in the other, and the Directors shall give effect to
such resolution. Provided that a share premium account and a capital redemption reserve fund may, for the purpose of this Article, only be applied in the
paying up of unissued shares to be issued to members of the Company as fully paid bonus shares.
47.2 Whenever such a resolution as aforesaid shall have been passed, the Directors shall make all appropriations and applications of the undivided profits resolved
to be capitalised thereby, and all allotments and issues of fully paid shares or debentures, if any, and generally shall do all acts and things required to give
effect thereto, with full power to the Directors to make such provision by the issue of fractional certificates or by payment in cash or otherwise as they think
fit for the class of shares or debentures becoming distributable in fractions, and also to authorise any person to enter into, on behalf of all the members
entitled thereto, an agreement with the Company providing for the allotment to them respectively, credited as fully paid-up (as to Issue Price), of any further
shares or debentures to which they may be entitled upon such capitalisation, or (as the case may require) for the payment up by the Company on their behalf,
by the application thereto of their respective proportions of the profits resolved to be capitalised of the amounts or any part of the amounts remaining unpaid
on their existing shares, and any agreement made under such authority shall be effective and binding on all such members.
33
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
47.3
The Directors shall in accordance with the Companies Law establish a share premium account and shall carry to the credit of such account from time to time
a sum equal to the amount or value of the premium paid on the issue of any share and may treat any contributed capital or capital surplus as if it were credited
to such account. There shall be debited to any share premium account:
(a)
on the redemption or purchase of a share the difference between the nominal value of such share and the redemption or purchase price provided
always that at the discretion of the Directors such sum may be paid out of the profits of the Company or, if permitted by the Companies Law, out of
capital; and
(b)
any other amounts paid out of any share premium account as permitted by the Companies Law.
48
Subscription Rights Reserve
48.1
The following provisions shall have effect to the extent that they are not prohibited by and are in compliance with the Companies Law.
48.2
If, so long as any of the rights attached to any warrants issued by the Company to subscribe for shares of the Company shall remain exercisable, the Company
does any act or engages in any transaction which, as a result of any adjustments to the subscription price in accordance with the provisions of the conditions
of the warrants, would reduce the subscription price to below the par value of a share, then the following provisions shall apply:
(a)
(b)
as from the date of such act or transaction the Company shall establish and thereafter (subject as provided in this Article 48) maintain in accordance
with the provisions of this Article 48 a reserve (the “Subscription Rights Reserve”) the amount of which shall at no time be less than the sum
which for the time being would be required to be capitalised and applied in paying up in full the nominal amount of the additional shares required to
be issued and allotted credited as fully paid pursuant to sub-paragraph (c) below on the exercise in full of all the subscription rights outstanding and
shall apply the Subscription Rights Reserve in paying up such additional shares in full as and when the same are allotted;
the Subscription Rights Reserve shall not be used for any purpose other than that specified above unless all other reserves of the Company (other
than share premium account) have been extinguished and will then only be used to make good losses of the Company if and so far as is required by
the Companies Law;
34
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
(c)
upon the exercise of all or any of the subscription rights represented by any warrant, the relevant subscription rights shall be exercisable in respect of
a nominal amount of shares equal to the amount in cash which the holder of such warrant is required to pay on exercise of the subscription rights
represented thereby (or, as the case may be the relevant portion thereof in the event of a partial exercise of the subscription rights) and, in addition,
there shall be allotted in respect of such subscription rights to the exercising warrantholder, credited as fully paid, such additional nominal amount of
shares as is equal to the difference between:
(i)
(ii)
the said amount in cash which the holder of such warrant is required to pay on exercise of the subscription rights represented thereby (or, as
the case may be, the relevant portion thereof in the event of a partial exercise of the subscription rights); and
the nominal amount of shares in respect of which such subscription rights would have been exercisable having regard to the provisions of
the conditions of the warrants, had it been possible for such subscription rights to represent the right to subscribe for shares at less than par
and immediately upon such exercise so much of the sum standing to the credit of the Subscription Rights Reserve as is required to pay up in
full such additional nominal amount of shares shall be capitalised and applied in paying up in full such additional nominal amount of shares
which shall forthwith be allotted credited as fully paid to the exercising warrantholders; and
(d)
if, upon the exercise of the subscription rights represented by any warrant, the amount standing to the credit of the Subscription Rights Reserve is not
sufficient to pay up in full such additional nominal amount of shares equal to such difference as aforesaid to which the exercising warrantholder is
entitled, the Board shall apply any profits or reserves then or thereafter becoming available (including, to the extent permitted by the Companies
Law, share premium account) for such purpose until such additional nominal amount of shares is paid up and allotted as aforesaid and until then no
dividend or other distribution shall be paid or made on the fully paid shares of the Company then in issue. Pending such payment and allotment, the
exercising warrant holder shall be issued by the Company with a certificate evidencing his right to the allotment of such additional nominal amount
of shares. The rights represented by any such certificate shall be in registered form and shall be transferable in whole or in part in units of one share
in the like manner as the shares for the time being are transferable, and the Company shall make such arrangements in relation to the maintenance of
a register therefor and other matters in relation thereto as the Board may think fit and adequate particulars thereof shall be made known to each
relevant exercising warrantholder upon the issue of such certificate.
48.3
48.4
Shares allotted pursuant to the provisions of this Article shall rank pari passu in all respects with the other shares allotted on the relevant exercise of the
subscription rights represented by the warrant concerned. Notwithstanding anything contained in paragraph (a) of this Article, no fraction of any share shall
be allotted on exercise of the subscription rights.
The provision of this Article as to the establishment and maintenance of the Subscription Rights Reserve shall not be altered or added to in any way which
would vary or abrogate, or which would have the effect of varying or abrogating the provisions for the benefit of any warrantholder or class of warrantholders
under this Article without the sanction of a special resolution of such warrantholders or class of warrantholders.
35
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
48.5
A certificate or report by the Auditors for the time being of the Company as to whether or not the Subscription Rights Reserve is required to be established
and maintained and if so the amount thereof so required to be established and maintained, as to the purposes for which the Subscription Rights Reserve has
been used, as to the extent to which it has been used to make good losses of the Company, as to the additional nominal amount of shares required to be
allotted to exercising warrantholders credited as fully paid, and as to any other matter concerning the Subscription Rights Reserve shall (in the absence of
manifest error) be conclusive and binding upon the Company and all warrantholders and shareholders.
49
Record Date
49.1
For the purpose of determining members entitled to attend meetings, receive payment of any dividend or capitalisation or for any other purpose, the Directors
may provide that the Register may, after compliance with any notice requirement of the Designated Stock Exchange, be suspended or closed for transfers for
a stated period which shall not in any case exceed thirty (30) days in any year as the Board may determine. In lieu of, or apart from, closing the Register, the
Directors may fix in advance or arrears a date as the record date for any such determination of members provided that the record date for a meeting may not
be earlier than the date of notice of such meeting.
49.2
If the Register is not so closed and no record date is fixed for the determination of members entitled to attend meetings, receive payment of a distribution or
capitalisation, the date on which the notice of the meeting is given or resolution of the Directors declaring such dividend or capitalisation is adopted, as the
case may be, shall be the record date for such determination of members.
49.3
A determination of the members of record entitled to notice of or to vote at a meeting of the members shall apply at any adjournment of the meeting, provided
however, that the Board may fix a new record date for the adjourned meeting.
50
Notices
50.1
A notice may be given by the Company to any member either personally or by sending it by courier, post, cable, telex, telefax or e-mail to him or to his
registered address, or (if he has no registered address) to the address, if any, within or without the Cayman Islands supplied by him to the Company for the
giving of notice to him. A notice may also be served by advertisement in appropriate newspapers in accordance with the requirements of the Designated
Stock Exchange or, to the extent permitted by the applicable laws, by placing it on the Company’s website and giving to the member a notice stating that the
notice and other document(s) are available there (a “notice of availability”). The notice of availability may be given to the member by any of the means set
out above.
50.2 Where a notice is sent by courier, service of the notice shall be deemed to be effected by delivery of the notice to a courier company, and shall be deemed to
have been received on the third day (not including Saturdays or Sundays or public holidays) following the day on which the notice was delivered to the
courier. Where a notice is sent by post, service of the notice shall be deemed to be effected by properly addressing, pre-paying and posting a letter containing
the notice, and to have been effected in the case of a notice of a meeting at the expiration of fourteen days after the letter containing the same is posted, and in
any other case at the time at which the letter would be delivered in the ordinary course of post. Any letter sent to an address outside the Cayman Islands shall
be sent by courier or airmail.
36
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
50.3 Where a notice is sent by cable, telex, telefax or e-mail, service of the notice shall be deemed to be effected by properly addressing and sending such notice
and to have been effected on the day received or, if such day is not a working day, on the next working day.
50.4
A notice may be given by the Company to the person or persons where the Company has been advised are entitled to a share in consequence of the death or
bankruptcy of a member by sending it through the post in prepaid letter addressed to them by name, or by the title of representatives of the deceased or trustee
of the bankrupt, or by any like description, at the address, if any, within or without the Cayman Islands supplied for that purpose by the persons claiming to be
so entitled, or (until such an address has been supplied) by giving the notice in any manner in which the same might have been given if the death or
bankruptcy had not occurred.
50.5
A notice shall be sufficiently given by the Company to the joint holders of record of a share by giving the notice to the joint holder first named on the
Register in respect of the share.
50.6
Notice of every general meeting shall be given in any manner hereinbefore authorised to:
(a)
(b)
every person shown as a member in the Register subject, in each case, to the immediately preceding Article; and
every person upon whom the ownership of a share devolves by reason of his being a legal personal representative or a trustee in bankruptcy of a
member where the member but for his death or bankruptcy would be entitled to receive notice of the meeting.
50.7
No other person shall be entitled to receive notices of general meetings.
50.8
50.9
A member who is present, either in person or by proxy, at any meeting of the Company or of the holders of any class of shares in the Company shall be
deemed to have received notice of the meeting, and, where requisite, of the purpose for which it was called.
Every person who becomes entitled to any share shall be bound by any notice in respect of that share which, before his name is entered in the Register, has
been given to the person from whom he derives his title.
50.10
Subject to the rights attached to shares, the Directors may fix any date as the record date for a dividend, allotment or issue. The record date may be on or at
any time before or after a date on which the dividend, allotment or issue is declared, made or paid.
51
Winding Up
51.1
51.2
If the Company is, or is likely to become, unable to pay its debts, the Directors shall have power to present a winding up petition in the name of the Company
and/or to apply for the appointment of provisional liquidators in respect of the Company.
If the Company shall be wound up, the liquidator may, with the sanction of an Ordinary Resolution of the Company and any other sanction required by law,
divide amongst the members in specie or kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or
not) and may, for such purpose, set such value as he deems fair upon any property to be divided as aforesaid and may determine how such division shall be
carried out as between the members or different classes of members. The liquidator may, with the like sanction, vest the whole or any part of such assets in
trustees upon such trusts for the benefit of the members as the liquidator, with the like sanction, shall think fit, but so that no member shall be compelled to
accept any shares or other securities whereon there is any liability.
37
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
51.3
If the Company shall be wound up and the assets available for distribution amongst the members as such shall be insufficient to repay the whole of the paid-
up capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the members in proportion to the capital paid up, or which
ought to have been paid up, at the commencement of the winding up on the shares held by them respectively. And if in a winding up the assets available for
distribution amongst the members shall be more than sufficient to repay the whole of the capital at the commencement of the winding up, the excess shall be
distributed amongst the members in proportion to the capital at the commencement of the winding up paid up on the shares held by them respectively. But
this Article is to be without prejudice to the rights of the holders of shares issued upon special terms and conditions.
52
Indemnity
52.1
52.2
52.3
Every Director, Secretary, or other officer of the Company (including alternate directors, proxy directors and former directors and officers), any trustee for the
time being acting in relation to the Company (including any nominee shareholder holding shares in the Company) and their heirs and personal representatives
(each an “Indemnified Person”) shall be entitled to be indemnified out of the assets of the Company against all actions, proceedings, costs, damages,
expenses, claims, losses or liabilities which they or any of them may sustain or incur by reason of any act done or omitted in or about the execution of the
duties of their respective offices or trusts or otherwise in relation thereto, including any liability incurred by him in defending any proceedings, whether civil
or criminal, in which judgement is given in his favour or in which he is acquitted except to the extent that any of the foregoing arise through his dishonesty.
No Indemnified Person shall be liable (a) for any loss, damage or misfortune whatsoever which may happen to or be incurred by the Company in the
execution of the duties, powers, authorities or discretions of his office or in relation thereto, (b) for the acts, receipts, neglects, defaults or omissions of any
other such Director or person or (c) by reason of his having joined in any receipt for money not received by him personally or (d) for any loss on account of
defect of title to any property of the Company or (e) on account of the insufficiency of any security in or upon which any money of the Company shall be
invested or (f) for any loss incurred through any bank, broker or other agent or (g) for any loss occasioned by any negligence, default, breach of duty, breach
of trust, error of judgement or oversight on his part or (h) for any other loss or damage due to any such cause as aforesaid except to the extent that any of the
foregoing arise through his dishonesty.
The Company shall advance to each Indemnified Person reasonable attorneys’ fees and other costs and expenses incurred in connection with the defence of
any action, suit, proceeding or investigation involving such Indemnified Person for which indemnity will or could be sought. In connection with any advance
of any expenses hereunder, the Indemnified Person shall execute an undertaking to repay the advanced amount to the Company if it shall be determined by
final judgment or other final adjudication that such Indemnified Person was not entitled to indemnification pursuant to this Article. If it shall be determined
by a final judgment or other final adjudication that such Indemnified Person was not entitled to indemnification with respect to such judgment, costs or
expenses, then such party shall not be indemnified with respect to such judgment, costs or expenses and any advancement shall be returned to the Company
(without interest) by the Indemnified Person.
38
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
52.4
The Directors, on behalf of the Company, may purchase and maintain insurance for the benefit of any Director or other officer of the Company against any
liability which, by virtue of any rule of law, would otherwise attach to such person in respect of any negligence, default, breach of duty or breach of trust of
which such person may be guilty in relation to the Company.
53
Registration by Way of Continuation
53.1
53.2
The Company, if registered as an exempted company under the Companies Law, may by Special Resolution resolve to be registered by way of continuation in
a jurisdiction outside the Cayman Islands which permits or does not prohibit the transfer of the Company to such jurisdiction.
In furtherance of a resolution passed pursuant to the immediately preceding Article, the Directors shall cause an application to be made to the Registrar of
Companies to de-register the Company in the Cayman Islands or such other jurisdiction in which it is for the time being incorporated, registered or existing
and may cause all further steps as they consider appropriate to be taken to effect the transfer by way of continuation of the Company.
54
Untraceable Members
54.1 Without prejudice to the rights of the Company in this Article 54, the Company may cease sending cheques for dividend entitlements or dividend warrants by
post if such cheques or warrants have been left uncashed on two (2) consecutive occasions. However, the Company may exercise the power to cease sending
cheques for dividend entitlements or dividend warrants after the first occasion on which such a cheque or warrant is returned undelivered.
54.2
The Company shall have the power to sell, in such manner as the Board thinks fit, any shares of a member who is untraceable, but no such sale shall be made
unless:
(a)
(b)
(c)
all cheques or warrants in respect of dividends of the shares in question, being not less than three (3) in total number, for any sum payable in cash to
the holder of such shares sent during the relevant period in the manner authorized by these Articles have remained uncashed;
so far as it is aware at the end of the relevant period, the Company has not at any time during the relevant period received any indication of the
existence of the member who is the holder of such shares or of a person entitled to such shares by death, bankruptcy or operation of law; and
the Company, if so required by the rules governing the listing of the shares on the Designated Stock Exchange, has given notice to, and caused
advertisement in newspapers to be made in accordance with the requirements of the Designated Stock Exchange of its intention to sell such shares in
the manner required by the Designated Stock Exchange, and a period of three (3) months or such shorter period as may be allowed by the
Designated Stock Exchange has elapsed since the date of such advertisement.
For the purpose of the foregoing, the “relevant period” means the period commencing twelve (12) years before the date of publication of the advertisement
referred to in paragraph (c) of this Article and ending at the expiry of the period referred to in that paragraph.
39
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
54.3
To give effect to any such sale the Board may authorize some person to transfer the said shares and an instrument of transfer signed or otherwise executed by
or on behalf of such person shall be as effective as if it had been executed by the registered holder or the person entitled by transmission to such shares, and
the purchaser shall not be bound to see to the application of the purchase money nor shall his title to the shares be affected by any irregularity or invalidity in
the proceedings relating to the sale. The net proceeds of the sale will belong to the Company and upon receipt by the Company of such net proceeds. No trust
shall be created in respect of such debt and no interest shall be payable in respect of it and the Company shall not be required to account for any money
earned from the net proceeds which may be employed in the business of the Company or as it thinks fit. Any sale under this Article 54 shall be valid and
effective notwithstanding that the Member holding the Shares sold is dead, bankrupt or otherwise under any legal disability or incapacity.
55
Disclosure
The Directors and the officers including any secretary or assistant secretary and/or any its service providers (including the registered office provider for the
Company), shall be entitled to disclose to any regulatory or judicial authority, or to any stock exchange on which the shares may from time to time be listed,
any information regarding the affairs of the Company including, without limitation, any information contained in the Register and books of the Company.
56
Merger and Consolidation
The Company shall, with the approval of a Special Resolution, have the power to merge or consolidate with one or more constituent companies (as defined in
the Companies Law), upon such terms as the Directors may determine.
40
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
TABLE OF CONTENTS
COMPANY NAME
REGISTERED OFFICE
OBJECTS
POWERS OF COMPANY
LIMITED LIABILITY
AUTHORISED CAPITAL
PART VII OF THE COMPANIES LAW (AS REVISED)
AMENDMENT
PRELIMINARY
COMMENCEMENT OF BUSINESS
ALTERATION OF ARTICLES
ISSUE OF SHARES, PRINCIPAL AND BRANCH REGISTERS AND OFFICES
TREASURY SHARES
REDEMPTION, PURCHASE AND SURRENDER OF OWN SHARES
CLASS A ORDINARY SHARES
CLASS B ORDINARY SHARES
VARIATION OF RIGHTS OF SHARES
COMMISSION ON SALE OF SHARES
NON-RECOGNITION OF TRUSTS
CERTIFICATES FOR SHARES
JOINT OWNERSHIP OF SHARES
LIEN
CALLS ON SHARES
TRANSFER OF SHARES
TRANSMISSION OF SHARES
FORFEITURE OF SHARES
AMENDMENT OF MEMORANDUM OF ASSOCIATION AND ALTERATION OF CAPITAL
GENERAL MEETINGS
PROCEEDINGS AT GENERAL MEETINGS
VOTES OF MEMBERS
PROXIES
CORPORATIONS ACTING BY REPRESENTATIVES AT MEETINGS AND CLEARING HOUSE
DIRECTORS
ALTERNATE DIRECTORS AND PROXY DIRECTORS
Article
1
2
3
4
5
6
7
8
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Page
1
1
1
1
2
2
2
2
1
5
5
5
6
6
7
7
10
10
11
11
11
11
12
13
14
14
15
16
17
18
19
19
20
21
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
POWERS AND DUTIES OF DIRECTORS
DIRECTOR OR OFFICER CONTRACTING WITH COMPANY
APPOINTMENT AND REMOVAL OF DIRECTORS
BOARD’S POWER TO APPOINT DIRECTORS
APPOINTMENT AT ANNUAL GENERAL MEETING
REMOVAL OF DIRECTORS
RESIGNATION OF DIRECTORS
TERMINATION OF DIRECTORS
PROCEEDINGS OF DIRECTORS
MANAGING DIRECTOR
PRESUMPTION OF ASSENT
MANAGEMENT
AUDIT COMMITTEE
OFFICERS
THE SEAL
DIVIDENDS AND RESERVE
PAYMENT BY ALLOTMENT OF SHARES
ACCOUNTS
AUDIT
FISCAL YEAR
CAPITALISATION OF PROFIT AND SHARE PREMIUM
SUBSCRIPTION RIGHTS RESERVE
RECORD DATE
NOTICES
WINDING UP
INDEMNITY
REGISTRATION BY WAY OF CONTINUATION
UNTRACEABLE MEMBERS
DISCLOSURE
MERGER AND CONSOLIDATION
21
22
23
23
23
24
24
24
25
26
26
27
27
28
28
28
30
32
33
33
33
34
36
36
37
38
39
39
40
40
www.verify.gov.ky File#: 245310
Filed: 16-Nov-2017 11:28 EST
Auth Code: J62260262301
Description of Securities registered under
Section 12 of the Exchange Act of 1934, as amended
Exhibit 2.3
As of December 31, 2021, Aptorum had the following series of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended:
Title of Each Class
Class A Ordinary shares, par value $1.00
Trading Symbol
APM
Name of Each Exchange on Which Registered
NASDAQ Global Market
Capitalized terms used but not defined herein have the meanings given to them in Aptorum’s annual report on Form 20-F for the year ended December 31,
2021.
CLASS A ORDINARY SHARES
The following is a description of our Class A Ordinary Shares and the material terms of our articles and memorandum of association, as amended. The
following description may not contain all of the information that is important to you and we therefore refer you to our articles and memorandum of association, as
amended, copies of which are filed as exhibits to our annual report on Form 20-F for the year ended December 31, 2021.
We are a Cayman Islands exempted company with limited liability and our affairs are governed by our Memorandum and Articles, the Companies Law, the
common law of the Cayman Islands, our corporate governance documents and rules and regulations of the stock exchange on which are shares are traded.
As of the date hereof, the authorized share capital of the Company is $100,000,000, consisting of 60,000,000 Class A Ordinary Shares, par value $1.00 each
and 40,000,000 Class B Ordinary Shares, par value $1.00 each. As of the date hereof, 13,260,446 Class A Ordinary Shares and 22,437,754 Class B Ordinary Shares
are issued and outstanding. All of our issued and outstanding Class A Ordinary Shares and Class B Ordinary Shares are fully paid.
Shares
The following are summaries of material provisions of our Memorandum and Articles, corporate governance policies and the Companies Law insofar as they
relate to the material terms of our Class A Ordinary Shares and Class B Ordinary Shares (our class B Ordinary Shares are not registered pursuant to Section 12(b),
12(g) or Section 15(d) of the Act, but we are voluntarily including information with respect to same in this exhibit).
Objects of Our Company
Under our Memorandum and Articles, the objects of our Company are unrestricted and we have the full power and authority to carry out any object not
prohibited by the law of the Cayman Islands.
Share Capital
Our authorized share capital is divided into Class A Ordinary Shares and Class B Ordinary Shares. Holders of our Class A Ordinary Shares and Class B
Ordinary Shares will have the same rights except for voting rights and conversion rights.
The holders of Class A Ordinary Shares are entitled to one vote for each such share held and shall be entitled to notice of any shareholders’ meeting, and,
subject to the terms of Memorandum and Articles, to vote thereat. The Class A Ordinary Shares are not redeemable at the option of the holder and are not convertible
into shares of any other class.
The holders of Class B Ordinary Shares shall have the right to ten votes for each such share held, and shall be entitled to notice of any shareholders’ meeting
and, subject to the terms of the Memorandum and Articles, to vote thereat. The Class B Ordinary Shares are not redeemable at the option of the holder but are
convertible into Class A Ordinary Shares at any time after issue at the option of the holder on a one to one basis.
Dividends
The holders of our Class A Ordinary Shares and Class B Ordinary Shares are entitled to such dividends as may be declared by our Board of Directors subject
to the Companies Law and to our Memorandum and Articles.
Voting Rights
In respect of all matters subject to a shareholders’ vote, each Class B Ordinary Share is entitled to ten votes, and each Class A Ordinary Share is entitled to
one vote, voting together as one class. Voting at any shareholders’ meeting is by show of hands unless a poll is demanded by the chairman or persons holding certain
amounts of shares as set forth in the Memorandum and Articles. Actions that may be taken at a general meeting also may be taken by a unanimous resolution of the
shareholders in writing.
No business shall be transacted at any general meeting unless a quorum of members is present at the time when the meeting proceeds to business; two
members present in person or by proxy, one of whom shall be the holder of the majority of the shares in the Company, shall be a quorum provided always that if the
Company has one member of record the quorum shall be that one member present in person or by proxy. An ordinary resolution to be passed at a general meeting
requires the affirmative vote of a simple majority of the votes cast, while a special resolution requires the affirmative vote of at least two-thirds of votes cast at a
general meeting. A special resolution will be required for important matters.
A special resolution of members is required to change the name of the Company, approve a merger, wind up the Company, amend the Memorandum and
Articles and reduce the share capital.
Conversion
Class A Ordinary Shares are not convertible. Each Class B Ordinary Share shall be convertible, at the option of the holder thereof, into such number of fully
paid and non-assessable Class A Ordinary Shares on the basis that one Class B Ordinary Share shall be converted into one Class A Ordinary Share (being a 1:1 ratio
and hereafter referred to as the “Conversion Rate”), subject to adjustment.
Transfer of Shares
Subject to the restrictions set out below, any of our shareholders may transfer all or any of his, its or her Class A Ordinary Shares or Class B Ordinary Shares
by an instrument of transfer in the usual or common form or any other form approved by our Board of Directors or in a form prescribed by the stock exchange on
which our shares are then listed.
Our Board of Directors may, in its sole discretion, decline to register any transfer of any Class A Ordinary Shares or Class B Ordinary Shares whether or not
it is fully paid up to the total consideration paid for such shares. Our directors may also decline to register any transfer of any Class A Ordinary Shares or Class B
Ordinary Shares if (a) the instrument of transfer is not accompanied by the certificate covering the shares to which it relates or any other evidence as our Board of
Directors may reasonably require to prove the title of the transferor to, or his/her right to transfer the shares; or (b) the instrument of transfer is in respect of more than
one class of shares.
If our directors refuse to register a transfer, they shall, within two months after the date on which the instrument of transfer was lodged, send to the transferee
notice of such refusal.
The registration of transfers may be suspended and the register closed at such times and for such periods as our Board of Directors may from time to time
determine, provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 30 days in any year.
2
Winding-Up/Liquidation
On a return of capital on winding up or otherwise (other than on conversion, redemption or purchase of shares), a liquidator may be appointed to determine
how to distribute the assets among the holders of the Class A Ordinary Shares and Class B Ordinary Shares. If our assets available for distribution are insufficient to
repay all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders proportionately; a similar basis will be employed if the
assets are more than sufficient to repay the whole of the capital at the commencement of the winding up.
Calls on Shares and Forfeiture of Shares
Our Board of Directors may from time to time make calls upon shareholders for any amounts unpaid on their Class A Ordinary Shares or Class B Ordinary
Shares in a notice served to such shareholders at least 14 days prior to the specified time and place of payment. The shares that have been called upon and remain
unpaid on the specified time are subject to forfeiture.
Redemption of Shares
We may issue shares on terms that are subject to redemption, at our option or at the option of the holders, on such terms and in such manner as may be
determined by our Board of Directors.
Variations of Rights of Shares
All or any of the special rights attached to any class of shares may, be varied with the resolution of at least two thirds of the issued shares of that class or a
resolution passed at a general meeting of the holders of the shares of that class present in person or by proxy or with the consent in writing of the holders of at least
two-thirds of the issued shares of that class.
Inspection of Books and Records
Directors shall from time to time determine whether and to what extent and at what times and places and under what conditions or regulations the accounts
and books of the Company or any of them shall be open to the inspection of members not being Directors and no member (not being a Director) shall have any right of
inspecting any account or book or document of the Company except as conferred by Companies Law or authorized by the Directors or by the Company in a general
meeting. However, the Directors shall from time to time cause to be prepared and to be laid before the Company in a general meeting, profit and loss accounts, balance
sheets, group accounts (if any) and such other reports and accounts as may be required by Companies Law.
Issuance of Additional Shares
Our Memorandum and Articles authorize our Board of Directors to issue additional Class A Ordinary Shares or Class B Ordinary Shares from time to time as
our Board of Directors shall determine, to the extent there are available authorized but unissued shares.
Our Memorandum and Articles also authorizes our Board of Directors to establish from time to time one or more series of preferred shares and to determine,
subject to compliance with the variation of rights of shares provision in the Memorandum and Articles, with respect to any series of preferred shares, the terms and
rights of that series, including:
● the designation of the series;
● the number of shares of the series;
● the dividend rights, dividend rates, conversion rights, voting rights; and
● the rights and terms of redemption and liquidation preferences.
3
Our Board of Directors may, issue preferred shares without action by our shareholders to the extent there are authorized but unissued shares available.
Issuance of additional shares may dilute the voting power of holders of Class A Ordinary Shares and Class B Ordinary Shares. However, our Memorandum of
Association provides for authorized share capital comprising Class A Ordinary Shares and Class B Ordinary Shares and to the extent the rights attached to any class
may be varied, the Company must comply with the provisions in the Memorandum and Articles relating to variations to rights of shares.
Anti-Takeover Provisions
Some provisions of our Memorandum and Articles may discourage, delay or prevent a change of control of our Company or management that shareholders
may consider favorable, including provisions that:
● authorize our Board of Directors to issue preferred shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of
such preferred shares without any further vote or action by our shareholders (subject to variation of rights of shares provisions in our Memorandum and
Articles); and
● limit the ability of shareholders to requisition and convene general meetings of shareholders. Our Memorandum and Articles allow our shareholders holding
shares representing in aggregate not less than ten percent of our paid up share capital (as to the total consideration paid for such shares) in issue to requisition
an extraordinary general meeting of our shareholders, in which case our directors are obliged to call such meeting and to put the resolutions so requisitioned
to a vote at such meeting.
However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our Memorandum and Articles for a proper
purpose and for what they believe in good faith to be in the best interests of our Company.
General Meetings of Shareholders and Shareholder Proposals
Our shareholders’ general meetings may be held in such place within or outside the Cayman Islands as our Board of Directors considers appropriate.
As a Cayman Islands exempted company, we are not obliged by the Companies Law to call shareholders’ annual general meetings. However, our
Memorandum and Articles provide that we shall hold a general meeting in each year as our annual general meeting other than the year in which the Memorandum and
Articles were adopted at such time and place as determined by the directors. The directors may, whenever they think fit, convene an extraordinary general meeting.
Shareholders’ annual general meetings and any other general meetings of our shareholders may be convened by a majority of our Board of Directors. Our
Board of Directors shall give not less than seven days’ written notice of a shareholders’ meeting to those persons whose names appear as members in our register of
members on the date the notice is given (or on any other date determined by our directors to be the record date for such meeting) and who are entitled to vote at the
meeting.
Cayman Islands law provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put
any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our Memorandum and Articles allow our
shareholders holding shares representing in aggregate not less than ten percent of our paid up share capital (as to the total consideration paid for such shares) in issue
to requisition an extraordinary general meeting of our shareholders, in which case our directors are obliged to call such meeting and to put the resolutions so
requisitioned to a vote at such meeting; otherwise, our Memorandum and Articles do not provide our shareholders with any right to put any proposals before annual
general meetings or extraordinary general meetings not called by such shareholders.
4
Exempted Company
We are an exempted company with limited liability under the Companies Law. The Companies Law distinguishes between ordinary resident companies and
exempted companies. A Cayman Islands exempted company:
● is a company that conducts its business mainly outside of the Cayman Islands;
● is exempted from certain requirements of the Companies Law, including the filing an annual return of its shareholders with the Registrar of Companies or the
Immigration Board;
● does not have to make its register of members open for inspection;
● does not have to hold an annual general meeting;
● may issue negotiable or bearer shares or shares with no par value (subject to the provisions of the Companies Law);
● may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance); and
● may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands.
“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company (except in
exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a
court may be prepared to pierce or lift the corporate veil).
Register of Members
Under Cayman Islands law, we must keep a register of members and there should be entered therein:
● the names and addresses of the members, a statement of the shares held by each member, and of the amount paid or agreed to be considered as paid, on the
shares of each member;
● the date on which the name of any person was entered on the register as a member; and
● the date on which any person ceased to be a member.
Under Cayman Islands law, the register of members of our Company is prima facie evidence of the matters set out therein (i.e. the register of members will
raise a presumption of fact on the matters referred to above unless rebutted) and a member registered in the register of members is deemed as a matter of Cayman
Islands law to have legal title to the shares as set against its name in the register of members. Once our register of members has been updated, the shareholders
recorded in the register of members are deemed to have legal title to the shares set against their name.
If the name of any person is incorrectly entered in, or omitted from, our register of members, or if there is any default or unnecessary delay in entering on the
register the fact of any person having ceased to be a member of our Company, the person or member aggrieved (or any member of our Company or our Company
itself) may apply to the Cayman Islands Grand Court for an order that the register be rectified, and the Court may either refuse such application or it may, if satisfied of
the justice of the case, make an order for the rectification of the register.
Indemnification of Directors and Executive Officers and Limitation of Liability
Cayman Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification of officers and
directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against
civil fraud or the consequences of committing a crime. Our Memorandum and Articles require us to indemnify our officers and directors for actions, proceedings,
claims, losses, damages, costs, liabilities and expenses (“Indemnified Losses”) incurred in their capacities as such unless such Indemnified Losses arise from
dishonesty of such directors or officers. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware
corporation.
5
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the
foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is
therefore unenforceable.
Warrants
The following summary of certain terms and provisions of our outstanding warrants is not complete and is subject to, and qualified in its entirety by, the
provisions of the warrants, the form of which is filed as an exhibit to the annual report. Prospective investors should carefully review the terms and provisions of the
form of warrant for a complete description of the terms and conditions of the warrants.
Exercise Price and Duration. The warrants will have an exercise price equal to 100% of the combined public offering price per Class A Ordinary Share and
related warrant. The warrants are exercisable immediately upon issuance, and at any time thereafter up to the fifth anniversary of the issuance date. The exercise price
is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events
affecting our Class A Ordinary Shares and also upon any distributions of assets, including cash, stock or other property to our shareholders.
Exercisability. The 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 the Class A Ordinary Share underlying the 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 Class A Ordinary Shares purchased upon such exercise.
Cashless Exercise. If at the time of exercise there is no effective registration statement registering, or the prospectus contained therein is not available for the
issuance of the Class A Ordinary Shares underlying the warrants, then the warrants may also be exercised, in whole or in part, at such time by means of a cashless
exercise, in which case the holder would receive upon such exercise the net number of Class A Ordinary Shares determined according to the formula set forth in the
warrant.
Exercise Limitation. A holder will not have the right to exercise any portion of the warrant if the holder (together with its affiliates) would beneficially own in
excess of 4.99% (or 9.99% upon the request of the holder) of the number of Class A Ordinary Shares outstanding immediately after giving effect to the exercise, as
such percentage ownership is determined in accordance with the terms of the 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.
Transferability. Subject to applicable laws, the warrants may be offered for sale, sold, transferred or assigned without our consent.
Fractional Shares. No fractional Class A Ordinary Shares will be issued upon the exercise of the warrants. Rather, the number of Class A Ordinary Shares to
be issued will be rounded to the nearest whole number.
Trading Market. There is no established public trading market for the warrants being issued in this offering, and we do not expect a market to develop. We do
not intend to apply for listing of the warrants on any securities exchange or other nationally recognized trading system. Without an active trading market, the liquidity
of the warrants will be limited.
Fundamental Transactions. 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 warrants with the same effect as if such successor entity had been named in the
warrant itself. If holders of our Class A Ordinary Shares are given a choice as to the securities, cash or property to be received in a fundamental transaction, then the
holder shall be given the same choice as to the consideration it receives upon any exercise of the warrant following such fundamental transaction. In addition, in
certain circumstances, upon a fundamental transaction, the holder will have the right to require us to repurchase its warrant at its fair value using the Black Scholes
option pricing formula; provided, however, that, if the fundamental transaction is not within our control, including not approved by our board of directors, then the
holder shall only be entitled to receive the same type or form of consideration (and in the same proportion), at the Black Scholes value of the unexercised portion of
the warrant, that is being offered and paid to the holders of our Class A Ordinary Shares in connection with the fundamental transaction.
6
Rights as a Shareholder. Except as otherwise provided in the warrants or by virtue of such holder’s ownership of our Class A Ordinary Shares, the holder of a
warrant does not have the rights or privileges of a holder of our Class A Ordinary Shares, including any voting rights, until the holder exercises the warrant.
Amendment and Waiver. The warrants may be modified or amended or the provisions thereof waived with the written consent of our company on the one the
hand and a holder on the other hand.
Differences in Corporate Law
The Companies Law is modeled after that of English law but does not follow many recent English law statutory enactments. In addition, the Companies Law
differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of some of the significant differences between the
provisions of the Companies Law applicable to us and the laws applicable to companies incorporated in the State of Delaware.
Mergers and Similar Arrangements. The Companies Law permits mergers and consolidations between Cayman Islands companies and between Cayman
Islands companies and non-Cayman Islands companies. For these purposes, a “merger” means the merging of two or more constituent companies and the vesting of
their undertaking, property and liabilities in one of such companies as the surviving company, and a “consolidation” means the combination of two or more constituent
companies into a consolidated company and the vesting of the undertaking, property and liabilities of such companies to the consolidated company.
In order to effect a merger or consolidation, the directors of each constituent company must approve a written plan of merger or consolidation, which must
then be authorized by a special resolution of the shareholders of each constituent company, and such other authorization, if any, as may be specified in such constituent
company’s articles of association.
The plan of merger or consolidation must be filed with the Registrar of Companies of the Cayman Islands together with a declaration as to: the solvency of
the consolidated or surviving company, the merger or consolidation being bona fide and not intended to defraud creditors, no petition or other proceeding, order or
resolution to wind up the Company, no receiver, administrator or similar having been appointed over assets or property and no scheme or other arrangement having
been entered into with creditors; a list of the assets and liabilities of each constituent company and an undertaking that a copy of the certificate of merger or
consolidation will be given to the members and creditors of each constituent company; and that notification of the merger and consolidation will be published in the
Cayman Islands Gazette. The non-surviving constituent company must have resigned from any fiduciary office held or will do so and each constituent company
having complied with any applicable regulatory laws. Dissenting shareholders have the right to be paid the fair value of their shares if they follow the required
procedures under the Companies Law subject to certain exceptions. The fair value of the shares will be determined by the Cayman Islands court if it cannot be agreed
among the parties. Court approval is not required for a merger or consolidation effected in compliance with these statutory procedures.
In addition, there are statutory provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement is approved by a
majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent three-fourths in value of
each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings, convened for that
purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands.
7
While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the court can be expected to
approve the arrangement if it determines that:
● the statutory provisions as to the required majority vote have been met;
● the shareholders have been fairly represented at the meeting in question;
● the arrangement is such that an intelligent and honest man of that class acting in respect of his interest would reasonably approve; and
● the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law or that would amount to a “fraud on
the minority.”
When a take-over offer is made and accepted by holders of not less than 90% of the shares within four months, the offer, or may, within a two-month period
commencing on the expiration of such four months period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection
can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed unless there is evidence of fraud, bad faith or collusion.
If the arrangement and reconstruction is thus approved, the dissenting shareholder would have no rights comparable to appraisal rights, which would
otherwise ordinarily be available to dissenting shareholders of United States corporations, providing rights to receive payment in cash for the judicially determined
value of the shares.
Shareholders’ Suits. In principle, we will normally be the proper plaintiff to sue for a wrong done to us as a company and as a general rule a derivative action
may not be brought by a minority shareholder. However, based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands,
there are exceptions to the foregoing principle, including when:
● a company acts or proposes to act illegally or ultra vires and is therefore incapable of ratification by the shareholders;
● the act complained of, although not ultra vires, could only be duly effected if authorized by more than a simple majority vote that has not been obtained; and
● those who control the company are perpetrating a “fraud on the minority.”
Indemnification of Directors and Executive Officers and Limitation of Liability. The Companies Law does not limit the extent to which a company’s
memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman
Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. As stated above, our
Memorandum and Articles permit indemnification of officers and directors for actions, proceedings, claims, losses, damages, costs, liabilities and expenses
(“Indemnified Losses”) incurred in their capacities as such unless such losses or damages arise from dishonesty of such directors or officers. This standard of conduct
is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been informed that in the opinion of
the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Directors’ Fiduciary Duties. Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders.
This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily
prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information
reasonably available regarding a significant transaction. The duty of loyalty requires that a director acts in a manner he reasonably believes to be in the best interests of
the corporation. He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest
of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders
generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the
best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented
concerning a transaction by a director, the director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.
As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company and therefore it is considered
that he or she owes the following duties to the company: a duty to act bona fide in the best interests of the company, a duty not to make a profit based on his or her
position as director (unless the company permits him or her to do so) and a duty not to put himself or herself in a position where the interests of the company conflict
with his or her personal interest or his or her duty to a third-party. Our Memorandum and Articles do not disqualify a director from acting or from contacting with the
Company as a vendor, purchaser or otherwise provided that it does not adversely affect his or her performance of duties or responsibilities and the nature of the interest
is disclosed at the meeting at which the contract or arrangement is considered (if not previously disclosed), and having disclosed such interest the director is not
counted in the quorum and must refrain from voting on the contract or arrangement. A director of a Cayman Islands company also owes to the company a duty to
exercise the powers for the purpose for which they were given and the duty to act with skill and care. It was previously considered that a director need not exhibit in
the performance of his or her duties a greater degree of skill than may reasonably be expected from a person of his or her knowledge and experience. However, courts
are moving towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.
8
Shareholder Action by Written Consent. Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act by
written consent by amendment to its certificate of incorporation. Cayman Islands law and our Memorandum and Articles provide that shareholders may approve
corporate matters by way of a unanimous written resolution signed by or on behalf of each shareholder who would have been entitled to vote on such matter at a
general meeting without a meeting being held.
Shareholder Proposals. Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of
shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other
person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings. The Companies Law provides shareholders
with only limited rights to requisition a general meeting and does not provide shareholders with any right to put any proposal before a general meeting. However, these
rights may be provided in articles of association. Our Memorandum and Articles allow our shareholders holding not less than 1/10 of all voting power of our (paid up)
share capital in issue to requisition a shareholder’s meeting. Other than this right to requisition a shareholders’ meeting, our Memorandum and Articles do not provide
our shareholders other rights to put proposal before a meeting. As an exempted Cayman Islands company, we are not obliged by law to call shareholders’ annual
general meetings although our Memorandum and Articles provide for same.
Cumulative Voting. Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s
certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors
since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power
with respect to electing such director. There are no prohibitions in relation to cumulative voting under the Companies Law but our Memorandum and Articles do not
provide for cumulative voting.
Removal of Directors. Under the Delaware General Corporation Law, a director of a corporation with a may be removed with the approval of a majority of
the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our Memorandum and Articles, directors may be removed
with or without cause, by the directors or by an ordinary resolution of our shareholders.
Transactions with Interested Shareholders. The Delaware General Corporation Law contains a business combination statute applicable to Delaware
corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is
prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that such person becomes an interested
shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target’s outstanding voting share within the
past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated
equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors
approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of
a Delaware corporation to negotiate the terms of any acquisition transaction with the target’s board of directors. The Cayman Islands has no comparable statute. As a
result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although Cayman Islands law does not
regulate transactions between a company and its significant shareholders, it does provide that such transactions must be entered into bona fide in the best interests of
the company and for a proper corporate purpose and not with the effect of constituting a fraud on the minority shareholders. Our Memorandum and Articles, as well as
our Code of Business Conduct and Ethics that applies to our officers, directors and employees outlines how to handle these types of transactions and other potential
conflicts of interest.
9
Dissolution; Winding up. Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be
approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by
a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority
voting requirement in connection with dissolutions initiated by the board. Under the Companies Law, a company may be wound up by either an order of the courts of
the Cayman Islands or by a special resolution of its members or, if the company is unable to pay its debts as they fall due, by an ordinary resolution of its members.
The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so. Under
the Companies Law a company may be dissolved, liquidated or wound up by a special resolution of our shareholders; however, under our Memorandum and Articles,
only our Directors have power to present a winding up petition in the name of the Company and/or to apply for the appointment of provisional liquidators in respect of
the Company.
Variation of Rights of Shares. Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a
majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under the Companies Law and our Memorandum and
Articles, if our share capital is divided into more than one class of shares, we may vary the rights attached to any class with the written consent of the holders of two-
thirds of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class.
Amendment of Governing Documents. Under the Delaware General Corporation Law, a corporation’s governing documents may be amended with the
approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. As permitted by the Companies Law, each
of our Memorandum of Association and Articles of Association may only be amended with a special resolution of our shareholders.
Rights of Non-resident or Foreign Shareholders. There are no limitations imposed by our Memorandum and Articles on the rights of non-resident or foreign
shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in our Memorandum and Articles governing the ownership threshold
above which shareholder ownership must be disclosed.
10
Rule 144
Shares Held for Six Months
In general, under Rule 144 as currently in effect, and subject to the terms of any lock-up agreement, commencing 90 days after the closing of the IPO, a
person (or persons whose shares are aggregated), including an affiliate, who has beneficially owned our Class A Ordinary Shares for six months or more, including the
holding period of any prior owner other than one of our affiliates (i.e., commencing when the shares were acquired from our Company or from an affiliate of our
Company as restricted securities), is entitled to sell our shares, subject to the availability of current public information about us. In the case of an affiliate shareholder,
the right to sell is also subject to the fulfillment of certain additional conditions, including manner of sale provisions and notice requirements, and to a volume
limitation that limits the number of shares to be sold thereby, within any three-month period, to the greater of:
● 1% of the number of Class A Ordinary Shares then outstanding; or
● the average weekly trading volume of our Class A Ordinary Shares on the NASDAQ Global Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
The six-month holding period of Rule 144 does not apply to sales of unrestricted securities. Accordingly, persons who hold unrestricted securities may sell
them under the requirements of Rule 144 described above without regard to the six-month holding period, even if they were considered our affiliates at the time of the
sale or at any time during the 90 days preceding such date.
Shares Held by Non-Affiliates for One Year
Under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who is not considered to have been one of our affiliates at any time
during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior
owner other than one of our affiliates, is entitled to sell his, her or its shares under Rule 144 without complying with the provisions relating to the availability of
current public information or with any other conditions under Rule 144. Therefore, unless subject to a lock-up agreement or otherwise restricted, such shares may be
sold immediately upon the closing of the IPO.
Registration Rights
Pursuant to the terms of their engagement, we agreed to register the Class A Ordinary Shares underlying the Placement Agent’s Warrants.
11
Exhibit 4.47
This Deed is entered into by and between the following Parties in Hong Kong on December 30, 2021:
Concerted Action Deed
Party A: Peace Range Limited, a company incorporated under the laws of the British Virgin Islands with British Virgin Islands business registration no. 1839278 and
whose registered address is located at Sea Meadow House, Blackburne Highway, P.O. Boc 116, Road Town, Tortola, British Virgin Islands;
Party B: Aptorum Therapeutics Limited, a Cayman Islands exempted limited liability company with Hong Kong business registration number F22845 and whose
register office is located at unit 232, Building 12W, Phase three Hong Kong Sciences Park, Pak Shek Kok, Hong Kong.
Whereas:
1. Mios Pharmaceuticals Limited (hereinafter referred to as the “Company”) is a limited liability company incorporated under the laws of the Cayman Islands with
company number CB-334191 and whose register office is located at Floor 4, Willow House, Cricket Square, Grand Cayman KY1-9010, Cayman Islands;
2. Party A and Party B (collectively, the “Parties” and individually, the “Party”) collectively hold 52.15% equity interests in the Company when this Deed is
concluded;
3. To keep the stable shareholding structure of the Company, improve the efficiency in making decisions for material affairs of the Company, and ensure the
consistency and continuity in the business operation of the Company, the Parties hereto reach this Deed on a voluntary basis.
Article 1 Confirmation and Content of Concerted Action
The Parties confirm that they shall act in concert following the execution date of this Deed, and conduct acts in concert by making same expression of intentions
at shareholders’ meetings of the company to exercise joint control and management over the company.
From the effective date of this Deed, the Parties will continuously act in concert and give the same expression of intentions with respect to the following matters
of the Company:
(1) Exercising voting rights at shareholders’ meetings;
(2) Making proposals to shareholder’s meetings;
(3) Nominating candidates of directors and supervisors;
(4) Making material decisions for the Company (save for the administrative and managerial duty of work being managed by the board of directors and executives
of the Company);
(5) Exercising the rights as shareholders of the Company in accordance with the Articles of Association of the Company and other relevant agreements or
documents between the Company and other related parties;
(6) Performing the obligations as shareholders of the Company in accordance with the Articles of Association of the Company and other relevant agreements or
documents between the Company and other related parties; and
(7) Exercising other rights granted to shareholders of the Company under laws, administrative regulations, other normative documents, and the Articles of
Association of the Company.
When Party A cannot participate in any shareholders’ meeting of the Company, Party A shall appoint Party B or a person designated by Party B as proxy to
participate in such meeting or discussion and make a decision or exercise voting rights.
With regard to decision on the joint control and management over the Company as stipulated in this Deed, each party shall have one vote (not by way of poll
between Party A and Party B) and resolutions of between Party A and Party B shall be passed by simple majority. In the case of an equality of votes for any matter
above Party B shall have a second or casting vote.
Article 2 Continuity of Concerted Action
After this Deed is signed, additional equity interests held, directly or indirectly, by the Parties due to transfer, bonus shares, conversion of reserves into share
capital, share incentives, etc. shall be subject to this Deed.
Article 3 Remedies for Violation of the Provisions on Concerted Action
If any Party violates any provision on concerted action hereunder, the Party shall take effective measures to eliminate the impacts caused by its violation to the
satisfaction of the non-breaching party without violating applicable laws, regulations, or normative documents and the articles of association.
Should the remedial measures mentioned above be not satisfactory to the non-breaching Party Company, the Party violating the provisions hereunder shall
transfer, at the request of the non-breaching Party, all the equity interests it holds, directly or indirectly, in the Company and all relevant rights and interests to the non-
breaching Party at the conditions set by the non-breaching Party, and the non-breaching Party may further require such Party to transfer all the equity interests and
relevant rights and interests to a designated third party in accordance with the provisions of the Articles of Association of the Company. In the event that the Articles
of Association of the Company does not allow the transfer of shares in the Company from the violating Party to the non-breaching Party as aforesaid, the violating
Party shall procure the transfer of shares to non-breaching Party or its designated party on its best efforts.
Article 4 Rescission, Modification, and Termination
Modifications to this Deed shall be subject to a written consensus reached between the Parties through negotiation.
During the term of this Deed, neither Party may transfer its equity interests in the Company without obtaining the prior written consent of the other Party and
causing the transferee to be subject to the provisions of this Deed.
During the term of this Deed, neither Party may unilaterally terminate this Deed without a consensus between the Parties.
Article 5 Governing Law
The conclusion, validity, interpretation, performance, and dispute resolution in respect of this Deed shall be governed by and interpreted in accordance with laws
of Hong Kong. If any provision herein is held illegal, invalid, or unenforceable in whole or in part in accordance with the laws of Hong Kong, such provision or its
relevant part shall be deemed not as a portion of this Deed within the scope above; provided, however, that the legality, validity, and enforceability of the remaining
portions of this Deed shall not be affected.
2
Article 6 Dispute Resolution
Disputes between the Parties arising from or in connection with this Deed shall be solved through negotiation first. If the negotiation fails, the disputes shall be
submitted to Hong Kong International Arbitration Centre for arbitration in Hong Kong in accordance with its then effective arbitration rules. The arbitration award
shall be final, and binding on the Parties. During the dispute resolution, except for the matters in dispute, the Parties shall continue to perform other provisions hereof.
Article 7 Validity and Term
This Deed shall be effective from the date of execution by the Parties to the date when either Party no longer holds, directly or indirectly, equity interests in the
Company with the consent of the other Party, or when this Deed is terminated.
Article 8 Miscellaneous
If any provisions of the Articles of Association of the Company at any time conflict with any of the provisions of this Deed, the provisions of this Deed shall (as
between the parties) prevail and the Parties shall whenever necessary exercise all voting and other rights and powers available to them to procure the alteration of the
Articles of Association of the Company to the extent necessary to permit the Company and its affairs to be carried out as provided in this Deed.
In the event that any term, condition or provision of this Deed is held to be a violation of any applicable law, statute or regulation the same shall be deemed to be
deleted from this Deed and shall be of no force and effect and this Deed shall remain in full force and effect as if such term, condition or provision had not originally
been contained in this Deed.
This Deed is made in two (2) originals, each Party holding one (1) original. Every original has the same legal force.
(No text below)
3
Concerted Action Deed - Signature page
Peace Range Limited (Sign, Seal and Deliver)
/s/ Lam Kwok Fu
By:
Name: Lam Kwok Fu
Title: Director
4
Concerted Action Deed - Signature page
Aptorum Therapeutical Limited (Sign, Seal and Deliver)
/s/ Darren Lui
By:
Name: Darren Lui
Title: Director
5
Exhibit 4.48
This Deed is entered into by and between the following Parties in Hong Kong on December 30, 2021:
Concerted Action Deed
Party A: Peace Range Limited, a company incorporated under the laws of the British Virgin Islands with British Virgin Islands business registration no. 1839278 and
whose registered address is located at Sea Meadow House, Blackburne Highway, P.O. Boc 116, Road Town, Tortola, British Virgin Islands;
Party B: Aptorum Therapeutics Limited, a Cayman Islands exempted limited liability company with Hong Kong business registration number F22845 and whose
register office is located at unit 232, Building 12W, Phase three Hong Kong Sciences Park, Pak Shek Kok, Hong Kong.
Whereas:
1. Scipio Life Sciences Limited (hereinafter referred to as the “Company”) is a limited liability company incorporated under the laws of the Cayman Islands with
company number CB-325085 and whose register office is located at Floor 4, Willow House, Cricket Square, Grand Cayman KY1-9010, Cayman Islands;
2. Party A and Party B (collectively, the “Parties” and individually, the “Party”) collectively hold 52.15% equity interests in the Company when this Deed is
concluded;
3. To keep the stable shareholding structure of the Company, improve the efficiency in making decisions for material affairs of the Company, and ensure the
consistency and continuity in the business operation of the Company, the Parties hereto reach this Deed on a voluntary basis.
Article 1 Confirmation and Content of Concerted Action
The Parties confirm that they shall act in concert following the execution date of this Deed, and conduct acts in concert by making same expression of intentions
at shareholders’ meetings of the company to exercise joint control and management over the company.
From the effective date of this Deed, the Parties will continuously act in concert and give the same expression of intentions with respect to the following matters
of the Company:
(1) Exercising voting rights at shareholders’ meetings;
(2) Making proposals to shareholder’s meetings;
(3) Nominating candidates of directors and supervisors;
(4) Making material decisions for the Company (save for the administrative and managerial duty of work being managed by the board of directors and executives
of the Company);
(5) Exercising the rights as shareholders of the Company in accordance with the Articles of Association of the Company and other relevant agreements or
documents between the Company and other related parties;
(6) Performing the obligations as shareholders of the Company in accordance with the Articles of Association of the Company and other relevant agreements or
documents between the Company and other related parties; and
(7) Exercising other rights granted to shareholders of the Company under laws, administrative regulations, other normative documents, and the Articles of
Association of the Company.
When Party A cannot participate in any shareholders’ meeting of the Company, Party A shall appoint Party B or a person designated by Party B as proxy to
participate in such meeting or discussion and make a decision or exercise voting rights.
With regard to decision on the joint control and management over the Company as stipulated in this Deed, each party shall have one vote (not by way of poll
between Party A and Party B) and resolutions of between Party A and Party B shall be passed by simple majority. In the case of an equality of votes for any matter
above Party B shall have a second or casting vote.
Article 2 Continuity of Concerted Action
After this Deed is signed, additional equity interests held, directly or indirectly, by the Parties due to transfer, bonus shares, conversion of reserves into share
capital, share incentives, etc. shall be subject to this Deed.
Article 3 Remedies for Violation of the Provisions on Concerted Action
If any Party violates any provision on concerted action hereunder, the Party shall take effective measures to eliminate the impacts caused by its violation to the
satisfaction of the non-breaching party without violating applicable laws, regulations, or normative documents and the articles of association.
Should the remedial measures mentioned above be not satisfactory to the non-breaching Party Company, the Party violating the provisions hereunder shall
transfer, at the request of the non-breaching Party, all the equity interests it holds, directly or indirectly, in the Company and all relevant rights and interests to the non-
breaching Party at the conditions set by the non-breaching Party, and the non-breaching Party may further require such Party to transfer all the equity interests and
relevant rights and interests to a designated third party in accordance with the provisions of the Articles of Association of the Company. In the event that the Articles
of Association of the Company does not allow the transfer of shares in the Company from the violating Party to the non-breaching Party as aforesaid, the violating
Party shall procure the transfer of shares to non-breaching Party or its designated party on its best efforts.
Article 4 Rescission, Modification, and Termination
Modifications to this Deed shall be subject to a written consensus reached between the Parties through negotiation.
During the term of this Deed, neither Party may transfer its equity interests in the Company without obtaining the prior written consent of the other Party and
causing the transferee to be subject to the provisions of this Deed.
During the term of this Deed, neither Party may unilaterally terminate this Deed without a consensus between the Parties.
Article 5 Governing Law
The conclusion, validity, interpretation, performance, and dispute resolution in respect of this Deed shall be governed by and interpreted in accordance with laws
of Hong Kong. If any provision herein is held illegal, invalid, or unenforceable in whole or in part in accordance with the laws of Hong Kong, such provision or its
relevant part shall be deemed not as a portion of this Deed within the scope above; provided, however, that the legality, validity, and enforceability of the remaining
portions of this Deed shall not be affected.
2
Article 6 Dispute Resolution
Disputes between the Parties arising from or in connection with this Deed shall be solved through negotiation first. If the negotiation fails, the disputes shall be
submitted to Hong Kong International Arbitration Centre for arbitration in Hong Kong in accordance with its then effective arbitration rules. The arbitration award
shall be final, and binding on the Parties. During the dispute resolution, except for the matters in dispute, the Parties shall continue to perform other provisions hereof.
Article 7 Validity and Term
This Deed shall be effective from the date of execution by the Parties to the date when either Party no longer holds, directly or indirectly, equity interests in the
Company with the consent of the other Party, or when this Deed is terminated.
Article 8 Miscellaneous
If any provisions of the Articles of Association of the Company at any time conflict with any of the provisions of this Deed, the provisions of this Deed shall (as
between the parties) prevail and the Parties shall whenever necessary exercise all voting and other rights and powers available to them to procure the alteration of the
Articles of Association of the Company to the extent necessary to permit the Company and its affairs to be carried out as provided in this Deed.
In the event that any term, condition or provision of this Deed is held to be a violation of any applicable law, statute or regulation the same shall be deemed to be
deleted from this Deed and shall be of no force and effect and this Deed shall remain in full force and effect as if such term, condition or provision had not originally
been contained in this Deed.
This Deed is made in two (2) originals, each Party holding one (1) original. Every original has the same legal force.
(No text below)
3
Concerted Action Deed - Signature page
Peace Range Limited (Sign, Seal and Deliver)
By:
Name:
Title:
/s/ Lam Kwok Fu
Lam Kwok Fu
Director
4
Concerted Action Deed - Signature page
Aptorum Therapeutical Limited (Sign, Seal and Deliver)
By:
Name:
Title:
/s/ Darren Lui
Darren Lui
Director
5
Exhibit 8.1
Note: Both Mios Pharmaceuticals Limited (“Mios”) and Scipio Life Sciences Limited (“Scipio”) issued Class A and Class B ordinary
shares to various parties; for each such entity, each Class A ordinary share is entitled to 1 vote and 1 share of economic interest of the
respective company, while each Class B ordinary share is entitled to 10 votes and 0.001 share of economic interest of the respective
company. As of the date of this annual report, we hold 97.93% economic interest and 36.17% voting power in Mios, and 97.93% economic
interest and 35.06% voting power in Scipio.
Certification by the Principal Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
Exhibit 12.1
I, Ian Huen, certify that:
1.
I have reviewed this annual report on Form 20-F of Aptorum Group Limited (the “Company”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4. The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and
have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c. Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report
that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and
5. The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s
auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the Company’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over
financial reporting.
Date: April 29, 2022
/s/ Ian Huen
Ian Huen
Name:
Title: Chief Executive Officer
(Principal Executive Officer)
Certification by the Principal Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 12.2
I, Sabrina Khan, certify that:
1.
I have reviewed this annual report on Form 20-F of Aptorum Group Limited (the “Company”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4. The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and
have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c. Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report
that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and
5. The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s
auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the Company’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over
financial reporting.
Date: April 29, 2022
/s/Sabrina Khan
Name: Sabrina Khan
Title: Chief Financial Officer
(Principal Financial Officer)
Certifications Pursuant to 18 U.S.C. Section 1350
Exhibit 13.1
Pursuant to U.S.C. Section 1350 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code),
each of the undersigned officers of Aptorum Group Limited (the “Company”), does hereby certify, to such officer’s knowledge, that:
The Annual Report on Form 20-F for the year ended December 31, 2021 of the Company fully complies, in all material respects, with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 20-F fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Dated: April 29, 2022
Dated: April 29, 2022
/s/ Ian Huen
Ian Huen
Chief Executive Officer
(Principal Executive Officer)
/s/ Sabrina Khan
Sabrina Khan
Chief Financial Officer
(Principal Financial Officer)
New York Office
7 Penn Plaza, Suite
830 New York, NY 10001
T 212.279.7900
Exhibit 15.1
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT
We consent to the incorporation by reference in the Registration Statement of Aptorum Group Limited on Form F-3 (FILE NO. 333-235819) and From S-8 (FILE NO.
333-232591) of our report dated April 29, 2022, with respect to our audits of the consolidated financial statements of Aptorum Group Limited as of December 31,
2021 and 2020 and for each of the three years in the period ended December 31, 2021, which report is included in this Annual Report on Form 20-F of Aptorum
Group Limited for the year ended December 31, 2021.
/s/ Marcum Bernstein & Pinchuk LLP
Marcum Bernstein & Pinchuk LLP
New York, New York
April 29, 2022