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, 2022
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)
Darren Lui, 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 $0.00001
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: 1,326,953 (retroactively reflecting the ten-for-one reverse stock split that was effectuated on January 23, 2023)
Class B Ordinary Shares: 2,243,776 (retroactively reflecting the ten-for-one reverse stock split that was effectuated on January 23, 2023)
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. ☐
If the securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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
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135
135
142
142
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143
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146
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, a director,
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 90% 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,” and “Group” refer to Aptorum Group Limited, a Cayman Islands exempted company with limited liability whose principal place of business is
in Hong Kong, all of its subsidiaries and the consolidated VIEs to which we are regarded as the primary beneficiary for accounting purposes.
● “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 (“PathsDx Test”, formerly known as “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. 333-268873), 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.
● “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 $0.00001 per share.
● “Class B Ordinary Shares” refers to the Company’s Class B Ordinary Shares, par value $0.00001 per share.
● “Company,” “we” and “us” refer to Aptorum Group Limited, a Cayman Islands exempted company with limited liability whose principal place of business is in
Hong Kong.
● “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 76,142 Class A Ordinary Shares consummated on December 17, 2018.
● “Jurchen” refers to Jurchen Investment Corporation, a company wholly-owned by one of our directors and former CEO, Ian Huen, and a holding company of
Aptorum Group.
● “Lead Projects” refers to ALS-4, SACT-1 and PathsDx Test (formerly known as RPIDD).
● “Libra” refers to Libra Sciences Limited, a VIE in which we hold 97.27% economic interest and 31.51% voting power. Libra is incorporated under the laws of the
Cayman Islands. We are not deemed as the primary beneficiary of Libra for accounting purposes.
● “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 consolidated VIE in which we indirectly hold 97.93% economic interest and 36.17% voting power. Aptorum is
regarded as the primary beneficiary of Mios for accounting purposes.
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 135,135 Class A Ordinary Shares and warrants to purchase up to 135,135
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 349,397 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 consolidated VIE in which we indirectly hold 97.93% economic interest and 35.06% voting power. Aptorum is
regarded as the primary beneficiary of Scipio for accounting purposes.
● “Securities Act” refers to the Securities Act of 1933.
● “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.
● “VIE” refers to a variable interest entity.
● “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, 2022 and 2021, and the related consolidated statements of
operations and comprehensive (loss) income, equity and cash flows for the years ended December 31, 2022, 2021 and 2020.
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
All share and per share amounts have been retroactively adjusted to reflect the reverse stock split that occurred on January 23, 2023.
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.
1
Risks Related to Doing Business in Hong Kong
● Risks relating to legal and regulatory risks associated with our operations in Hong Kong.
● If we become directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant
resources to investigate and resolve the matter which could harm our business operations, stock price and reputation and could result in a loss of your investment
in our stock, especially if such matter cannot be addressed and resolved favorably.
● The recent joint statement by the SEC, proposed rule changes submitted by Nasdaq, and an act passed by the U.S. Senate and the U.S. House of Representatives,
all call for additional and more stringent criteria to be applied to emerging market companies. These developments could add uncertainties to our offering,
business operations, share price and reputation.
● Our business, financial condition and results of operations, and/or the value of our Class A Ordinary Shares or our ability to offer or continue to offer securities to
investors may be materially and adversely affected to the extent the laws and regulations of the PRC become applicable to a company such as us.
● Our Class A Ordinary Shares may be delisted under the HFCA Act if the PCAOB is unable to inspect our auditors. The delisting of our Class A Ordinary Shares,
or the threat of their being delisted, may materially and adversely affect the value of your investment. Furthermore, on December 29, 2022, a legislation entitled
“Consolidated Appropriations Act, 2023” (the “Consolidated Appropriations Act”), was signed into law by President Biden. The Consolidated Appropriations Act
contained, among other things, an identical provision to the Accelerating Holding Foreign Companies Accountable Act (the “AHFCAA”), which reduces the
number of consecutive non-inspection years required for triggering the prohibitions under the HFCA Act from three years to two.
● Even though our auditor is based in New York, New York and under full inspection by the PCAOB and that it is not currently subject to the determinations
announced by the PCAOB on December 16, 2021, if any PRC law relating to the access of the PCAOB to auditor files were to apply to a company such as
Marcum Asia CPAs LLP (formerly known as Marcum Bernstein & Pinchuk LLP) or its auditor, the PCAOB may be unable to fully inspect our auditor, which may
result in our securities being delisted or prohibited from being traded “over-the-counter” pursuant to the HFCA Act and materially and adversely affect the value
and/or liquidity of your investment.
● The uncertainties with respect to the Chinese legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws
and regulations in China with little advance notice could adversely affect us and limit the legal protections available to you and us.
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
2
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
3
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.
4
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 have also launched NativusWell® (NLS-
2) in Hong Kong through HKTV Mall, a leading online shopping mall in Hong Kong, in September 2022, and in China through one of the largest e-commerce platform in
China, JD.com, in March 2023.
Until our therapeutic candidates produce revenue, our principal source of revenue is from AML Clinic, but it is not sufficient by itself to fund our other operations;
even if we receive revenue from NativusWell® (NLS-2) natural supplements, 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.
Because we rely upon third parties to perform the payment processing for our sales of on the e-commerce platforms, the failure or inability of the third party to provide
these services could impair our business and operation.
The third party payment service providers such as UnionPay, Alipay and WeChat Pay are used by most e-commerce platforms in China for their convenience,
reliability and cost-effectiveness. However, the payment processing business is highly regulated, and it is subject to a number of risks that could materially and adversely affect
their abilities to provide payment processing services to us, including:
● increased regulatory focus and the requirement that it comply with numerous complex and evolving laws, rules and regulations;
● increases in the costs to the third party, including fees charged by banks to process funds through the third parties, which could result in increased costs to us and
to our participants;
● dissatisfaction with the third parties’ services;
● a decline in the use of the third parties’ services generally which could result in increases in costs to users such as us and our participants;
● the ability of the third parties to maintain adequate security procedures to prevent the hacking or other unauthorized access to account and other information
provided by us and the participants who use the system;
● system failures or failure to effectively scale the system to handle large and growing transaction volumes;
● the failure or inability of the third parties to manage funds accurately or the loss of funds by the third parties, whether due to employee fraud, security breaches,
technical errors or otherwise; and
● the failure or inability of these third parties to adequately manage business and regulatory risks.
We rely on the convenience and ease of use that third party’s payment methods for our sales of NativusWell® (NLS-2) on the e-commerce platforms. If the quality,
utility, convenience or attractiveness of these payment services declines for any reason, the attractiveness of our product could be materially impaired. If we need to migrate to
other third-party payment services for any reason, the transition could require considerable time and management resources, and the third-party payment services may not be as
effective, efficient or well-received by our clients. Further, our customers may be reluctant to use a different payment system.
5
Preclinical development is a long, expensive and uncertain process, and we may terminate one or more of our current preclinical development programs.
it
to
to make
take around 12 years
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
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;
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● 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.
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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;
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● 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.
9
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.
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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;
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● 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.
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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.
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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.
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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;
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● 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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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;
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● 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.
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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.
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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.
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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 have launched and marketed NativusWell® (NLS-2) in Hong Kong through HKTV Mall, a leading online shopping mall in Hong Kong in September 2022, and in
China through one of the largest e-commerce platform in China, JD.com in March 2023. 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 PathsDx Test technology may be utilized, are safe
and effective for their intended uses. Should the PathsDx Test 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 PathsDx Test may not be subject to the
FDA’s enforcement of its medical device regulations and the applicable FDC Act provisions.
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However, if and when we utilize the PathsDx Test technology in the U.S., the FDA may disagree with our assessment that the PathsDx Test falls within the definition of
an LDT and seek to regulate the PathsDx Test 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 PathsDx Test, 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 PathsDx Test 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.
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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 Darren Lui, 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 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 18 full-time and 1 part-time employees. Of these, 6 full-time are engaged in research and development and laboratory
operations, 7 full-time are engaged in general and administrative functions and 5 full-time and 1 part-time are engaged in the clinic operation. As of the date of this annual
report, 18 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 66 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.
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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;
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● 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.
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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, 2022, 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.
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Since 2019, we took actions to remediate the abovementioned material weakness:
● 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.
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, 2022. 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 not effective as of December 31, 2022. 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.
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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.
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.
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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.
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.
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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 $1.88 million, $8.13 million, and $3.50 million as of December 31, 2022, 2021, and 2020, 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.
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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.
We may be exposed to various risks related to the regulatory environment of the pharmaceutical industry in the PRC.
We have sold NativusWell® through JD.com in China since 2023; we are the exclusive licensee to certain PRC patents directed to our drug candidates; and we also
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.
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. 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, 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 AHFCAA, which, if signed into law, 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 the PCAOB inspections for two consecutive years instead of three consecutive
years, thus reducing the time period for triggering the prohibition on trading. On September 22, 2021, the PCAOB adopted a final rule implementing the HFCA Act, which
provides a framework for the PCAOB to use when determining, as contemplated under the HFCA Act, 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 HFCA Act, 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 HFCA Act. 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 two consecutive years (which will be determined after the second such annual report), the SEC will issue a trading order that will implement prohibitions described
above.
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On December 29, 2022, the Consolidated Appropriations Act, was signed into law by President Biden. The Consolidated Appropriations Act contained, among other
things, an identical provision to AHFCAA, which reduce the number of consecutive non-inspection years required for triggering the prohibitions under the HFCA Act from
three years to two.
Our current independent accounting firm, Marcum Asia CPAs LLP (formerly known as 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 2021 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 Asia CPAs 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 Asia CPAs 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 Asia CPAs 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.
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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, 2022, and we may be a PFIC for U.S. federal income tax purposes for our current taxable year ending December 31, 2023.
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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, 2022, 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.
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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;
● 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;
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● 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
One of our directors controls a majority of our voting shares.
One of our Non-Executive Directors and former CEO, 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 2,068,627 Ordinary Shares, on an as converted basis (462,480 Class A Ordinary Shares and 1,606,147 Class B Ordinary Shares),
representing approximately 71% 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. 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,
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.
We may not be able to consolidate the financial results of some of our affiliated companies or such consolidation could materially adversely affect our operating results and
financial condition.
The Company has three VIEs which are incorporated under the laws of Cayman Islands and conduct operations in Hong Kong. The Company currently consolidates
two of those VIEs since the Group has a variable interest in them and is determined to be the primary beneficiary of those two VIEs under U.S. GAAP. 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 VIEs’ 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. According to those standards, we
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. As a result, Mios
and Scipio’s financial results are consolidated in our consolidated financial statements. In the event that in the future the VIEs no longer meet the definition of a VIE, or we are
deemed not to be the primary beneficiary of the VIE for accounting purpose, we would not be able to consolidate line by line that VIE’s financial results in our consolidated
financial statements. Also, if in the future an affiliate company becomes a VIE and we become the primary beneficiary of it for accounting purposes, we would be required to
consolidate that entity’s financial results in our consolidated financial statements. If such entity’s financial results were negative, this could have a corresponding negative
impact on our operating results.
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The economic substance legislation of the Cayman Islands may adversely impact us or our operations.
The Company is subject to Cayman Islands economic substance legislation (“ESA”) requiring that where the Company carries on a relevant activity (as defined in the
ESA) it must maintain economic substance within the Cayman Islands, including adequate premises and employees within the Cayman Islands. As an entity subject to the ESA,
the Company is required to assess its operations to determine the required compliance (if any) with the ESA, to file an annual notification with the Cayman Islands Registrar of
Companies disclosing whether the Company is carrying out any relevant activities within the meaning of the ESA and an annual return with the Department of International
Tax Co-Operation. Where applicable, the Company must establish that its operations satisfy the economic substance requirements of the ESA. The Company is required to
monitor its operations to ensure it remains in compliance with all requirements under the ESA. Failure to satisfy these requirements may subject the Company to penalties under
the ESA.
EU AML High-Risk Third Countries List
On March 13, 2022, the European Commission (“EC”) updated its list of ‘high-risk third countries’ (“EU AML List”) identified as having strategic deficiencies in
their anti-money laundering/counter-terrorist financing regimes to add nine countries, including the Cayman Islands. The EC has noted it is committed to there being a greater
alignment between the EU AML List and the FATF listing process. The addition of the Cayman Islands to the EU AML List is a direct result of the inclusion of the Cayman
Islands on the FATF grey list in February 2021. It is unclear how long this designation will remain in place and what ramifications, if any, the designation will have for the
Company.
The Financial Action Task Force has increased monitoring of the Cayman Islands.
In February 2021, the Cayman Islands was added to the Financial Action Task Force (“FATF”) list of jurisdictions whose anti-money laundering practices are under
increased monitoring, commonly referred to as the “FATF grey list.” When the FATF places a jurisdiction under increased monitoring, it means the country has committed to
resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring during that timeframe. In its October 2021 and October 2022
plenary, the FATF recognized the progress made by the Cayman Islands to improve its anti-money laundering and counter-terrorist financing regime. Despite this recognition, it
is still unclear how long this designation will remain in place and what ramifications, if any, the designation will have for the Company.
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Risks Related to our Securities
If we fail to comply with the continued listing requirements of NASDAQ, we would face possible delisting, which would result in a limited public market for our shares and
make obtaining future debt or equity financing more difficult for us.
On February 8, 2023, the Company received a deficiency letter from the Nasdaq Listing Qualifications Department (the “Staff”) of the Nasdaq Stock Market LLC
(“Nasdaq”) notifying the Company that the Company does not meet the minimum Market Value of Publicly Held Shares (“MVPHS”) of $5,000,000 for the previous 30
consecutive business days. The Nasdaq deficiency letter has no immediate effect on the listing of the Company’s Class A Ordinary Shares, and its Class A Ordinary Shares will
continue to trade on The Nasdaq Global Market under the symbol “APM” at this time.
In accordance with Nasdaq Listing Rule 5810(c)(3)(D), the Company has been given 180 calendar days, or until August 7, 2023, to regain compliance with Rule
5450(b)(1)(C). If at any time before August 7, 2023, the MVPHS closes at $5,000,000 or more for a minimum of ten consecutive business days, the Staff will provide written
confirmation that the Company has achieved compliance and the matter will be closed.
If the Company does not regain compliance with Rule 5450(b)(1)(C) by August 7, 2023, the Company will receive written notification that its securities are subject to
delisting and the Company may appeal the delisting determination to a Hearing’s Panel. Alternatively, the Company may consider applying to transfer the Class A Ordinary
Shares to The Nasdaq Capital Market. The Company intends to remain on the Nasdaq Global Market and will actively monitor its MVPHS and will consider available options
to resolve the deficiency and regain compliance with Rule 5450(b)(1)(C).
If the Company fails to regain compliance with any other listing rules when required in the future, we could be subject to suspension and delisting proceedings. If our
securities lose their status on the Nasdaq Capital Market, our securities would likely trade in the over-the-counter market. If our securities were to trade on the over-the-counter
market, selling our securities could be more difficult because smaller quantities of securities would likely be bought and sold, transactions could be delayed, and security
analysts’ coverage of us may be reduced. In addition, in the event our securities are delisted, broker-dealers have certain regulatory burdens imposed upon them, which may
discourage broker-dealers from effecting transactions in our securities, further limiting the liquidity of our securities. These factors could result in lower prices and larger
spreads in the bid and ask prices for our securities. Such delisting from the NASDAQ Capital Market and continued or further declines in our share price could also greatly
impair our ability to raise additional necessary capital through equity or debt financing, and could significantly increase the ownership dilution to shareholders caused by our
issuing equity in financing or other transactions.
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 1,719,522 Class A Ordinary Shares are outstanding as of the date of this annual report. 860,989 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.
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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 one hundred 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 1.8 million Class B Ordinary Shares representing
approximately 81% 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.
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Shareholders who hold shares of Class B Ordinary Shares, including our executive officers and their affiliates, hold approximately 99% of the voting power of our
outstanding ordinary shares. Because of the one hundred-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 1.0% 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 Third Amended and Restated Memorandum and Articles of Association (as may be amended from time to time)
(“Memorandum and Articles”), the Companies Act (2023 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.
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.
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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.
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.
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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.
Risks Related to Doing Business in Hong Kong
Our company currently only has limited operations to sell its NativusWell® through one of mainland China’s largest e-commerce platforms. Accordingly, the laws and
regulations of the PRC do not currently have any material impact on our business, financial condition and results of operations. However, if certain PRC laws and regulations
were to become applicable to a company such as us in the future, the application of such laws and regulations may have a material adverse impact on our business, financial
condition and results of operations and our ability to offer or continue to offer securities to investors, any of which may cause the value of our Class A Ordinary Shares, to
significantly decline or become worthless. See the following risk factors of “Our business, financial condition and results of operations, and/or the value of our Class A
Ordinary Shares or our ability to offer or continue to offer securities to investors may be materially and adversely affected to the extent the laws and regulations of the PRC
become applicable to a company such as us” and “The PRC government exerts substantial influence and discretion over the manner in which companies incorporated under
the laws of PRC must conduct their business activities. If we were to become subject to such direct influence or discretion, it may result in a material change in our operations
and/or the value of your Class A Ordinary Shares, which would materially affect the interests of investors.”
Political risks associated with conducting business in Hong Kong.
Most of our operations are based in Hong Kong. Accordingly, our business operations and financial conditions will be affected by the political and legal developments
in Hong Kong. During the period covered by the financial information incorporated by reference into and included in this Report, we maintain substantially most of our
operations in Hong Kong. Any adverse economic, social and/or political conditions, material social unrest, strike, riot, civil disturbance or disobedience, as well as significant
natural disasters, may affect the market may adversely affect the business operations of our operations. Hong Kong is a special administrative region of the PRC and the basic
policies of the PRC regarding Hong Kong are reflected in the Basic Law (the “Hong Kong Basic Law” or the “Basic Law”), namely, Hong Kong’s constitutional document,
which provides Hong Kong with a high degree of autonomy and executive, legislative and independent judicial powers, including that of final adjudication under the principle
of “one country, two systems”. However, there is no assurance that there will not be any changes in the economic, political and legal environment in Hong Kong in the future.
Since our operation is based in Hong Kong, any change of such political arrangements may pose immediate threat to the stability of the economy in Hong Kong, thereby
directly and adversely affecting our results of operations and financial positions.
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Under the Basic Law of the Hong Kong Special Administrative Region of the People’s Republic of China, Hong Kong is exclusively in charge of its internal affairs
and external relations, while the government of the PRC is responsible for its foreign affairs and defense. As a separate customs territory, Hong Kong maintains and develops
relations with foreign states and regions. Based on certain recent development including the Law of the People’s Republic of China on Safeguarding National Security in the
Hong Kong Special Administrative Region issued by the Standing Committee of the PRC National People’s Congress in June 2020, the U.S. State Department has indicated
that the United States no longer considers Hong Kong to have significant autonomy from China and Former President Trump signed an executive order and Hong Kong
Autonomy Act (“HKAA”) to remove Hong Kong’s preferential trade status and to authorize the U.S. administration to impose blocking sanctions against individuals and
entities who are determined to have materially contributed to the erosion of Hong Kong’s autonomy. The United States may impose the same tariffs and other trade restrictions
on exports from Hong Kong that it places on goods from mainland China. These and other recent actions may represent an escalation in political and trade tensions involving
the U.S., China and Hong Kong, which could potentially harm our business.
Given the relatively small geographical size of Hong Kong, any of such incidents may have a widespread effect on our business operations, which could in turn
adversely and materially affect our business, results of operations and financial condition. It is difficult to predict the full impact of the HKAA on Hong Kong and companies
with operations in Hong Kong like us. Furthermore, legislative or administrative actions in respect of China-U.S. relations could cause investor uncertainty for affected issuers,
including us, and the market price of our Ordinary Shares could be adversely affected.
If we become directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources
to investigate and resolve the matter which could harm our business operations, stock price and reputation and could result in a loss of your investment in our stock,
especially if such matter cannot be addressed and resolved favorably.
Recently, U.S. public companies that have substantially all of their operations in China, including Hong Kong, have been the subject of intense scrutiny, criticism and
negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered around
financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of
adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese
companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC
enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative
publicity will have on our company, our business and our stock price. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or
untrue, we will have to expend significant resources to investigate such allegations and/or defend our company. This situation will be costly and time consuming and distract
our management from growing our company.
The recent joint statement by the SEC, proposed rule changes submitted by Nasdaq, and an act passed by the U.S. Senate and the U.S. House of Representatives, all call for
additional and more stringent criteria to be applied to emerging market companies. These developments could add uncertainties to our offering, business operations, share
price and reputation.
U.S. public companies that have substantially all of their operations in China and Hong Kong have been the subject of intense scrutiny, criticism and negative publicity
by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered on financial and accounting
irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many
cases, allegations of fraud.
On April 21, 2020, SEC Chairman Jay Clayton and PCAOB Chairman William D. Duhnke III, along with other senior SEC staff, released a joint statement
highlighting the risks associated with investing in companies based in or have substantial operations in emerging markets including China, including Hong Kong, reiterating
past SEC and PCAOB statements on matters including the difficulty associated with inspecting accounting firms and audit work papers in China and Hong Kong and higher
risks of fraud in emerging markets and the difficulty of bringing and enforcing SEC, Department of Justice and other U.S. regulatory actions, including in instances of fraud, in
emerging markets generally.
On May 20, 2020, the U.S. Senate passed the HFCA Act requiring a foreign company to certify it is not owned or controlled by a foreign government if the PCAOB is
unable to audit specified reports because the company uses a foreign auditor not subject to PCAOB inspection. If the PCAOB is unable to inspect the company’s auditors for
three consecutive years, the issuer’s securities are prohibited to trade on a national exchange. On December 2, 2020, the U.S. House of Representatives approved the HFCA
Act.
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On May 21, 2021, Nasdaq filed three proposals with the SEC to (i) apply minimum offering size requirement for companies primarily operating in a “Restrictive
Market”, (ii) prohibit Restrictive Market companies from directly listing on Nasdaq Capital Market, and only permit them to list on Nasdaq Global Select or Nasdaq Global
Market in connection with a direct listing and (iii) apply additional and more stringent criteria to an applicant or listed company based on the qualifications of the company’s
auditors.
On March 24, 2021, the SEC announced the adoption of interim final amendments to implement the submission and disclosure requirements of the HFCA Act. In the
announcement, the SEC clarifies that before any issuer will have to comply with the interim final amendments, the SEC must implement a process for identifying covered
issuers. The announcement also states that the SEC staff is actively assessing how best to implement the other requirements of the HFCA Act, including the identification
process and the trading prohibition requirements.
On June 22, 2021, the U.S. Senate passed the AHFCAA, which, if signed into law, 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 the PCAOB inspections for two consecutive years instead of three consecutive years.
On September 22, 2021, the PCAOB adopted a final rule implementing the HFCA Act, which provides a framework for the PCAOB to use when determining, as
contemplated under the HFCA Act, whether the board of directors of a company 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 adopted amendments to finalize rules implementing the submission and disclosure requirements in the HFCA Act.
On December 16, 2021, the PCAOB issued a report on its determinations that it is unable to inspect or investigate completely PCAOB-registered public accounting
firms headquartered in mainland China and in Hong Kong because of positions taken by PRC and Hong Kong authorities in those jurisdictions.
On December 29, 2022, the Consolidated Appropriations Act was signed into law by President Biden. The Consolidated Appropriations Act contained, among other
things, an identical provision to AHFCAA, which reduce the number of consecutive non-inspection years required for triggering the prohibitions under the HFCA Act from
three years to two.
The lack of access to the PCAOB inspection in China prevents the PCAOB from fully evaluating audits and quality control procedures of the auditors based in China.
As a result, investors may be deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more
difficult to evaluate the effectiveness of these accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to the
PCAOB inspections, which could cause investors and potential investors in our Class A Ordinary Shares to lose confidence in our audit procedures and reported financial
information and the quality of our financial statements.
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Our auditor, Marcum Asia CPAs LLP, as the auditor of companies that are traded publicly in the U.S. and registered with the PCAOB, are subject to laws in the U.S.,
pursuant to which the PCAOB conducts regular inspections to assess their compliance with the applicable professional standards. Marcum Asia CPAs LLP is headquartered in
Manhattan, New York, and have been inspected by the PCAOB on a regular basis, with the last inspections in 2020, and Marcum Asia CPAs LLP is not subject to the
determinations announced by the PCAOB on December 16, 2021.
However, the recent developments would add uncertainties to our ability to offer or continue to offer securities and we cannot assure you whether the national
securities exchange we apply to for listing or regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s
audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach, or experience as it relates to our audit. In
addition, the HFCA Act, as amended, which requires that the PCAOB be permitted to inspect an issuer’s public accounting firm within two years, may result in the delisting of
our Company or prohibition of trading in our Class A Ordinary Shares in the future if the PCAOB is unable to inspect our accounting firm at such future time.
On August 26, 2022, the China Securities Regulatory Commission, the MOF, and the PCAOB signed the Protocol governing inspections and investigations of audit
firms based in mainland China and Hong Kong, taking the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms
headquartered in mainland China and Hong Kong. Pursuant to the fact sheet with respect to the Protocol disclosed by the SEC, the PCAOB shall have independent discretion to
select any issuer audits for inspection or investigation and has the unfettered ability to transfer information to the SEC. On December 15, 2022, the PCAOB Board determined
that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to
vacate its previous determinations to the contrary. However, should PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB Board
will consider the need to issue a new determination.
As a result of this scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese and Hong Kong companies sharply decreased in
value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting
internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on us, our ability to offer
or continue to offer securities, business and our share price. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue,
we will have to expend significant resources to investigate such allegations and/or defend our company. This situation will be costly and time consuming and distract our
management from developing our growth. If such allegations are not proven to be groundless, we and our business operations will be severely affected and you could sustain a
significant decline in the value of our share.
Nasdaq may apply additional and more stringent criteria for our continued listing because our insiders hold a large portion of our listed securities.
Nasdaq Listing Rule 5101 provides Nasdaq with broad discretionary authority over the initial and continued listing of securities in Nasdaq and Nasdaq may use such
discretion to deny initial listing, apply additional or more stringent criteria for the initial or continued listing of particular securities, or suspend or delist particular securities
based on any event, condition, or circumstance that exists or occurs that makes initial or continued listing of the securities on Nasdaq inadvisable or unwarranted in the opinion
of Nasdaq, even though the securities meet all enumerated criteria for initial or continued listing on Nasdaq. In addition, Nasdaq has used its discretion to deny initial or
continued listing or to apply additional and more stringent criteria in the instances, including but not limited to: (i) where the company engaged an auditor that has not been
subject to an inspection by PCAOB, an auditor that PCAOB cannot inspect, or an auditor that has not demonstrated sufficient resources, geographic reach, or experience to
adequately perform the company’s audit; (ii) where the company planned a small public offering, which would result in insiders holding a large portion of the company’s listed
securities; and (iii) where the company did not demonstrate sufficient nexus to the U.S. capital market, including having no U.S. shareholders, operations, or members of the
board of directors or management. The insiders of our Company hold a large portion of the company’s listed securities. Therefore, we may be subject to the additional and more
stringent criteria of Nasdaq for our continued listing, which might result in deficiency letters or inquiries that will take management’s time away from focusing on our
operations.
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Our business, financial condition and results of operations, and/or the value of our Class A Ordinary Shares or our ability to offer or continue to offer securities to
investors may be materially and adversely affected to the extent the laws and regulations of the PRC become applicable to a company such as us.
We currently do not have or intend to have any subsidiary or any contractual arrangement to establish a variable interest entity structure with any entity in mainland
China. All of our operating entities are in jurisdictions outside of mainland China, including all three of our VIEs which are incorporated under the laws of Cayman Islands and
conduct operations in Hong Kong. However, as our principal place of business is in Hong Kong, a special administrative region of China, there is no guarantee that if certain
existing or future laws of the PRC become applicable to a company such as us, it will not have a material adverse impact on our business, financial condition and results of
operations and/or our ability to offer or continue to offer securities to investors, any of which may cause the value of such securities to significantly decline or be worthless.
Except for the Basic Law, the national laws of the PRC do not apply in Hong Kong unless they are listed in Annex III of the Basic Law and applied locally by
promulgation or local legislation. National laws that may be listed in Annex III are currently limited under the Basic Law to those which fall within the scope of defense and
foreign affairs as well as other matters outside the limits of the autonomy of Hong Kong. National laws and regulations relating to data protection, cybersecurity and anti-
monopoly have not been listed in Annex III and so do not apply directly to Hong Kong.
The laws and regulations in the PRC are evolving, and their enactment timetable, interpretation and implementation involve significant uncertainties. To the extent any
PRC laws and regulations become applicable to us, we may be subject to the risks and uncertainties associated with the legal system in the PRC, including with respect to the
enforcement of laws and the possibility of changes of rules and regulations with little or no advance notice. We currently do not have plan to expand our operation or acquire
any operation in the mainland China. However, we may also become subject to the laws and regulations of the PRC to the extent we commence business and customer facing
operations in mainland China as a result of any future acquisition, expansion or organic growth.
The PRC government exerts substantial influence and discretion over the manner in which companies incorporated under the laws of PRC must conduct their business
activities. If we were to become subject to such direct influence or discretion, it may result in a material change in our operations and/or the value of our Class A Ordinary
Shares, which would materially affect the interest of the investors.
The PRC legal system is evolving rapidly and the PRC laws, regulations, and rules may change quickly with little advance notice. In particular, because these laws,
rules and regulations are relatively new, and because of the limited number of published decisions and the non-precedential nature of these decisions, the interpretation of these
laws, rules and regulations may contain inconsistences, the enforcement of which involves uncertainties. The PRC government has exercised and continues to exercise
substantial control over many sectors of the PRC economy through regulation and/or state ownership. Government actions have had, and may continue to have, a significant
effect on economic conditions in the PRC and businesses which are subject to such government actions.
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We have business operations in Hong Kong, with limited operations to sell its NativusWell® through e-commerce in mainland China, and we directly, or indirectly via
our subsidiaries, own equity interests in our operating entities, none of which are located in mainland China, although all three of our VIEs are incorporated under the laws of
Cayman Islands and conduct operations in Hong Kong. Our principal executive offices are located in Europe, but our principal place of business is in Hong Kong, a special
administrative region of China. The PRC government currently does not exert direct influence and discretion over the manner in which we conduct our business activities
outside of mainland China, however, there is no guarantee that we will not be subject to such direct influence or discretion in the future due to changes in laws or other
unforeseeable reasons or as a result of our future expansion or acquisition of operations in mainland China. See “- Our business, financial condition and results of operations,
and/or the value of our Class A Ordinary Shares or our ability to offer or continue to offer securities to investors may be materially and adversely affected to the extent the laws
and regulations of the PRC become applicable to a company such as us.”
We currently do not have plans to expand our operation or acquire any operation in the mainland China. However, if we were to become subject to the direct
intervention or influence of the PRC government at any time due to changes in laws or other unforeseeable reasons or as a result of our future development, expansion or
acquisition of operations in the PRC, it may require a material change in our operations and/or result in increased costs necessary to comply with existing and newly adopted
laws and regulations or penalties for any failure to comply. In addition, the market prices of our Class A Ordinary Shares could be adversely affected as a result of anticipated
negative impacts of any such government actions, as well as negative investor sentiment towards Hong Kong-based companies subject to direct PRC government oversight and
regulation, regardless of our actual operating performance. There can be no assurance that the Chinese government would not intervene in or influence our operations at any
time.
We were not required to obtain permission from the PRC government to list on a U.S. securities exchange, however there is no guarantee that this will continue to be
the case in the future in relation to the continued listing of our securities on a securities exchange outside of the PRC, or even when such permission is obtained, it will not be
subsequently denied or rescinded. Any actions by the PRC government to exert more oversight and control over offerings (including of businesses whose primary operations
are in Hong Kong) that are conducted overseas and/or foreign investments in Hong Kong-based issuers could significantly limit or completely hinder our ability to offer or
continue to offer securities to investors and cause the value of our securities, including our Class A Ordinary Shares, to significantly decline or be worthless.
The enactment of Law of the PRC on Safeguarding National Security in the Hong Kong Special Administrative Region (the “Hong Kong National Security Law”) could
impact our Hong Kong holding subsidiary.
On June 30, 2020, the Standing Committee of the PRC National People’s Congress adopted the Hong Kong National Security Law. This law defines the duties and
government bodies of the Hong Kong National Security Law for safeguarding national security and four categories of offences - secession, subversion, terrorist activities, and
collusion with a foreign country or external elements to endanger national security - and their corresponding penalties. On July 14, 2020, the former U.S. President Donald
Trump signed the Hong Kong Autonomy Act, or HKAA, into law, authorizing the U.S. administration to impose blocking sanctions against individuals and entities who are
determined to have materially contributed to the erosion of Hong Kong’s autonomy. On August 7, 2020 the U.S. government imposed HKAA-authorized sanctions on eleven
individuals, including former HKSAR chief executive Carrie Lam. On October 14, 2020, the U.S. State Department submitted to relevant committees of Congress the report
required under HKAA, identifying persons materially contributing to “the failure of the Government of China to meet its obligations under the Joint Declaration or the Basic
Law.” The HKAA further authorizes secondary sanctions, including the imposition of blocking sanctions, against foreign financial institutions that knowingly conduct a
significant transaction with foreign persons sanctioned under this authority. The imposition of sanctions may directly affect the foreign financial institutions as well as any third
parties or customers dealing with any foreign financial institution that is targeted. It is difficult to predict the full impact of the Hong Kong National Security Law and HKAA
on Hong Kong and companies located in Hong Kong. If our Hong Kong subsidiaries are determined to be in violation of the Hong Kong National Security Law or the HKAA
by competent authorities, our business operations, financial position and results of operations could be materially and adversely affected.
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The Hong Kong legal system embodies uncertainties which could limit the availability of legal protections.
As one of the conditions for the handover of the sovereignty of Hong Kong to China, China accepted conditions such as Hong Kong’s Basic Law. The Basic Law
ensured Hong Kong will retain its own currency (Hong Kong Dollar), legal system, parliamentary system and people’s rights and freedom for fifty years from 1997. This
agreement has given Hong Kong the freedom to function with a high degree of autonomy. The Special Administrative Region of Hong Kong is responsible for its own domestic
affairs including, but not limited to, the judiciary and courts of last resort, immigration and customs, public finance, currencies and extradition. Hong Kong continues using the
English common law system.
However, if the PRC attempts to alter its agreement to allow Hong Kong to function autonomously, this could potentially impact Hong Kong’s common law legal
system and may in turn bring about uncertainty in, for example, the enforcement of our contractual rights. This could, in turn, materially and adversely affect our business and
operations. Additionally, intellectual property rights and confidentiality protections in Hong Kong may not be as effective as in the United States or other countries.
Accordingly, we cannot predict the effect of future developments in the Hong Kong legal system, including the promulgation of new laws, changes to existing laws or the
interpretation or enforcement thereof, or the preemption of local regulations by national laws. These uncertainties could limit the legal protections available to us, including our
ability to enforce our agreements with our customers.
There remain some uncertainties as to whether we will be required to obtain approvals from Chinese authorities to list on the U.S. exchanges and offer or continue to offer
securities in the future, and if required, we cannot assure you that we will be able to obtain such approval.
The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors (the “M&A Rules”), adopted by six PRC regulatory agencies in 2006 and
amended in 2009, requires an overseas special purpose vehicle formed for listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies
or individuals to obtain the approval of the China Securities Regulatory Commission (“CSRC”) prior to the listing and trading of such special purpose vehicle’s securities on an
overseas stock exchange.
We are also aware that recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in certain areas in mainland
China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over mainland-China-based companies listed
overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement.
For example, on July 6, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly issued a document to
crack down on illegal activities in the securities market and promote the high-quality development of the capital market, which, among other things, requires the relevant
governmental authorities to strengthen cross-border oversight of law-enforcement and judicial cooperation, to enhance supervision over mainland-China-based companies listed
overseas, and to establish and improve the system of extraterritorial application of the PRC securities laws.
On December 28, 2021, the Cyberspace Administration of China (“CAC”), and other PRC authorities promulgated the Cybersecurity Review Measures, which took
effect on February 15, 2022. In addition, the Cybersecurity Law, which was adopted by the Standing Committee of the National People’s Congress on November 7, 2016 and
came into force on June 1, 2017, and the Cybersecurity Review Measures, or the “Review Measures”, provide that personal information and important data collected and
generated by a critical information infrastructure operator in the course of its operations in mainland China must be stored in mainland China, and if a critical information
infrastructure operator purchases internet products and services that affect or may affect national security, it should be subject to national security review by the CAC together
with competent departments of the State Council. In addition, for critical information infrastructure operators, or the “CIIOs”, that purchase network-related products and
services, the CIIOs shall declare any network-related product or service that affects or may affect national security to the Office of Cybersecurity Review of the CAC for
cybersecurity review. Due to the lack of further interpretations, the exact scope of what constitutes a “CIIO” remains unclear. Further, the PRC government authorities may have
wide discretion in the interpretation and enforcement of these laws. In addition, the Review Measures stipulates that any online platform operators holding more than one
million users/users’ individual information shall be subject to cybersecurity review before listing abroad. As of the date of the annual report, neither we nor our subsidiaries
have received any notice from any authorities identifying us or our subsidiaries as a CIIO or requiring us or our subsidiaries to undertake a cybersecurity review by the CAC.
Further, as of the date of the annual report, neither we nor our subsidiaries have been subject to any penalties, fines, suspensions, or investigations from any competent
authorities for violation of the regulations or policies that the CAC has issued.
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On June 10, 2021, the Standing Committee of the National People’s Congress promulgated the Data Security Law, which took effect on September 1, 2021. The Data
Security Law requires that data shall not be collected by theft or other illegal means, and it also provides for a data classification and hierarchical protection system. The data
classification and hierarchical protection system protects data according to its importance in economic and social development, and the damages it may cause to national
security, public interests, or the legitimate rights and interests of individuals and organizations if the data is falsified, damaged, disclosed, illegally obtained or illegally used,
which protection system is expected to be built by the state for data security in the near future. On November 14, 2021, CAC published the Regulations on the Data Security
Administration Draft, or the “Data Security Regulations Draft”, to solicit public opinion and comments. Under the Data Security Regulations Draft, an overseas initial public
offering to be conducted by a data processor processing the personal information of more than one million individuals shall apply for a cybersecurity review. Data processor
means an individual or organization that independently makes decisions on the purpose and manner of processing in data processing activities, and data processing activities
refers to activities such as the collection, retention, use, processing, transmission, provision, disclosure, or deletion of data. Currently we do not expect the Review Measures to
have an impact on the business and operations of our Hong Kong subsidiaries, because (i) our Hong Kong subsidiaries are incorporated and operating in Hong Kong without
any subsidiary or variety interest entity (“VIE”) structure in mainland China, and it is unclear whether the Review Measures shall be applied to a Hong Kong company; (ii) as
of the date of the annual report, our Hong Kong subsidiaries have not collected or stored personal information of any individual clients of mainland China; and (iii) as of the
date of this annual report, our Hong Kong subsidiaries have not been informed by any PRC governmental authority of any requirement that it file for a cybersecurity review for
the offering. Based on laws and regulations currently in effect in the PRC as of the date of this annual report, we believe our Hong Kong subsidiaries are not required to pass the
cybersecurity review of the CAC in order to list our Class A Ordinary Shares in the U.S.
In addition, on February 17, 2023, the CSRC promulgated the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies, or
the Trial Measures, and five supporting guidelines, which came into effect on March 31, 2023. Pursuant to the Trial Measures, domestic companies that seek to offer or list
securities overseas, both directly and indirectly, shall complete filing procedures with the CSRC pursuant to the requirements of the Trial Measures within three working days
following its submission of initial public offerings or listing application. If a PRC company fails to complete required filing procedures or conceals any material fact or falsifies
any major content in its filing documents, such PRC company may be subject to administrative penalties, such as order to rectify, warnings, fines, and its controlling
shareholders, actual controllers, the person directly in charge and other directly liable persons may also be subject to administrative penalties, such as warnings and fines. In
addition, on February 24, 2023, the CSRC, together with Ministry of Finance of the PRC, National Administration of State Secrets Protection and National Archives
Administration of China, revised the Provisions on Strengthening Confidentiality and Archives Administration for Overseas Securities Offering and Listing which was issued
by the CSRC, National Administration of State Secrets Protection and National Archives Administration of China in 2009, or the Provisions. The revised Provisions is issued
under the title the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies, and came into
effect on March 31, 2023 together with the Trial Measures. One of the major revisions to the revised Provisions is expanding its application to cover indirect overseas offering
and listing, as is consistent with the Trial Measures. The revised Provisions require that, including but not limited to (a) a domestic company that plans to, either directly or
indirectly through its overseas listed entity, publicly disclose or provide to relevant individuals or entities including securities companies, securities service providers and
overseas regulators, any documents and materials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities
according to law, and file with the secrecy administrative department at the same level; and (b) domestic company that plans to, either directly or indirectly through its overseas
listed entity, publicly disclose or provide to relevant individuals and entities including securities companies, securities service providers and overseas regulators, any other
documents and materials that, if leaked, will be detrimental to national security or public interest, shall strictly fulfill relevant procedures stipulated by applicable national
regulations. As of the date of this annual report, we have not received any formal inquiry, notice, warning, sanction, or objection from the CSRC with respect to the listing of
our Class A Ordinary Shares. However, there remains significant uncertainty as to the enactment, interpretation and implementation of regulatory requirements related to
overseas securities offerings and other capital markets activities. If it is determined that we are subject to the Trial Measures for the listing of the Ordinary Shares on the
Nasdaq, we may fail to obtain required approval, complete required filing or meet such requirements in a timely manner or at all, or completion could be rescinded. Any failure
or perceived failure of us to fully comply with such new regulatory requirements could significantly limit or completely hinder our ability to offer or continue to offer securities
to investors, cause significant disruption to our business operations, and severely damage our reputation, which could materially and adversely affect our financial condition and
results of operations and could cause the value of our securities to significantly decline or be worthless.
If we are determined to be subject to the Draft Rules Regarding Overseas Listings, we cannot assure you that we will be able to receive clearance of such filing
requirements in a timely manner, or at all, even though we believe that none of the situations that would clearly prohibit overseas listing and offering applies to us. Based on
laws and regulations currently in effect in the PRC as of the date of this annual report, we believe our Hong Kong subsidiaries are not required to obtain regulatory approval
from the CSRC in order to list our Class A Ordinary Shares in the U.S.
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Since these proposed rules, statements and regulatory actions are new, it is highly uncertain how soon the legislative or administrative regulation making bodies will
respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any. Any failure of us to fully comply
with new regulatory requirements may significantly limit or completely hinder our ability to offer or continue to offer the Class A Ordinary Shares, cause significant disruption
to our business operations, severely damage our reputation, materially and adversely affect our financial condition and results of operations, and cause the Class A Ordinary
Shares to significantly decline in value or become worthless.
As of the date of this annual report, we believe are not required to obtain approvals from the PRC authorities to operate our business or list on the U.S. exchanges and
offer or continue to offer securities; specifically, we are currently not required to obtain any permission or approval from the CSRC, the CAC or any other PRC governmental
authority to operate our business or to list our securities on a U.S. securities exchange or issue securities to foreign investors. However, if we and our Hong Kong subsidiaries
(i) do not receive or maintain such approval, should the approval be required in the future by the PRC government, (ii) inadvertently conclude that such approval is not required,
or (iii) applicable laws, regulations, or interpretations change and we are required to obtain such approval in the future, our operations and financial condition could be
materially adversely affected, and our ability to offer or continue to offer securities to investors could be significantly limited or completely hindered and the securities currently
being offered may substantially decline in value and become worthless.
Nevertheless, since these statements and regulatory actions are new, it is highly uncertain how soon the legislative or administrative regulation making bodies will
respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any. It is also highly uncertain what
potential impact such modified or new laws and regulations will have on Aptorum Group’s daily business operations, our ability to accept foreign investments and the listing of
our Class A Ordinary Shares on a U.S. or other foreign exchanges. If there is significant change to current political arrangements between mainland China and Hong Kong, the
PRC government intervenes or influences operations of companies operated in Hong Kong like us, or exerts more control through change of laws and regulations over offerings
conducted overseas and/or foreign investment in issuers like us, it may result in a material change in our operations and/or the value of the securities we are registering for sale
or could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our Class A Ordinary Shares to
significantly decline or become worthless.
It may be difficult for overseas shareholders and/or regulators to conduct investigations or collect evidence within China.
Shareholder claims or regulatory investigations that are common in the United States generally are difficult to pursue as a matter of law or practicality in China. For
example, in China, there are significant legal and other obstacles to providing information needed for regulatory investigations or litigation initiated outside China. Although the
authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border
supervision and administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absence of mutual and practical
cooperation mechanisms. Furthermore, according to Article 177 of the PRC Securities Law, or Article 177, which became effective in March 2020, no overseas securities
regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. While detailed interpretation of or implementation rules
under Article 177 have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within China
may further increase difficulties faced by you in protecting your interests.
Our auditor’s audit working papers are located in PRC. In the event that the U.S. regulators carry out investigation on us and there is a need to conduct investigation or
collect evidence within the territory of the PRC, the U.S. regulators may not be able to carry out such investigation or evidence collection directly in the PRC under the PRC
laws. The U.S. regulators may consider cross-border cooperation with securities regulatory authority of the PRC by way of judicial assistance, diplomatic channels or regulatory
cooperation mechanism established with the securities regulatory authority of the PRC.
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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 9,999,996,000,000 Class A
Ordinary Shares with a nominal or par value of $0.00001 each and 4,000,000 Class B Ordinary Shares with a nominal or par value of $0.00001 each.
Aptorum is not a Chinese operating company. Aptorum is a Cayman Islands holding company with operations conducted through our subsidiaries and the variable
interest entities (VIEs). We have determined that we have three VIEs, namely, Libra, Mios and Scipio, according to the U.S. GAAP. In accordance with ASC 810, we concluded
that we are the primary beneficiary of two VIEs, Mios and Scipio, therefore, are able to consolidate their financial statements into ours. Mios and Scipio are incorporated under
the laws of the Cayman Islands and conduct operations in Hong Kong. Our corporate structure is based on the equity ownership and control we have over our subsidiaries and
the consolidated VIEs. Our corporate structure was not set up to be used to provide investors with exposure to foreign investment in China-based companies where Chinese law
prohibits direct foreign investment in the operating companies. Foreign investment can be made directly into the VIEs, however, your investments into Aptorum are made into
the Cayman Islands holding company, not any of our VIEs, and you may never own any equity into the VIEs or any other subsidiary.
Aptorum Therapeutics Limited, a Cayman Islands company with limited liability, entered into two concerted action agreements (“Concerted Action Agreements”),
with Peace Range Limited, a shareholder of the two consolidated VIEs, on December 30, 2021.
Pursuant to the two Concerted Action Agreements, Peace Range Limited and Aptorum Therapeutics Limited agreed to act in concert and give the same expression of
intentions in regard with (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 consolidated VIEs (save for the administrative and managerial duty of work being managed by the board of directors and
executives of the consolidated VIEs); (5) exercising the rights as shareholders of the consolidated VIEs in accordance with their articles of association and other relevant
agreements or documents between the consolidated VIEs and other related parties; (6) performing the obligations as shareholders of the consolidated VIEs in accordance with
the articles of association and other relevant agreements or documents between the consolidated VIEs and other related parties; and (7) exercising other rights granted to
shareholders of the consolidated VIEs under laws, administrative regulations, other normative documents, and the articles of association of the consolidated VIEs. The
Concerted Action Agreements are governed by and interpreted in accordance with the laws of Hong Kong. The copies of the Concerted Action Agreements were filed as
exhibits 4.47 and 4.48 to the Form 20-F filed on April 29, 2022. The Concerted Action Agreements are governed by the laws of Hong Kong. The “acting in concert”
agreements like the Concerted Actions Agreements with substantially the same nature have been tested in the courts in Hong Kong. The Hong Kong courts will enforce unless
the agreements are unenforceable for other reason(s) such as the agreements are, among others, illegal or made to mislead others, or for the purpose of avoidance of legal
requirements and lack a bona fide business purpose. We do not believe that the Concerted Actions Agreements fall within the exceptions that will make them unenforceable in
Hong Kong courts.” (Please see the risk factor section, “Risks Related to our Corporate Structure” and “Risks Related to Doing Business in Hong Kong” for more information
about the VIEs).
Our current business consists of “therapeutics” and “non-therapeutics” segments, all of which we operate through our subsidiaries (See the ownership chart on page
67).
We refer to our therapeutics segment as Aptorum Therapeutics Group, which 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.
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We refer to our non-therapeutics segment as Aptorum Non-Therapeutics Group. The Non-Therapeutics Group consists of: (i) diagnostics projects including PathsDx
Test, a novel molecular-based rapid pathogen identification and detection diagnostics technology, (ii) natural supplements including NativusWell®, and (iii) AML Clinic.
PathsDx Test technology is currently under co-development with A*STAR. The sale of natural supplements is operated through Nativus Life Sciences Limited (“Nativus”), a
subsidiary of Aptorum Therapeutics Limited incorporated in the Cayman Islands. The Group’s outpatient clinic is operated through our subsidiary, Aptorum Medical Limited,
which is a Hong Kong-based company incorporated in the Cayman Islands with an office in Central, Hong Kong.
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 PathsDx Test, a novel
molecular-based rapid pathogen identification and detection diagnostics technology, through its subsidiaries. Specifically, Paths Diagnostics Pte. Limited (formerly known as
Aptorum Innovations Holding Pte. Limited), one of the Company’s subsidiaries, entered into an Exclusive Licence Agreement with Accelerate Technologies to co-develop the
PathsDx Test 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 PathsDx Test technologies in A*STAR (“Founding Scientists”), Paths Diagnostics Pte. Limited, and Paths Innovations Limited
(formerly known as Aptorum Innovations Holding Limited), a wholly owned subsidiary of the Company, entered into a Share Subscription & Shareholders Agreement on the
same day to subscribe ordinary shares of Paths Diagnostics 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 Paths Diagnostics Pte. Limited respectively, with 4.99% of the shares reserved for its
employee share plan.
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 2,230,760) 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 223,076 Class A Ordinary Shares and 2,007,684 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”).
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According to the Restructuring Plan, the 256,571.12 then 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 10,000,000 ordinary shares, par value $10.00 per share and issued 2,565,711 ordinary shares to our original investors.
During the period March 1, 2017 through October 13, 2017, an aggregate of 220,703 ordinary shares were issued at a price of approximately $39 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 7,213,587
of authorized but unissued ordinary shares into 5,457,362 authorized but unissued Class A Ordinary Shares, par value of $10.00 per share and 1,756,225 authorized but
unissued Class B Ordinary Shares, par value of $10.00 per share, respectively; (ii) converting 2,493,085 ordinary shares held by three shareholders into an aggregate of 249,309
Class A Ordinary Shares and 2,243,776 Class B Ordinary Shares; and (iii) converting 293,330 ordinary shares held by 24 shareholders into an aggregate 293,330 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 44,615 Class A Ordinary Shares and 401,537 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.
On December 17, 2018, the Company consummated its IPO of 76,142 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 $158 per share, generating gross proceeds to the Company
of approximately $12,030,420.
On May 26, 2021, the Company entered into a private placement shares purchase agreement with Jurchen, issuing 138,793 Class A Ordinary Shares, par value $10 per
share, at $28.82 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.
On January 23, 2023, the Company effectuated a ten-for-one share consolidation of its authorized share capital, such that every 10 Class A Ordinary Shares, par value
of US$1.00 per share, in the authorized share capital of the Company (including issued and unissued share capital) be consolidated into 1 Class A Ordinary Share, par value of
US$10.00 per share, and that every 10 Class B Ordinary Shares, par value of US$1.00 per share in the authorized share capital of the Company (including issued and unissued
share capital) be consolidated into 1 Class B Ordinary Share, par value of US$10.00 per share (the “Share Consolidation” or “Reverse Split”).
On February 21, 2023, the shareholders of the Company approved a merger of the Company with Aptorum Group Cayman Limited, a newly established wholly owned
subsidiary of the Company, whereby the Company was the surviving company, on the terms of the plan of merger that includes the change in par value in the authorized shares
of the Company from $10 to $0.00001. In addition, among other things, the shareholders approved to increase the voting rights of the Class B Ordinary Shares from 10 votes
per share to 100 votes per share, and to increase the number of Class A Ordinary Shares authorized to 9,999,996,000,000 shares, par value $0.00001 each. These corporate
actions were effective as of February 21, 2023.
Over the past three years, we have invested approximately $0.5 million towards our principal capital expenditures, which include laboratory equipment, premises,
leasehold improvements, and medical and other equipment.
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The following diagram illustrates our corporate structure as of the date of this annual report:
Note 1: 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 indirectly hold 97.93% economic interest and 36.17% voting power in Mios, and 97.93% economic interest and 35.06% voting
power in Scipio. An independent third party shareholder, Peace Range Limited, holds 0.15% economic interest and 63.61% voting power in Mios, and 0.15% economic interest
and 64.72% voting power in Scipio. The remaining shareholders hold 1.92% economic interest and 0.22% voting power in Mios, and 1.92% economic interest and 0.22%
voting power in Scipio respectively. Our ownership interest in these entities is through direct equity ownership and not through any contractual arrangements.
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Note 2: Dr. Clark Cheng, an Executive Director of Aptorum Group, holds the remaining 10% shareholding of Aptorum Medical Limited.
Note 3: Angen Funds Limited, a company designated by an investor of ALS series projects, holds the remaining 20% shareholding of Acticule Life Sciences Limited.
Note 4: Accelerate Technologies Pte. Ltd., the commercialization arm of the Singapore Agency for Science, Technology and Research (“A*STAR”), hold 15%
shareholding of Paths Diagnostics Pte. Limited. The inventors of PathsDx Test technologies in A*STAR hold the remaining 10% of shareholding of Paths Diagnostics Pte.
Limited.
Note 5: An investor of project VLS-2 holds the remaining 10% shareholding of mTor (Hong Kong) Limited.
Currently, we conduct the majority of our operations through the following subsidiaries: Aptorum Therapeutics Limited, Acticule Life Sciences Limited, Nativus Life
Sciences Limited, Aptorum Medical Limited and Paths Diagnostics Pte. Limited. All investments into our company are into the parent company, Aptorum Group Limited, a
Cayman Islands exempted company with limited liability whose principal place of business is in Hong Kong; you may never hold direct equity interests in our subsidiaries or
the VIEs.
In accordance with the provisions of Accounting Standards Codification (“ASC”) 810, Consolidation, we consolidate any VIE of which we are regarded as the primary
beneficiary for accounting purposes. 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. On December 30, 2021, Libra
(formerly known as Aptorum Pharmaceutical Development Limited), Mios and 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 entities’ 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 VIEs. 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 regarded as the primary beneficiary of Mios and Scipio for
accounting purposes, but not the primary beneficiary of Libra.
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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 $1.235 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;
● 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 of our Company
Aptorum is not a Chinese operating company. Aptorum is a Cayman Islands holding company with operations conducted through our subsidiaries and the variable
interest entities (VIEs). We have determined that we have three VIEs, namely, Libra, Mios and Scipio, according to the U.S. GAAP. All three of the VIEs are incorporated in
Cayman Islands and operate in Hong Kong. In accordance with ASC 810, we concluded that we are the primary beneficiary of two VIEs, Mios and Scipio, therefore, are able to
consolidate their financial statements into ours. Our corporate structure is based on the equity ownership and control we have over our subsidiaries and the consolidated VIEs.
Our corporate structure was not set up to be used to provide investors with exposure to foreign investment in China-based companies where Chinese law prohibits direct foreign
investment in the operating companies. Foreign investment can be made directly into Mios and Scipio; however, your investments into Aptorum are made into the Cayman
Islands holding company, not any of the consolidated VIEs, and you may never own any equity into the VIEs or any other subsidiary.
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Since the consolidated VIEs operate in Hong Kong, they face various legal and operational risks and uncertainties associated with doing business in Hong Kong. Our
current corporate structure does not contain any variable interest entity in mainland China and we do not have intention establishing any VIEs in mainland China in the future.
However, if in the future there is any significant change to the current political arrangements between mainland China and Hong Kong and mainland China’s expanded
authority in Hong Kong result in the PRC regulatory authorities disallowing our current corporate structure, or if in the future our structure were to contain a VIE and the
mainland PRC regulatory authorities expand to Hong Kong and disallow our corporate structure, it would likely result in a material adverse change in the VIE’s operations, and
the value of our securities may decline significantly in value or become worthless.
Although currently we do not have any business operations or VIE in mainland China and we believe that the laws and regulations of the PRC applicable in China do
not currently have any material impact on our business, financial condition or results of operations, we face risks and uncertainties associated with the complex and evolving
PRC laws and regulations and as to whether and how the recent PRC government statements and regulatory developments, such as those relating to VIE, data and cyberspace
security, and anti-monopoly concerns, would be applicable to a company such as Mios and Scipio given their substantial operations in Hong Kong and the Chinese
government’s significant oversight authority over the conduct of business in Hong Kong.
In light of China’s recent expansion of authority in Hong Kong, we are subject to the risks of uncertainty about any future actions of the PRC government or authorities
in Hong Kong. The Chinese government may intervene or influence our current and future operations in Hong Kong at any time, or may exert more control over offerings
conducted overseas and/or foreign investment in issuers likes ourselves. We believe that, on the basis that we currently do not have any business operations in mainland China,
we currently are not required to obtain approvals from Chinese authorities to operate our business or list on the U.S. exchanges and offer securities; specifically, none of Mios
or Scipio is currently required to obtain any permission or approval from the China Securities Regulatory Commission (“CSRC”), Cyberspace Administration of China
(“CAC”) or any other PRC governmental authority to operate its business or for us to continue to list our securities on a U.S. securities exchange or issue securities to foreign
investors. However, there is no assurance that there will not be any changes in the economic, political and legal environment in Hong Kong in the future. Should the PRC
government choose to affect operations of any company with any level of operations in Hong Kong, or should certain PRC laws and regulations or these statements or
regulatory actions become applicable to the VIEs in the future. Such governmental actions: (i) could significantly limit or completely hinder our ability to continue our
operations; (ii) could significantly limit or hinder our ability to offer or continue to offer our Class A Ordinary Shares to investors; and (iii) may cause the value of our Class A
Ordinary Shares to significantly decline or be worthless.
We are also aware that recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in certain areas in mainland
China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over mainland Chinese companies listed overseas
using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement.
Nevertheless, since these statements and regulatory actions are new, it is highly uncertain how soon the legislative or administrative regulation making bodies will respond and
what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any. It is also highly uncertain what the potential
impact such modified or new laws and regulations will have on the VIEs’ daily business operation, and the continued listing of our Class A Ordinary Shares on a U.S. or other
foreign exchanges. If any or all of the foregoing were to occur, it may significantly limit or completely hinder our ability to complete this offering or cause the value of our
Class A Ordinary Shares to significantly decline or become worthless. See “Risk Factors - Risks Related to Our Corporate Structure” and “Risk Factors - Risks Relating to
Doing Business in Hong Kong”.
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In addition, our Class A Ordinary Shares may be prohibited from trading on a national exchange or over-the-counter under the Holding Foreign Companies
Accountable Act, as amended (the “HFCA Act”) if the Public Company Accounting Oversight Board (United States) (the “PCAOB”) is unable to inspect our auditors for two
consecutive years beginning in 2021. Our auditor, Marcum Asia CPAs LLP, have been inspected by the PCAOB on a regular basis, with the last inspections in 2020, and
Marcum Asia CPAs LLP is not subject to the determinations announced by the PCAOB on December 16, 2021. If trading in our Class A Ordinary Shares is prohibited under
the HFCA Act in the future because the PCAOB determines that it cannot inspect or fully investigate our auditor at such future time, Nasdaq may determine to delist our Class
A Ordinary Shares and trading in our Class A Ordinary Shares could be prohibited. While our auditor is based in the U.S. and is registered with the PCAOB and subject to
PCAOB inspection, 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 Ordinary Shares to be prohibited under the HFCA Act, and ultimately result in a determination by a
securities exchange to delist our Ordinary Shares. On August 26, 2022, the PCAOB signed a Statement of Protocol (the “SOP”) Agreement with the CSRC and China’s
Ministry of Finance. The SOP Agreement, together with two protocol agreements (collectively, “SOP Agreements”), governing inspections and investigations of audit firms
based in mainland China and Hong Kong, taking the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms
headquartered in mainland China and Hong Kong. Pursuant to the fact sheet with respect to the Protocol disclosed by the SEC, the PCAOB shall have independent discretion to
select any issuer audits for inspection or investigation and has the unfettered ability to transfer information to the SEC. On December 15, 2022, the PCAOB Board determined
that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to
vacate its previous determinations to the contrary. However, should PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB Board
will consider the need to issue a new determination.
Cash Transfers and Dividend Distribution
Our management is directly supervising cash management. Our finance department is responsible for establishing the cash management policies and procedures among
our departments and the operating entities. Majority of the cash are managed by a few of the subsidiaries of Aptorum Group. Each department or operating entity initiates a
cash request by putting forward a payment requisition form, which explains the specific amount and timing of cash requested, and submitting it to designated management
members of our Company, based on the amount and the nature of payment. The designated management member examines and approves the cash transfer based on the sources
of cash and the priorities of the needs, and submit it to the cashier specialists of our finance department for a second review. Other than the above, we currently do not have
other cash management policies or procedures that dictate how funds are transferred.
We are permitted under the laws of Cayman Islands to provide funding to our subsidiaries and the consolidated VIEs through loans or capital contributions without
restrictions on the amount of the funds. Under the Cayman Islands law, the VIEs are permitted to pay a dividend on its shares out of either profit or share premium amount,
provided that in no circumstances may a dividend be paid if this would result in the consolidated VIEs being unable to pay its debts due in the ordinary course of business.
As of the date of this annual report, none of our subsidiaries or the consolidated VIEs have made any dividends or distributions to our Company and our Company has
not made any dividends or distributions to our shareholders. We intend to keep any future earnings to finance the expansion of our business, and we do not anticipate that any
cash dividends will be paid in the foreseeable future. Subject to the passive foreign investment company (“PFIC”) rules, the gross amount of distributions we make to investors
with respect to our Class A Ordinary Shares (including the amount of any taxes withheld therefrom) will be taxable as a dividend, to the extent that the distribution is paid out
of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles.
On December 31, 2021, Mios and Scipio has issued Class A ordinary shares to Aptorum Therapeutics Limited, in exchange of Aptorum Therapeutics Limited’s
granting of license of certain patents to each of them. Other than this, there has been no transfer of cash or other assets occurred between us, our subsidiaries, and the
consolidated VIEs.
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Business 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 PathsDx Test, 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 PathsDx Test. 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. In March 2023, we announced that we completed the Pre-IND discussions
with the US FDA on ALS-4. With the positive feedback on the overall development strategy from the US FDA, we are proceeding towards the IND submission of ALS-4. In
March 2023, we also announced the completion of the End of Phase 1 (EOP1) meeting with the US FDA. The FDA generally agreed with the chemistry-manufacturing-control
(CMC) strategy and our proposed clinical development plan for SACT-1 Phase 1/2 trials. In 2023, we expect to be able (i) to submit IND application to the US FDA seeking to
initiate a Phase 2 clinical study to assess the efficacy of ALS-4 in patients and (ii) submit a clinical protocol to the US FDA seeking to initiate our planned Phase 1b/2a trial for
SACT-1, subject to regulatory review. We commenced clinical validation of our molecular based PathsDx Test and will continue to undergo validations during 2023, in parallel
with its pre-commercialization process in 2023.
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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 and
NativusWell®, to provide some interim revenue, as well as diagnostics technology 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
PathsDx Test, a novel molecular-based rapid pathogen identification and detection diagnostics technology, (ii) natural supplements including NativusWell®, and (iii) AML
Clinic. PathsDx Test technology is currently under co-development with A*STAR. The core objectives of PathsDx Test 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 PathsDx Test 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 is marketed under the brand name NativusWell®; we are selling
NativusWell® online through HKTV Mall, JD.com and NativusWell® website. 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 PathsDx Test, a novel
molecular-based rapid pathogen identification and detection diagnostics technology, through its subsidiaries. Specifically, Paths Diagnostics Pte. Limited, one of the Company’s
subsidiaries, entered into an Exclusive Licence Agreement with Accelerate Technologies to co-develop the PathsDx Test 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 PathsDx Test
technologies in A*STAR (“Founding Scientists”), Paths Diagnostics Pte. Limited, and Paths Innovations Limited, a wholly owned subsidiary of the Company, entered into a
Share Subscription & Shareholders Agreement on the same day to subscribe ordinary shares of Paths Diagnostics 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 Paths Diagnostics
Pte. Limited respectively, with 4.99% of the shares reserved for its employee share plan.
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On December 30, 2020, Paths Innovations Limited, one of the Company’s wholly-owned subsidiaries, entered into an Evaluation Agreement with Illumina Inc
(“Illumina”). Pursuant to the agreement, Paths Innovations Limited will evaluate the data and performance of Illumina’s sequencing technology based on the workflow of
PathsDx Test, a novel molecular-based rapid pathogen identification and detection diagnostics technology, at Paths Innovations Limited’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 10 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 10 projects are comprised of 10 exclusively licensed projects (including Lead Project ALS-4 being exclusively
licensed from the University of Hong Kong and PathsDx Test 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”)
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● 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 PathsDx Test), 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.
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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.
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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.
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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 is marketed under the brand name NativusWell®; we are selling NativusWell® online through HKTV Mall, JD.com and
NativusWell® website. AML Clinic is expected to provide us with a modest amount of revenue. Even though NativusWell® achieves commercial sales, 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.
1 Clark Cheng, our Chief Medical Officer and an Executive Director, owns 10% of Aptorum Medical Limited as of the date of this annual report.
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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 PathsDx 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.
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.
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 skin-to-skin
contact. About 85% of serious, invasive MRSA infections are healthcare associated 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).
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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.
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
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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.
Figure 2
* Unpaired student’s t-test, p<0.05
Figure 2: Result of study on ALS-4’s effect in the healing of open wounds infected with MRSA in a mouse model
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).
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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. In March 2023, we announced the completion of the Pre-IND discussions with the US FDA. The Pre-IND discussions focused on overall development plan in
preparation for the IND application of ALS-4 targeting Acute Bacterial Skin and Skin Structure Infections (ABSSSI) initially.
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With the positive feedback on the overall development strategy from the US FDA, we are proceeding towards the IND submission of ALS-4 seeking to initiate a Phase
2 clinical study to assess the efficacy of ALS-4 in patients in 2023.
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 PCT including Europe, PRC and 12 other jurisdictions.
The claimed inventions are described as: “Compounds Affecting Pigment Production and Methods for Treatment of Bacterial Diseases.”
Four (4) US patents and two (2) Israeli patents have been granted by the United States Patent and Trademark Office and the Israel Patent office respectively.
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.
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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 07).
Accelerating Drug Development Through Repurposing, Repositioning and Rescue. Retrieved from https://www.pharmoutsourcing.com/Featured-Articles/345076-
Accelerating-Drug-Development-Through-Repurposing-Repositioning-and-Rescue/)
● 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.
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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-rates.html). The current high drug treatment cost
cycles)
for
6
(https://www.cadth.ca/sites/default/files/pcodr/Reviews2019/10154DinutuximabNeuroblastoma_fnEGR_NOREDACT-ABBREV_Post_26Mar2019_final.pdf).
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.
USD200,000
regimen
patients
average
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In
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).
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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.
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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. In March 2023, we further announced the completion of the End of Phase 1 (EOP1)
meeting with the US FDA on SACT-1. The EOP1 meeting was focused on gaining alignment with the US FDA regarding the clinical and regulatory pathway for SACT-1 for
the treatment of neuroblastoma in pediatric patients aged 2-18. The FDA generally agreed with the chemistry-manufacturing-control (CMC) strategy and our proposed clinical
development plan for Phase 1/2 trials.
We are on track to submit an IND application to the US FDA in 2023 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). Another US patent (US Patent 11,571,422) was granted in February 2023,
and altogether the SACT-1 patent portfolio has Nine (9) active national phase patent applications all over the world.
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PathsDx Test: 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.
PathsDx Test 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 PathsDx Test is to cost-effectively return a 99% accurate result within 24-48 hours. Our internal
results show that, in principle, PathsDx Test 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, PathsDx Test 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.
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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.
PathsDx Test 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.
PathsDx Test is currently undergoing Clinical Validation to confirm the performance of PathsDx Test using clinical/patient samples. PathsDx Test will continue to
undergo validations during 2023, in parallel with its pre-commercialization process in 2023.
Patent License and Application
On September 25, 2020, the Company’s subsidiary, Paths Diagnostics 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 PathsDx Test, a novel molecular-based rapid pathogen
identification and detection diagnostics 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.
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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 two (2) Paris Convention (PCT) applications on February 24, 2022 and January 7, 2023
respectively. 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” and “Method of Degrading Nucleic Acids and Associated Compositions.”
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 the annual report, we received CTA and IND approvals for ALS-4 and SACT-1 from Health Canada and the 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.
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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.
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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.
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.
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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.
The production of Aptorum Group’s dioscorea opposita bioactive nutraceutical tablets has commenced production in Canada and is marketed under the brand name
NativusWell®; we are selling it online through HKTV Mall, JD.com and NativusWell® website.
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.
1 World Health Technical Report Series. Research on the Menopause in the 1990’s. Geneva, Switzerland: World Health Organization; 1996.
2
3
4
https://www.grandviewresearch.com/press-release/global-isoflavones-market
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
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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 the annual report, we have 18 full-time and 1 part-time employees. Of these, 6 full-time are engaged in research and development and laboratory
operations, 7 full-time are engaged in general and administrative functions and 5 full-time and 1 part-time are engaged in the clinic operation. As of the date of this annual
report, 18 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 66 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.
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.
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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.
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 PathsDx
Test; 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
Patent
Acticule /
ALS-4
Exclusive
License
Agreement, dated October 18,
2017
Licensor(s)
Versitech
Limited
Licensee
Acticule
Life
Sciences Limited
First Amendment to Exclusive
License Agreement, dated June
7, 2018
Amendment
Second
to
Exclusive License Agreement
dated July 10, 2019
Patent
Exclusive
License
Agreement dated January 11,
2019
Licensed / IP Rights
Exclusive licensee: 2 pending U.S. applications
(16/867,540 and 17/006,985), 1 pending European
applications (EP18835238.9), 1 pending PRC
application (CN201880048674.5), 12 pending
applications
jurisdictions
including Australia, Brazil, Canada, Chile,
Eurasia, Hong Kong,
Israel, Japan, Korea,
Malaysia, New Zealand, Singapore
in other
foreign
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.
PathsDx Test
Exclusive
Patent
License
Agreement, dated September
25, 2020
Accelerate
Paths
Technologies Pte
Ltd
Diagnostics Pte.
Limited
Exclusive licensee: 4 U.S. patents US7635566,
US8241850, US9920355, US10472667,
1
European patent EP3224374, 1 Great Britain
patent GB2532749
20282034
The U.S. patents will expire in
2027,
2037
respectively. The UK patent will
expire in 2034. The European
patent will expire in 2035.
and
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.
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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.
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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,” “NATIVUS LIFE SCIENCES,” “NativusWell,” “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, Australia 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.
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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.
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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.
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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.
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.
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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.
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.
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● 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.
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.
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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.
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.
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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.
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.
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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.
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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
We are selling NativusWell® through JD.com in PRC. 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. 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.
Permission Required from the PRC Authorities
As of the date of this annual report, we are not required to obtain approvals from the PRC authorities to operate our business or list on the U.S. exchanges and offer or
continue to offer securities; specifically, we are currently not required to obtain any permission or approval from the CSRC, the CAC or any other PRC governmental authority
to operate our business or to list our securities on a U.S. securities exchange or issue securities to foreign investors. The laws and regulations of mainland China do not currently
have any material impact on our business, financial condition or results of operations and we are currently not subject to the PRC government’s direct influence or discretion
over the manner in which we conduct our business activities outside of the mainland China.
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Nevertheless, we are aware that recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in certain areas in
mainland China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over mainland Chinese companies listed
overseas using a VIE structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. Since these
statements and regulatory actions are new, it is highly uncertain how soon the legislative or administrative regulation making bodies will respond and what existing or new laws
or regulations or detailed implementations and interpretations will be modified or promulgated, if any. It is also highly uncertain what potential impact such modified or new
laws and regulations will have on Aptorum Group’s daily business operations, its ability to accept foreign investments and the listing of our Class A Ordinary Shares on a U.S.
or other foreign exchange. If there is significant change to current political arrangements between mainland China and Hong Kong, the PRC government intervenes or
influences operations of companies operated in Hong Kong like us, or exerts more control through change of laws and regulations over offerings conducted overseas and/or
foreign investment in issuers like us, it may result in a material change in our operations and/or the value of the securities we are registering for sale or could significantly limit
or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our Class A Ordinary Shares to significantly decline or become
worthless. (Please see the risk factor section, “Risks Related to our Corporate Structure” and “Risks Related to Doing Business in Hong Kong” for more information).
Hong Kong Regulation
The operations of AML Clinic and sales of NativusWell® 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.
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.
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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,
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 have launched 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.
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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.
Our office space in London consists of approximately 172 square feet under a lease that commenced in August 2019, last renewed in December 2022, expires in May
2023 and has a rent of $4,183 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 $2,041 per month. Our facilities in Hong Kong consists of: (i) 2,021 square feet lab space under a
lease that commenced in March 2020, renewed in March 2023 and expires in March 2026, that carries an initial monthly rent of $6,348 and which is used for the center for
R&D; (ii) 1,177 square feet office space under a lease that commenced in March 2023 and expires in March 2026, with a monthly rent of $3,471, (the “HKSTP Office Space”);
(iii) 3,173 square feet space under a lease that commenced in March 2018, renewed in March 2022 and expires in March 2024 with an initial monthly rent of $24,408 (the
“AML Lease”, which is home to AML Clinic); and (iv) 70 square feet office space under a lease that commenced in September 2022 and expires in August 2023 with a
monthly rent of $423.
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.
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This annual report includes consolidated financial statements for the years ended December 31, 2022, 2021, and 2020. 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, 2020 and 2019 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, 2020, filed with the SEC on April 19,
2021.
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.
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 PathsDx Test, 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.
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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 and
NativusWell®, to provide some interim revenue, as well as diagnostics technology 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
PathsDx Test, a novel molecular-based rapid pathogen identification and detection diagnostics technology, (ii) natural supplements including NativusWell®, and (iii) AML
Clinic. PathsDx Test technology is currently under co-development with A*STAR. The core objectives of PathsDx Test 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 PathsDx Test 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 is marketed under the brand name NativusWell®; we are selling
NativusWell® online through HKTV Mall, JD.com and NativusWell® website. 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.
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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 PathsDx Test. 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. In March 2023, we announced the completion of the Pre-IND discussions with the US
FDA on ALS-4. With the positive feedback on the overall development strategy from the US FDA, we are proceeding towards the IND submission of ALS-4. In March 2023,
we also announced that the completion of the End of Phase 1 (EOP1) meeting with the US FDA. The FDA generally agreed with the chemistry-manufacturing-control (CMC)
strategy and our proposed clinical development plan for SACT-1 Phase 1/2 trials. In 2023, we expect to be able (i) to submit IND application to the US FDA seeking to initiate
a Phase 2 clinical study to assess the efficacy of ALS-4 in patients and (ii) submit a clinical protocol to the US FDA seeking to initiate our planned Phase 1b/2a trial for SACT-
1, subject to regulatory review. We commenced clinical validation of our molecular based PathsDx Test and will continue to undergo validations during 2023, in parallel with its
pre-commercialization process in 2023.
Potential Take-Over
On March 27, 2023, we entered into a non-binding Letter of Intent and Term Sheet to acquire (“Transaction”) 100% of URF Holding Group Limited and its underlying
businesses (collectively “U Group”). Currently, it is contemplated that the Transaction will occur via a reverse takeover of the Company, which would result in the continued
listing of the combined entity on Nasdaq.
The Transaction is subject to, among other things, the execution of a mutually agreeable definitive agreement, completion of due diligence, fairness opinions,
stockholder approvals, if necessary, delivery of relevant financial statements, board of directors and special committee approvals and satisfaction of all regulatory and Nasdaq
approvals, where relevant. There can be no assurance that a definitive agreement will be entered into or that the proposed transaction will be consummated on the terms set
forth herein or at all. Therefore, it is possible that the Transaction may never occur.
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The foregoing is only a brief description of the Transaction and does not purport to be a complete description of the proposed terms of the Transaction and is qualified
in its entirety by reference to the Term Sheet attached hereto as an exhibit and the definitive documents, if materialized.
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. 333-268873) (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 issued 7,875 Class A Ordinary Shares pursuant to the ATM
Offering.
Private Placement Offering
Sales of Class A Ordinary Shares
On May 26, 2021, the Company entered into a private placement shares purchase agreement with Jurchen, issuing 138,793 Class A Ordinary Shares, par value $10
each, at $28.82 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.
Sales of convertible notes
On December 9, 2022, Aptorum Group Limited entered into a Securities Purchase Agreement (the “Agreement”) with Aenco Technologies Ltd (“Note holder”), a
Cayman Islands company that is indirectly 34.56% effectively owned by our non-executive director and major shareholder, Ian Huen. Since Mr. Huen is an affiliate of the
Company, the Agreement and the transaction contemplated therein has been approved by the audit committee of the board of directors of the Company, which only consists of
independent directors.
Pursuant to the Agreement, the Note holder is purchasing a convertible note in the original principal amount of $3,000,000 (the “Note”). The Note is unsecured,
convertible into the Company’s restricted Class A Ordinary Shares at the Note holder option. The Notes will have a maturity date of 12 months subject to the Note holder’s
extension, a bullet interest rate of 7% per annum, and a conversion price of $12 per Class A Ordinary share (“Conversion Price”). The Company shall have an obligation to
repay the principal amount and interest of the Note on the maturity date in cash or in unregistered Class A Ordinary Shares or a combination of such at the Company’s
discretion. The shares used to meet a repayment would be valued at the Conversion Price. In April 2023, the Note was fully converted into 250,000 Class A Ordinary Shares.
107
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 $9.2 million, $10.9 million and $11.6 million for the years ended December 31, 2022, 2021 and 2020,
respectively, representing approximately 49.0%, 52.4%, and 54.7% 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.
108
RESULTS OF OPERATIONS
Results of Operations for the Years ended December 31, 2022 and 2021
Financial statements and information are presented for the years ended December 31, 2022 and 2021.
The following table summarizes our results of operations for the years ended December 31, 2022 and 2021.
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
Loss on investments in marketable securities, net
Gain on long-term investments
Loss on investments in derivatives, net
Gain on use of digital currencies
Gain on derecognition of non-financial assets
Interest income (expense), net
Loss on disposal of subsidiaries
Sundry income
Total other income (loss), net
Net loss
Impact of COVID-19 Outbreak
Year Ended
December 31,
2022
Year Ended
December 31,
2021
$
1,295,889
$
1,541,778
(1,215,824)
(9,219,595)
(5,220,405)
(2,888,140)
(261,038)
(18,805,002)
(1,459,924)
(10,869,642)
(5,409,302)
(2,617,834)
(392,511)
(20,749,213)
(134,134)
5,588,051
-
-
-
146,588
-
383,506
5,984,011
(8,031,595)
-
(4,289)
4,918
75,000
(93,601)
(3,638)
146,347
(7,906,858)
(11,525,102)
(27,114,293)
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 2022 and 2021 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.
109
Revenue
Healthcare services income was $1,295,889 and $1,541,778 for the years ended December 31, 2022 and 2021, which related to the service income derived from the
AML clinic. The decrease in revenue was mainly due to the number of patients decreased when compared to last year due to one of the general practitioner did not provide
service in our clinic in 2022.
Cost of healthcare services
Cost of healthcare services was $1,215,824 and $1,459,924 for the years ended December 31, 2022 and 2021, which related to the cost incurred by the AML clinic.
The decrease in cost of healthcare services was in line with the decrease in revenue.
Research and development expenses
The following table sets forth a summary of our research and development expenses for the years ended December 31, 2022 and 2021. The decrease in research and
development expenses was mainly due to the decrease in contracted research organizations services as we are in a planning process for Phase 2 of our lead projects which does
not require many services from contracted research organizations.
Research and Development Expenses:
Payroll expenses
Contracted research organizations services
Sponsored research
Amortization and depreciation
Consultation
Loss on disposal of an intangible asset
Other R&D expenses
Total Research and Development Expenses
R&D expenses by projects
ALS-4
SACT-1
NLS-2
Other projects
Total
General and administrative fees
Year Ended
December 31,
2022
Year Ended
December 31,
2021
1,305,363
1,709,927
17,061
1,064,012
4,423,963
205,189
494,080
9,219,595
$
$
1,320,020
4,569,538
248,865
961,447
3,214,824
-
554,948
10,869,642
Year Ended
December 31,
2022
Year Ended
December 31,
2021
4,055,717
2,660,840
1,028,656
1,474,382
9,219,595
$
$
5,430,177
3,702,955
934,869
801,641
10,869,642
$
$
$
$
The following table sets forth a summary of our general and administrative expenses for the years ended December 31, 2022 and 2021. The decrease in general and
administration fees was mainly due to decrease in payroll expenses due to decrease in number of staff.
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
110
Year Ended
December 31,
2022
Year Ended
December 31,
2021
$
$
3,793,367
265,558
158,357
143,498
546,675
98,082
214,868
5,220,405
3,951,421
288,806
21,857
231,131
555,159
95,953
264,975
5,409,302
Legal and professional fees
For the years ended December 31, 2022 and 2021, the legal and professional fees were $2,888,140 and $2,617,834, respectively. The increase in legal and professional
fees was mainly due to more consulting services engaged during 2022.
Other operating expenses
For the years ended December 31, 2022 and 2021, the other operating expenses was $261,038 and $392,511, respectively. The decrease in other operating expenses
was mainly due to an impairment loss on other receivables in 2021 while there were no such expenses in 2022.
Other income (loss), net
For the years ended December 31, 2022 and 2021, the other income (loss), net was $5,984,011 and $(7,906,858), respectively. The other income, net in 2022 was
mainly consists of gain on long-term investments and government subsidies; while the other loss, net in 2021 was mainly consists of loss on investment in marketable
securities, net.
Net loss attributable to Aptorum Group Limited
For the years ended December 31, 2022 and 2021, net loss attributable to Aptorum Group Limited (excluding net loss attributable to non-controlling interests) was
$9,799,560 and $25,048,389, respectively.
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
111
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
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.
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
R&D expenses by projects
ALS-4
SACT-1
NLS-2
Other projects
Total
112
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
Year Ended
December 31,
2021
Year Ended
December 31,
2020
5,430,177
3,702,955
934,869
801,641
10,869,642
$
$
6,673,591
2,333,137
688,151
1,892,044
11,586,923
$
$
$
$
General and administrative fees
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.
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.
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 is secured by a charge over
deposits of up to $3 million when the Group draw down. As of the date of this annual report, the Group has drawn down $3 million from the banking facility,
113
The Group reported a net loss of $11,525,102 and net operating cash outflow of $12,318,965 for the year ended December 31, 2022. In addition, the Group had an
accumulated deficit of $65,337,075 as of December 31, 2022. 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 this annual report, the Group has
approximately $1.4 million of restricted and unrestricted cash (excluded $3 million time deposits pledged to a loan), and $9.5 million of undrawn line of credit facilities from
related parties. In addition, the Group maintains its operating costs at a level through strictly cost control and budget until the completion of the reverse takeover transaction.
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 of this annual report 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, 2022 and 2021
Net cash used in operating activities
Net cash provided by investing activities
Net cash provided by financing activities
Net (decrease) increase in cash and restricted cash
Operating activities
$
Year Ended
December 31,
2022
(12,318,965) $
2,444,896
6,625,462
(3,248.607)
Year Ended
December 31,
2021
(14,651,633)
16,507,039
2,780,725
4,636,131
Net cash used in operating activities amounted to $12.3 million and $14.7 million for the years ended December 31, 2022 and 2021. The decrease in net cash used in
operating activities is mainly due to our net loss excluding non-cash items decreased by $2.0 million.
Investing activities
Net cash provided by investing activities amounted to $2.4 million and $16.5 million for the year ended December 31, 2022 and 2021. The decrease in net cash
provided by investing activities was due to there was a 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 in 2021 and a repayment of loan from a related party of $3.0 million in 2022.
Financing activities
Net cash provided by financing activities amounted to $6.6 million and $2.8 million for the year ended December 31, 2022 and 2021. The increase in net cash provided
by financing activities was due to there was a loan repayment due to related parties of $5.5 million in 2021, partly offset.by decrease in total proceeds from issuance of shares,
warrants and debts by $1.6 million.
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
114
$
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.
CAPITAL EXPENDITURES
Our capital expenditures were $0.2 million, $0.1 million and $0.2 million for the years ended December 31, 2022, 2021 and 2020, respectively. These capital
expenditures were incurred primarily for investments in facilities, leasehold improvements, equipment and technology.
COMMITMENTS
The following table sets forth our contractual obligations as of December 31, 2022.
Operating lease commitments
Debt obligations
Total
Operating lease commitments
Total
US$
373,124
3,700,110
4,073,234
Payment Due by Period
less than
one year
US$
314,690
3,087,000
3,401,690
One to
three years
US$
Three to
five years
US$
58,434
613,110
671,544
-
-
-
We have several operating leases for office, laboratories and clinic. Operating lease commitments reflect our obligation to make payments under these operating leases.
Debt obligations
Debt obligations reflects (i) outstanding principal obligations under a revolving loan of up to $3 million offered by a bank, and (ii) outstanding principal obligations
due to Aeneas Group Limited, a wholly-owned subsidiary of Aeneas Limited, under a line of credit arrangement.
115
The Group can access up to a total $3 million under a revolving loan offered by HSBC. The revolving loan arrangement will be matured on June 26, 2023, and the
interest on the outstanding principal indebtedness is 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 is secured by a charge over deposits of up to
$3 million when the Group draw down.
The Group can access up to a total $12 million under a line of credit offered by Aeneas Group Limited. The line of credit was originally mature on August 12, 2022.
The Group and Aeneas Group Limited has mutually agreed to extend the line of credit arrangement further 3 years to August 12, 2025. 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.
CONTINGENT PAYMENT OBLIGATIONS
We have entered into agreements with independent third parties for purchasing office and laboratory equipment. As of December 31, 2022, we had non-cancellable
purchase commitments of $50,075.
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
222,564
20,336,410
14,282,051
65,769,231
100,610,256
205,554
100,815,810
$
$
$
$
For the years ended December 31, 2022, 2021 and 2020, the Group incurred $nil, $nil and $129,203 milestone payments, respectively. For the years ended December
31, 2022, 2021 and 2020, the Group did not incur any royalties or research and development funding, respectively.
C. Research and Development, Patents and Licenses, etc.
As of the date of this annual report, the Company has 10 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, 2022, 2021, and 2020, the Group incurred $9,219,595, $10,869,642, and $11,586,923, 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, 2022 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.
116
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, 2022 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) impairment of long-lived assets; (ii) share based compensation, and (iii)
Provision of income tax and valuation allowance for deferred tax asset.
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, 2022, we recorded $205,189 loss on disposal
of a patented license in research and development expenses. For the year ended December 31, 2021, no impairment loss was recorded. 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.
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 $1,123,122 and $523,877, respectively, for the year ended December 31, 2022, $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.
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, 2022 and 2021, we have made fully valuation allowance to deferred tax assets with amount of $15.7 million and $12.6
million, respectively.
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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.
In July 2022, Ms. Sabrina Khan resigned from her position as our Chief Financial Officer, due to personal reasons. Mr. Martin Siu replaced Ms. Khan as the
Company’s Head of Finance on that same date.
Mr. Lui was appointed Chief Executive Officer (“CEO”), effective June 1, 2022. Mr. Lui succeeds Mr. Ian Huen, who was stepping down as Chief Executive Officer,
but will remain on the Company’s board as a non-executive director on the same effective date.
Name
Executive Officers
Darren Lui
Clark Cheng
Martin Siu
Thomas Lee
Non-Management Directors
Ian Huen
Charles Bathurst
Mirko Scherer
Justin Wu
Douglas Arner
Executive Officers
Age
42
43
44
50
43
67
54
53
53
Position
Chief Executive Officer, Chief Accounting Officer and Executive Director
Chief Medical Officer and Executive Director
Head of Finance
Head of Research and Development
Founder and Non-Executive Director
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. DARREN LUI, CEO, Chief Accounting Officer, and Executive Director
Mr. Darren Lui is the CEO, Chief Accounting Officer, 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).
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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.
MR. MARTIN SIU, Head of Finance
Mr. Martin Siu is the Head of Finance of Aptorum Group Limited since July 2022. Prior to that, Mr. Siu supported over 8 listed companies and licensed corporations in
Asia as consultant, advisor and financial manager. Extensively experienced in audit and financial strategy, he worked in the field of audit for over 18 years, also led a
professional team to provide strategic consultancy services to sizable corporate clients specialized in audit, compliance, risk management, financial reporting and fund raising.
Mr. Siu is a certified public accountant and graduated with a BBA (Hons) in Accounting at City University of Hong Kong in 2001.
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.
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Non-Executive Directors
MR. IAN HUEN, Founder and Non-Executive Director
Mr. Ian Huen is the Founder and a Non-Executive Director of Aptorum Group Limited. Mr. Huen served as Chief Executive Officer and Executive Director of
Aptorum Group Limited from October 2017 to May 2022. He has extensive experience in global asset management 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”).
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 47 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.
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.
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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”).
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.
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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 2022 to each of the following named
executive officers. The total amount was $3.6 million in 2022. A total 977,614 options were awarded to executive directors and executive officers in 2022. 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, 2022, we issued an aggregate of
226,153 options to the persons included in the table below since January 1, 2023 through the date of this report. (See “Item 6. Directors, Senior Management and Employees –
E. Share Ownership”)
On June 1, 2022, Mr. Huen resigned as Chief Executive Officer but remains on the Company’s board as a non-executive director. The base salary of Mr. Huen has been
adjusted to HK$213,200 (approximately US$27,333 per month) effective from the same date.
The base salary of Mr. Martin Siu was set forth in an Operations Services & Secondment Agreement between Aptus Management Limited and MG Consultancy
Limited (“MG”), through which Mr. Siu provides his services. MG charges an initial monthly fee of approximately USD7,600, which may be increased to approximately
USD12,700 during the term of the agreement.
The Board also determined to issue Dr. Cheng a discretionary cash bonus equal to one-month his base salary.
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The base salary of all directors and senior officer remains unchanged in 2023.
Name and Principal Position
Fiscal
Year
Salary
($) (1)
Bonus
($)
Non-Equity
Incentive
Plan
Compensation
($)(9)
Option
Awards
($)
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
All Other
Compensation
($)
Total
($)
Darren Lui (3)
( CEO and CAO)
Clark Cheng (4) (5)
(CMO)
Thomas Lee (6)
(Head of R&D)
Martin Siu (7)
(Head of Finance)
Ian Huen (2)
(former CEO)
Sabrina Khan (8)
(former CFO)
2022
214,051
6,667
149,694
200,000
2,308
-
572,720
2022
334,018
28,615
205,829
275,000
10,255
119(5)
853,836
2022
237,308
19,744
187,118
250,001
14,123
2022
43,672
-
-
-
-
2022
133,846
11,092
299,388
400,001
962
2022
170,246
69,533
138,467
185,000
9,553
-
-
-
-
708,294
43,672
845,289
572,799
(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 of Aptorum Group and served as the Chief Executive Officer from October 2017 to May 2022. On June 1, 2022, Mr. Huen resigned as Chief
Executive Officer but remains on the Company’s board as a non-executive director.
(3) Mr. Lui was appointed as the Chief Executive Officer and Chief Accounting Officer on June 1, 2022. Before that, Mr. Lui served as Chief Business Officer and President of
Aptorum Group from October 2017 to May 2022, and Chief Business Officer from October 2017 to October 2019. 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 are deemed as Mr. Lui’s compensation.
(4) Dr. Cheng was appointed as the Chief Medical Officer of Aptorum Group on January 2, 2018. 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 are deemed as Dr. Cheng’s
compensation.
(5) 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 1,111 ordinary shares of AML, representing 10% of AML’s issued and outstanding ordinary shares; during fiscal 2022, Dr. Cheng
received 119 ordinary shares with cash value of which is USD119; during fiscal 2023, Dr. Cheng received 122 ordinary shares with cash value of which is USD122.
(6) 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$19,744) since January 1, 2022.
(7) Mr. Siu was appointed as Head of Finance of Aptorum Group from July 2022.
(8) Miss Khan served as the Chief Financial Officer of Aptorum Group from October 2017 to October 2022.
(9) Represents deferred bonuses provided to directors and executive officers, which will be vested after 9.5 months – 21.5 months vesting period.
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Compensation of Non-executive Directors
The following table sets forth information for the fiscal year ended December 31, 2022, regarding the compensation of our non-executive directors who at December
31, 2022, were not also named executive officers. A total 89,556 options were awarded to non-executive directors in 2022. In addition to the compensation included in the table
below, which covers the fiscal year ended December 31, 2022, we issued an aggregate of 24,616 Class A Ordinary Shares awards to the persons included in the table below
since January 1, 2023 through the date of this report.
Name
Ian Huen (6)
Charles Bathurst (1)
Mirko Scherer (3)
Justin Wu (4)
Douglas Arner (5)
Fees Earned
or Paid
in Cash
($)
Stock
Awards
($)
Option
Awards
($)
Non-Equity
Incentive Plan
Compensation
($)
Non-qualified
Deferred
Compensation
Earnings
($)
All Other
Compensation
($)
191,333
47,509(2)
31,673
31,673
31,673
-
-
-
-
-
-
22,455
22,455
22,455
22,455
-
30,001
30,001
30,001
30,001
-
-
-
-
-
-
-
-
-
-
Total
($)
191,333
99,965
84,129
84,129
84,129
(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 GBP0.8 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) On June 1, 2022, Mr. Huen resigned as Chief Executive Officer but remain on the Company’s board as a non-executive director. His base salary has been adjusted to
HK$213,200 (approximately US$27,333 per month)
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 550,000 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.
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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.
21,853 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 $129.1 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.
53,694 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 $29.9 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.
14,896 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$31.1 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.
2,748 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 $36.4 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.
75,235 options were granted on March 11, 2021 to directors, employees, external consultants and advisors of the Group with an exercise price of $27.6 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. 36,796
options vest on January 1, 2022 and expire on December 31, 2032; 36,808 options vest on January 1, 2023 and expire on December 31, 2033; 906 options vest on June 8, 2021
and expire on June 7, 2032; and 725 options vest on July 14, 2021 and expire on July 13, 2032.
153,146 options were granted on March 8, 2022 to directors, employees, external consultants and advisors of the Group with an exercise price of $13.4 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. 74,881
options vest on January 1, 2023 and expire on December 31, 2033; 74,906 options vest on January 1, 2024 and expire on December 31, 2034; 1,866 options vest on June 8,
2022 and expire on June 7, 2033; and 1,493 options vest on July 14, 2022 and expire on July 13, 2033.
226,153 options were granted on March 31, 2023 to directors and employees of the Group with an exercise price of $2.68 per share, which was based on the last
closing price of the shares traded on the NASDAQ stock exchange on the grant date. Besides, 136,200 shares awards were granted on March 31, 2023 to directors, employees
and external consultants. All options vests on October 1, 2023 and expires on September 30, 2033.
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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.
126
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.
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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 29 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 we have a staggered board of directors consisting of three classes of directors, with directors
serving staggered three-year terms. Our Board of Directors is divided into three classes of directors. At each annual general meeting of shareholders, one class of directors will
be elected for a three-year term to succeed the class whose terms are then expiring, to serve from the time of election and qualification until the third annual meeting following
their election or until their earlier death, resignation or removal, starting with the Annual General Meeting of Shareholders to be held in December 2023. The Company’s Board
has initially designated the three classes to contain the directors set forth below. Shareholders will only elect the Class I directors at the Company’s next Annual General
Meeting; the Class III and II directors will be deemed to have been re-elected at the February 2023 Special Meeting and shall not be required to stand for re-election until the
years specified below.
Name & Class
Class III
Darren Lui
Clark Cheng
Class II
Ian Huen
Class I
Charles Bathurst
Mirko Scherer
Justin Wu
Douglas Arner
Positions
Expiration of Director
Term/Re-Election Year
Chief Executive Officer,
Chief Accounting Officer & Executive Director
Chief Medical Officer & Executive Director
Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
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2025
2025
2024
December 2023
December 2023
December 2023
December 2023
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.
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 18 full-time and 1 part-time employees. Of these, 6 full-time are engaged in research and development and laboratory
operations, 7 full-time are engaged in general and administrative functions and 5 full-time and 1 part-time are engaged in the clinic operation. As of the date of this annual
report, 18 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 66 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 1,719,522 Class A Ordinary Shares and 2,243,776 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.
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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
Darren Lui(3)
Clark Cheng(4)
Martin Siu
Thomas Lee
Ian Huen(5)
Charles Bathurst
Mirko Scherer
Justin Wu
Douglas Arner
All directors and executive officers as a group (9 persons)
5% Beneficial Owner
Jurchen Investment Corporation(5)
Sui Fong Isabel Huen Ng(6)
CGY Investments Limited(7)
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)
44,135
*
-
*
462,480
*
*
*
*
625,920
214,134
-
-
-
1,606,147
-
-
-
-
1,820,281
424,362
21,199
85,299
1,606,147
190,787
401,537
6.49%
*
-
*
51.20%
*
*
*
*
59.27%
50.54%
5.35%
12.17%
9.49%
*
-
*
71.21%
*
*
*
*
80.73%
71.21%
8.45%
17.79%
*
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 one hundred votes per share on all matters subject to a
shareholders’ vote.
(3) Includes (i) 1,485 Class A Ordinary Shares and 13,365 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) 24,094 Class A Ordinary Shares and 200,769 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 18,556 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.
(4) Pursuant to his appointment letter, Dr. Cheng received 10% of Aptorum Medical Limited’s ordinary shares as 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.
(5) Includes 370,308 Class A Ordinary Shares owned by Jurchen, warrants held by Jurchen to purchase 54,054 Class A Ordinary Shares, options granted to Mr. Huen to
purchase 38,118 Class A Ordinary Shares, and 1,606,147 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.
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(6) 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.
(7) 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) 48,187 Class A Ordinary Shares and 401,537 Class B Ordinary Shares held by CGY Investments Limited, and (ii) options held by CGY Investments
Limited to purchase 37,112 Class A Ordinary Shares.
F. Disclosure of a registrant’s action to recover erroneously awarded compensation.
None.
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”). As of the date of this annual report, the Jurchen Agreement is matured, and the maturity of Aeneas Group Limited Agreement is extended for additional three
years and will be matured on August 12, 2025. Interest is 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 of this annual
report, the Company has drawn down $2.5 million 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 of this annual report, there is no outstanding balance from the Borrower.
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 is originally matured on January 12, 2023, and is extended for additional 3 years. The interest on the outstanding principal indebtedness is at the rate of 10% per
annum. As of the date of this annual report, $0.4 million is outstanding from Libra Sciences Limited.
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Sales and Purchases of Securities
Private Placement Offering
Sale of Class A Ordinary Shares
On May 26, 2021, the Company entered into a private placement shares purchase agreement with Jurchen, issuing 138,793 Class A Ordinary Shares, par value $10
each, at $28.82 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.
Sales of convertible notes
On December 9, 2022, Aptorum Group Limited entered into a Securities Purchase Agreement (the “Agreement”) with Aenco Technologies Ltd (“Note holder”), a
Cayman Islands company that is indirectly 34.56% effectively owned by our non-executive director and major shareholder, Ian Huen. Since Mr. Huen is an affiliate of the
Company, the Agreement and the transaction contemplated therein has been approved by the audit committee of the board of directors of the Company, which only consists of
independent directors.
Pursuant to the Agreement, the Note holder is purchasing a convertible note in the original principal amount of $3,000,000 (the “Note”). The Note is unsecured,
convertible into the Company’s restricted Class A Ordinary Shares at the Note holder option. The Notes will have a maturity date of 12 months subject to the Note holder’s
extension, a bullet interest rate of 7% per annum, and a conversion price of $12.0 per Class A Ordinary share (“Conversion Price”). The Company shall have an obligation to
repay the principal amount and interest of the Note on the maturity date in cash or in unregistered Class A Ordinary Shares or a combination of such at the Company’s
discretion. The shares used to meet a repayment would be valued at the Conversion Price. As of the date of this annual report, the convertible note is fully converted into
250,000 Class A Ordinary 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.
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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.
Administrative Management Services
Libra Sciences Limited
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.
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.
133
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.
On May 27, 2022, we appointed Mr. Huen as Non-Executive Director for a term of 3 years from June 1, 2022, after Mr. Huen stepping down as Chief Executive
Officer on that date. Under the appointment letter, we pay Mr. Huen approximately USD27,308 per month. The appointment letter can be earlier terminated by either party with
two-months’ written notice.
On June 30, 2022, we appointed Mr. Siu as our Head of Finance, effective on July 11, 2022, pursuant to an Operations Services & Secondment Agreement between
Aptus Management Limited and MG Consultancy Limited (“MG”), through which Mr. Siu provides his services. MG charges an initial monthly fee of approximately
USD7,600, which may be increased to approximately USD12,700 during the term of the agreement. The agreement has a three-year term, which will automatically renew for
additional one-year terms, unless earlier terminated by either party with one-month written notice.
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.
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.
134
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
We are a Cayman Islands exempted company with limited liability and our affairs are governed by our Third Amended and Restated Memorandum and Articles of
Association (the “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. The Memorandum and Articles of the Company is filed herein as Exhibit 1.2 to this annual report and is hereby incorporated
by reference into this annual report. You may refer to Exhibit 2.3 for a detailed disclosure of description of our securities registered under Section 12 of the Exchange Act of
1934, as amended, of the Memorandum and Articles.
As of the date hereof, the authorized share capital of the Company is $100,000,000.00, divided into 9,999,996,000,000 Class A Ordinary Shares with a nominal or par
value of $0.00001 each and 4,000,000 Class B Ordinary Shares with a nominal or par value of $0.00001 each. As of the date hereof, 1,719,522 Class A Ordinary Shares and
2,243,776 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.
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At the February 21, 2023 special extraordinary meeting of shareholders, the shareholders approved by a special resolution an amendment and restatement of the
Company’s Second Amended and Restated Memorandum and Articles of Association (the “M&A”) in the form of the Third Amended and Restated Memorandum and Articles
of Association, to reflect (i) the merger between the Company and Aptorum Group Cayman Limited, a newly established wholly owned subsidiary of the Company, whereby
the Company would be the surviving company (the “Merger”) pursuant to a plan of merger, which also forces a change in par value to Ordinary Shares of the Company from
USD10 to USD0.00001 (the “Plan of Merger”); (ii) the voting rights of the Class B Ordinary Shares be increased from 10 votes per share to 100 votes per share; (iii) a
staggered board of directors consisting of three (3) classes, such that only one (1) class is subject to re-election each year; (iv) to increase the number of Class A Ordinary
Shares authorized; (v) reducing the vote required for class consent from two-thirds (2/3) to a simple majority; and (vi) to decrease the number of days for effective service by
post to shareholders from 14 days to 3 days (collectively, the “Amendments of M&A”) and that the Third Amended and Restated Memorandum and Articles of Association be
adopted as the Memorandum and Articles of Association of the Company, to the exclusion of the existing M&A with effect from February 21, 2023, which is the date of the
registration of the Merger with the Registrar of Companies of the Cayman Islands.
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.
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.
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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.
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.
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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.
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.
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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, 2022, 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.
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.
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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).
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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.”
J. Annual Report to Security Holders.
Not applicable.
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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, 2022 and 2021, 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 majority held with HSBC for the purposes of payments of Group expenses. The risk of
default is considered minimal as the Group considers HSBC is well established with high credit rating.
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 invested in private equities which are generally unquoted and not readily marketable before its restructuring to an operating company. After the
restructuring in 2017, the Group generally does not acquire new investments in unlisted securities that cannot be readily disposed of to minimize the liquidity risk. 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 deposits and bank loan held with banks are exposed to interest rate risk. However, Management considers the risk on cash deposits to be minimal as
they are short-term with terms less than one month.
With regard to interest rate sensitivity on our bank loans, we present the sensitivity analysis below based on the exposure to interest rates for interest bearing bank
loans with variable interest rates as of December 31, 2022. The analysis is prepared assuming that those balances outstanding as of December 31, 2022 were outstanding for the
whole financial year. A 1.0% increase or decrease which represents the management’s assessment of the reasonably possible change in interest rates is used. Assuming no
change in the outstanding balance of our existing interest bearing bank loans balances with floating interest rates as of December 31, 2022, a 1.0% increase or decrease in each
applicable interest rate would increase or decrease $30,000 to our interest expense for the year ended December 31, 2022. We have not used any derivative financial instruments
to manage our interest risk exposure.
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.
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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.
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 accounting 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, 2022. Based on that
evaluation, our chief executive officer and chief financial accounting officer concluded that our disclosure controls and procedures, as of December 31, 2022, were not effective
at the reasonable assurance level due to the material weakness described below.
(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 Accounting Officer assessed the effectiveness of internal control over financial reporting as of December 31, 2022
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, 2022.
In connection with the previous audit of our financial statements for the year ended December 31, 2022, 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.
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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.
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, 2022.
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 material weakness 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.
144
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,
2022
2021
(In thousand)
$
$
258
42
-
-
300
$
$
258
37
-
-
295
“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 issuance of comfort letters.
“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.
145
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
Third 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)
146
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
4.49
4.50
4.51
4.52
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 (17)
Concerted Action Agreement between Aptorum Therapeutics Limited and Peace Range Limited dated December 30, 2021 regarding to Scipio Life Sciences
Limited (17)
Operations Services & Secondment Agreement between Aptus Management Limited and MG Consultancy Limited (16)
Form of Securities Purchase Agreement (18)
Appointment letter between the Company and Ian Huen (Non-Executive Director), dated May 27, 2022**
Non-binding Letter of Intent(20)
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***
15.1
99.1
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
Consent of Marcum Asia CPAs LLP**
Code of Business Ethics*
Inline XBRL Instance Document**
Inline XBRL Taxonomy Extension Schema Document**
Inline XBRL Taxonomy Extension Calculation Linkbase Document**
Inline XBRL Taxonomy Extension Definition Linkbase Document**
Inline XBRL Taxonomy Extension Label Linkbase Document**
Inline XBRL Taxonomy Extension Presentation Linkbase Document**
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
*
+++ 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
147
(1)
Incorporated by reference to our Current Report on Form 6-K filed on April 24, 2019
(2)
Incorporated by reference to our Current Report on Form 6-K filed on August 14, 2019
(3)
(4)
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.
(5)
Incorporated by reference to our annual report on Form 20-F filed on April 15, 2019
(6)
(7)
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.
(8)
Incorporated by reference to our Current Report on Form 6-K filed on February 26, 2020
(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 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
(16) Incorporated by reference to our Current Report on Form 6-K filed on July 11, 2022.
(17) Incorporated by reference to our annual report on Form 20-F filed on April 29, 2022.
(18) Incorporated by reference to our Current Report on Form 6-K filed on December 9, 2022.
(19) Incorporated by reference to our Annual Report on Form 20-F/A filed on January 17, 2023.
(20) Incorporated by reference to our Current Report on Form 6-K filed on March 27, 2023.
148
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 this
SIGNATURES
annual report on its behalf.
Date: April 28, 2023
Aptorum Group Limited
By:
/s/ Darren Lui
Darren Lui
Chief Executive Officer,
Chief Accounting Officer
Chairman of the Board of Directors
(Principal Executive & Financial Officer)
149
APTORUM GROUP LIMITED
Financial Statements
Table of Contents
Report of Independent Registered Public Accounting Firm (Marcum Asia CPAs LLP PCAOB ID: 5395)
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Equity for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
F-2
F-3
F-4
F-5
F-6
F-7
F-1
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, 2022 and 2021, the related consolidated
statements of operations and comprehensive (loss) income, equity and cash flows for each of the three years in the period ended December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, 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 Asia CPAs LLP
Marcum Asia CPAs LLP
We have served as the Company’s auditor since 2017
New York, NY
April 28, 2023
PCAOB ID. 5395
NEW YORK OFFICE • 7 Penn Plaza • Suite 830 • New York, New York • 10001
Phone 646.442.4845 • Fax 646.349.5200 • www.marcumasia.com
F-2
APTORUM GROUP LIMITED
CONSOLIDATED BALANCE SHEETS
December 31, 2022 and 2021
(Stated in U.S. Dollars)
ASSETS
Current assets:
Cash
Restricted cash
Accounts receivable
Inventories
Marketable securities, at fair value
Amounts due from related parties
Due from brokers
Loan receivable from related parties
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
Bank loan
Convertible notes
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 ($10.00 par value; 6,000,000 shares authorized, 1,326,953 and 1,320,241 shares issued and outstanding as of
December 31, 2022 and 2021, respectively(1))
Class B Ordinary Shares ($10.00 par value; 4,000,000 shares authorized, 2,243,776 shares issued and outstanding as of December 31,
2022 and 2021(1))
Additional paid-in capital
Accumulated other comprehensive income (loss)
Accumulated deficit
Total equity attributable to the shareholders of Aptorum Group Limited
Non-controlling interests
Total equity
Total Liabilities and Equity
December 31,
2022
December 31,
2021
$
$
$
$
$
$
1,882,545
3,130,335
174,426
27,722
102,481
129,677
652
875,956
744,008
7,067,802
2,825,059
347,000
9,744,958
752,705
129,847
20,867,371
12,693
6,166,807
-
310,548
3,000,000
3,013,234
12,503,282
30,784
500,000
13,034,066
$
$
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
11,389
4,172,565
47,923
145,391
-
-
4,377,268
-
23,853
-
4,401,121
-
-
$
13,269,528
$
13,202,408
22,437,754
45,308,080
33,807
(65,337,075)
15,712,094
(7,878,789)
7,833,305
20,867,371
$
22,437,754
43,506,717
(2,019)
(55,537,515)
23,607,345
(6,101,223)
17,506,122
21,907,243
$
(1) All per share amounts and shares outstanding for all periods have been retroactively restated to reflect APTORUM GROUP LIMITED’s 1 for 10 reverse stock split, which
was effective on January 23, 2023.
See accompanying notes to the consolidated financial statements.
F-3
APTORUM GROUP LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
For Years Ended December 31, 2022, 2021 and 2020
(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 income (loss), net
(Loss) gain on investments in marketable securities, net
Gain on long-term investments
Loss on investments in derivatives, net
Gain on use of digital currencies
Gain on derecognition of non-financial assets
Interest income (expense), net
Rental income
Loss on disposal of subsidiaries
Sundry income
Total other income (loss), net
Net (loss) income
Net loss attributable to non-controlling interests
Deemed dividend related to warrants down round provision
Year Ended
December 31,
2022
Year Ended
December 31,
2021
Year Ended
December 31,
2020
$
1,295,889
$
1,541,778 $
911,509
(1,215,824)
(9,219,595)
(5,220,405)
(2,888,140)
(261,038)
(18,805,002)
(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)
(134,134)
5,588,051
-
-
-
146,588
-
-
383,506
5,984,011
(8,031,595)
-
(4,289)
4,918
75,000
(93,601)
-
(3,638)
146,347
(7,906,858)
(11,525,102)
1,725,542
-
(27,114,293)
2,065,904
-
25,241,556
-
(199,031)
-
-
(243,628)
30,894
-
365,917
25,195,708
4,920,167
2,146,687
(755,514)
Net (loss) income attributable to Aptorum Group Limited
$
(9,799,560) $
(25,048,389) $
6,311,340
Net (loss) income per share attributable to Aptorum Group Limited
- Basic(1)
- Diluted(1)
Weighted-average shares outstanding
- Basic(1)
- Diluted(1)
Net (loss) income
Other comprehensive income (loss)
Exchange differences on translation of foreign operations
Other comprehensive income (loss)
Comprehensive (loss) income
Comprehensive loss attributable to non-controlling interests
Deemed dividend related to warrants down round provision
$
$
(2.75) $
(2.75) $
(7.15) $
(7.15) $
2.03
2.00
3,569,484
3,569,484
3,503,396
3,503,396
3,113,588
3,153,447
$
(11,525,102) $
(27,114,293) $
4,920,167
35,826
35,826
(55,315)
(55,315)
58,848
58,848
(11,489,276)
1,725,542
-
(27,169,608)
2,065,904
-
4,979,015
2,146,687
(755,514)
Comprehensive (loss) income attributable to the shareholders of Aptorum Group Limited
(9,763,734)
(25,103,704)
6,370,188
(1) All per share amounts and shares outstanding for all periods have been retroactively restated to reflect APTORUM GROUP LIMITED’s 1 for 10 reverse stock split, which
was effective on January 23, 2023.
See accompanying notes to the consolidated financial statements.
F-4
APTORUM GROUP LIMITED
CONSOLIDATED STATEMENTS OF EQUITY
For Years Ended December 31, 2022, 2021 and 2020
(Stated in U.S. Dollars)
Class A Ordinary
Shares
Shares(1) Amount
Class B Ordinary
Shares
Shares(1) Amount
Additional
Paid-in
Capital
Amount
Accumulated
deficit
Amount
Accumulated
other
comprehensive
(loss) income
Amount
Non-
controlling
interests
Total
Amount
Amount
Balance, January 1, 2020
Issuance of Class A Ordinary Shares and
warrants, net of issuance cost
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)
659,736 $ 6,597,362 2,243,776 $22,437,754 $24,887,624 $ (37,555,980) $
(5,552) $(1,509,456) $ 14,851,752
412,058 4,120,581
-
540,540
-
313,513
12,328
-
54,054
-
31,351
1,233
-
-
-
-
-
-
-
-
-
-
-
-
- 12,661,754
-
25,715
(540,540)
-
- 1,478,565
(313,513)
-
48,298
-
-
-
-
-
-
-
-
-
-
-
-
-
- 16,782,335
-
-
1,478,565
-
60,626
(25,715)
-
-
-
-
-
-
-
-
-
7,066,854
58,848
-
- (2,146,687)
58,848
4,920,167
Balance, December 31, 2020
Issuance of Class A Ordinary Shares
Issuance of shares to non-controlling interest
Disposal of subsidiaries under common
1,158,432 $11,584,324 2,243,776 $22,437,754 $38,247,903 $ (30,489,126) $
-
-
138,793 1,387,925
-
- 2,612,075
66,783
-
-
-
-
53,296 $(3,681,858) $ 38,152,293
4,000,000
5,360
-
(61,423)
-
-
control transaction
Disposal of subsidiaries
Share-based compensation
Exercise of warrants
Exercise of options
Exchange difference on translation of foreign
operation
Net loss
-
-
-
4,000
19,016
-
-
-
40,000
190,159
-
-
-
-
-
-
-
-
-
-
-
303,419
-
-
-
- 1,682,460
90,012
-
504,065
-
-
-
-
-
-
(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
Issuance of shares to non-controlling interest
Share-based compensation
Exercise of options
Exchange difference on translation of foreign
1,320,241 $13,202,408 2,243,776 $22,437,754 $43,506,717 $ (55,537,515) $
-
-
-
-
52,024
- 1,646,999
102,340
-
-
-
67,120
-
-
6,712
-
-
-
operation
Net loss
Balance, December 31, 2022
-
-
-
(9,799,560)
1,326,953 $13,269,528 2,243,776 $22,437,754 $45,308,080 $ (65,337,075) $
-
-
-
-
-
-
-
-
(2,019) $(6,101,223) $ 17,506,122
(52,024)
-
1,646,999
-
169,460
-
-
-
-
35,826
35,826
-
- (1,725,542) (11,525,102)
33,807 $(7,878,789) $ 7,833,305
(1) All per share amounts and shares outstanding for all periods have been retroactively restated to reflect APTORUM GROUP LIMITED’s 1 for 10 reverse stock split, which
was effective on January 23, 2023.
See accompanying notes to the consolidated financial statements.
F-5
APTORUM GROUP LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Years Ended December 31, 2022, 2021 and 2020
(Stated in U.S. Dollars)
Cash flows from operating activities
Net (loss) income
Adjustments to reconcile net (loss) income 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 on investments in derivatives, net
Gain on derecognition of non-financial assets
Loss on disposal of an intangible asset
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
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
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 related party
Repayment of loan from a related party
Net cash provided by investing activities
Cash flows from financing activities
Loan from related parties
Repayment of loan due to related parties
Proceeds from issuance of subsidiaries shares
Proceeds from issuance of Class A Ordinary Shares and warrants
Payments of offering costs
Exercise of share options
Exercise of warrants
Loan from a bank
Proceeds from issuance of convertible notes
Payment of finance lease obligations
Net cash provided by financing activities
Net (decrease) increase 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
Settlement of service fee by tokens and digital currencies
Deemed dividend related to warrants down round provision
Reconciliation of cash and restricted cash
Cash
Restricted cash
Total cash and restricted cash shown in the consolidated statements of cash flows
Year Ended
December 31,
2022
Year Ended
December 31,
2021
Year Ended
December 31,
2020
$
(11,525,102) $
(27,114,293) $
4,920,167
1,207,510
1,646,999
134,134
(5,588,051)
-
-
205,189
-
-
-
349,031
-
-
-
(235,560)
87,537
1,435
(95,704)
8,053
(105,584)
19,328
75,728
(46,349)
(6,805)
1,918,751
(369,505)
(12,318,965)
-
(186,916)
-
-
-
(330,341)
2,962,153
2,444,896
500,000
-
5,360
-
-
169,460
-
3,000,000
3,000,000
(49,358)
6,625,462
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
(3,248,607)
8,261,487
5,012,880
$
4,636,131
3,625,356
8,261,487 $
(1,667,817)
5,293,173
3,625,356
64,744
-
-
$
$
$
273,155 $
- $
20,116,734 $
549,596
-
-
$
$
$
- $
90,457 $
- $
1,882,545
3,130,335
5,012,880
$
$
8,131,217 $
130,270
8,261,487 $
131,554
-
952,196
1,107,206
24,000
755,514
3,495,231
130,125
3,625,356
$
$
$
$
$
$
$
$
$
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, 2022:
Name
Aptorum Therapeutics Limited
(“ATL”)
Incorporation
date
June 30, 2016
APTUS MANAGEMENT LIMITED
May 16, 2017
Aptorum Medical Limited
Paths Innovations Limited (formerly
known as Aptorum Innovations
Holding Limited)
Paths Diagnostics Pte. Limited
(formerly known as Aptorum
Innovations Holding Pte. Limited)
Acticule Life Sciences Limited
August 28, 2017
April 15, 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%
100%
91%
100%
Place of
incorporation
Cayman Islands
Principle activities
Research
and development of
life
science
and
biopharmaceutical products
Hong Kong
Provision of management services to its holding company
and fellow subsidiaries
Cayman Islands
Cayman Islands
Provision of medical clinic services
Investment holding company
June 5, 2019
75%
Singapore
Research
and development of
life
science
and
biopharmaceutical products
80%
100%
100%
100%
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
Cayman Islands
Research
and development of
life
science
and
biopharmaceutical products
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
F-7
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
2. LIQUIDITY
The Group reported a net loss of $11,525,102 and net operating cash outflow of $12,318,965 for the year ended December 31, 2022. In addition, the Group had an accumulated
deficit of $65,337,075 as of December 31, 2022. 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 facility from related parties and banks. As of the date of issuance of the consolidated financial
statements, the Group has approximately $1.4 million of restricted and unrestricted cash (excluded $3 million time deposits pledged to a loan), and approximately $9.5 million
of undrawn line of credit facilities from a related party. In addition, the Group maintains its operating costs at a level through strict cost control and budget until the completion
of the reverse takeover transaction.
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 one of 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.
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,
2022 and 2021, 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).
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 income (loss), 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, loan receivables from related parties, loan payables, and loan payables to a related party as of December 31, 2022 and 2021 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:
Computer equipment
Furniture, fixture, and office and medical equipment
Leasehold improvements
Laboratory equipment
Motor vehicle
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 notes
The Group evaluates and account for conversion options embedded in convertible notes in accordance with ASC 815 “Derivatives and Hedging Activities”.
Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments
according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and
closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host
contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the
embedded derivative instrument would be considered a derivative instrument.
The Group accounts for convertible notes (when it has been determined that the embedded conversion options should not be bifurcated from their host instruments) as follows:
The Group records when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences
between the fair value of the underlying Class A Ordinary Shares at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt
discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.
F-12
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
Operating leases
lAt 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.
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, 2022, 2021, and 2020, the bad debt expenses were $71, nil and nil, respectively.
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), net.
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, Canada and Ireland tax rule, trading
losses are available to be carried forward indefinitely. The Group did not have any material interest or penalties associated with tax positions for the years ended December 31,
2022, 2021 and 2020, and did not have any significant unrecognized uncertain tax positions as of December 31, 2022 and 2021. 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 the issuance 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 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. The Group adopted this standard effective January 1, 2022. The adoption did not have a material effect on the Group’s consolidated financial
statements.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own
Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for
convertible instruments by eliminating the cash conversion and beneficial conversion feature models used to separately account for embedded conversion features as a
component of equity. Instead, the entity will account for the convertible debt securities as a single unit of account, unless the conversion feature requires bifurcation and
recognition as derivatives. Additionally, the guidance requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share calculation
and include the effect of potential share settlement for instruments that may be settled in cash or shares. The Group adopted this standard effective January 1, 2022. The
adoption did not have any impact on the Group’s 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 Group adopted this standard effective January 1, 2022. The adoption does
not have a material effect on the Group’s 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 Group adopted this standard effective January 1, 2022. The adoption does not have
a material effect on the Group’s 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.
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.
4. REVENUE
For the years ended December 31, 2022, 2021 and 2020, all revenue came from provision of healthcare services in Hong Kong.
F-15
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
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, 2022 and 2021:
December 31, 2022
Current Assets
Marketable securities
Common stocks
Non current Assets
Long-term investments
Common stocks
Total assets at fair value
December 31, 2021
Current Assets
Marketable securities
Common stocks
Non current Assets
Long-term investments
Common stocks
Total assets at fair value
Level 1
Level 2
Level 3
Total
$
10,202
$
92,279
$
- $
102,481
-
10,202
$
-
92,279
$
77,200
77,200 $
77,200
179,681
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
$
$
$
$
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, 2022 and 2021:
Balance at January 1, 2022
Change in unrealized (depreciation) appreciation, net
Balance at December 31, 2022
Net change in unrealized appreciation relating to investments still held at December 31, 2022
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
$
$
$
$
Warrants
Common Stock
77,200
$
-
77,200
-
$
-
-
-
-
$
4,289
(4,289)
-
-
-
$
-
-
77,200
77,200
-
The following table presents the quantitative information about the Group’s Level 3 fair value measurements of investment as of December 31, 2022 and 2021, which utilized
significant unobservable internally-developed inputs:
December 31, 2022
Common stocks
December 31, 2021
Common stocks
Valuation technique
Unobservable input
Recent transactions
Recent transaction price
Valuation technique
Unobservable input
Range
(weighted average)
$0.0001 - $0.01
Range
(weighted average)
Recent transactions
Recent transaction price
$0.0001 - $0.01
F-16
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 if the carrying amount of the non-marketable investments may not be fully recoverable. Any changes in carrying value are recorded within other income (loss),
net in the consolidated statements of operations.
The following is a summary of annual upward or downwards adjustments and impairment recorded in other income (loss), net, and included as adjustments to the carrying
value of non-marketable investments held as of December 31, 2022, 2021 and 2020 based on the observable price in an orderly transaction for the same or similar security of
the same issuers:
Year ended
December 31,
2022
Year ended
December 31,
2021
Year ended
December 31,
2020
Upward adjustments
Downward adjustments and impairment
Total unrealized gain for non-marketable investments
$
$
6,108,872
(520,821)
5,588,051
$
$
- $
-
- $
-
-
-
The Group did not sell any non-marketable investments and recorded 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, 2022, 2021 and 2020.
The following table summarizes the total carrying value of the non-marketable investments held as of December 31, 2022 and 2021 including cumulative unrealized upward
and downward adjustments and impairment made to the initial cost basis of the investments:
Initial cost basis
Upward adjustments
Downward adjustments and impairment
Total carrying value at the end of the year
$
$
$
4,079,707
6,108,872
(520,821)
$
9,667,758
December 31,
2022
December 31,
2021
4,079,707
-
-
4,079,707
There was no transferred of non-marketable investments into marketable securities for the year ended December 31, 2022 and 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, 2022 and 2021, there was no change in fair value of equity
method investment, at fair value.
F-17
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, 2022 and 2021 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, 2022 and 2021 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,
2022
December 31,
2021
305,178
47,833
148,346
16,296
-
204,752
21,603
744,008
$
$
314,165
92,035
90,857
12,011
13,205
47,697
23,508
593,478
December 31,
2022
December 31,
2021
-
-
-
-
$
$
1,539
(6,457
4,918
-
December 31,
2022
December 31,
2021
84,636
298,738
543,975
6,229,072
239,093
-
7,395,514
4,570,455
2,825,059
$
$
85,495
264,123
542,514
4,179,064
239,093
1,899,169
7,209,458
3,478,342
3,731,116
$
$
$
$
$
$
Depreciation expenses for property, plant and equipment amounted to $1,092,957, $1,086,564 and $1,128,867 for the years ended December 31, 2022, 2021 and 2020,
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, 2022 and 2021, 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, 2022, no gain or loss from disposal was recorded.
F-18
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,
2022
December 31,
2021
$
$
1,038,205
223,858
1,262,063
1,338,205
31,667
1,369,872
474,131
35,227
509,358
564,074
188,631
752,705
$
$
462,803
26,813
489,616
875,402
4,854
880,256
As of December 31, 2022 and 2021, 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 $114,553, $106,014 and $145,961 for the years ended December 31, 2022, 2021 and 2020, respectively.
A license agreement was terminated on December 15, 2022. As a result, a loss on disposal of $205,189 related to a patented license was recognized in research and
development expenses during the year ended December 31, 2022. 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, no impairment loss was recorded.
The Group wrote off the cost and the related amortization of $nil, $1,344 and $70,477 after the expiration of the computer software for the years ended December 31, 2022,
2021 and 2020, 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, 2022:
For the years ending December 31,
2023
2024
2025
2026
2027
Thereafter
Total
F-19
Amount
146,584
138,956
119,713
119,713
106,795
326,133
957,894
$
$
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
10. LONG-TERM DEPOSITS
Long-term deposits as of December 31, 2022 and 2021 consisted of:
Rental deposits
Prepayments for equipment
11. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses as of December 31, 2022 and 2021 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,
2022
December 31,
2021
$
$
127,303
2,544
129,847
$
$
149,175
147,050
296,225
December 31,
2022
December 31,
2021
$
$
5,084,969
563,913
226,407
138,316
33,367
119,835
6,166,807
$
$
3,173,739
519,012
166,190
142,968
35,010
135,646
4,172,565
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, 2022, 2021 and 2020. Therefore, no Hong Kong profit tax has been provided for in the periods presented.
Our returns for 2016 and subsequent tax years remain subject to examination by Hong Kong Inland Revenue Department.
F-20
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, 2022, 2021 and 2020.
Therefore, no United Kingdom profit tax has been provided for in the periods presented. Our returns for 2018 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, 2022, 2021 and 2020. Therefore, no Singapore profit tax has
been provided for in the periods presented. Our returns for 2018 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, 2022,
2021 and 2020. Therefore, no United States profit tax has been provided for in the periods presented. Our returns for 2019 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, 2022, 2021 and 2020. Therefore, no Canada profit tax has been provided for in the
periods presented. Our returns for 2018 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, 2022, 2021 and 2020. Therefore, no Ireland profit tax has been provided for in the
periods presented. Our returns for 2018 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,
2022
Year ended
December 31,
2021
Year ended
December 31,
2020
$
$
-
-
-
$
$
- $
-
-
-
-
-
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-21
Year ended
December 31,
2022
Year ended
December 31,
2021
Year ended
December 31,
2020
$
$
(11,525,102) $
(1,901,642)
(263,787)
(907,495)
-
3,072,924
-
$
(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
-
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,
2022
December 31,
2021
$
$
$
14,865,121
948,893
15,814,014
12,189,424
698,564
12,887,988
(108,926)
15,705,088
(15,705,088)
$
-
(255,824)
12,632,164
(12,632,164)
-
As of December 31, 2022 and 2021, the Group had net operating loss carry-forwards of $90,060,983 and $73,785,041, 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,
2022
Year ended
December 31,
2021
Year ended
December 31,
2020
$
$
12,632,164
3,072,924
-
15,705,088
$
$
9,561,560 $
3,412,159
(341,555)
12,632,164 $
6,152,198
3,409,362
-
9,561,560
13. RELATED PARTY BALANCES AND TRANSACTIONS
The following is a list of a director and related parties to which the Group has transactions with:
(a)
Ian Huen, a Non-executive Director of the Group since June 1, 2022. Before June 1, 2022, he was the Chief Executive Officer and Executive Director of the Group;
(b) Darren Lui, the Chief Executive Officer and Executive Director since June 1, 2022. Before June 1, 2022, he was the President and Executive Director of the Group;
(c) Clark Cheng, an Executive Director of the Group;
(d) Sabrina Khan, the Chief Financial Officer of the Group. On July 11, 2022, she resigned from her position as Chief Financial Officer.
(e) Aeneas Group Limited, an entity controlled by Ian Huen;
F-22
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
(f) Aenco Limited, an entity controlled by Ian Huen;
(g) Aeneas Technology (Hong Kong) Limited, an entity controlled by Ian Huen;
(h) Aeneas Management Limited, an entity controlled by Ian Huen;
(i) Talem Medical Group Limited, an entity which Clark Cheng is a director;
(j)
Jurchen Investment Corporation, the holding company and an entity controlled by Ian Huen;
(k) CGY Investment Limited, an entity jointly controlled by Darren Lui;
(l) ACC Medical Limited, an entity controlled by Clark Cheng;
(m) 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 the
Group due to the voting power owned by ATL is decreased to below 50% but more than 20%. (Note 14)
(n) Libra Therapeutics Limited, a wholly owned subsidiary of Libra Sciences Limited; and
(o) Aenco Technologies Ltd, an entity being 34.56% effectively owned by Ian Huen.
Amounts due from related parties
Amounts due from related parties consisted of the following as of December 31, 2022 and 2021:
Current
Libra Sciences Limited (Note b)
Libra Therapeutics Limited
Jurchen Investment Corporation
CGY Investment Limited
Talem Medical Group Limited (Note b)
Total
Amounts due to related parties
Amounts due to related parties consisted of the following as of December 31, 2022 and 2021:
Current
Aenco Technologies Ltd
Aeneas Group Limited
Ian Huen
Darren Lui
Clark Cheng
Sabrina Khan
Total
Non-current
Aeneas Group Limited (Note a)
Jurchen Investment Corporation (Note a)
F-23
December 31,
2022
December 31,
2021
378,036
17,459
-
-
610,138
1,005,633
$
$
4,193
-
2,000
2,000
3,397,650
3,405,843
December 31,
2022
December 31,
2021
3,013,234
8,110
-
-
4,583
-
3,025,927
$
$
500,000
-
500,000
$
$
-
-
1,397
3,449
5,699
844
11,389
-
-
-
$
$
$
$
$
$
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, 2022, 2021 and 2020:
Loan from related parties (Note a)
- Aeneas Group Limited
- Jurchen Investment Corporation
Interest expenses (Note a and c)
- Aeneas Group Limited
- Jurchen Investment Corporation
- Aenco Technologies Ltd
Loan repayment and interest paid to related parties (Note a)
- Aeneas Group Limited
- Jurchen Investment Corporation
Loan to related parties (Note b)
- Talem Medical Group Limited
- Libra Sciences Limited
Interest income (Note b)
- Talem Medical Group Limited
- Libra Sciences Limited
Loan repayment and interest received from a related party (Note b)
- Talem Medical Group Limited
Issuance of convertible notes to a related party (Note c)
- Aenco Technologies Ltd
Consultant, secondment, management and administrative services fees (Note d)
- CGY Investments Limited
- ACC Medical Limited
- Aenco Limited
- Aeneas Technology (Hong Kong) Limited
- Aeneas Management Limited
Rental expense (Note e)
- Jurchen Investment Corporation
Administrative management services (Note g)
- Libra Sciences Limited
Healthcare services income
- Aeneas Management Limited
$
$
$
$
$
$
$
$
$
$
$
Year ended
December 31,
2022
Year ended
December 31,
2021
Year ended
December 31,
2020
500,000
-
$
$
1,000,000 $
2,500,000 $
500,000
500,000
8,110
-
13,234
$
$
$
64,753 $
65,644 $
- $
155,633
81,530
-
-
-
$
$
2,673,389 $
3,085,097 $
2,356,080
3,082,131
-
330,341
$
$
3,358,089 $
- $
164,600
14,232
$
$
39,561 $
- $
$
2,962,153
$
$
3,000,000
$
- $
- $
-
-
-
-
-
-
$
$
$
$
$
$
$
$
268,102
209,626
-
-
-
$
$
$
$
$
173,333 $
157,511 $
- $
- $
- $
169,462
13,018
746,153
617,794
231,795
-
$
- $
96,300
38,462
$
- $
-
1,282
$
7,564 $
321
F-24
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
Note a: On August 13, 2019, Aptorum Therapeutics Limited (“ATL”), a wholly owned subsidiary of the Company, entered into financing arrangements with Aeneas Group
Limited, a related party, and Jurchen Investment Corporation, the ultimate parent of the Group, allowing ATL to access up to a total $15 million in line of credit debt financing.
Both line of credits have originally matured on August 12, 2022. ATL and Aeneas Group Limited has mutually agreed to extend the line of credit arrangement further 3 years to
August 12, 2025. The interest on the outstanding principal indebtedness is at the rate of 8% per annum. ATL 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. As of the date of the
issuance of this consolidated financial statements, the undrawn line of credit facility is $9.5 million.
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 is extended for 6 months to the first extended maturity date, and may further extendable for another 6
months to the second extended maturity date, if certain conditions stated in loan agreement are satisfied. As of the date of the issuance of this consolidated financial statements,
there is no outstanding balance from the Borrower.
On January 13, 2022, the Company 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 is originally matured on January 12, 2023, and is extended for additional 3 years. The interest on the outstanding principal indebtedness is at the rate of 10% per
annum. As of the date of the issuance of this consolidated financial statements, $0.4 million is outstanding from Libra Sciences Limited.
Note c: On December 9, 2022, the Company entered into a Securities Purchase Agreement (the “Agreement”) with Aenco Technologies Ltd (“Note holder”), a Cayman Islands
company that is indirectly 34.56% effectively owned by our non-executive director and major shareholder, Ian Huen. Pursuant to the Agreement, the Note holder is purchasing
a convertible note in the original principal amount of $3,000,000 (the “Note”). The Note is unsecured, convertible into the Company’s restricted Class A Ordinary Shares, par
value $10.00 per share (the “Ordinary Shares”) at the Note holder or the Company option. The Notes will have a maturity date of 12 months subject to the Note holder’s
extension, a bullet interest rate of 7% per annum, and a conversion price of $12.0 per Class A Ordinary Share.
Note d: 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.
F-25
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
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 e: 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 f: On January 2, 2020, Aptorum Medical Limited 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%. On February 25, 2022, Aptorum Medical Limited further issued 119 shares to Clark Cheng in according to the
appointment agreement, decreasing the equity interest of the Company from 92% to 91%. On February 1, 2023, Aptorum Medical Limited further issued 122 shares to Clark
Cheng in according to the appointment agreement, decreasing the equity interest of the Company from 91% to 90%.
Note g: 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 h: 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 consolidated statement of changes in equity.
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, 2022
Total
December 31, 2021
Total
Assets
Liabilities
Net Assets/
(Liabilities)
$
$
61,630
$
86,306 $
(22,676)
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, 2022
Total
December 31, 2021
Total
Assets
Liabilities
Net Assets
Maximum
Exposure to
Losses
472,695
$
-
$
472,695 $
472,695
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 Sciences Limited to provide up to a total $1 million line of credit for its daily operation. The line of
credit is originally matured on January 12, 2023, and is extended for additional 3 years. The interest on the outstanding principal indebtedness is at the rate of 10% per annum.
15. LEASE
As of December 31, 2022, the Group has three non-short-term operating leases for office, laboratories and clinic with remaining terms expiring from 2023 through 2024 and a
weighted average remaining lease term of 1.1 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, 2022 is as follows:
Remaining periods ending December 31,
2023
2024
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,
2022
For the year
ended
December 31,
2021
$
$
$
$
$
$
47,818
1,435
349,031
85,598
-
-
483,882
369,505
49,358
549,596
-
1.1 years
2.5%
8.0%
47,819
4,450
425,280
86,125
-
-
563,674
450,807
53,846
-
0.9 years
1.0 years
2.5%
8.0%
December 31,
2022
$
$
298,409
58,434
356,843
(15,511)
341,332
(310,548)
30,784
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
16. CONVERTIBLE NOTE
On December 9, 2022, the Group entered into a Securities Purchase Agreement (the “Agreement”) with Aenco Technologies Ltd (“Note holder”). Pursuant to the Agreement,
the Note holder is purchasing a convertible note in the original principal amount of $3,000,000 (the “Note”). The Note is unsecured, convertible into the Company’s restricted
Class A Ordinary Shares at the Note holder option. The Notes will have a maturity date of 12 months subject to the Note holder’s extension, a bullet interest rate of 7% per
annum, and a conversion price of $12.0 per Class A Ordinary share. The Company shall have an obligation to repay the principal amount and interest of the Note on the
maturity date in cash or in unregistered Class A Ordinary Shares or a combination of such at the Company’s discretion. As of the date of the issuance of this consolidated
financial statements, the convertible note is fully converted into 250,000 Class A Ordinary Shares.
17. ORDINARY SHARES
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 135,135 Class A Ordinary Shares and warrants to purchase
135,135 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 $74.0 per Class A Ordinary Share and expire seven years from the date of issuance. Additionally, the Group issued 4,324 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 $88.8.
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 54,054 Class A Ordinary Shares are issued to two non-affiliated purchasers in exchange for 54,054
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 276,923 Class A Ordinary Shares and warrants to purchase an aggregate of 276,923 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 $32.5 per Class A Ordinary Share, are exercisable upon issuance and will expire five years from the date of issuance. Additionally, the
Group issued 14,754 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 $40.625. Following the public offering completed on October 2, 2020, the placement agent of the offering on February 28, 2020 was further received 6,541
warrants as a tail fee, with an exercise price of $39.0 and expire seven years from the date of issuance.
F-29
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
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. 333-268873) (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 issued 7,875 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 138,793 Class A Ordinary Shares at
$28.82 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, 2022, the Group issued 6,712 Class A Ordinary Shares to share option holders as a result of exercise of share options. For the year ended
December 31, 2021, the Group issued 4,000 and 19,016 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 31,351 and 1,233 Class A Ordinary Shares to warrant holders and share option holders respectively as a result
of exercise of warrants or options.
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-30
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
18. 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 550,000
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.
53,694 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 $29.9 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.
14,896 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$31.1 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.
2,748 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 $36.4 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.
75,235 options were granted on March 11, 2021 to directors, employees, external consultants and advisors of the Group with an exercise price of $27.6 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. 36,796 options vest on
January 1, 2022 and expire on December 31, 2032; 36,808 options vest on January 1, 2023 and expire on December 31, 2033; 906 options vest on June 8, 2021 and expire on
June 7, 2032; and 725 options vest on July 14, 2021 and expire on July 13, 2032.
153,146 options were granted on March 8, 2022 to directors, employees, external consultants and advisors of the Group with an exercise price of $13.4 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. 74,881 options vest on
January 1, 2023 and expire on December 31, 2033; 74,906 options vest on January 1, 2024 and expire on December 31, 2034; 1,866 options vest on June 8, 2022 and expire on
June 7, 2033; and 1,493 options vest on July 14, 2022 and expire on July 13, 2033.
226,153 options were granted on March 31, 2023 to directors and employees of the Group with an exercise price of $2.68 per share, which was based on the last closing price of
the shares traded on the NASDAQ stock exchange on the grant date. Besides, 136,200 shares awards were granted on March 31, 2023 to directors, employees and external
consultants. All options vests on October 1, 2023 and expires on September 30, 2033.
A summary of the option activity as of December 31, 2022, 2021 and 2020 and changes during the period is presented below:
Outstanding, January 1, 2022
Granted
Exercised
Forfeited
Cancelled
Outstanding, December 31, 2022
Exercisable, December 31, 2022
Weighted
average
exercise
price
$
Remaining
contractual
term in
years
Aggregate
Intrinsic
value
Number of
share options
127,404
153,146
(6,721)
(1,268)
(435)
272,126
89,300
31.91
13.40
25.25
28.11
116.71
21.54
32.71
11.01
12.30
10.83
9.64
-
-
-
F-31
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
Weighted
average
exercise
price
$
Remaining
contractual
term in
years
Aggregate
Intrinsic
value
Number of
share options
71,756
75,235
(19,037)
(550)
127,404
31,456
37.63
27.60
36.52
29.00
31.91
42.62
11.22
12.29
11.01
9.63
Weighted
average
exercise
price
$
Remaining
contractual
term in
years
Aggregate
Intrinsic
value
Number of
share options
21,853
71,338
(1,235)
(4,594)
(15,606)
71,756
8,467
129.10
30.40
49.27
46.70
129.10
37.63
61.24
11.51
11.99
11.22
9.95
-
-
-
-
-
-
Outstanding, January 1, 2021
Granted
Exercised
Forfeited
Outstanding, December 31, 2021
Exercisable, December 31, 2021
Outstanding, January 1, 2020
Granted
Exercised
Forfeited
Cancelled
Outstanding, December 31, 2020
Exercisable, December 31, 2020
The weighted-average grant date fair value of share option grants during the years ended December 31, 2022, 2021 and 2020 was $10.02, $25.72 and $17.56, 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
2022
89.55%
1.86%
5.63-6.41
-
1
$9.74 - $10.16
Granted in
2021
97.70%
1.64%
5.62-6.41
-
1
$25.11 - $26.01
Granted in
2020
88.44%-96.55%
0.59%-0.69%
5.25-7.29
-
0.9909-1
$15.50 - $26.60
In connection with the grant of share options to employees and non-employees, the Group recorded share-based compensation charges of $1,123,122 and $523,877,
respectively, for the year ended December 31, 2022, $1,203,000 and $479,460, respectively, for the year ended December 31, 2021, and $1,191,957 and $286,608, respectively,
for the year ended December 31, 2020.
As of December 31, 2022, there were $376,512 total unrecognized share-based compensation cost related to unvested options which is expected to be recognized over 1 years.
Total unrecognized compensation cost may be adjusted for future changes in actual forfeitures.
F-32
APTORUM GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
19. NON-CONTROLLING INTEREST
On September 25, 2020, Paths Innovation Limited, 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 Paths Diagnostics Pte. Limited, a wholly-owned subsidiary of Paths Innovation Limited before the share subscription
agreement. As a result, Paths Innovation Limited’s equity interest in Paths Diagnostics 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, 2022, non-controlling interest related to 25% equity interest in Paths Diagnostics Pte. Limited, 10% equity interest in mTOR (Hong Kong) Limited, 9%
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 $7,878,789 in total. As of December 31, 2021, non-controlling interest related to
25% equity interest in Paths Diagnostics 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.
For the years ended December 31, 2022, 2021 and 2020, non-controlling interest in the consolidated statements of operations were loss of $1,725,542, $2,065,904 and
$2,146,687, respectively.
20. 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,
2022
Year ended
December 31,
2021
Year ended
December 31,
2020
$
(9,799,560) $
(25,048,389) $
6,311,340
3,569,484
3,569,484
3,503,396
3,503,396
3,113,588
3,153,447
$
$
(2.75) $
(2.75) $
(7.15) $
(7.15) $
2.03
2.00
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)
21. 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, 2022, the Group had non-
cancellable purchase commitments of $50,075.
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, 2022 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
222,564
20,336,410
14,282,051
65,769,231
100,610,256
205,554
100,815,810
$
$
$
$
For the years ended December 31, 2022, 2021 and 2020, the Group incurred $nil, $nil and $129,203 milestone payments, respectively. For the years ended December 31, 2022,
2021 and 2020, 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)
22. 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.
23. 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.
On January 23, 2023, the Company effectuated a 10 for 1 share consolidation of its authorized share capital, such that every 10 Class A Ordinary Shares, par value of US$1.00
per share, in the authorized share capital of the Company (including issued and unissued share capital) be consolidated into 1 Class A Ordinary Share, par value of US$10.00
per share, and that every 10 Class B Ordinary Shares, par value of US$1.00 per share in the authorized share capital of the Company (including issued and unissued share
capital) be consolidated into 1 Class B Ordinary Share, par value of US$10.00 per share (the “Reverse Split”).
On February 21, 2023, the Company’s Special Extraordinary Meeting approved amendments of certain Memorandum and Articles of Association, including the par value being
adjusted from US$10 per share to US$0.00001 per share. The difference of the par values is credited to additional paid-in capital.
On March 27, 2023, the Company entered into a non-binding Letter of Intent and Term Sheet to acquire (“Transaction”) 100% of URF Holding Group Limited and its
underlying businesses. Currently, it is contemplated that the Transaction will occur via a reverse takeover of the Company. As of the date of the issuance of this consolidated
financial statements, the definitive agreement has not been signed yet.
F-35
Exhibit 1.2
Aptorum Group Limited
Third Amended and Restated Memorandum
and Articles of Association
(Amended and Restated by special resolutions
dated 21 February 2023)
Floor 4, Willow House, Cricket Square
Grand Cayman KY1-9010
Cayman Islands
campbellslegal.com
12574-27374
www.verify.gov.ky File#: 245310
Aptorum Group Limited
Companies Act (as revised)
Company Limited by Shares
Third Amended and Restated Memorandum of Association
(Amended and Restated by special resolutions dated 21 February 2023)
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 Act (as revised).
Powers of Company
Except as prohibited or limited by the Companies Act (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.
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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 9,999,996,000,000 Class A Ordinary Shares with a nominal or par value of USD 0.00001 each and
4,000,000 Class B Ordinary Shares with a nominal or par value of USD 0.00001each, 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 Act 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 Act (as revised)
If the Company is registered as an exempted company in accordance with Part VII of the Companies Act (as revised), the Company will comply with the provisions of
such law relating to exempted companies and, subject to the provisions of the Companies Act 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
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Aptorum Group Limited
Companies Act (as revised)
Company Limited by Shares
Third Amended and Restated Articles of Association
(Amended and Restated by special resolutions dated 21 February 2023)
1
1.1
1.2
Preliminary
The regulations contained in Table A of the Companies Act (as revised) do not apply to the Company and the following are the articles of association of the Company.
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”
“Chairman”
“Class A Ordinary Shares”
“Class B Ordinary Shares”
“Clearing House”
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;
means the Chairman of the board of Directors from time to time;
means the Class A Ordinary Shares in the capital of the Company having a par value of USD 0.00001
each having the rights, and subject to the restrictions, provided in these Articles;
means the Class B Ordinary Shares in the capital of the Company having a par value of USD 0.00001
each having the rights, and subject to the restrictions, provided in these Articles;
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;
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“Company”
“Companies Act”
“debenture”
means the above-named Company;
means the Companies Act (2022 Revision) as amended, of the Cayman Islands;
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 Act of the Cayman Islands;
“Exchange Act”
“Head Office”
“Issue Price”
“Law”
“member”
means the United States Securities Exchange Act of 1934, as amended;
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 Act, the United States, the SEC and the Designated Stock Market;
has the meaning assigned to it in the Companies Act and the term “shareholder” shall also mean a
member;
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“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
last
of such instruments, if more than one, is executed.
the date on which
instrument, or
the
the
“paid-up”
“Register”
has the meaning assigned to it in the Companies Act 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 Act; and includes
(except where otherwise stated or the context otherwise requires) any branch or duplicate register of
members;
“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;
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“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 Act;
“Treasury Share”
means a share held in the name of the Company as a treasury share in accordance with the Companies
Act.
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 Act 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)
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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
4
4.1
4.2
4.3
4.4
4.5
4.6
4.7
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 Act and these Articles applicable to share premium).
The Company shall maintain or cause to be maintained the Register in accordance with the Companies Act.
The Directors may determine that the Company shall maintain one or more branch registers of members in accordance with the Companies Act provided that a
duplicate of such branch registers shall be maintained with the principal register in accordance with the Companies Act. 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.
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4.8
4.9
5
5.1
5.2
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 Act, 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 Act, 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.
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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 one hundred (100) 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.
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(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.
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(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.
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(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 a simple majority 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 a simple majority 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.
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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.
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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.
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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.
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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
18.4
18.5
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.
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.
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.
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18.6
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 Act, the Company may from time to time by Ordinary Resolution (or where an Ordinary
Resolution is disallowed by the Companies Act 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.
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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 Act, 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 Act 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.
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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
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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.
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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.
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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;
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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 Act 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.
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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. .
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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
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.
29.3
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.
29.4
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 and Duration
31.1
The Company’s board of Directors will be divided into three classes of directors. At each annual general meeting, a class of Directors will be elected for a three-year
term to succeed the class whose terms are then expiring, to serve from the time of election and qualification until the third annual meeting following their election or
until their earlier death, resignation or removal. 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 third annual general meeting of the Company following such Director’s election. At each
annual general meeting of the Company, each Director elected at such meeting shall be elected to hold office for a three-year term and until the election of their
respective successors in office or in removal pursuant to Articles 29.1 and 32.1.
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31.2
The Directors of the Company will be divided among the three classes as follows:
(i)
(ii)
Class I Directors, who shall be the Company’s independent non-executive directors;
Class II Directors, who shall be the Company’s non-executive directors; and
(iii)
Class III Directors, who shall be made up of executive directors who are also members of the Company’s management team.
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)
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;
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(f)
(g)
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.
35
Proceedings of Directors
35.1
35.2
35.3
35.4
35.5
35.6
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.
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35.7
35.8
35.9
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.
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 Act;
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.
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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.
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.
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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.
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.
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41.2
The Company may exercise the powers conferred by the Companies Act 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
42.3
42.4
42.5
42.6
42.7
Subject to the Companies Act 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 Act.
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.
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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.
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
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(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)
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.
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(b)
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.
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.
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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 Act.
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 Act or authorised by the Directors or by the Company in general
meeting.
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 Act.
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.
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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.
47.3
The Directors shall in accordance with the Companies Act 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 Act, out of capital; and
(b)
any other amounts paid out of any share premium account as permitted by the Companies Act.
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 Act.
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)
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;
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(b)
(c)
(d)
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 Act;
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
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 Act, 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.
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48.3
48.4
48.5
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.
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
49.2
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.
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.
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.
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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 three days (not including Saturdays or Sundays or public holidays) 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.
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.
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51
Winding Up
51.1
51.2
51.3
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.
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
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.
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52.3
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.
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 Act, 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)
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
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(c)
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.
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 Act), upon such terms as the Directors may determine.
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COMPANY NAME
REGISTERED OFFICE
OBJECTS
POWERS OF COMPANY
LIMITED LIABILITY
AUTHORISED CAPITAL
PART VII OF THE COMPANIES ACT (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
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POWERS AND DUTIES OF DIRECTORS
DIRECTOR OR OFFICER CONTRACTING WITH COMPANY
APPOINTMENT AND REMOVAL OF DIRECTORS
BOARD’S POWER TO APPOINT DIRECTORS
APPOINTMENT AND DURATION
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
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Exhibit 2.1
Description of Securities registered under
Section 12 of the Exchange Act of 1934, as amended
Exhibit 2.3
As of December 31, 2022, 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 $0.00001
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, 2022.
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, 2022.
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 $100,000,000.00, consisting of 9,999,996,000,000 Class A Ordinary Shares with a nominal or par
value of $0.00001 each and 4,000,000 Class B Ordinary Shares with a nominal or par value of $0.00001 each. As of the date hereof, 1,719,522 Class A Ordinary Shares and
2,243,776 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 one hundred 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, subject to the terms of the Memorandum and Articles.
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 one hundred 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
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 the foregoing is to be without prejudice to the rights of the holders of shares issued upon
special terms and conditions.
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 for
the issue price 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 consent in writing of the holders of a simple majority 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 a simple majority of such shares present in person
or by proxy at such meeting.
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;
3
● the dividend rights, dividend rates, conversion rights, voting rights; and
● the rights and terms of redemption and liquidation preferences.
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.
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.
5
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 seventh 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.
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.
6
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.
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.
7
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.
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.
8
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.
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.
9
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 the consent in writing of the holders of a simple majority 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 a simple majority of such shares present in
person or by proxy at such meeting
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.
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.
10
Exhibit 4.51
May 27, 2022
Attn: Mr. Huen Chung Yuen Ian
Dear Mr. Huen,
Appointment Letter for Non-Executive Director
We are pleased and welcome your acceptance to be appointed as a Non-Executive Director (“Appointment” or “NED”) of Aptorum Group Limited (the “Company”), a
company incorporated with limited liabilities under the laws of the Cayman Islands and its principal business address at 17 Hanover Square, London, W1S 1BN, United
Kingdom, with wholly owned subsidiaries in the Cayman Islands, Hong Kong, and other overseas countries, whereby collectively, shall be depicted as “Aptorum” or the
“Group”.
The following letter seeks to illustrate the context of your appointment by the Company, and the terms and conditions as set out herewith. It is agreed that on acceptance of this
offer, this letter will constitute a contract for services and not a contract of employment.
This letter will supersede all previous appointment contract or agreement, if applicable, entered into between yourself and the Company (or its affiliated subsidiaries). By
signing this letter and therefore accepting the Appointment as stated, you agree to terminate all other previous appointments with the Group commencing from the Effective
Date.
1. The Company and the Group
Aptorum focuses on the licensing of, and acquisition of early-stage preclinical assets with the intention to engage in drug research, development, and commercialization
purposes. Assets are acquired via open and public platforms such as the technology transfer offices of accredited universities and academic institutions. In addition, the
Group seeks to be a facilitator across the financing spectrum for biotech companies, entrepreneurs, and commercializing agents, to bolster innovations adding value to
health care needs in the marketplace; and to assist in furthering the research capabilities of institutions the Group works with.
The shares of the Company are listed on the Nasdaq Global Market in the United States and on the Euronext regulated market in Paris.
2. Appointment
(a)
(b)
The Appointment is subject to the Company’s Memorandum and Articles of Association (“Articles”) and nothing in this letter shall be taken to exclude or vary the
terms of the Articles as they apply to your Appointment.
The continuation of the Appointment is contingent to your ongoing fulfillment of your obligations and successful re-election by the Company’s shareholders at the
Company’s Annual General Meeting (the “AGM”). It is further subject to your agreement to apply yourself and discharge your duties as a Non-Executive Director
in accordance with the Articles of the Company and the Cayman Islands Company Law (2020 Revision) (as amended) (“Company Law”), as well as you
upholding the high standards of corporate governance as set forth in the US Securities Laws and French MAR Regulation, as amended.
17 Hanover Square, London, W1S 1BN, United Kingdom
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3. Date of Commencement and Term
The official commencement date of your Appointment shall be on June 1, 2022 (the “Effective Date”). The Term of this Appointment shall be 3 years from the Effective
Date and subject to the terms of Termination and the re-election by the Company’s shareholders at the AGM as set forth in 2(b) herein above.
4. Duties and Responsibilities
As a NED of the Company:
(a)
(b)
(c)
(d)
(e)
You have the same general legal responsibilities to the Company as any other Director and will advise where necessary, the Executive Board of Directors of the
Company.
You will exercise your powers of your Appointment having regard to the relevant obligations under prevailing law and regulation, including the Cayman Islands
Company Law, and also the rules stipulated by the Nasdaq and Euronext Paris Regulatory Authority.
You as an NED along with other Directors of the Board, are to meet when possible in executive session, where such sessions should occur at least four times a
year. Additionally, you are to sit on the board meetings as a chair as determined by the Board.
Additionally, you may be sought within reason, to engage in ad hoc strategic discussions that may require you reviewing and execution of documents pertinent to
Board decisions. Such meetings shall take place in person, or by telephone or video conferencing, at a sensible time of day in relation to your primary place of
residence.
You shall not directly be responsible for the management of the Company. Your role is neither operational nor managerial in nature however; members of the
Executive Board may draw upon your professional insight and business expertise where suitable. You shall provide guidance, steering, and access of expert
networks to the Company where appropriate and required.
Additionally, you shall during the Term of your Appointment:
(i)
Observe and comply with the Company’s adopted Code of Business Conduct and Ethics, where that any waivers given to directors or executive officers
must be approved by the Board.
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(ii)
Observe and comply with all statutory rules, and regulations where applicable as governed by the laws of your residence;
(iii)
Confirm you are able to, and will devote sufficient time to perform your responsibilities for the Appointment.
(iv)
(v)
(vi)
(vii)
(viii)
Provide traceable contact during and after office hours, on weekdays and weekends, or during public holidays, whereby your availability may
occasionally and reasonably be sought.
Declare any conflicts that are apparent at present, or become apparent, between the Group and your other business interests. Should any potential
conflicts of interest arise, you will disclose this to the Board as soon as they become apparent.
Consult with the Chairman of the Board prior to accepting any other (or further) directorships of publicly quoted companies or any major external
appointments.
Comply with the Insider Trading Policy of the Company and obtain clearance from the Chairman of the Board prior to dealing in publicly traded shares
of the Company.
Observe and comply with the disclosure requirements and obligations of you and/or your affiliated party(s) as applicable in accordance with U.S. and
Euronext Paris securities laws, regulations and SEC disclosure requirements.
5. Fees and Expenses
(a)
(b)
(c)
(d)
The basic fee for being a NED of the Company is HKD 213,200.- per month (Hong Kong Dollars Two Hundred Thirteen Thousand and Two Hundred), paid out
in an equivalent amount of twelve months per calendar year.
You shall be entitled to a discretionary bonus in form of whether in cash, share options/awards or a combination thereof during the Appointment, as determined by
the Board. You will also be entitled to an increase in basic fees during the Appointment. For the avoidance of doubt, your entitlement as stated in this paragraph is
in relation to your capacity as non-executive director only.
You shall be covered by our group medical insurance scheme (Plan 1) from the Effective Date in accordance with the terms of the scheme. The service provider
and scheme for the above said coverage may be subject to review or alteration in alignment to the Company’s business needs and conditions.
The Company will reimburse all reasonable travelling, hotel and other expenses incurred by you in connection with the Company’s business on providing of
appropriate receipts.
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6.
Privacy of Information
(a)
(b)
(c)
You shall not except as authorized by the Group or required by your responsibilities reveal to any person or company any of the trade secrets or any information
concerning the organization, business, finances, transactions or affairs of the Group which may come to your knowledge during your contract with the Company
and shall keep with complete secrecy confidential information entrusted to you and shall not use or attempt to use any such information in any manner which may
injure or cause loss either directly or indirectly to the Group or may be likely to do so. This restriction shall continue to apply if and when after the termination of
your Appointment without limit in time.
You shall not either during the period of your Appointment or afterwards use or permit to be used any books, documents, moneys, assets, records or other property
belonging to or relating to any dealings, affair or business of the Group other than for the benefit of the Group. You shall immediately deliver and return to the
Group all such books, documents, moneys, securities, records or other property which you then have or should have in your possession upon termination of your
Appointment hereunder.
The Company however, agrees to provide you in good faith with any information concerning areas of interest and relevance of the Group as required by you in
order to enable you to fulfill your Appointment with the Company.
7. Data Protection
(a)
(b)
By executing this letter, you consent to the Company holding and processing information about you for legal, personnel, administrative, and management purposes
and in particular to the processing of any sensitive personal data as and when appropriate.
You consent to the transfer of such personal information to other offices the Company may have or to other third parties for administrative purposes and other
purposes in connection with the Appointment, where it is necessary or desirable to do so.
8.
Insurance and Indemnity
The Company shall provide that all the directors and officers of the Company are covered by a Directors and Officers insurance policy, such coverage will be maintained
for the full Term of the Appointment.
9. Termination
Your Appointment with the Company may only be terminated:
(a)
By you after giving the Company not less than two (2) months’ notice in writing;
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(b)
(c)
By the Company after giving you two (2) months’ notice in writing; or
By the Company with immediate effect in the event that you:
(i)
Conduct dishonesty, fraud, gross negligence, willful default or refusal to carry out any lawful order or instructions, or the repeated breach of any rules or
regulations of the Company, or those as governed by the laws of your residency;
(ii)
Commit a material breach of your obligations under this letter;
(iii)
Commit any serious or repeated breach or non-observance of your obligations to the Company;
(iv)
Are convicted of a criminal offence other than an offence under road traffic legislation in the jurisdiction of your residency or elsewhere for which a fine
or non-custodial penalty is imposed;
(v)
Declare bankruptcy or have made an arrangement with or for the benefit of your creditors; or
(vi)
Are disqualified from acting as a director.
Please signify your acceptance of the above terms and conditions by signing and returning to us the enclosed duplicate copy of this letter.
Yours faithfully,
For and on behalf of
APTORUM GROUP LIMITED
/s/ Clark Cheng
Name: Clark Cheng
Position: Executive Director
Date
Agreed and accepted by:
/s/ Huen Chung Yuen Ian
Name: Huen Chung Yuen Ian
Date
17 Hanover Square, London, W1S 1BN, United Kingdom
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Exhibit 8.1
Note 1: 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 ofthe 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. An independant third party shareholder, Peace Range Limited, holds 0.15% economic interest and 63.61% voting power in Mios, and 0.15% econmic interest
and 64.72% voting power in Scipio. The remaining shareholders hold 1.92% economic interest and 0.22% voting power in Mios, and 1.92% economic interest and
0.22% voting power in Scipio repectively.
Note 2: Dr. Clark Cheng, an Executive Director of Aptorum Group, holds the remaining 10% shareholding of Aptorum Medical Limited.
Note 3: Angen Funds Limited, a company designated by an investor of ALS series projects, holds the remaining 20% shareholding of Acticule Life Sciences Limited.
Note 4: Accelerate Technologies Pte. Ltd., the commercialization arm of the Singapore Agency for Science, Technology and Research (“A*STAR”), hold 15% shareholding of
Paths Diagnostics Pte. Limited. The inventors of PathsDx Test technologies in A*STAR hold the remaining 10% of shareholding of Paths Diagnostics Pte. Limited.
Note 5: An investor of project VLS-2 holds the remaining 10% shareholding of mTor (Hong Kong) Limited.
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, Darren Lui, certify that:
1.
I have reviewed this annual report on Form 20-F of Aptorum Group Limited;
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 28, 2023
/s/ Darren Lui
Name: Darren Lui
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, Darren Lui, certify that:
1.
I have reviewed this annual report on Form 20-F of Aptorum Group Limited;
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 28, 2023
/s/ Darren Lui
Name: Darren Lui
Title:
Chief Accounting 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), the undersigned
officer 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, 2022 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 28, 2023
/s/ Darren Lui
Darren Lui
Chief Executive Officer
(Principal Executive Officer)
Chief Accounting Officer
(Principal Financial Officer)
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. 333-268873) and From S-8 (FILE NO. 333-
232591) of our report dated April 28, 2023, with respect to our audits of the consolidated financial statements of Aptorum Group Limited as of December 31, 2022 and 2021
and for each of the three years in the period ended December 31, 2022, which report is included in this Annual Report on Form 20-F of Aptorum Group Limited for the year
ended December 31, 2022.
Exhibit 15.1
/s/ Marcum Asia CPAs LLP
Marcum Asia CPAs LLP
New York, New York
April 28, 2023