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
OR
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2025
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date
of event requiring this shell company report
For
the transition period from __________ to __________
Commission
file number: 001-38764
APTORUM
GROUP LIMITED
(Exact
Name of Registrant as Specified in its Charter)
N/A
(Translation
of Registrant’s Name into English)
Cayman
Islands
(Jurisdiction
of Incorporation or Organization)
Ian
Huen, Chief Executive Officer
Aptorum
Group Limited
17
Hanover Square, London W1S 1BN, United Kingdom
Tel:
+44 20 8092 9299
Fax:
+44 20 3928 8277
(Address
of principal executive offices and Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities
registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol
Name of Each Exchange on Which Registered
Class A Ordinary shares, par value $0.00001
APM
NASDAQ Capital 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: 6,346,823
Class
B Ordinary Shares: 1,796,934
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 ☒
TABLE
OF CONTENTS
INTRODUCTION
ii
PART
I
1
ITEM 1.
IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
1
ITEM 2.
OFFER
STATISTICS AND EXPECTED TIMETABLE
1
ITEM 3.
KEY
INFORMATION
1
ITEM 4.
INFORMATION
ON THE COMPANY
65
ITEM 4A.
UNRESOLVED
STAFF COMMENTS
106
ITEM 5.
OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
106
ITEM 6.
DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES
121
ITEM 7.
MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
131
ITEM 8.
FINANCIAL
INFORMATION
133
ITEM 9.
THE
OFFER AND LISTING
134
ITEM 10.
ADDITIONAL
INFORMATION
134
ITEM 11.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
142
ITEM 12.
DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES
142
PART
II
143
ITEM 13.
DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES
143
ITEM 14.
MATERIAL
MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
143
ITEM 15.
CONTROLS
AND PROCEDURES
143
ITEM 16
[RESERVED]
144
ITEM 16A.
AUDIT
COMMITTEE FINANCIAL EXPERT
144
ITEM 16B.
CODE
OF ETHICS
144
ITEM 16C.
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
144
ITEM 16D.
EXEMPTIONS
FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
145
ITEM 16E.
PURCHASES
OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
145
ITEM 16F.
CHANGE
IN REGISTRANT’S CERTIFYING ACCOUNTANT
145
ITEM 16G.
CORPORATE
GOVERNANCE
145
ITEM 16H.
MINE
SAFETY DISCLOSURE
145
ITEM 16I.
DISCLOSURE
REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
145
ITEM 16J.
INSIDER
TRADING POLICIES
145
ITEM 16K.
CYBERSECURITY
145
PART
III
146
ITEM 17.
FINANCIAL
STATEMENTS
146
ITEM 18.
FINANCIAL
STATEMENTS
146
ITEM 19.
EXHIBITS
146
i
INTRODUCTION
Unless
the context otherwise requires, in this annual report on Form 20-F references to:
●
“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.
●
“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.
●
“DiamiR” refers
to DiamiR Biosciences Corp., a Delaware corporation and its wholly-owned subsidiary DiamiR, LLC a private Delaware
limited liability
company
●
“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.
iii
●
“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 and SACT-1.
●
“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.
●
“Merger” means
the merger contemplated by that certain merger agreement (“Merger Agreement”) by and among the Company and DiamiR
dated
July 14, 2025, pursuant to which the Company shall acquire 100% of DiamiR outstanding shares of common stock in exchange for
shares
consideration after which, DiamiR will become the Company’s wholly-owned subsidiary, and the existing DiamiR stockholders
and
existing Company shareholders will own approximately 70% and 30%, respectively, of the outstanding shares of the post-closing
Company
(such percentages to be adjusted ratably if either party issues
additional securities prior to the closing).
●
“Mios” refers
to Mios Pharmaceuticals Limited, a previously consolidated VIE in which we indirectly held 97.93% economic interest and
36.17% voting
power. Aptorum was regarded as the primary beneficiary of Mios for accounting purposes. During the year of 2024, Mios was
dissolved
and ceased operations; it was therefore deemed disposed by the Group.
●
“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.
iv
●
“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.
●
“S-4”
refers to the proxy statement/prospectus on Form S-4 (File No. 333-290741), that Aptorum initially filed on October 6, 2025, with
the
SEC regarding the Merger.
●
“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, originally a consolidated VIE in which we indirectly hold 97.93% economic interest and
35.06% voting
power, and Aptorum is regarded as the primary beneficiary of Scipio for accounting purposes. In November 2024, the Group
acquired
10,000 Class A Ordinary Shares and 5,850,000 Class B Ordinary Shares of Scipio, achieving control over the entity. As a result of
this acquisition, Scipio is no longer classified as a VIE under the Group and it became a subsidiary under the Group.
●
“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, 2025, and 2024, and the related
consolidated
statements of operations and comprehensive loss, equity and cash flows for the years ended December 31, 2025, 2024, and 2023.
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.
v
Part
I
Item
1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not
Applicable.
Item
2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not
Applicable.
Item
3. KEY INFORMATION
A.
[Reserved]
B.
Capitalization and Indebtedness
Not
applicable.
C.
Reasons for the Offer and Use of Proceeds
Not
applicable.
D.
Risk Factors
Our
business faces significant risks. You should carefully consider all of the information set forth in this annual report on Form 20-F and
in our
other filings with the United States Securities and Exchange Commission, or the SEC, including the following risk factors which
we face and which are
faced by our industry. Our business, financial condition, results of operations and growth prospects could be materially
adversely affected by any of these
risks. This report also contains forward-looking statements that involve risks and uncertainties.
Our results could materially differ from those anticipated in
these forward-looking statements, as a result of certain factors including
the risks described below and elsewhere in this annual report and our other SEC
filings. See “Special Note Regarding Forward-Looking
Statements” below.
Summary
Risk Factors
The
following summarizes some, but not all, of the risks provided below. Please carefully consider all of the information discussed in this
Item
3.D. “Risk Factors” in this annual report for a more thorough description of these and other risks.
1
Risk
related to Aptorum’s Preclinical and Clinical Development of Its 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.
Preclinical
development is a long, expensive and uncertain process, and we may terminate one or more of our current preclinical development
programs.
Management
has discretion to terminate the development of any of our projects at any time.
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
Aptorum’s business.
If
we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise
adversely
affected.
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.
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.
Risks
Related to Aptorum’s Obtaining Regulatory Approval for Its 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, Aptorum’s business will be substantially harmed.
Regulatory
approval may be substantially delayed or may not be obtained for one or all of Aptorum’s drug candidates if regulatory authorities
require additional time or studies to assess the safety or efficacy of Aptorum’s drug candidates.
Aptorum’s
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.
Even
if we receive regulatory approval for Aptorum’s 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 Aptorum’s drug candidates.
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.
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.
2
Risks
Related to Commercialization of Aptorum’s 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.
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.
Risks
Related to Aptorum’s Intellectual Properties
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.
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 be able to protect and enforce our IP rights throughout the world.
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.
We
may be subject to claims challenging the inventorship of our patents and other IP.
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.
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.
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.
The
terms of our patents may not be sufficient to effectively protect our drug and diagnostics technology candidates and business.
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.
If
we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
We
may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
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.
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.
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.
3
Risks
Related to Aptorum’s 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.
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.
Review
of changes in the manufacturing process of our drug candidates could cause delays resulting from the need for additional regulatory
approvals.
Risks
Related to Aptorum’s 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
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
will need to increase the size and capabilities of our organization, and we may experience difficulties in managing our growth.
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.
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.
Our
disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
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.
We
may market our products, if approved, globally; if we do, we will be subject to the risk of doing business internationally.
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.
4
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.
Our
business and results of operations may be negatively impacted by the UK’s withdrawal from the EU.
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.
Our
insurance coverage may be inadequate to protect us against losses.
Fluctuations
in exchange rates could result in foreign currency exchange losses
Our
investments are subject to risks that could result in losses.
We
are exposed to risks associated with our computer hardware, network security and data storage.
Business
disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.
We
may be exposed to various risks related to the regulatory environment of the pharmaceutical industry in the PRC.
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 Aptorum Class A ordinary shares. A trading prohibition for
Aptorum 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
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.
If
we are classified as a passive foreign investment company for U.S. federal income tax purposes, United States holders of Aptorum
Class A
ordinary shares may be subject to adverse United States federal income tax consequences.
Risks
Related to Aptorum’s Corporate Structure
One
of our directors controls a majority of our voting shares.
As
a “controlled company” under the rules of the Nasdaq Capital Market, we may choose to exempt our company from certain corporate
governance requirements that could have an adverse effect on our public shareholders.
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
economic substance legislation of the Cayman Islands may adversely impact us or our operations.
5
Risks
Related to Aptorum’s Securities
If
we fail to comply with the continued listing requirements of Nasdaq Capital Market, 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.
Aptorum
Class A ordinary shares eligible for future sale may adversely affect the market price of Aptorum Class A ordinary shares if
the shares
are successfully listed on the Nasdaq Capital Market or other stock markets, as the future sale of a substantial amount of
outstanding Aptorum Class A
ordinary shares in the public marketplace could reduce the price of Aptorum Class A ordinary shares.
A
sale or perceived sale of a substantial number of Aptorum Class A ordinary shares may cause the price of Aptorum Class A ordinary
shares to
decline.
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 such preferred shares, could negatively impact the value of the Aptorum Class A ordinary shares as the result
of preferential dividend
rights, conversion rights, redemption rights and liquidation provisions granted to the stockholders of such
preferred 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.
Aptorum
Class B ordinary shares have greater voting power than Aptorum 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.
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.
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.
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.
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 Capital 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.
Our
auditor has expressed substantial doubt about our ability to continue as a going concern. We may be unable to obtain additional capital
on
favorable terms.
We
may not be able to maintain an active, liquid and orderly trading market for Aptorum Class A ordinary shares and our stock price
may be
volatile.
6
Risks
Related to Aptorum’s Doing Business in Hong Kong
Political
risks associated with conducting business 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.
If
we and/or our subsidiaries were to be required to obtain any permission or approval from or complete any filing procedure with the China
Securities Regulatory Commission (the “CSRC”), the CAC, or other PRC governmental authorities in connection with the Business
Combination or future
offerings under PRC laws, we and/or our subsidiaries may be fined or subject to other sanctions, and our subsidiaries’
business and our reputation, financial
condition, and results of operations may be materially and adversely affected.
If
we and/or our subsidiaries were to be required to comply with cybersecurity, data privacy, data protection, or any other PRC laws and
regulations related to data and we and/or our subsidiaries cannot comply with such PRC laws and regulations, our subsidiaries’
business, financial
condition, and results of operations may be materially and adversely affected.
The
Chinese government maintains oversight and control over offerings that are conducted overseas and/or foreign investment in mainland China-
based
issuers to Hong Kong-based issuers, such action may significantly limit or completely hinder our ability to offer or continue to
offer Ordinary Shares
to investors and cause the value of our Ordinary Shares to significantly decline or be worthless.
The
enforcement of laws and rules and regulations in the PRC can change quickly with little advance notice. Additionally, the PRC laws and
regulations and the enforcement of such that apply or are to be applied to Hong Kong can change quickly with little or no advance
notice. As a result, the
Hong Kong legal system embodies uncertainties which could limit the availability of legal protections,
which could result in a material change in our
operating Subsidiaries’ operations and/or the value of the securities we are offering.
7
There
are political risks associated with conducting business in Hong Kong.
Nasdaq
may apply additional and more stringent criteria for our continued listing because our insiders hold a large portion of our listed securities.
Our
and our subsidiaries’ business, our financial condition and results of operations, and/or the value of our Ordinary Shares or our
ability to offer
or continue to offer securities to investors may be materially and adversely affected by existing or future PRC laws
and regulations.
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, which may result in a material change in our operations and/or the value of Aptorum Class A ordinary
shares, which
would materially affect the interest of the investors.
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.
The
Hong Kong legal system embodies uncertainties which could limit the availability of legal protections.
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.
Uncertainties
with respect to the legal system of the People’s Republic of China (the “PRC”) and tax regime, including uncertainties
regarding the
enforcement of laws, and sudden or unexpected changes in policies, laws, and regulations in the PRC could adversely affect
us.
It
may be difficult for overseas shareholders and/or regulators to conduct investigations or collect evidence within China.
We
have ceased to qualify as an “emerging growth company” and will incur increased costs as a result.
Risk
related to Aptorum’s Preclinical and Clinical Development of Its 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
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. We may not be able to generate a profit until our drug candidates become
profitable.
8
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 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 Aptorum Class A
ordinary shares, which could impair our
ability to raise capital, expand Aptorum’s business or continue our operations.
Preclinical
development is a long, expensive and uncertain process, and we may terminate one or more of our current preclinical development
programs.
Traditionally,
drug discovery and development is a time-consuming, costly and high-risk business. On average, the cost of launching a new drug is
estimated
to approach US$2.6 billion and can take around 12 years to make it to the market (4 key benefits of drug repositioning. (n.d.).
Retrieved from
http://www.totalbiopharma.com/2012/07/04/4-key-benefits-drug-repositioning/). Despite the huge expenditures, only
approximately 1 in 1,000 potential
drugs is graduated to human clinical trials after pre-clinical testing in the United States,
(Norman, G. A. Drugs, Devices, and the FDA: Part 1. JACC: Basic
to Translational Science, 1(3), 170-179, 2016)
and nearly 86.2% of drug candidates entering phase 1 trials fails to achieve drug approval. (Wong C. H., Siah
K.
W.
&
Lo
A.
W.
(2019,
April),
“Estimation
of
clinical
trial
success
rates
and
related
parameters,”
retrieved
from
https://academic.oup.com/biostatistics/article/20/2/273/4817524).
Even after a drug is commercialized, there are just too many factors affecting the sales of
pharmaceutical products, including unmet
need/burden of disease (68.2%), clinical efficacy (47.3%), comparator choice (36.4%), 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.
9
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
Aptorum’s 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;
●
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;
10
●
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.
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 Aptorum’s 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.
11
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;
●
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.
12
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 Aptorum’s 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
Aptorum’s business
and results of operation
Risks
Related to Aptorum’s Obtaining Regulatory Approval for Its 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, Aptorum’s 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.
Aptorum’s
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 Aptorum’s 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.
13
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 Aptorum’s 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 Aptorum’s
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 Aptorum’s 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 Aptorum’s drug candidates if regulatory authorities
require
additional time or studies to assess the safety or efficacy of Aptorum’s drug candidates.
Aptorum
currently does 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 it cannot guarantee that it will ever have marketable drugs. Despite SACT-1 having been granted
orphan
drug status, this is not an approval for sale by the FDA. Aptorum’s business is substantially dependent on its ability
to complete the development of, obtain
marketing approval for and successfully commercialize drug candidates in a timely manner. Aptorum
cannot commercialize drug candidates without first
obtaining marketing approval from the FDA, NMPA, EMA, Health Canada and comparable
regulatory authorities. In the U.S., it hopes to file INDs for the
drug candidates from our Lead Projects and, subject to the approval
of IND, Phase 1 clinical trials in humans. The timing and scope of advancing both
ALS-4 Phase 2 clinical trials and SACT-1 Phase
1/2 trials are contingent upon securing appropriate collaborative partnerships and adequate funding
resources. The Company is actively
seeking strategic collaborators who can provide both financial support and clinical expertise to advance these
therapeutic programs.
Even if Aptorum is 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.
It
may be unable to complete development of Aptorum’s 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
Aptorum’s drug candidates, we may not have or be able to obtain adequate funding
to complete the necessary steps for approval for Aptorum’s drug
candidates or any future drug candidates.
Preclinical
studies in animals and clinical trials in humans to demonstrate the safety and efficacy of Aptorum’s 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 Aptorum’s 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;
14
●
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;
●
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 Aptorum’s 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 Aptorum’s drug candidates, the commercial
prospects
of Aptorum’s 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 Aptorum’s
drug candidate development and approval process, and
jeopardize our ability to commence product sales and generate revenues. Any of these
occurrences may harm Aptorum’s 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 Aptorum’s drug candidates.
If
we are required to conduct additional clinical trials or other studies with respect to any of Aptorum’s 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 Aptorum’s drugs, if and when approved. If any of this
occurs, Aptorum’s
business will be materially harmed.
15
Aptorum’s
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 Aptorum’s 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, Aptorum’s 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.
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 Aptorum’s business, results of operations and prospects.
Even
if we receive regulatory approval for Aptorum’s 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 Aptorum’s drug candidates.
If
Aptorum’s 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 Aptorum’s 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 Aptorum’s 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 Aptorum’s
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.
16
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 Aptorum’s 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 Aptorum’s 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 Aptorum’s 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
Aptorum’s 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.
17
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 Aptorum’s 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;
●
the
prevalence and severity of any side effects;
18
●
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.
19
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 Aptorum’s Intellectual Properties
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 annual 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 research, 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.
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.
20
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.
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.
21
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.
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.
22
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.
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.
23
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.
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 Aptorum 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.
24
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.
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.
25
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.
26
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 “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;
27
●
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 Aptorum’s 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.
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.
28
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.
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.
29
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 Aptorum’s 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 and development operations involve the use of hazardous materials, chemicals and various radioactive compounds/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 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.
We
do not maintain workers’ compensation insurance or 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.
30
Our
future success depends on our ability to retain our Chief Executive Officer, our scientific and clinical advisors, and other key executives
and to
attract, retain and motivate qualified personnel.
We
are highly dependent on Ian Huen, our Chief Executive Officer, as well as, other principal members of our management teams, scientific
teams
as well as scientific and clinical advisors. Although we have formal employment agreements, which we refer to as appointment letters,
with all of our
executive officers, these agreements do not prevent our executives from terminating their employment with us at any time,
subject to applicable notice
periods. Nevertheless, the loss of the services of any of these persons could impede the achievement of
our research, development and commercialization
objectives.
To
induce valuable employees to remain at our Company, in addition to salary and cash incentives, we 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 Aptorum 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 hereof, we have 2 full-time employees, one of whom is the Chief Executive Officer and the other who is engaged in general
and
administrative functions and who is located in Asia. In addition, we have engaged and may continue to engage independent contracted
consultants and
advisors to assist us with our operations. As our development and commercialization plans and strategies develop, 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.
As
we refine our operational strategy to streamline operations, we have adjusted our employment model. The company has shifted from a direct
employment approach to outsourcing key functions, including research and development and back-office operations. While this allows for
greater focus
and flexibility, it also introduces dependencies on third-party vendors, which may present new risks related to quality
control, data security, and operational
continuity that we are actively managing.
31
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, outsourcing works or 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;
●
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;
32
●
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.
33
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 Aptorum 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 a non-accelerated filer, 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, 2025, 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.
We
have taken 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.
34
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, 2025. 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, 2025. Investors may
lose
confidence in our operating results, the price of the Aptorum 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 Aptorum Class A ordinary shares
may not be able to remain listed on the Nasdaq Capital 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.
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;
35
●
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.
36
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 Aptorum 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.
37
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 Aptorum Class A ordinary shares.
Our
insurance coverage may be inadequate to protect us against losses.
We
currently maintain property insurance for our office premises. We hold employer’s liability insurance generally covering death
or work-related
injury of employees; we maintain company insurance for those persons working in our offices and medical insurance for
our employees. 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 cash and cash equivalents of $3.5 million and $0.9 million as of December 31, 2025 and 2024, 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.
38
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.
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 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
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 “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.
39
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 Aptorum Class A ordinary shares. A trading prohibition for
Aptorum 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.
On
March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements
of
the HFCAA. An identified issuer will be required to comply with these rules if the SEC identifies it as having a “non-inspection”
year under a process to be
subsequently established by the SEC. On June 22, 2021, the U.S. Senate passed the Accelerating
Holding Foreign Companies Accountable Act, and on
December 29, 2022, legislation entitled “Consolidated Appropriations Act,
2023” (the “Consolidated Appropriations Act”) was signed into law by
President Biden, which contained, among other
things, an identical provision to the Accelerating Holding Foreign Companies Accountable Act and
amended the HFCAA by requiring the SEC
to prohibit an issuer’s securities from trading on any U.S stock exchanges if its auditor is not subject to
PCAOB inspections for
two consecutive years instead of three, thus reducing the time period for triggering the prohibition on trading. If our auditor
cannot
be inspected by the Public Company Accounting Oversight Board, or the PCAOB, for two consecutive years, the trading of our
securities on any
U.S. national securities exchanges, as well as any over-the-counter trading in the U.S., will be prohibited. On
September 22, 2021, the PCAOB adopted a
final rule implementing the HFCAA, which provides a framework for the PCAOB to use when
determining, as contemplated under the HFCAA, whether
the PCAOB is unable to inspect or investigate completely registered public accounting
firms located in a foreign jurisdiction because of a position taken by
one or more authorities in that jurisdiction. On December 2,
2021, the SEC issued amendments to finalize rules implementing the submission and
disclosure requirements in the HFCAA. The rules
apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by
a registered public accounting
firm that is located in a foreign jurisdiction and that PCAOB is unable to inspect or investigate completely because of a
position taken
by an authority in foreign jurisdictions. 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 authorities in those jurisdictions, which determinations were vacated on December 15, 2022.
On
August 26, 2022, the PCAOB announced that it had signed a Statement of Protocol (the “SOP”) with the China Securities
Regulatory
Commission and the Ministry of Finance of China. The SOP, together with two protocol agreements governing inspections and
investigations (together, the
“SOP Agreement”), establishes a specific, accountable framework to make possible complete inspections
and investigations by the PCAOB of audit firms
based in mainland China and Hong Kong, as required under U.S. law.
On
December 15, 2022, the PCAOB announced that it was able to secure complete access to inspect and investigate PCAOB-registered public
accounting firms headquartered in mainland China and Hong Kong completely in 2022. The PCAOB Board vacated its previous 2021 determinations
that
the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and
Hong Kong.
However, whether the PCAOB will continue to be able to satisfactorily conduct inspections of PCAOB-registered public
accounting firms headquartered in
mainland China and Hong Kong is subject to uncertainties and depends on a number of factors out
of our and our auditor’s control. The PCAOB continues
to demand complete access in mainland China and Hong Kong moving forward
and is making plans to resume regular inspections in early 2023 and
beyond, as well as to continue pursuing ongoing investigations and
initiate new investigations as needed. The PCAOB has also indicated that it will act
immediately to consider the need to issue new determinations
with the HFCAA if needed.
Our
current independent accounting firm, Marcum Asia CPAs LLP, whose audit report is included herein, is headquartered in Manhattan,
New York,
with an address of 7 Penn Plaza, Suite 830, New York, New York 10001, and was not included in the list of PCAOB Identified Firms in the
PCAOB December 2021 Release. It has been inspected by the PCAOB on a regular basis. 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. Our auditor’s audit working papers are not located in China. 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 Aptorum 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.
40
If
Aptorum Class A ordinary shares are subject to a trading prohibition under the HFCA Act, the price of Aptorum 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 Aptorum Class A ordinary
shares when you wish to do so. Furthermore, if we are able to maintain a listing
of Aptorum Class A ordinary shares on a non-U.S. exchange, investors
owning Aptorum 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.
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 Aptorum
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 ended December 31, 2024, and we are a PFIC for U.S. federal income tax purposes for our current
taxable year ending December 31, 2025.
41
In determining whether we
are a PFIC, cash and cash equivalents and investments are considered by the U.S. Internal Revenue Service (“IRS”) to
be a passive asset. During our taxable year ended December 31, 2025, we believe that the amount of 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 Aptorum
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 Aptorum 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 “Taxation — Material U.S. Federal Income Tax Considerations for U.S. Holders — Passive
Foreign Investment Company Rules”)
Risks
Related to Aptorum’s Corporate Structure
One
of our directors controls a majority of our voting shares.
One
of our Executive Directors and Chief Executive Officer, 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 2,114,114 Ordinary Shares, (507,967 Aptorum
Class A ordinary shares, indirectly
and directly, and 1,606,147 Aptorum Class B ordinary shares), representing approximately
87% 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 Capital 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 Ordinary Shares. Under the Rule 4350(c) of
the
Nasdaq Capital 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 Capital 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 Capital Market corporate governance requirements. Our status as a controlled company could cause
Aptorum Class A
ordinary share to look less attractive to certain investors or otherwise harm our trading price.
42
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 one VIE which is incorporated under the laws of Cayman Islands; however, the VIE has not conducted operations, nor has the
Company had any transactions with it during 2024 or 2025. The Company does not currently consolidate this VIE since the Group is not
determined to be
the primary beneficiary of it at this time 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 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. According to those standards, we determined that we do
not have the power to manage and make decisions that affect Libra’s research and development activities, which activities most
significantly impact Libra’s
economic performance. Accordingly, we determined that we are not the primary beneficiary of Libra.
As a result, Libra’s financial results are not
consolidated in our consolidated financial statements. 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 we become the primary
beneficiary of Libra and have to consolidate them
into our consolidated financial statements, Libra and such entity’s financial results were negative, this
could have a corresponding
negative impact on our operating results. This could be because Libra is indebted to us and its operational performance or
inability
to generate sufficient cash flows. The Company’s maximum exposure to loss resulting from its involvement with Libra is nil for
the year ended
December 31, 2025 and the year ended December 31, 2024 and $961 for the year ended December 31, 2023 which was
the amount due from Libra.
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.
Risks
Related to Aptorum’s Securities
If
we fail to comply with the continued listing requirements of Nasdaq Capital Market, 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
July 31, 2023, the Company requested to transfer its Aptorum Class A ordinary shares from the Nasdaq Global Market to the Nasdaq
Capital
Market. On August 8, 2023, the Company received an approval letter (the “Nasdaq Approval Letter”) from the Nasdaq
Listing Qualifications Department
indicating that the staff has approved the Company’s application to transfer its Aptorum Class A
ordinary shares to the Nasdaq Capital Market. The
Company’s securities have been transferred to the Nasdaq Capital Market at the
opening of business on August 10, 2023, and the trading activities of its
Aptorum Class A ordinary shares have not been affected.
The transfer became effective on August 10, 2023, thereby closing the prior deficiencies on the
Nasdaq Global Market.
On
April 15, 2025, the Company received a notification from the Staff advising the Company that it did not comply with the minimum
bid price
requirement of $1 per share, as per Nasdaq Listing Rule 5550(a)(2). The notification does not immediately affect the listing
or trading of the Company’s
shares on Nasdaq. The Company has been granted a 180-calendar-day grace period, until October 14,
2025, to regain compliance with the continued listing
requirements. The Company was notified that it regained compliance on August 4,
2025.
43
If
the Company fails to comply with any 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.
Aptorum
Class A ordinary shares eligible for future sale may adversely affect the market price of Aptorum Class A ordinary shares if
the shares are
successfully listed on the Nasdaq Capital Market or other stock markets, as the future sale of a substantial amount of
outstanding Aptorum Class A
ordinary shares in the public marketplace could reduce the price of Aptorum Class A ordinary shares.
The
market price of Aptorum Class A ordinary shares could decline as a result of sales of substantial amounts of Aptorum 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 Aptorum Class A ordinary shares. An aggregate of 6,346,823 Aptorum Class A
ordinary shares are outstanding as of the date hereof.
4,950,322 of the Aptorum Class A ordinary shares are freely transferable
without restriction or further registration under the Securities Act. The remaining
Aptorum Class A ordinary shares will be “restricted
securities” as defined in Rule 144. These Aptorum Class A ordinary shares may be sold without
registration under the
Securities Act to the extent permitted by Rule 144 or other exemptions under the Securities Act.
A
sale or perceived sale of a substantial number of Aptorum Class A ordinary shares may cause the price of Aptorum Class A ordinary
shares to
decline.
If
our shareholders sell substantial amounts of Aptorum Class A ordinary shares in the public market, the market price of Aptorum 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 Aptorum 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 such preferred shares, could negatively impact the value of the Aptorum Class A 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 Aptorum’s 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 Aptorum Class A ordinary shares and do not anticipate paying any cash dividends on Aptorum
Class A
ordinary shares in the foreseeable future, and any return on investment may be limited to the value of Aptorum 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.
44
Aptorum
Class B ordinary shares have greater voting power than Aptorum 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 Aptorum Class A ordinary shares and Aptorum Class B ordinary shares. Under
this structure,
holders of Aptorum Class A ordinary shares are entitled to one vote per share, and holders of Aptorum Class B
ordinary shares are entitled to one hundred
votes per share, which can cause the holders of Aptorum Class B ordinary shares to have
an unbalanced, higher concentration of voting power. Ian Huen,
Aptorum’s current Chairman and Chief Executive Officer, through
his ownership of Jurchen, beneficially owning over 1.6 million Aptorum Class B
ordinary shares, which represents approximately
86.8% voting power in Aptorum. As a result, until such time as his voting power is below 50%, he has
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. He 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 Aptorum 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 Aptorum Class B
ordinary shares may also be dilutive to the holders
of Aptorum Class A ordinary shares. As a result, the market price of Aptorum
Class A ordinary shares could be adversely affected.
Shareholders
who hold shares of Aptorum Class B ordinary shares, including our executive officers and their affiliates, hold approximately 97%
of the voting power of our outstanding ordinary shares. Because of the one hundred-to-one voting ratio between our Class B and Aptorum
Class A ordinary
shares, the holders of our Aptorum Class B ordinary shares will collectively continue to control a majority
of the combined voting power of Aptorum’s
ordinary shares and therefore be able to control all matters submitted to our shareholders
for approval, so long as the Aptorum Class B ordinary shares
represent at least 1.0% of all outstanding shares of Aptorum’s
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 Aptorum
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 Aptorum 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.
45
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 (As Revised) of the Cayman Islands (the “Companies Act”)
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.
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.
46
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.
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 Capital 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 Capital 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 Capital 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.
47
Our
auditor has expressed substantial doubt about our ability to continue as a going concern. We may be unable to obtain additional capital
on
favorable terms.
As a result of recurring net losses and limited cash reserves, our
independent auditor has included a going concern paragraph to its report on our
financial statements as of and for the fiscal years
ended December 31, 2025, due to the substantial doubt that exists in our ability to continue as a going
concern. Our ability to continue
as a going concern is dependent upon our ability to raise additional capital and to achieve sustainable revenues and
profitable operations.
Since inception, we have raised funds primarily through the sale of equity securities and the issuance of debt. We will need and are
currently
seeking additional funds to operate our business and the recent volatility of global capital markets has made the raising of capital by
equity and
debt financing more difficult. No assurance can be given that any future financing will be available or, if available, that
it will be on terms that are
satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions
on our operations or cause substantial dilution for our
stockholders. If we are unable to obtain additional funds, our ability to carry
out and implement our planned business objectives and strategies will be
significantly delayed, limited, or may not occur. We cannot guarantee
that we will become profitable. Even if we achieve profitability, given the
competitive and evolving nature of the industry in which we
operate, we may not be able to sustain or increase profitability and our failure to do so would
adversely affect our business, including
our ability to raise additional funds.
We
may not be able to maintain an active, liquid and orderly trading market for Aptorum Class A ordinary shares and our stock price
may be volatile.
Active,
liquid and orderly trading markets usually result in less price volatility and more efficiency in carrying out investors’ purchase
and sale
orders. The market price of Aptorum Class A ordinary shares could vary significantly as a result of a number of factors,
some of which are beyond our
control. In the event of a drop in the market price of Aptorum Class A ordinary shares, you could lose
a substantial part or all of your investment in our
shares.
The
following factors could affect our share price:
●
our
operating and financial performance;
●
quarterly
variations in the rate of growth of our financial indicators, such as net income per share,
net income and revenues;
●
the
public reaction to our press releases, our other public announcements and our filings with
the SEC;
●
strategic
actions by our competitors;
●
changes
in revenue or earnings estimates, or changes in recommendations or withdrawal of research
coverage, by equity research analysts;
●
speculation
in the press or investment community;
●
the
failure of research analysts to cover our securities;
●
sales
of Aptorum Class A ordinary shares by us or other shareholders, or the perception that
such sales may occur;
●
changes
in accounting principles, policies, guidance, interpretations or standards;
●
additions
or departures of key management personnel;
●
actions
by our shareholders;
●
domestic
and international economic, legal and regulatory factors unrelated to our performance; and
●
the
realization of any risks describes under this “Risk Factors” section.
The
stock markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular
companies. These broad market fluctuations may adversely affect the trading price of Aptorum Class A ordinary shares. Securities
class action litigation
has often been instituted against companies following periods of volatility in the overall market and in the
market price of a company’s securities. Such
litigation, if instituted against us, could result in very substantial costs, divert
our management’s attention and resources and harm our business, operating
results and financial condition.
48
Risks
Related to Aptorum’s Doing Business in Hong Kong
Our
company currently does not have operations in mainland China. PRC laws and regulations may be applicable to a company such as us, 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 Aptorum 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 Aptorum 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 Aptorum 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 annual report,
we maintain substantially all 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.
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 Aptorum’s ordinary shares could be adversely affected.
49
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.
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.
50
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
PCAOB continues to demand complete access in mainland China and Hong Kong moving forward and has resumed regular inspections since
March 2023. The PCAOB is continuing pursuing ongoing investigations and may initiate new investigations as needed. The PCAOB has
also indicated that
it will act immediately to consider the need to issue new determinations with the HFCAA if needed. However, whether
the PCAOB will continue to be able
to satisfactorily conduct inspections of PCAOB-registered public accounting firms headquartered in
Mainland China and Hong Kong is subject to
uncertainties and depends on a number of factors out of our and our auditor’s control.
If
the PCAOB is unable to inspect and investigate completely registered public accounting firms located in China in 2023 and beyond, or
if we fail
to, among others, meet the PCAOB’s requirements, including retaining a registered public accounting firm that the PCAOB
determines it is able to inspect
and investigate completely, we will be identified as a “Commission-identified Issuer,” and
upon the expiration of the applicable years of non-inspection
under the HFCAA and relevant regulations, our shares will be delisted
and will not be permitted for trading over the counter. Such a delisting or prohibition
would substantially impair your ability to sell
or purchase our shares, and the risk and uncertainty associated with delisting would have a negative impact
on the price of our share.
Moreover, the HFCAA or other efforts to increase U.S. regulatory access to audit information could cause investor uncertainty for
affected issuers, including us, and the market price of our shares could be adversely affected. Such a prohibition would significantly
affect our ability to
raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business,
financial condition, and prospects.
The
SEC is assessing how to implement other requirements of the HFCAA, including the listing and trading prohibition requirements described
above. Future developments in respect of increasing U.S. regulatory access to audit information are uncertain, as the legislative
developments are subject to
the legislative process and the regulatory developments are subject to the rule-making process and other
administrative procedures.
While
the CSRC, the SEC and the PCAOB have entered into the SOP Agreements regarding the inspection of PCAOB-registered accounting
firms in
Mainland China, there can be no assurance that we will be able to comply with requirements imposed by U.S. regulators if there is
significant
change to current political arrangements between Mainland China and Hong Kong, or if any component of our auditor’s
work papers become located in
Mainland China in the future. Delisting of our shares would force holders of our shares to sell their shares.
The market price of our shares could be
adversely affected as a result of anticipated negative impacts of these executive or legislative
actions upon, regardless of whether these executive or
legislative actions are implemented and regardless of our actual operating performance.
51
If
we and/or our subsidiaries were to be required to obtain any permission or approval from or complete any filing procedure with the China
Securities
Regulatory Commission (the “CSRC”), the CAC, or other PRC governmental authorities in connection with the Business
Combination or future
offerings under PRC laws, we and/or our subsidiaries may be fined or subject to other sanctions, and our subsidiaries’
business and our reputation,
financial condition, and results of operations may be materially and adversely affected.
The
Cybersecurity Review Measures jointly promulgated by the CAC and other relevant PRC governmental authorities on December 28, 2021
required that, among others, “critical information infrastructure” or network platform operators holding over one million
users’ personal information to
apply for a cybersecurity review before any public offering on a foreign stock exchange. However,
this regulation is recently issued and there remain
substantial uncertainties about its interpretation and implementation.
As
of the date of this annual report, we and our subsidiaries do not have any business operation or maintain any office or personnel in
mainland
China. We and our subsidiaries have not collected, stored, or managed any personal information in mainland China. Based on the
assessment conducted by
the management, we believe that we and our subsidiaries are not currently required to proactively apply to a
cybersecurity review for the Business
Combination or future offerings overseas, on the basis that (i) our subsidiaries are incorporated
in Hong Kong, the Cayman Islands, and other jurisdictions
outside of mainland China and operate in Hong Kong without any subsidiary
or variable interest entities (“VIE”) structure in mainland China, and we do
not maintain any office or personnel in mainland
China; (ii) except for the Basic Law, the National Laws 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, and 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, and PRC laws and regulations relating to data protection and cyber security have not been
listed in Annex III as the date of this annual
report are solely carried out by our overseas entities outside of mainland China
for the purpose of offering services in Hong Kong and other jurisdictions
outside of mainland China; (iv) we and our subsidiaries
do not control more than one millions users’ personal information as of the date of this prospectus;
(v) as of the date of
this annual report, we and our subsidiaries have not received any notice of identifying us as critical information infrastructure from
any
relevant PRC governmental authorities; and (vi) as of the date of this annual report, none of us or our subsidiaries have been
informed by any PRC
governmental authority of any requirement for a cybersecurity review.
Additionally, we believe that we and our subsidiaries are compliant with the regulations and policies that have been issued by the CAC
to date and
there was no material change to these regulations and policies since the Business Combination. Based on the above thorough
review of applicable laws and
regulations, we have concluded that neither we nor our subsidiaries are required to obtain permissions or
approvals from the China Securities Regulatory
Commission (CSRC), the Cyberspace Administration of China (CAC), or any other PRC governmental
authority to operate our business or offer securities
to foreign investors. We affirmatively state that we have received all requisite
permissions or approvals necessary to operate our business, and no
permissions or approvals have been denied. However, regulatory requirements
on cybersecurity and data security in the mainland China are constantly
evolving and can be subject to varying interpretations or significant
changes, which may result in uncertainties about the scope of our responsibilities in
that regard, and there can be no assurance that
the relevant PRC governmental authorities, including the CAC, would reach the same conclusion as us. We
will closely monitor and assess
the implementation and enforcement of the Cybersecurity Review Measures. If the Cybersecurity Review Measures
mandates clearance of cybersecurity
and/or data security regulators and other specific actions to be completed by companies like us, we may face
uncertainties as to whether
we can meet such requirements timely, or at all.
On
February 17, 2023, the CSRC promulgated the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic
Companies (the “Trial Measures”) and five supporting guidelines, which took effect on March 31, 2023. The Trial Measures
requires companies in
mainland China that seek to offer and list securities overseas, both directly and indirectly, to fulfill the filing
procedures with the CSRC. According to the
Trial Measures, the determination of the “indirect overseas offering and listing
by companies in mainland China” shall comply with the principle of
“substance over form” and particularly, an issuer
will be required to go through the filing procedures under the Trial Measures if the following criteria are
met at the same time: (i) 50%
or more of the issuer’s operating revenue, total profits, total assets or net assets as documented in its audited consolidated
financial statements for the most recent accounting year are accounted for by companies in mainland China; and (ii) the main parts
of the issuer’s business
activities are conducted in mainland China, or its main places of business are located in mainland China,
or the senior managers in charge of its business
operation and management are mostly Chinese citizens or domiciled in mainland China.
On the same day, the CSRC held a press conference for the release
of the Trial Measures and issued the Notice on Administration
for the Filing of Overseas Offering and Listing by Domestic Companies, which clarifies that
(i) on or prior to the effective date
of the Trial Measures, companies in mainland China that have already submitted valid applications for overseas offering
and listing but
have not obtained approval from overseas regulatory authorities or stock exchanges shall complete the filing before the completion of
their
overseas offering and listing; and (ii) companies in mainland China which, prior to the effective date of the Trial Measures,
have already obtained the
approval from overseas regulatory authorities or stock exchanges and are not required to re-perform the regulatory
procedures with the relevant overseas
regulatory authority or stock exchange, but have not completed the indirect overseas listing, shall
complete the overseas offering and listing before
September 30, 2023, and failure to complete the overseas listing within such six-month
period will subject such companies to the filing requirements with
the CSRC.
52
Based
on the assessment conducted by the management, we are not subject to the Trial Measures, because we are incorporated in the Cayman
Islands
and our subsidiaries are incorporated in Hong Kong, the Cyman Islands and other regions outside of mainland China and operate in
Hong Kong
without any subsidiary or VIE structure in mainland China, and we do not have any business operations or maintain any
office or personnel in mainland
China. However, as the Trial Measures and the supporting guidelines are newly published, there exists
uncertainty with respect to the implementation and
interpretation of the principle of “substance over form”. As of the date
of this annual report, there was no material change to these regulations and policies
since the Business Combination. If our future securities
offerings, and our listing on Nasdaq were later deemed as “indirect overseas offering and listing by
companies in mainland China”
under the Trial Measures, we may need to complete the filing procedures for our Business Combination and future
secondary offerings,
and listing. If we are subject to the filing requirements, we cannot assure you that we will be able to complete such filings in a timely
manner or even at all.
Since
these statements and regulatory actions are new, it is also highly uncertain in the interpretation and the enforcement of the above
cybersecurity
and overseas listing laws and regulation. There is no assurance that the relevant PRC governmental authorities would reach the same
conclusion
as us. If we and/or our subsidiaries are required to obtain approval or fillings from any governmental authorities, including the CAC
and/or the
CSRC, in connection with the listing or continued listing of our securities on a stock exchange outside of Hong Kong
or mainland China, it is uncertain
how long it will take for us and/or our subsidiaries to obtain such approval or complete such filing,
and, even if we and our subsidiaries obtain such
approval or complete such filing, the approval or filing could be rescinded. Any failure
to obtain or a delay in obtaining the necessary permissions from or
complete the necessary filing procedure with the PRC governmental
authorities to conduct offerings or list outside of Hong Kong or mainland China may
subject us and/or our subsidiaries to sanctions
imposed by the PRC governmental authorities, which could include fines and penalties, suspension of
business, proceedings against us
and/or our subsidiaries, and even fines on the controlling shareholder and other responsible persons, and our subsidiaries’
ability
to conduct our business, our ability to invest into mainland China as foreign investments or accept foreign investments, or our ability
to list on a
U.S. or other overseas exchange may be restricted, and our subsidiaries’ business, and our reputation, financial
condition, and results of operations may be
materially and adversely affected.
If
we and/or our subsidiaries were to be required to comply with cybersecurity, data privacy, data protection, or any other PRC laws and
regulations
related to data and we and/or our subsidiaries cannot comply with such PRC laws and regulations, our subsidiaries’
business, financial condition, and
results of operations may be materially and adversely affected.
We
may be subject to a variety of cybersecurity, data privacy, data protection, and other PRC laws and regulations related to data, including
those
relating to the collection, use, sharing, retention, security, disclosure, and transfer of confidential and private information,
such as personal information and
other data. These laws and regulations apply not only to third-party transactions, but also to transfers
of information within our organization. These laws
and regulations may restrict our subsidiaries’ business activities and require
us and/or our subsidiaries to incur increased costs and efforts to comply, and
any breach or noncompliance may subject us and/or our
subsidiaries to proceedings against such entity(ies), damage our reputation, or result in penalties
and other significant legal liabilities,
and thus may materially and adversely affect our subsidiaries’ business and our financial condition and results of
operations.
As
the laws and regulations related to cybersecurity, data privacy, and data protection in mainland China where our subsidiaries do not
have
operations are relatively new and evolving, and their interpretation and application may be uncertain, it is still unclear if we
and/or our subsidiaries may
become subject to such new laws and regulations.
The
PRC Data Security Law, or the Data Security Law, which was promulgated by the Standing Committee of the National People’s Congress
on
June 10, 2021 and took effect on September 1, 2021, requires data collection to be conducted in a legitimate and proper
manner, and stipulates that, for the
purpose of data protection, data processing activities must be conducted based on data classification
and hierarchical protection system for data security.
According to Article 2 of the Data Security Law, it applies to data processing
activities within the territory of mainland China as well as data processing
activities conducted outside the territory of mainland China
which jeopardize the national interest or the public interest of China or the rights and interest of
any PRC organization and citizens.
Any entity failing to perform the obligations provided in the Data Security Law may be subject to orders to correct,
warnings and penalties
including ban or suspension of business, revocation of business licenses or other penalties. As of the date of this annual report, we
do not have any operation or maintain any office or personnel in mainland China, and we have not conducted any data processing activities
which may
endanger the national interest or the public interest of China or the rights and interest of any Chinese organization and citizens.
Therefore, we do not
believe that the Data Security Law is applicable to us.
53
On
August 20, 2021, the Standing Committee of the National People’s Congress of China promulgated the Personal Information Protection
Law,
which integrates the scattered rules with respect to personal information rights and privacy protection and took effect on November 1,
2021. According to
Article 3 of the Personal Information Protection Law, it is applied not only to personal information processing
activities carried out in the territory of
mainland China but also to personal information processing activities outside the mainland
China for the purpose of offering products or services to
domestic natural persons in the territory of mainland China. The offending
entities could be ordered to correct, or to suspend or terminate the provision of
services, and face confiscation of illegal income,
fines or other penalties. As our subsidiaries’ services are provided in Hong Kong rather than in the
mainland China to clients
worldwide, including but not limited to clients of mainland China who visit our offices in these locations, we take the view that
we
and our subsidiaries are not subject to the Personal Information Protection Law.
On
July 7, 2022, the Cyberspace Administration of China (the “CAC”) issued the Measures for Security Assessment of Outbound
Data Transfer,
or the Measures, which took effect on September 1, 2022. According to the Measures, in addition to the self-risk
assessment requirement for provision of
any data outside mainland China, a data processor shall apply to the competent cyberspace department
for data security assessment and clearance of
outbound data transfer in any of the following events: (i) outbound transfer of important
data by a data processor; (ii) outbound transfer of personal
information by an operator of critical information infrastructure or
a data processor which has processed more than one million users’ personal data;
(iii) outbound transfer of personal information
by a data processor which has made outbound transfers of more than one hundred thousand users’ personal
information or more than
ten thousand users’ sensitive personal information cumulatively since January 1 of the previous year; (iv) such other
circumstances where ex-ante security assessment and evaluation of cross-border data transfer is required by the CAC. As of the date
of this annual report,
we and our subsidiaries have not collected, stored, or managed any personal information in mainland China. Therefore,
we believe that the Measures is not
applicable to us.
However,
given the recency of the issuance of the above PRC laws and regulations related to cybersecurity and data privacy, we and our
subsidiaries
still face uncertainties regarding the interpretation and implementation of these laws and regulations and we could not rule out the
possibility
that any PRC governmental authorities may subject us and/or our subsidiaries to such laws and regulations in the future.
If they are deemed to be applicable
to us and/or our subsidiaries, we cannot assure you that we and our subsidiaries will be compliant
with such new regulations in all respects, and we and/or
our subsidiaries may be ordered to rectify and terminate any actions that are
deemed illegal by the PRC governmental authorities and become subject to
fines and other government sanctions, which may materially and
adversely affect our subsidiaries’ business and our financial condition and results of
operations.
If
the Chinese government chooses to extend the oversight and control over offerings that are conducted overseas and/or foreign investment
in
mainland China-based issuers to Hong Kong-based issuers, such action may significantly limit or completely hinder our ability
to offer or continue to
offer Ordinary Shares to investors and cause the value of our Ordinary Shares to significantly decline or be
worthless.
Recent
statements, laws and regulations by the Chinese government, including the Measures for Cybersecurity Review (2021), the PRC Personal
Information Protection Law and the Trial Measures, have indicated an intent to exert more oversight and control over offerings that are
conducted overseas
and/or foreign investments in China-based issuers. It is uncertain whether the Chinese government will adopt additional
requirements or extend the existing
requirements to apply to our Operating Subsidiaries located in Hong Kong. We could be subject
to approval or review of Chinese regulatory authorities to
pursue future offerings. Any future action by the PRC government expanding
the categories of industries and companies whose foreign securities offerings
are subject to review by the CSRC or CAC or filing with
the CSRC could significantly limit or completely hinder our ability to offer or continue to offer
securities to investors and could cause
the value of such securities to significantly decline or be worthless.
54
The
enforcement of laws and rules and regulations in the PRC can change quickly with little advance notice. Additionally, the PRC laws and
regulations and the enforcement of such that apply or are to be applied to Hong Kong can change quickly with little or no advance
notice. As a result,
the Hong Kong legal system embodies uncertainties which could limit the availability of legal protections,
which could result in a material change in
our operating Subsidiaries’ operations and/or the value of the securities we are offering.
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 currency (the 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 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 government 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 operating Subsidiaries’
business and operations. 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 pre-emption of local
regulations by national laws.
There
are political risks associated with conducting business in Hong Kong.
Substantially
all of Aptorum’s operations are in Hong Kong. Accordingly, the business operations and financial conditions of our operating
Subsidiaries will be affected by the political and legal developments 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 and may adversely affect our
operations. 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.
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,
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 political arrangement between PRC and Hong Kong and the
economic, political and legal environment in Hong Kong in the future.
Since substantially all of Aptorum’s operations are
based in Hong Kong, any change of such political arrangements may pose an immediate threat to the
stability of the economy in Hong Kong,
thereby directly and adversely affecting our results of operations and financial positions.
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 the
United States signed an executive order
and the Hong Kong Autonomy Act and an executive order to remove the preferential trade
status of Hong Kong, pursuant to § 202 of the United States-
Hong Kong Policy Act of 1992. The U.S. government
has determined that Hong Kong is no longer sufficiently autonomous to justify preferential treatment
in relation to the PRC, especially
with the issuance of the Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong
Special
Administrative Region (the “Hong Kong National Security Law”) on July 1, 2020. Hong Kong will now be treated
as Mainland China, in terms of
visa application, academic exchange, tariffs and trading, etc. According to § 3(c) of the executive
order issued on July 14, 2020, the license exception for
exports and reexports to Hong Kong and transfer within the PRC is
revoked, while exports of defense items are banned. On the other hand, the existing
tariffs the U.S. imposed on Mainland China will
also be applied to Hong Kong exports. Losing its special status, Hong Kong’s competitiveness as the
logistic hub may
deteriorate in the future as its tax benefits as a result of preferential situation no longer exists and companies might prefer exporting
through other cities. The level of activities of domestic exports and re-exports and other trading activities in Hong Kong
may decline owing to the tariff
being imposed on Hong Kong exports and the export restriction. 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.
55
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.
Our
and our subsidiaries’ business, our financial condition and results of operations, and/or the value of our Ordinary Shares or our
ability to offer or
continue to offer securities to investors may be materially and adversely affected by existing or future PRC laws
and regulations which may become
applicable to us or our subsidiaries.
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. 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. 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. It
remains uncertain as to the enactment, interpretation
and implementation of regulatory requirements related to overseas securities offering and other capital
markets activities and due to
the possibility that laws, regulations, or policies in the PRC could change rapidly in the future, it remains uncertain whether
the PRC
government will adopt additional requirements or extend the existing requirements to apply to our operating subsidiaries located in Hong
Kong. It
is also uncertain whether the Hong Kong government will be mandated by the PRC government, despite the constitutional constraints
of the Basic Law, to
control over offerings conducted overseas and/or foreign investment of entities in Hong Kong, including our operating
subsidiaries. Any actions by the
PRC government to exert more oversight and control over offerings (including 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 to
significantly decline or be worthless.
56
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 Aptorum 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.
We
have business operations in Hong Kong, but not 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; we also maintain economic interest over one
VIE (Libra Sciences Limited), which is
incorporated under the laws of Cayman Islands and conducted 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 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 Aptorum 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 Aptorum
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 Aptorum Class A
ordinary shares, to significantly decline or be worthless.
57
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.
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.
58
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 hereof, 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 hereof, 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.
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 hereof, our Hong Kong subsidiaries
have not collected
or stored personal information of any individual clients of mainland China; and (iii) as of the date hereof, 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 hereof, we believe our Hong Kong subsidiaries
are not required to pass the cybersecurity review of
the CAC in order to list Aptorum 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
hereof, we have not received any formal inquiry, notice, warning, sanction, or
objection from the CSRC with respect to the listing of
Aptorum 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.
59
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 hereof,
we believe our Hong Kong subsidiaries are not
required to obtain regulatory approval from the CSRC in order to list Aptorum Class A
ordinary shares in the U.S.
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 full comply with new regulatory requirements may significantly limit or completely hinder
our ability to offer or continue to
offer the Aptorum 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 Aptorum
Class A ordinary shares to significantly decline in value or
become worthless.
As
of the date hereof, 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 Aptorum 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 Aptorum Class A ordinary
shares to significantly
decline or become worthless.
60
Operations
in Hong Kong may be subject to risks associated with the broader PRC that could adversely affect our business.
There
are several risks associated with our operations in Hong Kong, including but not limited to:
●
Regulatory
Changes and Governmental Control: The PRC government has significant authority to intervene
in the operations of businesses,
and any changes in laws, regulations, or enforcement policies
could adversely impact our operations in Hong Kong and any future
opportunities in the
region.
●
Geopolitical
and Economic Instability: Ongoing tensions between the PRC and other countries, particularly
the U.S., may affect trade
policies, tariffs, and overall market conditions, which could
disrupt our supply chain or future business in Hong Kong.
●
Currency
and Capital Flow Restrictions: The PRC government imposes controls on the movement of funds
into and out of the country, which
could limit our ability to repatriate funds or invest
in remaining operations.
●
Hong Kong’s
Evolving Legal Environment: The integration of certain aspects of Hong Kong’s
governance with the PRC’s legal framework
has created uncertainties regarding autonomy,
regulatory consistency, and legal protections.
Any
adverse developments related to our operations in Hong Kong could have a material adverse effect on our business, financial condition,
and
results of operations.
Uncertainties
with respect to the legal system of the People’s Republic of China (the “PRC”) and tax regime, including uncertainties
regarding the
enforcement of laws, and sudden or unexpected changes in policies, laws, and regulations in the PRC could adversely affect
us.
We
are subject to certain legal and operational risks associated with having operations in Hong Kong. The PRC legal system is based
in part on
government policies and internal rules, some of which are not published on a timely basis, or at all, and may have retroactive
effect. As a result, we may
not be aware of our violation of any of these policies and rules until sometime after the violation. Such
unpredictability towards our contractual, property
and procedural rights and any failure to quickly respond to changes in the regulatory
environment in the PRC could adversely affect our business, financial
condition, and results of operations, and impede our ability to
continue our operations in Hong Kong.
The
PRC government may intervene or influence our operations at any time, with little advance notice, as the PRC government deems appropriate
to further regulatory, political and societal goals, which may potentially result in a material adverse effect on our operations. The
enforcement of laws and
rules and regulations in China can change quickly with little advance notice. Additionally, the PRC laws and
regulations and the enforcement of such that
apply or are to be applied to Hong Kong can change quickly with little or no advance notice.
We cannot rule out the possibility that it will in the future
release regulations or policies regarding our industry that could adversely
affect our business, financial condition, and results of operations, as well as cause
a material change in the value of our securities.
Further, currently under the Basic Law of the Hong Kong Special Administrative Region of the PRC (the
“Basic Law”),
Hong Kong is self-governed by its own government under the PRC framework of “one country two systems” with a high degree
of
autonomy under its local constitution. We cannot assure you, however, that the PRC will maintain the “one country two systems”
framework, and the PRC
government may seek to further influence the business conduct of entities organized under the laws of Hong Kong,
including our Hong Kong operations. If
the PRC government were to enact laws and regulations in the future that resulted in significant
oversight or other restrictions on the conduct of the
business of our Hong Kong operations, it could materially and adversely affect
our business, financial condition, and results of operations.
61
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.
We
have ceased to qualify as an “emerging growth company” and will incur increased costs as a result.
We
ceased to be an “emerging growth company” on December 31, 2023. Accordingly, we are no longer eligible for reduced disclosure
requirements and exemptions available to EGCs and, among other things, will formally become subject to new accounting pronouncement effective
dates
for non-EGCs. While we have determined that we are neither an accelerated filer nor a large accelerated filer (as such terms are
defined under U.S. federal
securities laws) and therefore not required to obtain an attestation report from our independent registered
public accounting firm on the effectiveness of our
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley
Act, we nevertheless expect to incur additional legal, accounting,
financial and other costs associated with being a public company that
is not an EGC, including mandatory adoption of new accounting pronouncements.
We may also incur costs associated with compliance with
the requirements of additional disclosure requirements, including Section 404(b) of the Sarbanes-
Oxley Act in the event that
we determine that we have become an accelerated filer or large accelerated filer.
Further,
investors may find our securities less attractive because of our reliance on the foregoing exemption from Section 404(b) of
the Sarbanes-
Oxley Act, as well as any other exemptions available to us under U.S. federal securities laws. This could contribute
to a less active trading market for our
securities and prices of the securities may be more volatile or decline.
Risks
Related to the Merger
If
the Merger Agreement with DiamiR is not consummated, Aptorum’s share price could decline.
The
consummation of the Merger with DiamiR is subject to a number of closing conditions, including the completion of the Domestication,
conversion
of all outstanding convertible debt of ours and DiamiR’s, approval by our shareholders, completion of review by Nasdaq of Aptorum’s
listing of
additional securities application of the shares of common stock of the Combined Company to be issued in connection with the
closing of the Merger, and
other customary closing conditions. In addition, at the closing date of the Merger, Aptorum should maintain
an aggregate amount of unrestricted cash and
cash equivalents of not less than $2,260,000, and an amount of Working Capital (as defined
in the Merger Agreement) of not less than $1,644,000. As of
December 31, 2025, Aptorum has approximately $3.5 million in cash and
current assets of approximately $3.6 million. We intend to address any shortfall
through the execution of a public or private financing.
The Company is targeting a closing of the transaction before 2027.
If
the DiamiR Merger is not consummated, Aptorum may be subject to a number of material risks, and its share price could be adversely affected,
as follows:
●
Aptorum
has incurred and expects to continue to incur significant expenses related to the Merger
with DiamiR, even if the DiamiR Merger is
not consummated.
●
The
Merger Agreement contains covenants restricting Aptorum’s solicitation of competing
acquisition proposals and the conduct of
Aptorum’s business between the date of signing
the Merger Agreement and the closing of the Merger. As a result, significant business
decisions
and transactions before the closing of the Merger require the consent of DiamiR. Accordingly,
Aptorum may be unable to pursue
business opportunities that would otherwise be in its best
interest as a standalone company. Aptorum has invested significant time and
resources in
the transaction process and if the Merger Agreement is terminated Aptorum will have a limited
ability to continue its current
operations without obtaining additional financing.
62
●
Aptorum’s
collaborators and other business partners and investors in general may view the failure to
consummate the DiamiR Merger as a
poor reflection on its business or prospects.
●
Some
of Aptorum’s collaborators and other business partners may seek to change or terminate
their relationships with Aptorum as a result of
the Merger or the failure thereof.
●
As
a result of the Merger, current and prospective employees could experience uncertainty about
their future roles within the Combined
Company. This uncertainty may adversely affect Aptorum’s
ability to retain its key employees, who may seek other employment
opportunities.
●
Aptorum’s
management team may be distracted from day-to-day operations as a result of the Merger.
●
Nasdaq
could determine to delist Aptorum’s Class A ordinary shares which could have an
adverse effect on the value of Aptorum’s ordinary
shares and any future ability to
raise capital.
●
Subject
to the terms and conditions in the Merger Agreement, Aptorum may have to pay DiamiR a termination
fee in the amount equal to the
higher of (i) 70% of cash that Aptorum has as of the
date of termination and (ii) $2,000,000.
In
addition, if the Merger Agreement is terminated and Aptorum’s board of directors determines to seek another business combination,
it may not
be able to find a third party willing to provide equivalent or more attractive consideration than the consideration to be
provided by each party in the Merger.
In such circumstances, Aptorum’s board of directors may elect to, among other things, divest
all or a portion of Aptorum’s business, and in such case, the
consideration that Aptorum receives may be less attractive than the
consideration to be received by Aptorum pursuant to the Merger Agreement.
If
the conditions to the Merger Agreement are not met, the Merger will not occur.
Even
if the Merger is approved by the shareholders of Aptorum and DiamiR, specified conditions must be satisfied or waived to complete the
Merger. These conditions are set forth in the Merger Agreement. Aptorum and DiamiR cannot assure you that all of the conditions will
be satisfied. If the
conditions are not satisfied or waived, the Merger will not occur or will be delayed, and Aptorum and DiamiR each
may lose some or all of the intended
benefits of the Merger.
Some
Aptorum and DiamiR officers and directors have interests in the Merger that are different from yours and that may influence them to support
or
approve the Merger without regard to your interests.
Certain
officers and directors of Aptorum and DiamiR participate in arrangements that provide them with interests in the Merger that are different
from yours, including, among others, the continued service as an officer or director of the Combined Company, continued indemnification
and the potential
ability to sell an increased number of shares of the Combined Company in accordance with Rule 144 under the Securities
Act. These interests, among
others, may influence the officers and directors of Aptorum and DiamiR to support or approve the Merger.
63
DiamiR
may not complete the Merger or may be delayed in completing the Merger.
The
DiamiR Merger is at the very early stages and will be subject to the completion of satisfactory due diligence, negotiation of definitive
agreements, obtaining applicable corporate, regulatory and other third-party approvals and the fulfillment of customary closing conditions.
There is no
certainty and DiamiR can provide no assurances that the parties will successfully negotiate and enter into a definitive agreement,
or that the DiamiR merger
will be consummated on the terms or timeframe currently contemplated, or at all. If the DiamiR merger is not
completed as contemplated, DiamiR could
suffer adverse consequences, including the loss of investor confidence, volatility and a significant
decrease in the market prices of its securities and
reputational harm. In addition, any delay in completing the merger could cause DiamiR
not to realize some or all of the benefits that it expects to achieve if
the merger is successfully completed within the expected timeframe.
There is no guarantee that DiamiR will find an alternative entity with which to merge.
During
the pendency of the Merger, Aptorum and DiamiR will be subject to contractual limitations set forth in the Merger Agreement that restrict
the
parties’ ability to enter into business combination transactions with another party.
Covenants
in the Merger Agreement impede the ability of Aptorum or DiamiR to make acquisitions or complete other transactions that are not in
the
ordinary course of business pending completion of the Merger. As a result, if the Merger is not completed, the parties may be at a disadvantage
to their
competitors. In addition, while the Merger Agreement is in effect and subject to limited exceptions, each party is prohibited
from soliciting, initiating,
encouraging or taking actions designed to facilitate any inquiries or the making of any proposal or offer
that could lead to the entering into certain
extraordinary transactions with any third party, such as a sale of assets, an acquisition
of Aptorum’s securities, a tender offer for Aptorum’s securities, a
Merger or other business combination outside the ordinary
course of business. Any such transactions could be favorable to such party’s shareholders.
Certain
provisions of the Merger Agreement may discourage third parties from submitting alternative takeover proposals, including proposals that
may
be superior to the arrangements contemplated by the Merger Agreement.
The
terms of the Merger Agreement prohibit each of Aptorum and DiamiR from soliciting alternative takeover proposals or cooperating with
persons making unsolicited takeover proposals. Because the lack of a public market for DiamiR shares makes it difficult to evaluate the
fairness of the
Merger, the shareholders of DiamiR may receive consideration in the Merger that is less than the fair market value of
the DiamiR shares.
DiamiR
has never generated revenue from product sales and all of DiamiR’s product candidates are currently in the pre-commercial stage,
and DiamiR
may continue to incur significant losses for the foreseeable future and never generate revenue from product sales.
DiamiR
is a molecular diagnostic company focused on developing minimally invasive tests for early detection and monitoring of Mild Cognitive
Impairment, Alzheimer’s, Parkinson’s, other neurodegenerative diseases, and cancer. The proprietary technology they developed
is based on quantitative
analysis of circulating organ-enriched microRNAs in plasma. Short-term objectives of the Company include the
development of Lab-Developed tests
(LDTs) in its CLIA licensed lab based on the identified miRNA expression signatures. The tests could
also be used for patient screening and stratification,
as well as disease and treatment monitoring. DiamiR has devoted most of its financial
resources to conducting studies on analysis of circulating organ-
enriched miRNA biomarkers and building its patent portfolio. DiamiR
has not generated any revenues from product sales. DiamiR’s ability to fully develop
its products and market them successfully
is depending on may factors, some of which are out of their control and many of which are described elsewhere
in this annual report.
Although DiamiR has received revenue in the past from providing testing services to life sciences companies, and may again in the
future,
they cannot be certain that such services will bring sufficient revenue to support its operation and R&D. Thus, DiamiR may not
be able to generate a
profit until its product candidates become profitable, which may never occur.
64
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. As of the issuance date of this annual report, our
authorized
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.
The Company now focuses all of its efforts on R&D and therefore
no longer performs any therapeutic services. While the Company may
commence therapeutic services in the future, as of December 31, 2025
and the date hereof, it only operates in one segment.
Aptorum
is not a Chinese operating company. Aptorum is a Cayman Islands holding company with operations conducted through our subsidiaries
and
the variable interest entity (VIE). We have determined that we have one VIE: Libra, according to the U.S. GAAP. In accordance with ASC
810, we
concluded that we are not the primary beneficiary of Libra and therefore we do not consolidate its financial statements into
ours. Previously, we determined
that we were the primary beneficiary of another VIE, Mios Pharmaceuticals Limited; however, Mios was
dissolved in 31 October 2024 and therefore we no
longer maintain any ownership over such entity. Our corporate structure is based on
the equity ownership and control we have over our subsidiaries. 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 VIE, however, your investments into
Aptorum are made into the Cayman Islands holding
company, not our VIE, and you may never own any equity into the VIE or any other subsidiary.
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.
65
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”).
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.
66
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) were
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) were 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 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.
In
June 2023, we entered into securities purchase agreements to sell $3,000,000 unsecured convertible notes to 4 investors (the “June
23 Notes”).
All the June 23 Notes were subsequently converted into an aggregate of 1,000,000 Class A Ordinary Shares, par value
$0.00001 per share.
In
September 2023, we entered into a securities purchase agreement to sell a $3,000,000 unsecured convertible note (“Sep 23 Note”)
to Jurchen
Investment Corporation, our largest shareholder. The Sep 23 Note is convertible into our Class A Ordinary Shares and have
a maturity date that is 24
months from the issuance date, although upon such date the investor has the right to extend the term of the
Note for twelve (12) months or more or such
term subject to mutual consent. The Sep 23 Note has an interest rate of 6% per annum and
a conversion price of $2.42 per share. The Sep 23 Note is
secured by a first priority lien and security interest on certain shares that
we own (“Collateral”). Upon our disposal of all or a portion of the Collateral, the
investor has the right, to request that
we prepay the then-remaining outstanding balance of the Sep 23 Note, in part or in full and we can make that payment
in cash or in shares.
On September 11, 2025, the parties agreed to extend the term of the Sep 2023 Note for an additional 12 months; the parties also agreed
to amend the terms of the Sep 2023 Note such that Jurchen, at is sole discretion, shall be permitted to convert the Sep 2023 Note upon
three days written
notice.
On
March 1, 2024, we entered into an Agreement and Plan of Merger with YOOV Group Holding Limited, a company organized under the laws
of
British Virgin Islands (“YOOV”), pursuant to which YOOV was to become one of our wholly owned subsidiaries. However, on October
25, 2024, the
parties to the Agreement and Plan of Merger entered into a termination agreement (the “Termination Agreement”),
pursuant to which the parties agreed to
terminate the Agreement and Plan of Merger on the date thereof (the “Termination Date”),
and such agreement became null and void and of no further
force or effect.
On
April 8, 2024, CGY Investments Limited and DSF Investment Holdings Limited voluntarily converted 401,537 Class B Ordinary Shares and
45,305 Class B Ordinary Shares, respectively into Class A Ordinary Shares on a one-for-one basis. Upon conversion, 1,796,934 Class B
Ordinary Shares
were issued and outstanding, CGY Investments Limited owned 533,575 Class A Ordinary Shares and did not own any Class
B Ordinary Share; and DSF
Investment Holdings Limited owned 45,305 Class A Ordinary Shares and did not own any Class B Ordinary Share.
On
January 2, 2025, the Company entered into a certain securities purchase agreement with certain non-affiliated institutional investors
pursuant
to which the Company sold 1,535,000 Class A ordinary shares of the Company, par value $0.00001 per share at a per share price
of $2.00 in a registered
direct offering, for gross proceeds of $3,070,000.
On
October 10, 2025, the company entered into definitive agreements for the purchase and sale of 1,000,000 Class A ordinary shares at a
purchase
price of $2.00 per share in a registered direct offering, for gross proceeds of $2,000,000; the offering closed on October 14,
2025.
67
The
following diagram illustrates our corporate structure as of the date of this annual report:
Note
1: Dr. Clark Cheng, a former Executive Director of Aptorum Group, holds the remaining 10% shareholding of Aptorum Medical Limited.
Note
2: Angen Funds Limited, a company designated by an investor of ALS series projects, holds the remaining 20% shareholding of Acticule
Life Sciences Limited.
Note 3:
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
4: An investor of project VLS-2 holds the remaining 10% shareholding of mTor (Hong Kong) Limited.
68
Currently,
we conduct the majority of our operations through the following subsidiaries: Aptorum Therapeutics Limited and Acticule Life
Sciences
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. We have determined that we have one VIE, namely,
Libra, according to the U.S. GAAP. In accordance with ASC 810, we have
considered Libra’s memorandum and article
of association, and determined that 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 not regarded as the primary
beneficiary
of Libra for accounting purposes. Libra did not have any operations during the year ended December 31, 2025.
Proposed
Merger with Diamir
Aptorum
and DiamiR entered into an Agreement and Plan of Merger on July 14, 2025, (the “Merger Agreement”), pursuant to which, among
other matters, Aptorum will form a direct, wholly owned subsidiary in the state of Delaware (“Merger Sub”), which will merge
with and into DiamR, with
DiamiR surviving as a wholly owned subsidiary of Aptorum , and the surviving corporation of the merger with
the Merger Sub (the “Merger”). Aptorum
following the Merger is referred to herein as the “Combined Company.”
Each of Aptorum and DiamiR has agreed to certain covenants in the Merger
Agreement governing the conduct of its respective business between
the date of the Merger Agreement and the Closing or the earlier termination of the
Merger Agreement. In general, from the date of the
Merger Agreement until the earlier of the Closing and the termination of the Merger Agreement, except
as required by applicable law,
as set forth in the Merger Agreement or other transaction documents, each party must and must cause each of its subsidiaries
to conduct
its business in the ordinary course of business in all material respects. Each party also agreed to refrain from certain acts without
the prior
consent of the other.
Concurrently with the execution of the Merger Agreement, DiamiR and
Aptorum Therapeutics Limited, a wholly owned subsidiary of the
Company (“Aptorum Therapeutics”), entered into a management
services agreement, pursuant to which, Aptorum Therapeutics shall pay a monthly service
fee and reimburse expenses to DiamiR in exchange
for the officers and employees of DiamiR providing services to Aptorum Therapeutics to develop a
diagnostic test for early detection and
monitoring of progression of glioblastoma until the earlier of the closing of the Merger or June 30, 2026. In addition,
concurrently with
the execution of the Merger Agreement, DiamiR, DiamiR LLC, a wholly owned subsidiary of DiamiR, the Company and Aptorum
Therapeutics entered
into an intellectual property license agreement (“Licensing Agreement”), pursuant to which DiamiR and DiamiR LLC shall license
on
a non-exclusive basis their respective intellectual properties to Aptorum Therapeutics in exchange for upfront and periodic payments
and royalties until the
earlier of the closing of the Merger or June 30, 2026.
Immediately
prior to the closing of the Merger, Aptorum will transfer by way of continuation to and domesticate as a Delaware corporation (the
“Domestication”;
the Company immediately following the Domestication and prior to the closing of Merger, “Aptorum Delaware”). In connection
with the
Domestication, each then issued and outstanding Class A ordinary share of Aptorum will convert automatically, on a one-for-one
basis, into a share of
common stock of Aptorum Delaware, and each then issued and outstanding Class B ordinary share of Aptorum
will convert automatically into a share of
common stock of Aptorum Delaware and a share of non-voting and non-convertible Series A
preferred stock of Aptorum Delaware.
At the effective time of the Merger (the “Effective Time”),
each then-outstanding share of DiamiR’s common stock, other than dissenting shares,
will be converted into a number of shares of
Aptorum Delaware common stock equal to the Conversion Ratio described in more detail in the section titled
“The Merger Agreement-Conversion
Ratio” (the “Conversion Ratio”). Immediately following the closing of the Merger, stockholders of DiamiR and
existing
Aptorum shareholders will own approximately 70% and 30%, respectively, of the outstanding shares of the Combined Company (such percentages
to be adjusted ratably if either party issues additional securities prior to the closing).
69
Aptorum
filed the S-4 with the SEC and will mail notices of shareholders meeting and other relevant documents to its shareholders, in connection
with Aptorum’s solicitation of proxies for its shareholder’ meeting to be held to approve the Merger and related corporate
actions. As described in the S-4,
Ian Huen, Aptorum’s
Chairman and Chief Executive Officer, who beneficially owns 86.71% of Aptorum’s total voting power as of March 26, 2026, signed
a voting agreement simultaneously with the execution of the Merger Agreement, pursuant to which he agreed to vote in favor of the proposals
included in
the S-4. Therefore, Mr. Huen’s vote represents sufficient voting power to approve the proposals without the vote of
any other shareholder of Aptorum.
Accordingly, all of the proposals will be approved after Mr. Huen submits his vote; no public shareholder
votes will be required for the proposals to pass,
but shareholders will still have the opportunity to vote.
About
DiamiR
DiamiR
was incorporated in Delaware on June 16, 2014, and primarily operates through its wholly owned subsidiary, DiamiR, LLC, which was
incorporated as a limited liability company in Delaware on September 17, 2009. DiamiR is a molecular diagnostics company focused
on developing and
commercializing minimally invasive tests for early detection and monitoring of neurodegenerative diseases, such as
mild cognitive impairment and
Alzheimer’s disease, rare neurodevelopmental diseases, such as Rett syndrome, other brain health
disorders, and cancer. The proprietary platform
technology developed at DiamiR and protected by over 50 issued patents is based on quantitative
analysis of organ-enriched microRNAs detectable in
blood plasma. In addition to blood-based microRNA panels, as part of its biopharma
services DiamiR’s CLIA/CAP-certified laboratory offers protein and
genetic biomarker
analyses for screening, patient stratification, disease and treatment monitoring.
Merger
Consideration
At the Effective Time, each then-outstanding share of DiamiR’s
common stock, other than dissenting shares, will be converted into a number of
shares of Aptorum Delaware common stock, to the extent
that, immediately following the closing of the Merger, stockholders of DiamiR and existing
Aptorum’s shareholders will own approximately
70% and 30%, respectively, of the outstanding shares of the Combined Company (such percentages to be
adjusted ratably if either party
issues additional securities prior to the closing).
Conditions
to Closing of the Merger
The
obligations of the parties to consummate the Merger are subject to the satisfaction or (to the extent permitted by applicable law) waiver
by
each of the parties to the Merger Agreement of several conditions at or prior to the Closing, including:
●
Shareholder approval of
certain related actions’
●
the conversion of all outstanding
convertible debt of Aptorum and of DiamiR;
●
the completion of review
by Nasdaq of Aptorum’s listing of additional securities application for the shares to be issued in connection with the
Merger,
and the continuous listing of Aptorum’s shares on Nasdaq;
●
the declaration by the
SEC of the effectiveness of a registration statement on Form S-4 registering the shares of Aptorum Delaware common
stock issuable
pursuant to the Merger Agreement;
●
the composition of the
board of directors of the Combined Company is as agreed between DiamiR and Aptorum and the post-merger officers
and directors shall
have entered into employment agreements with Aptorum;
●
Aptorum maintaining a certain
amount of cash balance and working capital as required at closing; the execution and delivery by each
counterparty to the Stockholders
Agreement; and
●
the lack of any order issued
by any governmental authority of competent jurisdiction preventing the consummation of the Merger being in
effect, and no applicable
law having been enacted, entered, promulgated or enforced by any governmental authority or otherwise being in
effect that prohibits
or makes illegal the consummation of the Merger.
70
Termination
of the Merger Agreement
The
Merger Agreement may be terminated at any time prior to the closing, whether before or after receipt of the requisite shareholder approvals,
under the following circumstances:
●
by mutual written agreement
of Aptorum and DiamiR;
●
by written notice from
DiamiR or Aptorum to the other, if there shall be in effect any (i) applicable laws or (ii) governmental order (other
than,
for the avoidance of doubt, a temporary restraining order), that (x) in the case of each of clauses (i) and (ii), permanently
restrains,
enjoins, makes illegal or otherwise prohibits the consummation of the Merger, and (y) in the case of clause (ii) such
governmental order shall
have become final and non-appealable;
●
by written notice from
Aptorum to DiamiR, if DiamiR has breached or failed to perform any of its representations, warranties, or covenants or
other agreements,
which breach or failure to perform (i) would result in the failure of any of the closing conditions to be satisfied and (ii) is
not capable of being cured by the Termination Date or, if capable of being cured by the Termination Date, is not cured by DiamiR
before the
30th day following receipt of written notice from Aptorum of such breach or failure to perform, provided
that Aptorum shall not have the right
to terminate if it is then in material breach of any of its representations, warranties, covenants
or other agreements;
●
by written notice from
DiamiR, if Aptorum or Merger Sub has breached or failed to perform any of its representations, warranties, covenants
or other agreements,
which breach or failure to perform (i) would result in the failure of any closing conditions to be satisfied and (ii) is
not
capable of being cured by the Termination Date or, if capable of being cured by the Termination Date, is not cured by Aptorum
or Merger Sub
before the 30th day following receipt of written notice from DiamiR of such breach or failure to perform;
provided that DiamiR shall not have
the right to terminate if it is then in material breach of any of its representations, warranties,
covenants or other agreements;
●
by written notice from
Aptorum to DiamiR, if DiamiR fails to obtain its stockholders approval;
●
by written notice from
DiamiR to Aptorum, if Aptorum fails to obtain its shareholders approval upon vote taken thereon at a duly convened
Special Meeting
(or at a meeting of its shareholders following any adjournment or postponement thereof);
●
by written notice from
Aptorum or DiamiR to the other, if the closing shall not have been consummated on or prior to the Termination Date;
71
For purposes of the Merger Agreement, “Termination Date”
means June 30, 2026; provided that the Termination Date may be extended if
expressly so agreed in writing by Aptorum and DiamiR.
In
the event that, the Merger Agreement is terminated for reasons other than DiamiR’s breach or failure to perform, and that Aptorum
has raised
capital by issuance of its equity securities during the Interim Period (as defined in the Merger Agreement), Aptorum agrees
to pay in cash to DiamiR, a fee
in the amount equal to the higher of (i) 70% of cash that Aptorum has as of the date of Termination,
and (ii) $2,000,000 (the “Termination Fee”). In the
event that the Merger Agreement is terminated and that Aptorum has not
raised capital by issuance of its equity securities during the Interim Period, each
party agrees to bear its own expenses incurred with
the Merger and the related transactions.
Management
Services Agreement
At the time of the execution of the Merger Agreement, Aptorum Therapeutics,
and DiamiR entered into a management services agreement
pursuant to which Aptorum Therapeutics shall pay a monthly service fee and reimburse
expenses to DiamiR in exchange for the officers and employees of
DiamiR providing services to Aptorum Therapeutics to develop a diagnostic
test for early detection and monitoring of progression of glioblastoma until the
earlier of the closing of the Merger or June 30, 2026
in the following positions, subject to change as set forth in the agreement: Alidad Mireskandari,
President or CEO; Gary Anthony, Comptroller
or CFO; Gyanendra Kumar, V.P. of Assay Development; Kenny Ablordeppey, Director of Assay
Development; Jacob Goldman, Data Scientist;
and Sydney Finkelstein, Medical Director.
Intellectual
Property License Agreement
At the time of the execution of the Merger Agreement, DiamiR, DiamiR
LLC, the Company and Aptorum Therapeutics entered into the Licensing
Agreement, pursuant to which DiamiR and DiamiR LLC shall license
on a non-exclusive basis their respective intellectual properties to Aptorum
Therapeutics in exchange for upfront and periodic payments
and royalties until the earlier of the closing of the Merger or June 30, 2026.
Voting
and Support Agreement
Ian
Huen, our Chairman and CEO, who beneficially owns 87.17% of the Company’s total voting power as of the date of the Merger Agreement,
signed a voting and support agreement simultaneously with the execution of the Merger Agreement, pursuant to which he agreed to vote
in favor of the
transactions contemplated in the Merger Agreement.
72
Stockholders
Agreement
Upon
closing of the DiamiR Merger, Aptorum and certain stockholders of DiamiR, who collectively own 84.9% of DiamiR’s outstanding shares,
will sign a stockholders agreement (“Stockholders Agreement”), which will be effective so long as the stockholders of DiamiR
beneficially own, in the
aggregate, a number of shares of common stock of the Combined Company equal to at least 25% of the then outstanding
shares of the Combined Company
(such beneficial ownership, the “DiamiR Stockholders Beneficial Ownership”; such period, the
“Appointment Period”). The parties agree that, during the
Appointment Period, they will take all necessary actions to cause
the number of directors at the Board of the Combined Company to be fixed at five (5). In
addition, Kira S. Sheinerman, the co-founder
and a stockholder of DiamiR, and her affiliates (“DiamiR Primary Stockholder Parties”) will have the right to
appoint two
(2) designees (each designee, the “Primary Stockholder Designee”, collectively, the “Primary Stockholder Designees”)
for nomination and
election to the Board of Combined Company, and at least one (1) designee shall satisfy the independence requirements
of Rule 5605(c)(2)(A) of the Nasdaq
listing rules, provided that the DiamiR Stockholders Beneficial Ownership is not less than
36%, and the DiamiR Primary Stockholder Parties will have the
right to appoint one (1) director nominee to the Board of Combined
Company, provided that the DiamiR Stockholders Beneficial Ownership is no less than
25%.
For
the election of directors of the Combined Company: (1) each stockholder of DiamiR, who is a party to the Stockholders Agreement,
will agree
to vote all of its shares of the Combined Company in favor of each Primary Stockholder Designee; (2) with respect to
the election of nominees who are not
Primary Stockholder Designees, (a) until Aptorum’s 2027 annual stockholders meeting (the
“2027 Meeting”), each stockholder of DiamiR will agree to
vote all of its shares of the Combined Company in accordance with
the recommendations of the nominating and governance committee of the Board of the
Combined Company; and (b) beginning at the 2027
Meeting and at each annual meeting thereafter: (i) each stockholder of DiamiR, who is a party to the
Stockholders Agreement, may vote,
in its sole discretion, all of its shares of the Combined Company in favor of one additional nominee who is not an
Primary Stockholder
Designee; provided that if the number of directors constituting the Board of the Combined Company is increased above five (5), then
the
number of additional nominees (i) shall automatically increase by such number of additional directors (each such additional nominee
or nominees, as
applicable, an “Primary Stockholder Nominee”); and (ii) with respect to any uncontested election of
a nominee who is not a Primary Stockholder Designee
or a Primary Stockholder Nominee, each Stockholder shall vote its shares of the Combined
Company in the same manner as, and in the same proportion to,
all shares voted by stockholders of the Combined Company, excluding the
votes or actions of the stockholders of DiamiR with respect to its shares of the
Combined Company. For all other proposals or resolutions
to be voted on by the stockholders of the Combined Company, each stockholder of DiamiR,
who is a party to the Stockholders Agreement,
may vote all of its shares of the Combined Company in its sole discretion.
In
addition, DiamiR will appoint Alidad Mireskandari as a non-voting observer (the “Observer”) to the Board of Combined Company
upon
closing of the DiamiR Merger until the earliest of (i) two (2) years from the date thereof, (ii) the Observer’s
death, disability, retirement or resignation or
(iii) such time as may be determined by a majority of the directors of Combined
Company who are Primary Stockholder Designees.
Furthermore,
so long as the DiamiR Stockholder Beneficial Ownership is no less than 25%, the Combined Company should obtain prior written
approval
from the DiamiR Primary Stockholder Parties for certain significant corporate actions, including but not limited to (i) voluntary
dissolution,
winding up or bankruptcy of the Combined Company or any significant subsidiary of it; (ii) issuance of common stock
or securities convertible into the
shares of common stock representing more than 10% of the outstanding shares of the Combined Company
in a six-month period; (iii) any amendment to
the governing documents of the Combined Company that will adversely affect the Primary
Stockholder Designee, or the Combined Company’s ability to
fulfill its obligations under the Stockholders Agreement; (iv) any
acquisition, sale of assets, merger, amalgamation nor consolidation transactions; and (v)
replacement of the CEO or CFO of the Combined
Company.
73
If,
at any time that the DiamiR Stockholder Beneficial Ownership is less than 25%, the Primary Stockholder Parties shall no longer have any
right
to designate any nominee for election to the Board of the Combined Company, or have the right to veto on the significant corporate
actions as set forth in
the Stockholders Agreement.
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 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.
Aptorum now focuses all of its efforts on R&D; it no longer provides
any clinical services. As of December 31, 2025 and the date hereof, it only
operates in one segment.
Aptorum’s
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 its strategy for achieving this goal include:
●
Developing
therapeutic and diagnostic innovations across a wide range of disease/therapeutic areas;
●
Selectively
expanding Aptorum’s 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
Aptorum’s in-house pharmaceutical development center;
●
Leveraging
Aptorum’s management’s expertise, experience and commercial networks;
●
Obtaining
and leveraging government grants to fund project development.
74
Aptorum’s
Lead Projects are ALS-4 and SACT-1. 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. 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.
In
March 2023, Aptorum announced that it 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, it is proceeding towards the IND submission of ALS-4. In March 2023, Aptorum also
announced the
completion of the End of Phase 1 (EOP1) meeting of SACT-1 with the US FDA. The FDA generally agreed with the
chemistry-manufacturing-control
(CMC) strategy and Aptorum’s proposed clinical development plan for SACT-1 Phase 1/2 trials.
The timing and scope of advancing both ALS-4 Phase 2
clinical trials and SACT-1 Phase 1/2 trials will be contingent upon securing
appropriate collaborative partnerships and adequate funding resources. The
Company is actively seeking strategic collaborators who can
provide both financial support and clinical expertise to advance these therapeutic programs.
During
the second quarter of 2023, Aptorum decided to streamline its operations by terminating clinic services and suspending non-lead R&D
projects. This was done to optimize the allocation of Aptorum’s resources and focusing efforts on advancing Aptorum’s lead
projects, which hold the most
promise for commercial success and beneficial impact. This decision aligns with its commitment to enhance
shareholder value and effectively drive its core
objectives forward in the competitive landscape.
We
are subject to certain legal and operational risks associated with having our principal business operations and the majority of our employees
located in Hong Kong. Hong Kong was established as a special administrative region of the PRC in accordance with Article 31
of the Constitution of the
PRC. The Basic Law of the Hong Kong Special Administrative Region of the PRC (the “Basic Law”)
was adopted and promulgated on April 4, 1990 and
became effective on July 1, 1997, when the PRC resumed the exercise of sovereignty
over Hong Kong. Pursuant to the Basic Law, Hong Kong is
authorized by the National People’s Congress of the PRC to exercise
a high degree of autonomy and enjoy executive, legislative, and independent judicial
power, under the principle of “one country,
two systems,” and the PRC laws and regulations shall not be applied in Hong Kong except for those listed in
Annex III
of the Basic Law (which is confined to laws relating to national defense, foreign affairs, and other matters that are not within the
scope of
autonomy). However, there is no assurance that there will not be any changes in the economic, political, and legal environment
in Hong Kong. Due to the
uncertainty of the PRC legal system and changes in laws, regulations, or policies, the Basic Law may be
revised, and thus, we may face the same legal and
operational risks associated with operating in the PRC. If there is a significant
change to current political arrangements between mainland China and
Hong Kong, or if the applicable laws, regulations, or interpretations
change, the Hong Kong subsidiaries may become subject to PRC laws or authorities.
As a result, our operations in Hong Kong
could incur material costs to ensure compliance, be subject to fines, experience devaluation of securities or
delisting, no longer conduct
offerings to foreign investors, and no longer be permitted to continue their current business operations. See “Risk
Factors — Risks
Related to Doing Business in the Jurisdictions in which Our Operating Subsidiaries Operate — Our subsidiaries’
business, our financial
condition and results of operations, and/or the value of our Ordinary Shares or our ability to offer or continue
to offer securities to investors may be
materially and adversely affected by existing or future PRC laws and regulations which may become
applicable to our subsidiaries.”
75
On
February 17, 2023, the China Securities Regulatory Commission (the “CSRC”) promulgated the Trial Administrative Measures
of Overseas
Securities Offering and Listing by Domestic Companies (the “Trial Measures”) and five supporting guidelines,
which took effect on March 31, 2023. The
Trial Measures requires companies in mainland China that seek to offer and list securities
overseas, both directly and indirectly, to fulfill the filing
procedures with the CSRC. According to the Trial Measures, the determination
of the “indirect overseas offering and listing by companies in mainland
China” shall comply with the principle of “substance
over form” and particularly, an issuer will be required to go through the filing procedures under the
Trial Measures if the following
criteria are met at the same time: (i) 50% or more of the issuer’s operating revenue, total profits, total assets or net assets
as
documented in its audited consolidated financial statements for the most recent accounting year are accounted for by companies in
mainland China; and
(ii) the main parts of the issuer’s business activities are conducted in mainland China, or its main places
of business are located in mainland China, or the
senior managers in charge of its business operation and management are mostly Chinese
citizens or domiciled in mainland China. On the same day, the
CSRC held a press conference for the release of the Trial Measures
and issued the Notice on Administration for the Filing of Overseas Offering and Listing
by Domestic Companies, which clarifies that (i) on
or prior to the effective date of the Trial Measures, companies in mainland China that have already
submitted valid applications for
overseas offering and listing but have not obtained approval from overseas regulatory authorities or stock exchanges shall
complete the
filing before the completion of their overseas offering and listing; and (ii) companies in mainland China which, prior to the effective
date of
the Trial Measures, have already obtained the approval from overseas regulatory authorities or stock exchanges and are not required
to re-perform the
regulatory procedures with the relevant overseas regulatory authority or stock exchange, but have not completed the
indirect overseas listing, shall
complete the overseas offering and listing before September 30, 2023, and failure to complete the
overseas listing within such six-month period will subject
such companies to the filing requirements with the CSRC. Based on the
assessment conducted by the management, we are not subject to the Trial
Measures, because we are incorporated in the Cayman Islands and
our subsidiaries are incorporated in Hong Kong, the British Virgin Islands and other
regions outside of mainland China and operate
in Hong Kong without any subsidiary, and we do not have any business operations or maintain any office or
personnel in mainland
China. However, as the Trial Measures and the supporting guidelines are newly published, there exists uncertainty with respect to
the
implementation and interpretation of the principle of “substance over form”. As of the date of this prospectus, there was
no material change to these
regulations and policies since the Business Combination. If our future securities offerings, and our listing
on Nasdaq were later deemed as “indirect
overseas offering and listing by companies in mainland China” under the Trial Measures,
we may need to complete the filing procedures for our Business
Combination and future secondary offerings, and listing. If we are subject
to the filing requirements, we cannot assure you that we will be able to complete
such filings in a timely manner or even at all. See
“Risk Factors — Risks Related to Doing Business in the Jurisdictions in which Our Operating
Subsidiaries Operate
— If we and/or our subsidiaries were to be required to obtain any permission or approval from or complete any filing procedure
with
the China Securities Regulatory Commission (the “CSRC”), the CAC, or other PRC governmental authorities in connection
with the Business Combination
or future offerings under PRC laws, we and/or our subsidiaries may be fined or subject to other sanctions,
and our subsidiaries’ business and our
reputation, financial condition, and results of operations may be materially and adversely
affected.”
Additionally,
the PRC laws and regulations and the enforcement of such that apply or are to be applied to Hong Kong can change quickly with
little
or no advance notice. As a result, the Hong Kong legal system embodies uncertainties which could limit the availability of legal
protections, which
could result in a material change in our Hong Kong subsidiaries’ operations and/or the value of the securities
we are registering for sale. The Competition
Ordinance (Cap. 619 of the Laws of Hong Kong) prohibits and deters undertakings in
all sectors from adopting anti-competitive conduct which has the
object or effect of preventing, restricting, or distorting competition
in Hong Kong. It provides for general prohibitions in three major areas of anti-
competitive conduct described as the first conduct
rule, the second conduct rule, and the merger rule. As of the date of this prospectus, we and the
Hong Kong subsidiaries have complied
with all three areas of anti-competition laws and requirements in Hong Kong. The antimonopoly laws and
regulations in Hong Kong
do not restrict our ability to accept foreign investment or impose limitations on our ability to list on any U.S. stock exchange.
See
“Risk Factors — Risks Related to Doing Business in the Jurisdictions in which Our Operating Subsidiaries
Operate — If we and/or our subsidiaries were
to be required to comply with cybersecurity, data privacy, data protection, or
any other PRC laws and regulations related to data and we and/or our
subsidiaries cannot comply with such PRC laws and regulations, our
subsidiaries’ business, financial condition, and results of operations may be
materially and adversely affected.”
76
In
addition, our Ordinary Shares may be prohibited from trading on a national exchange or over-the-counter under the Holding Foreign Companies
Accountable Act (the “HFCA Act”) if the Public Company Accounting Oversight Board (United States) (the “PCAOB”)
is unable to inspect our auditors
for three consecutive years beginning in 2021. Our current independent accounting firm, Marcum
Asia CPAs LLP, whose audit report is included herein, is
headquartered in Manhattan, New York, with an address of 7 Penn Plaza,
Suite 830, New York, New York 10001, as an auditor of companies that are traded
publicly in the United States and a firm
registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular
inspections to assess
its compliance with the applicable professional standards, announced by the PCAOB on December 16, 2021. If trading in our
Ordinary
Shares is prohibited under the HFCA Act because the PCAOB determines that it cannot inspect or fully investigate our auditor at such
future
time, Nasdaq may determine to delist our Ordinary Shares and trading in our Ordinary Shares could be prohibited. On June 22,
2021, the U.S. Senate
passed the Accelerating Holding Foreign Companies Accountable Act, and on December 29, 2022, legislation
entitled “Consolidated Appropriations Act,
2023” (the “Consolidated Appropriations Act”) was signed into law
by President Biden, which contained, among other things, an identical provision to the
Accelerating Holding Foreign Companies Accountable
Act and amended the HFCA Act by requiring the SEC to prohibit an issuer’s securities from trading
on any U.S. stock exchanges
if its auditor is not subject to PCAOB inspections for two consecutive years instead of three, thus reducing the time period for
triggering the prohibition on trading. On August 26, 2022, the CSRC, the Ministry of Finance of the PRC (the “MOF”),
and the PCAOB signed a
Statement of Protocol (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 U.S. Securities and Exchange Commission (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 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 will consider the need to
issue a new determination. See “Risk
Factors — 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 Aptorum Class A ordinary shares. A trading prohibition for Aptorum 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.”
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 Aptorum. 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. As of
the date of this annual report, none of our subsidiaries have ever
faced difficulties or limitations on the ability to transfer cash to another subsidiary. We
have implemented cash management policies
for all of our subsidiaries, which require the relevant financial staff to verify that the relevant documents
issued by the requesting
staff with the approval of the competent supervisor are qualified, and then transfer the payment to the cashier upon competent
supervisor
of the relevant financial staff.
Any
voucher will be stamped after payment and the payee will sign the request for payment as receipt. In addition, all payments shall be
made by
remittance, crossed and stamped non-endorsed transfer cheques except for certain specified cash payables. When transferring any
inter-group funds, the
cash management procedures are the same as the cash management policies for external payment as set out above.
Our
group intends to retain all available funds and future earnings, if any, for the operation and expansion of our business and does not
anticipate
declaring or paying any dividends in the foreseeable future. We also intend to settle amounts owned under our operating structure
through bank loans and
loans from related parties. We currently do not have any dividend policy, and any future determination will be
made at the discretion of our board of
directors after considering our financial condition, results of operations, capital requirements,
business prospects and other factors the board of directors
deems relevant, and subject to the restrictions contained in any future financing
instruments. Save as disclosed, there were no other transfers, dividends or
distributions which have been made between our holding company,
our subsidiaries or to our investors. If we determine to pay dividends on any of our
ordinary shares in the future, as a holding company,
we will be dependent on receipt of funds from our operating subsidiaries in Hong Kong. If Libra or
subsidiaries incur debt on their own
behalf in the future, the instruments governing such debt may restrict their ability to pay dividends to us. To date, there
have not
been any such dividends or other distributions from Libra or subsidiaries to our subsidiaries located outside of China. In addition,
as of the date
hereof, neither Libra nor any of our subsidiaries nor investments have ever issued any dividends or distributions to us
or their respective shareholders
outside of China.
77
We
are permitted under the laws of Cayman Islands to provide funding to our subsidiaries through loans or capital contributions without
restrictions on the amount of the funds.
As
of the date of this annual report, neither our VIE nor any of our subsidiaries 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.
Lead
Projects
We
are 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 and SACT-1). 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.
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.
Although our subsidiary Acticule continues
to license the patent for ALS-4 with Versitech (the licensing entity of HKU), neither we nor our subsidiary
have any ongoing research
or collaboration work with such entities. Accordingly, Versitech is the only active license agreement we have at this time.
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 researchers or companies, but in this document,
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.
78
●
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.
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. Even if we conclude that the product
is safe, the applicable regulator, such as the FDA, may not
accept our data; final safety
and efficacy are determined by the FDA or an applicable foreign regulator as part of their
approval process for the
product.
There
is also a Phase 1/2 for SACT-1. Phase 1 focuses on safety, dosage, and pharmacokinetics in a small group (20–80 subjects), while
Phase 2
expands the research to assess preliminary efficacy and short-term risks in patients with neuroblastoma since SACT-1 is a repurposed
drug which
was invented to treat HIV/AIDS. A combined Phase 1/2 design accelerates development by transitioning from safety to efficacy
evaluation within
the same protocol. There is also Phase 2/3 trial, which combines elements of both Phase 2 and Phase 3 trials to streamline
the development
process. We do not currently expect to conduct a separate Phase 3 trial for ALS-4 following the completion of the Phase
2/3 trial. We expect to
secure collaborative partnerships and funding for ALS-4 Phase 2 trials and SACT-1 Phase 1/2 trials within the
next 12 months. We anticipate
submitting the INDs for ALS-4 by 2027 and commencing Phase 2 trials shortly thereafter, contingent on funding.
If additional funds are needed,
we will seek to raise them in the most effective way possible (See, risk factor, “Our auditor has
expressed substantial doubt about our ability to
continue as a going concern. We may be unable to obtain additional capital on favorable
terms.”)
79
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.
Note: Timeline is tentative only and will change
upon the actual progress. The projects will be considered partnership with pharma during the
clinical development.
We note that the timing for the commencement
and completion of Phase II/III trials for SACT-1 and ALS-4, as well as subsequent steps
toward commercialization, are subject to the
availability of resources. At present, we do not have sufficient resources to independently
complete these steps. As a result, our ability
to advance these product candidates relies on securing additional funding through partnerships
and raising capital in the financial markets
which we are currently actively doing.
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 of viruses, such as human immunodeficiency7 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.
80
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
asva
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).
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.
81
Figure
1
Figure
1: In vitro pigment inhibition by compound ALS-4: Inhibition of staphyloxathin (the golden pigment in S. Aureus) in the presence
of
increasing concentrations of ALS-4
Efficacy
of ALS-4 in a MRSA Wound Infection Mouse Model
A
study conducted by a third-party contract research organization, assessed ALS-4’s effect in the healing of open wounds infected
with MRSA in
a mouse model. The study utilized 5 mice per treatment group to evaluate therapeutic efficacy. 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)
During
the study period, body weight monitoring was conducted as a safety parameter. No significant adverse effects or safety concerns were
observed in the ALS-4 treatment group. This study was designed as a proof-of-concept efficacy evaluation, with comprehensive toxicology
assessments
subsequently completed during the IND-enabling studies phase.
82
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.
Body
weight monitoring and histopathological evaluation of major organs were conducted as preliminary safety indicators. According to the
histopathology evaluation conducted by the contract research organization, no significant differences in severity of lesions in lungs
were observed in ALS-4
and vancomycin groups compared to vehicle group (p > 0.05 by unpaired Student’s t-test). Similarly, there
was no statistical difference in severity of
lesions between test articles and non-infected groups or between test articles and vehicle
groups (p > 0.05 by unpaired Student’s t-test) in kidney
assessments. These studies were designed to establish proof-of-concept
and generate efficacy data, with comprehensive toxicology assessments
subsequently completed during the IND-enabling studies phase.
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).
83
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
84
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.
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. The timing and scope of advancing ALS-4 Phase 2
clinical trials will
be contingent upon securing appropriate collaborative partnerships and adequate funding resources. The Company is
actively seeking strategic
collaborators who can provide both financial support and clinical expertise to advance these Phase 2
clinical trials.
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 certain milestone payments: up to US$1 million upon achieving certain regulatory milestones,
including submission of investigational new
drug application, completion of phase 1, 2 and 3 clinical trials, submission of new drug
application and grant of regulatory approval, as well as up to
US$7.8 million upon achieving certain sales milestones, including
first commercial sale and annual net sales equal to or exceeding US$100 million in one
jurisdiction.
Pursuant
to the license agreements, Acticule became the exclusive licensee of 2 pending U.S. non-provisional patent applications and 2 PCT
applications (now expired). Prior to the expiration of the PCT applications, we filed national phase applications in member states of
the EPO, in PRC and
12 other jurisdictions. The claimed inventions are described as: “Compounds Affecting Pigment Production and
Methods for Treatment of Bacterial
Diseases.”
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
“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.
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).
85
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 approved, marketed drugs are usually well-established;
such safety of
the original drug and indication does not guarantee safety of the new indication. 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 may offer the following potential advantages:
●
Safety
profiles: According to an article published by Drug Discovery World
(https://www.ddw-online.com/the-benefits-of-drug-repositioning-
1779-201104/), the development risk for new indications may be
reduced by applying existing drugs that have been approved for specific
purposes or have been evaluated in large-scale late-stage
trials. However, it is important to note that the U.S. Food and Drug Administration
(FDA) or other relevant foreign regulators must
make new and separate safety and efficacy determinations for any new indications through
their formal approval processes. As such,
the safety and efficacy of a drug for new indications are not guaranteed, even if the drug has been
previously approved for other
uses or has demonstrated favorable safety results during prior clinical trials.
The
article further notes that safety concerns account for approximately 30% of drug failures in clinical trials. In this context, repositioned
drugs may offer a potential advantage over entirely new drugs, as they may have existing safety data from prior studies. However, the
FDA or
other regulatory authorities must still evaluate the safety and efficacy of these drugs for the new indication, and prior safety
data does not
guarantee approval for a new use.
●
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: According to an article published by Drug Discovery World
(https://www.ddw-online.com/the-benefits-of-drug-
repositioning-1779-201104/), pharmaceutical companies are exploring new models to
out-license some of their clinical drug candidates that
may have been shelved for business reasons unrelated to safety or efficacy,
even if these candidates have met their clinical trial endpoints and
demonstrated favorable results in clinical studies. However, it
is important to note that conclusions of safety and efficacy for any drug
candidate are solely within the purview of the U.S. Food
and Drug Administration (FDA) or other relevant regulatory authorities. Even if a
drug was previously approved for an original
indication, it must still undergo the FDA approval process to demonstrate safety and efficacy for
a new indication. Approval for one
indication does not guarantee approval for a new use or indication.
●
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)
While
drug repurposing presents potential advantages, several important limitations must be considered. There is no guarantee that existing
clinical data will be sufficient for regulatory approval of new indications, and the FDA or alternative foreign regulators may require
additional trials to
demonstrate safety and efficacy for new uses to the satisfaction of regulatory authorities. Even if we conclude
that new use is safe, the applicable regulator,
such as the FDA, may not accept our data; final safety and efficacy are determined by
the FDA or an applicable foreign regulator as part of their approval
process for the product. In such cases, development timelines may
be extended and costs may increase beyond initial projections, potentially diminishing
the anticipated advantages of the repositioning
approach. Additionally, there is currently a lack of systematic methodology for identifying optimal
repositioning opportunities. While
drug repurposing potentially offers certain advantages, it still involves substantial development and regulatory risks, and
the potential
benefits described above may not be realized in practice. Furthermore, the drug safety are within the sole purview of the FDA and that
any
such claims related to safety and/or efficacy do not guarantee the safety or efficacy of these drug candidates in connection with
a different indication.
86
SACT-1
is the first repurposed drug candidate to be developed under the Smart-ACT® drug discovery platform. SACT-1 is one of the Company’s
proprietary technologies. The approved drug, rilpivirine, which we refer to as the “Reference Drug,” was developed for the
treatment of HIV/AIDS (human
immunodeficiency virus/acquired immunodeficiency syndrome). It works by inhibiting HIV reverse transcriptase,
an enzyme that HIV uses to convert its
RNA into DNA, which is essential for the virus to replicate and integrate into the host cell’s
genome. By using the Smart-ACT® Drug discovery platform,
we repurposed the Reference Drug to treat 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 for high-risk patients
can
average
USD200,000
per
regimen
(all
6cycles)
(https://www.cadth.ca/sites/default/files/pcodr/Reviews2019/10154DinutuximabNeuroblastoma_fnEGR_NO
REDACT-
ABBREV_Post_26Mar2019_final.pdf). In addition, most pediatric patients often do not tolerate or survive the relevant chemotherapy
stage which, subject
to further clinical studies, may be positively addressed by the SACT-1 candidate due to the potential synergistic
effects when applied with standard
chemotherapy.
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
87
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)). 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 Drug and reference the established
safety and efficacy information. At 150mg/day, the death rate was 0% in prior clinical studies of
the Reference Drug. In addition, the
pharmacokinetic profile of the approved product (i.e., Reference Drug) has also been reported (Table 2). Aptorum
leverages SACT-1 safety
data from third-party rilpivirine HIV/AIDS trials conducted by Janssen Pharmaceutica NV (no affiliation with Aptorum);
Aptorum conducted
its own neuroblastoma-specific preclinical studies.
Table
1: Safety Profiles of the Reference Drug in Human Clinical Trials. Table 1 is the data retrieved from rilpivirine Phase IIb study
(NCT00110305)
sponsored by Tibotec. All the adverse events can be found in the publication doi: 10.1097/QAD.0b013e32833032ed published in 2010 in
AIDS.
Clinical
Adverse Events and Resolution
Rilpivirine
demonstrated a favorable safety profile across all doses (25 mg, 75 mg, and 150 mg), with most incidents being mild to moderate and
resolving
during the study:
Treatment-Related
Incidences: The most common grade 2 – 4 adverse events investigators determined to be at least possibly related to rilpivirine
included nausea (3.6%), dizziness (1.1%), and abnormal dreams/nightmares (0.7%).
Symptom
Resolution: The majority of neurological and psychiatric adverse events were grade 1 or 2 in severity and did not require treatment
discontinuation.
Skin
Tolerability: Rashes reported were primarily grade 1 or 2 and typically resolved with continued dosing, with a median resolution time
of 17
days.
Laboratory
Abnormalities and Recovery: While grade 3 or 4 laboratory abnormalities (such as elevated liver enzymes or decreased hemoglobin)
were
observed in 26.8% of subjects, these were consistent with the drug class and often recovered during the trial. Specifically, hemoglobin
levels returned
to baseline or even increased by week 96.
Serious
and Grade 4 Events: The incidence of serious adverse events (SAEs) was low (12.2%), and only one grade 4 clinical event (a suicide
attempt)
was reported as at least possibly related to the medication.
Non-Relatedness
of Study Deaths
To
further demonstrate the safety of rilpivirine, it is noted that while two deaths occurred during the 96-week study, both cases were definitively
determined by investigators to be unrelated to the study medication.
—
The first death resulted from pneumonia, septic shock, and cardiopulmonary arrest.
—
The second death was the result of a motor vehicle accident. Both fatalities occurred in the 75 mg dose group; notably, no deaths were
reported
in the 25 mg or 150 mg rilpivirine treatment groups.
88
Formulation
Differentiation
Table
2 details the pharmacokinetic profile of SACT-1, APM’s proprietary oral suspension formulation. It is important to distinguish
that while the
historical Phase IIb study utilized oral tablets, SACT-1 is an oral suspension specifically optimized for the pediatric
neuroblastoma population. APM is
utilizing these established safety results to support the merits of the 505(b)(2) submission, showing
that rilpivirine is a safe candidate for repurposing.
Table
2
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. We have developed a pediatric formulation (SACT-1) to better
address the
needs of neuroblastoma patients who are exclusively children younger than 5. In the Phase 1 study where SACT-1 was compared
to Reference drug in
healthy volunteers, no serious adverse events (SAEs) were reported. All reported adverse events were Grade 1 (“mild”)
with an outcome of “resolved”. No
subjects were discontinued from the study due to adverse events. The safety data of the
Reference Drug and the Phase 1 data of SACT-1 will be included in
the IND submission for the Phase 2 trials, when we are able
to submit same.
The
studies shown in the tables above represent publicly available safety data from third-party clinical trials conducted by Janssen Pharmaceutica
NV or Tibotec, which is under Janssen’s umbrella (marketed as Edurant®). Aptorum is solely responsible for all in vitro and
in vivo preclinical studies
supporting SACT-1’s repurposing for neuroblastoma, but considers Janssen’s established safety
profile for rilpivirine to support safe dose escalation for the
reformulated product. Aptorum has also conducted pharmacokinetic studies
of the SACT-1 reformulated suspension for pediatric patients in healthy
volunteers, as detailed in Table 2.
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.
89
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.
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.
Patent
License
In
January 2022, the US Patent and Trademark Office granted the first patent regarding Aptorum’s SACT-1 (through Aptorum’s
subsidiary)
repurposed drug for the treatment of various cancers including but not limited to neuroblastoma (US Patent 11,166,952 B2).
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.
3
https://www.ke.hku.hk/story/innovation/the-magic-of-chinese-yam-for-treatment-of-menopausal-syndrome;
see also, Scientific Reports, 5-10179.
4
https://www.everydayhealth.com/menopause/osteoporosis-and-menopause.aspx
90
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 hereof, we received CTA and IND approvals for ALS-4 and SACT-1 from Health Canada and US FDA to initiate human clinical
trial.
We have not submitted other applications for IND to the FDA or other regulatory agencies.
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.
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.
91
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 hereof, we have 2 full-time employees, one of whom is the Chief Executive Officer and the other who is engaged in general
and
administrative functions and who is located in Asia. We have also engaged and may continue to engage 5 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.
Thus far, the only patents or non-provisional patent applications that have been filed in the Company’s own name for the Lead Projects,
is for SACT-1;
patents and applications for ALS-4 are licensed. We have, however, filed a number of provisional applications to establish
earlier filing dates for certain of
our other ongoing research, the specifics of which are currently proprietary and confidential.
The
U.S. patent system permits the filing of provisional and non-provisional patent applications (i.e., a regular patent application).
A non-
provisional patent application is examined by the USPTO, and can mature into a patent once the USPTO determines that the claimed
invention meets the
standards for patentability. On the other hand, a provisional patent application is not examined for patentability,
and automatically expires 12 months after
its filing date. As a result, a provisional patent application cannot mature into a patent.
Provisional
applications are often used, among other things, to establish an earlier filing date for a subsequent non-provisional patent application.
The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained.
The
effective filing date of a non-provisional patent application is used by the USPTO to determine what information is prior art when it
considers
the patentability of a claimed invention. If certain requirements are satisfied, a non-provisional patent application can claim
the benefit of the filing date of
an earlier filed provisional patent application. As a result, the filing date accorded by the provisional
patent application may supersede information that
otherwise could preclude the patentability of an invention.
A
provisional patent application is not eligible to become an issued patent unless, among other things, we file a non-provisional patent
application
within 12 months of the filing date of the provisional patent application. If we do not timely file a non-provisional
patent application claiming priority to
said provisional application, we may lose our priority date with respect to our provisional patent
applications. Further, if any (self or by others) publication
of the invention is made after such priority date, and if we do not file
a non-provisional application claiming priority to said provisional application, our
invention may become unpatentable.
92
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 as of the date hereof related to our Lead Projects; SACT-1 is a proprietary technology
not
subject to any license agreement:.
Project
Company/Project
name
Ownership
Type
Licensor(s)
Licensee
Licensed/IP
Rights
Patent
Expiration
Dates
Acticule/ALS-4
Exclusive Patent License
Agreement, dated
October 18,
2017 First
Amendment to Exclusive
License Agreement, dated
June 7, 2018 Second
Amendment to Exclusive
License Agreement dated
July 10, 2019 Exclusive
Patent License Agreement
dated January 11, 2019
Versitech
Limited
Acticule Life
Sciences Limited
Exclusive licensee: 2 pending
U.S. applications
(16/867,540
and 17/006,985), 2 pending
applications in Canada
The licensed IP rights include
granted patents in the
U.S. and
pending patent applications in
the U.S., and Canada. 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.
SACT-1
Self-owned Patent
N/A
N/A
U.S. Patent No. 11,166,952 &
U.S. Patent No. 11,571,422
Both patents expire on
November 27, 2040.
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.
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.
93
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.
94
Trademarks
As
of the date hereof, 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 this 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.
Facilities
We
have an operating lease for laboratory in Hong Kong, with 2,021 square feet lab space under a lease that commenced in March 2020,
renewed
in March 2023 and expires in March 2026. The monthly rent ranges from $6,348 to $9,068. 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 contingent
rent and renewal or purchase options.
We
believe our current facilities are sufficient to meet our needs.
Legal
Proceedings
The
Company is party to a lawsuit initially filed on notice on September 3, 2024, by Karen Cheung (“Plaintiff”) in the Supreme
Court of the State
of New York, County of New York (“State Court Action”) (Index No. 654541/2024), which sought relief arising
from (i) violations of the federal Racketeer
Influenced and Corrupt Organizations Act (“RICO”), 18 § U.S.C. 1961(c),
(ii)conspiracy to violate RICO, 18 U.S.C. § 1961(d), (iii) fraud, (iii) breach of
fiduciary duty, (iv) negligent misrepresentation,
(v) unjust enrichment, (vi) civil conspiracy and (vii) violations of the federal Securities Act of 1933, 15 §
U.S.C. 77a et. seq.
On December 27, 2024, the Company filed a Notice of Removal in the U.S. District Court for the Southern District of New York (Case
No.1:24-cv-09969-VSB-OTW)
removing the State Court Action to federal court. On December 30, 2024, the Company filed a demand for service of the
complaint on the
Company. Plaintiff filed and served her Complaint on the Company on February 24, 2025, alleging claims for (i) violations of RICO 18
U.S.C. § 1962(c), (ii) conspiracy to violate RICO 18 U.S.C. § 1962(d), (iii) fraud; (iv) aiding and abetting breach of fiduciary
duty, (v) unjust enrichment,
and (vi) civil conspiracy. Following a motion, Plaintiff was granted leave to amend her Complaint and filed
a First Amended Complaint on June 2, 2025.
The parties entered into a briefing schedule on the Company’s anticipated motion to
dismiss (“Motion to Dismiss”), and the Company filed its opening
brief on the Motion to Dismiss on July 18, 2025. Plaintiff
filed her opposition to the Motion to Dismiss on September 5, 2025, and the Company’s reply in
support of the Motion to Dismiss
was due on October 6, 2025. The Company continues to believe that Plaintiff’s claims have no merit. As such, the
Company will continue
to vigorously defend against Plaintiff’s claims. At this time, it is too early to estimate the costs and expenses of defending
the
lawsuit, but we do not deem this to be material to our business and operations.
95
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
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.
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.
96
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.
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.
97
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.
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.
98
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.
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.
99
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.
●
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.
100
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.
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.
101
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.
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.
102
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.
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.
103
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
Although,
as noted elsewhere in this annual report that we do not currently have operations in the PRC, as also noted, the PRC government may
intervene
or influence our operations in Hong Kong at any time and with no advance notice. Therefore, we include below a brief summary of
material
regulations that may impact our business or operations, including if we seek IP approval in the PRC. As of the date hereof,
we do have an exclusive license
of certain PRC patents directed to certain drug candidates.
Permission
Required from the PRC Authorities
As
of the date hereof, 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. We do not
believe that the laws and regulations of mainland China have any material impact
on our business, financial condition or results of operations and we are
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, however that can change without
any advance notice to us, which could adversely impact our business and operations.
104
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 Aptorum 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 Aptorum 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 laboratory in Hong Kong are subject to certain general laws and regulations.
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 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.
105
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 an operating lease for laboratory in Hong Kong, with 2,021 square feet lab space under a lease that commenced in March 2020, renewed
in March 2023 and expires in March 2026. The monthly rent ranges from $6,348 to $9,068. 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 contingent rent and renewal
or purchase options.
We
believe our current facilities are sufficient to meet our needs.
Item
4A. UNRESOLVED STAFF COMMENTS
Not
applicable.
Item
5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The
following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our
consolidated
financial statements and their related notes included in this annual report.
For
purposes of Item 5, reference to the “We”, “Our”, “Ours” or “Group” means Aptorum Group
Limited and all of its subsidiaries.
This
annual report includes consolidated financial statements for the years ended December 31, 2025, 2024, and 2023. 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, 2023,
and 2022 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, 2023, filed with the SEC on April 30, 2024.
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.
106
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.
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.
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:
●
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.
107
We
have devoted a substantial portion of the proceeds from our offerings to our Lead Projects. Our Lead Projects are ALS-4 and SACT-1.
During
the second quarter of 2023, the Company made a decision to streamline its operations by terminating clinic services and suspending non-
lead
R&D projects. The Company also ceased exploring potential synergies with Accelerate Technologies Pte Ltd., with whom it was working
on the
previously disclosed PathsDx Test. There is currently no material agreement or ongoing research associated with the PathsDx Test.
The Company did not
incur any research and development expenses for this program for the year ended December 31, 2025 and it is not material
to the Company’s business
operations. These measures are aimed at optimizing the allocation of its resources and focusing its efforts
on advancing lead projects, which hold the most
promise for commercial success and beneficial impact. This decision aligns with the Company’s
commitment to enhance shareholder value and effectively
drive its core objectives forward in the competitive landscape.
On
March 1, 2024, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among Company,
and YOOV
Group Holding Limited, a BVI business company organized under the laws of British Virgin Islands (“YOOV”) to effect
a merger among the parties (the
“Merger”); the Company decided to pause the majority of its R&D activities to focus on
the merger to ensure optimal allocation of resources and maximize
shareholder value. On October 25, 2024, the Company and Yoov mutually
agreed to terminate the Merger Agreement, and therefore the potential merger
was abandoned. The Company will continue to explore other
reverse takeover or business combination opportunities that are expected to be accretive to
shareholder value.
The
Company is party to a lawsuit initially filed on notice on September 3, 2024, by Karen Cheung (“Plaintiff”) in the Supreme
Court of the State
of New York, County of New York (“State Court Action”) (Index No. 654541/2024), which sought relief arising
from (i) violations of the federal Racketeer
Influenced and Corrupt Organizations Act (“RICO”), 18 § U.S.C. 1961(c),
(ii)conspiracy to violate RICO, 18 U.S.C. § 1961(d), (iii) fraud, (iii) breach of
fiduciary duty, (iv) negligent misrepresentation,
(v) unjust enrichment, (vi) civil conspiracy and (vii) violations of the federal Securities Act of 1933, 15 §
U.S.C. 77a et. seq.
On December 27, 2024, the Company filed a Notice of Removal in the U.S. District Court for the Southern District of New York (Case
No.1:24-cv-09969-VSB-OTW)
removing the State Court Action to federal court. On December 30, 2024, the Company filed a demand for service of the
complaint on the
Company. Plaintiff filed and served her Complaint on the Company on February 24, 2025, alleging claims for (i) violations of RICO 18
U.S.C. § 1962(c), (ii) conspiracy to violate RICO 18 U.S.C. § 1962(d), (iii) fraud; (iv) aiding and abetting breach of fiduciary
duty, (v) unjust enrichment,
and (vi) civil conspiracy. Following a motion, Plaintiff was granted leave to amend her Complaint and filed
a First Amended Complaint on June 2, 2025.
The parties entered into a briefing schedule on the Company’s anticipated motion to
dismiss (“Motion to Dismiss”), and the Company filed its opening
brief on the Motion to Dismiss on July 18, 2025. Plaintiff
filed her opposition to the Motion to Dismiss on September 5, 2025, and the Company’s reply in
support of the Motion to Dismiss
was due on October 6, 2025. The Company continues to believe that Plaintiff’s claims have no merit. As such, the
Company will continue
to vigorously defend against Plaintiff’s claims. At this time, it is too early to estimate the costs and expenses of defending
the
lawsuit.
Registered
Direct Offerings
On
October 10, 2025, the Company entered into certain securities purchase agreement (the “October Purchase Agreement”) with
certain non-
affiliated institutional investors (the “October Purchasers”) pursuant to which the Company agreed to sell (1)
1,000,000 Class A ordinary shares, and (2) in
a concurrent private placement, restricted warrants to purchase an aggregate of up to 2,000,000
Ordinary Shares (the “Restricted Warrants”), for aggregate
gross proceeds of approximately $2 million (the “October
2025 Offering”). The October 2025 Offering closed on October 14, 2025.
Each
Restricted Warrant is exercisable immediately as of the date of issuance at an exercise price of $2.00 per Class A Ordinary Share and
expires
twenty-four months from the effective date of a registration statement registering for resale the Class A Ordinary Shares underlying
the Restricted
Warrants. The Restricted Warrants and the Class A Ordinary Shares issuable upon the exercise of the warrants are not being
registered under the Securities
Act and were offered pursuant to an exemption from the registration requirements of the Securities Act
provided in Section 4(a)(2) of the Securities Act
and/or Rule 506(b) of Regulation D.
108
The
Company agreed in the October Purchase Agreement that it would not issue any Class A ordinary shares, or Ordinary Share Equivalents for
thirty (30) calendar days following the closing of the October 2025 Offering, subject to certain exceptions.
Concurrently
with the execution of the October Purchase Agreement, the officers and directors of the Company entered into lock-up agreements
(the
“October Lock-Up Agreement”) pursuant to which they have agreed, among other things, not to sell or dispose of any Class
A ordinary shares which
are or will be beneficially owned by them for thirty (30) days following the closing of the October 2025 Offering.
H.C.
Wainwright & Co., LLC, acted as the exclusive placement agent (the “Placement Agent”), in connection with the October
2025 Offering.
The Company agreed to pay the Placement Agent an aggregate fee equal to 7.0% of the gross proceeds raised in the October
2025 Offering. The Company
will also pay the Placement Agent a management fee equal to 1.0% of the gross proceeds raised in the October
2025 Offering, $5,000 for non-accountable
expenses, up to $50,000 for expenses of legal counsel and other out-of-pocket expenses and
$10,000 for clearing fees all associated with the October 2025
Offering. The Company also issued the Placement Agent’s designees
warrants (the “Placement Agent Warrants”) to purchase up to 60,000 Class A
Ordinary Shares, at an exercise price equal to
$2.50 per share. The Placement Agent Warrants are exercisable immediately upon issuance on October 10,
2025 and expire on the earlier
of 24 months from the effective date of a registration statement or October 10, 2030. After deducting fees due to the
Placement Agent
and our estimated offering expenses, the net proceeds from the October 2025 Offering were US$1.716 million.
On
January 2, 2025, the Company entered into a certain securities purchase agreement (the “Securities Purchase Agreement”)
with certain non-
affiliated institutional investors pursuant to which the Company sold 1,535,000 Class A ordinary shares of the
Company at a per share price of $2.00 in a
registered direct offering, for gross proceeds of $3,070,000.
Private
Placement Offerings
Sales
of convertible notes
On
September 11, 2023, the Company entered into a Securities Purchase Agreement with Jurchen Investment Corporation, the largest shareholder
of the Company, pursuant to which the Company sold a secured convertible note in the aggregate principal amount of $3,000,000 (the “Sep
2023 Notes”).
The Sep 2023 Notes are convertible into the Company’s Class A ordinary shares and have a maturity date
that is 24 months from the issuance date,
although upon such date the investor has the right to extend the term of the Sep 2023
Note for twelve (12) months or more or such term subject to mutual
consent. The Sep 2023 Notes have an interest rate of 6% per annum
and a conversion price of $2.42 per share. The Company has the right to repay the
principal amount of the Sep 2023 Notes, but in the
case of such prepayment it must be paid in cash, unless otherwise agreed by both parties. The Sep 2023
Note is secured by a first priority
lien and security interest on certain shares that the Company owns (“Collateral”). Upon the Company’s disposal of all
or a
portion of the Collateral, the investor has the right, to request that the Company prepay the then-remaining outstanding balance
of the Sep 2023 Note, in
part or in full and the Company can make that payment in cash or in shares. The principal outstanding amount
as of the date hereof is $3,000,000. On
September 11, 2025, the parties agreed to extend the term of the Sep 2023 Note for an additional
12 months; the parties also agreed to amend the terms of
the Sep 2023 Note such that Jurchen, at is sole discretion, shall be permitted
to convert the Sep 2023 Note upon three days written notice.
Merger
with DiamiR Biosciences Corp.
On
July 14, 2025, the Company and DiamiR Biosciences Corp., a Delaware corporation (“DiamiR”), entered into an Agreement and
Plan of
Merger on July 14, 2025, (the “Merger Agreement”), pursuant to which, among other matters, Aptorum will form a direct,
wholly owned subsidiary in the
state of Delaware (“Merger Sub”), which will merge with and into DiamiR, with DiamiR surviving
as a wholly owned subsidiary of Aptorum, and the
surviving corporation of the merger with the Merger Sub (the “Merger”).
Aptorum following the Merger is referred to herein as the “Combined Company.”
109
Concurrently with the execution of the Merger Agreement, DiamiR and
Aptorum Therapeutics Limited, a wholly owned subsidiary of the
Company (“Aptorum Therapeutics”), entered into a management
services agreement, pursuant to which, Aptorum Therapeutics shall pay a monthly service
fee and reimburse expenses to DiamiR in exchange
for the officers and employees of DiamiR providing services to Aptorum Therapeutics to develop a
diagnostic test for early detection and
monitoring of progression of glioblastoma until the earlier of the closing of the Merger or December 31, 2025. In
addition, concurrently
with the execution of the Merger Agreement, DiamiR, DiamiR LLC, a wholly owned subsidiary of DiamiR, the Company and
Aptorum Therapeutics
entered into an intellectual property license agreement (“Licensing Agreement”), pursuant to which DiamiR and DiamiR LLC shall
license on a non-exclusive basis their respective intellectual properties to Aptorum Therapeutics in exchange for upfront and periodic
payments and
royalties until the earlier of the closing of the Merger or December 31, 2025. As the parties continue to work towards satisfying
the closing conditions for
the Merger, they agreed to extend the December 31, 2025 termination date of the Merger Agreement and other
related agreements to March 31, 2026, and
then again until June 30, 2026. The parties signed amendments to the Management Services Agreement
reflecting the extended term (the “Amendment”);
the first Amendment also increased the monthly Management Service Fee to $105,000
per month. Ian Huen, Aptorum’s Chairman and Chief Executive
Officer, who beneficially owns approximately 87% of the Company’s
total voting power, signed a voting and support agreement simultaneously with the
execution of the Merger Agreement, pursuant to which
he agreed to vote in favor of the transactions contemplated in the Merger Agreement. Upon closing,
Aptorum and certain stockholders of
DiamiR, who collectively own 84.9% of DiamiR’s outstanding shares, will sign a stockholders agreement
(“Stockholders Agreement”),
which will be effective so long as the stockholders of DiamiR beneficially own, in the aggregate, a number of shares of
common stock of
the Combined Company equal to at least 25% of the then outstanding shares of the Combined Company (such beneficial ownership, the
“DiamiR
Stockholders Beneficial Ownership”; such period, the “Appointment Period”). The parties agree that, during the Appointment
Period, they will
take all necessary actions to cause the number of directors at the Board of the Combined Company to be fixed at five
(5). In addition, Kira S. Sheinerman,
the co-founder and a stockholder of DiamiR, and her affiliates (“DiamiR Primary Stockholder
Parties”) will have the right to appoint two (2) designees
(each designee, the “Primary Stockholder Designee”, collectively,
the “Primary Stockholder Designees”) for nomination and election to the Board of
Combined Company, and at least one (1) designee
shall satisfy the independence requirements of Rule 5605(c)(2)(A) of the Nasdaq listing rules, provided
that the DiamiR Stockholders Beneficial
Ownership is not less than 36%, and the DiamiR Primary Stockholder Parties will have the right to appoint one (1)
director nominee to
the Board of Combined Company, provided that the DiamiR Stockholders Beneficial Ownership is no less than 25%. For the election
of directors
of the Combined Company: (1) each stockholder of DiamiR, who is a party to the Stockholders Agreement, will agree to vote all of its shares
of the Combined Company in favor of each Primary Stockholder Designee; (2) with respect to the election of nominees who are not Primary
Stockholder
Designees, (a) until Aptorum’s 2027 annual stockholders meeting (the “2027 Meeting”), each stockholder of
DiamiR will agree to vote all of its shares of
the Combined Company in accordance with the recommendations of the nominating and governance
committee of the Board of the Combined Company;
and (b) beginning at the 2027 Meeting and at each annual meeting thereafter: (i) each
stockholder of DiamiR, who is a party to the Stockholders
Agreement, may vote, in its sole discretion, all of its shares of the Combined
Company in favor of one additional nominee who is not an Primary
Stockholder Designee; provided that if the number of directors constituting
the Board of the Combined Company is increased above five (5), then the
number of additional nominees (i) shall automatically increase
by such number of additional directors (each such additional nominee or nominees, as
applicable, an “Primary Stockholder Nominee”);
and (ii) with respect to any uncontested election of a nominee who is not a Primary Stockholder Designee
or a Primary Stockholder Nominee,
each Stockholder shall vote its shares of the Combined Company in the same manner as, and in the same proportion to,
all shares voted
by stockholders of the Combined Company, excluding the votes or actions of the stockholders of DiamiR with respect to its shares of the
Combined Company. For all other proposals or resolutions to be voted on by the stockholders of the Combined Company, each stockholder
of DiamiR,
who is a party to the Stockholders Agreement, may vote all of its shares of the Combined Company in its sole discretion. In
addition, DiamiR will appoint
Alidad Mireskandari as a non-voting observer (the “Observer”) to the Board of Combined Company
upon closing of the DiamiR Merger until the earliest
of (i) two (2) years from the date thereof, (ii) the Observer’s death, disability,
retirement or resignation or (iii) such time as may be determined by a
majority of the directors of Combined Company who are Primary Stockholder
Designees. Furthermore, so long as the DiamiR Stockholder Beneficial
Ownership is no less than 25%, the Combined Company should obtain
prior written approval from the DiamiR Primary Stockholder Parties for certain
significant corporate actions, including but not limited
to (i) voluntary dissolution, winding up or bankruptcy of the Combined Company or any significant
subsidiary of it; (ii) issuance of common
stock or securities convertible into the shares of common stock representing more than 10% of the outstanding
shares of the Combined Company
in a six-month period; (iii) any amendment to the governing documents of the Combined Company that will adversely
affect the Primary Stockholder
Designee, or the Combined Company’s ability to fulfill its obligations under the Stockholders Agreement; (iv) any
acquisition, sale
of assets, merger, amalgamation nor consolidation transactions; and (v) replacement of the Chief Executive Officer or Chief Financial
Officer of the Combined Company.
110
If,
at any time that the DiamiR Stockholder Beneficial Ownership is less than 25%, the Primary Stockholder Parties shall no longer have any
right
to designate any nominee for election to the Board of the Combined Company, or have the right to veto on the significant corporate
actions as set forth in
the Stockholders Agreement.
Immediately
prior to the closing of the Merger, Aptorum will transfer by way of continuation to and domesticate as a Delaware corporation (the
“Domestication”;
the Company immediately following the Domestication and prior to the closing of Merger, “Aptorum Delaware”). In connection
with the
Domestication, each then issued and outstanding Class A ordinary share of Aptorum will convert automatically, on a one-for-one
basis, into a share of
common stock of Aptorum Delaware, and each then issued and outstanding Class B ordinary share of Aptorum will
convert automatically into a share of
common stock of Aptorum Delaware and a share of non-voting and non-convertible Series A preferred
stock of Aptorum Delaware.
At the effective time of the Merger (the “Effective Time”),
each then-outstanding share of DiamiR’s common stock, other than dissenting shares,
will be converted into a number of shares of
Aptorum Delaware common stock equal to the Conversion Ratio described in more detail in the section titled
“The Merger Agreement-Conversion
Ratio” (the “Conversion Ratio”). Immediately following the closing of the Merger, stockholders of DiamiR and
existing
Aptorum shareholders will own approximately 70% and 30%, respectively, of the outstanding shares of the Combined Company (such percentages
to be adjusted ratably if either party issues additional securities prior to the closing).
The
Merger Agreement contains customary representations and warranties of the parties thereto, as well as certain covenants governing the
conduct of each parties respective business between the date of the Merger Agreement and the Closing or the earlier termination of the
Merger Agreement.
The Merger Agreement also includes customary closing conditions, including shareholder approval of certain matters
related to the Merger and Aptorum
maintaining a certain amount of cash balance and working capital.
The
Merger Agreement contains customary representations and warranties and agreements and obligations, conditions to closing and termination
provisions. The foregoing descriptions of terms and conditions of the Merger Agreement, Management Services Agreement, Intellectual Property
License
Agreement, voting and Support Agreement and Stockholders Agreement do not purport to be complete and are qualified in their entirety
by the full text of
the form of the such documents which are attached hereto as exhibits.
About
DiamiR
DiamiR
was incorporated in Delaware on June 16, 2014, and primarily operates through its wholly owned subsidiary, DiamiR, LLC, which was
incorporated
as a limited liability company in Delaware on September 17, 2009. DiamiR is a molecular diagnostics company focused on developing and
commercializing minimally invasive tests for early detection and monitoring of neurodegenerative diseases, such as mild cognitive impairment
and
Alzheimer’s disease, rare neurodevelopmental diseases, such as Rett syndrome, other brain health disorders, and cancer. The
proprietary platform
technology developed at DiamiR and protected by over 50 issued patents is based on quantitative analysis of organ-enriched
microRNAs detectable in
blood plasma. In addition to blood-based microRNA panels, as part of its biopharma services DiamiR’s CLIA/CAP-certified
laboratory offers protein and
genetic biomarker analyses for screening, patient stratification, disease and treatment monitoring.
111
Factors
Affecting our Results of Operations
Research
and Development Expenses
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. As a result of this commitment, our pipeline of drug candidates has been steadily
advancing.
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 may significantly increase in future
periods in line with the
advancement and expansion of the development of our drug candidates.
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.
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 $0.6 million, $2.2 million and $5.2 million for the year ended December 31,
2025, 2024 and
2023, respectively, representing approximately 3.8%, 55.7% and 46.6% of our total operating expenses for the respective
period.
112
RESULTS
OF OPERATIONS
Results
of Operations for the Years ended December 31, 2025, and 2024
During
the second quarter of 2023, the Company made a decision to streamline its operations by terminating clinic services and suspending non-
lead
R&D projects. This measure is aimed at optimizing the allocation of our resources and focusing our efforts on advancing our lead
projects, which hold
the most promise for commercial success and beneficial impact. This decision aligns with our commitment to enhance
shareholder value and effectively
drive our core objectives forward in the competitive landscape.
The
following table summarizes our results of operations for the years ended December 31, 2025, and 2024.
Year Ended
December 31,
2025
Year Ended
December 31,
2024
Operating expenses
Research and development expenses
(352,879)
(2,195,161)
General and administrative fees
(573,059)
(669,486)
Legal and professional fees
(1,062,346)
(803,285)
Other operating income
(expenses)
170,756
(272,609)
Total expenses
(1,817,528)
(3,940,541)
Other income (expense),
net
Issuance cost in relation to warrant
(153,189)
-
Change in fair value of warrant liability
(690,000)
-
Impairment loss of long-term investment
-
(1,000,000)
Interest expense, net
(95,713)
(146,924)
Gain on disposal of subsidiaries
-
703
Government subsidies
-
928,461
Sundry income
-
564
Total other income (expense),
net
441,098
(217,196)
Net
loss
(1,376,430)
(4,157,737)
113
Revenue
and cost
There
was no revenue and cost for both year due to reallocate resources towards the development of the Company’s leading projects.
Research
and development expenses
Research
and development expenses comprised of costs incurred related to research and development activities, including payroll expenses to our
research and development staff, service fees to our consultants, advisory and contracted research organization, depreciation of laboratory
equipment and
amortization of licensed patents, sponsored research programs with various universities and research institutions and costs
in acquiring IP rights which did
not meet the criteria of capitalization under the U.S. GAAP. The following table sets forth
a summary of our research and development expenses for the
year ended December 31, 2025 and 2024. During the year ended December 31,
2025, we determined it was best to focus all of our attention and resources
on completing the Merger and therefore paused the majority
of our R&D activities during that time, and we determined that searching for other business
combination opportunities could maximize
shareholder value, and our R&D activities remain suspended.
Year Ended
December 31,
2025
Year Ended
December 31,
2024
Research and Development Expenses:
Contracted research
organizations services
$
- $
166,972
Sponsored research
-
39,972
Amortization and depreciation
-
251,567
Consultation
-
44,872
Loss on impairments of an
intangible asset
-
128,128
Impairment of properties,
plant and equipment
-
1,421,782
Other
R&D expenses
352,879
141,868
Total Research and Development
Expenses
$
352,879 $
2,165,161
General
and administrative fees
The
following table sets forth a summary of our general and administrative expenses for the years ended December 31, 2025, and 2024. The
decrease in general and administrative fees was primarily attributable to the streamlining of our operations to focus on preparation
for the Merger, leading
to the decrease in the payroll expense.
Year Ended
December 31,
2025
Year Ended
December 31,
2024
General and Administrative Fees:
Payroll expenses
$
8,161 $
208,348
Rent and rates
126,336
97,253
Travelling expenses
1,365
205
Amortization and depreciation
-
3,480
Insurance
215,128
335,616
Write-off of prepayment
and other receivables
-
9,782
Other
expenses
222,069
14,802
Total General and Administrative
Fees
$
573,059 $
669,486
114
Legal
and professional fees
For
the years ended December 31, 2025, and 2024, the legal and professional fees were $1,062,346 and $803,285, respectively. The increase
in
legal and professional fees was primarily attributed to the non-routine activities such as potential merger activity that were present
in the same period last
year. Such non-routine exercises in the current year have resulted in an increase in legal and professional fees.
Other
operating income (expenses)
For
the year ended December 31, 2025 other operating income of $170,756 mainly represent the exchange gain arising on change in foreign
exchange
rate.
Other
(expense) income, net
The
following table sets forth a summary of other (expenses) income for the year ended December 31, 2025 and 2024.
Year Ended
December 31,
2025
Year Ended
December 31,
2024
Other income (expense),
net
Issuance cost in relation to warrant
(153,189)
-
Change in fair value of warrant liability
690,000
-
Impairment loss of long-term investment
-
(1,000,000)
Interest expense, net
(95,713)
(146,924)
Gain on disposal of subsidiaries
-
703
Government subsidies
-
928,461
Sundry income
-
564
Total other income (expense),
net
441,098
(217,196)
Net
loss attributable to Aptorum Group Limited
For
the years ended December 31, 2025, and 2024, net loss attributable to Aptorum Group Limited (excluding net loss attributable to non-
controlling
interests) was $1,363,270 and $4,267,806, respectively.
115
Results
of Operations for the Years ended December 31, 2024, and 2023
The
following table summarizes our results of operations for the years ended December 31, 2024, and 2023.
Year Ended
December 31,
2024
Year Ended
December 31,
2023
Revenue
Healthcare services income
$
- $
431,378
Operating expenses
Cost of healthcare services
-
(420,812)
Research and development expenses
(2,195,161)
(5,198,329)
General and administrative fees
(669,486)
(1,930,637)
Legal and professional fees
(803,285)
(2,538,161)
Other operating expenses
(272,609)
(1,067,690)
Total expenses
(3,940,541)
(11,155,629)
Other (expense) income,
net
Loss on investments in marketable securities,
net
-
(9,266)
Unrealized gain from fair value change of the
long-term investments, net
-
6,431,088
Impairment loss of long-term investment
(1,000,000)
(77,200)
Interest expense, net
(146,924)
(121,145)
Gain on disposal of subsidiaries
703
-
Government subsidies
928,461
123,015
Sundry income
564
36,784
Total other (expense)
income, net
(217,196)
6,383,276
Net
loss
(4,157,737)
(4,340,975)
Revenue
Healthcare
services income was $nil and $431,378 for the years ended December 31, 2024, and 2023, which related to the service income derived
from
clinic. The decline in healthcare services income was attributed to the strategic decision to suspend clinic services in the second quarter
of 2023. This
was done to reallocate resources towards the development of the Company’s leading projects.
Cost
of healthcare services
Cost
of healthcare services was $nil and $420,812 for the years ended December 31, 2024, and 2023, which related to the cost incurred by clinic.
The decline in cost of healthcare services was attributed to the strategic decision to suspend clinic services in the second quarter
of 2023.
Research
and development expenses
The
following table sets forth a summary of our research and development expenses for the years ended December 31, 2024, and 2023. Before
the
Merger Agreement was terminated, we determined it was best to focus all of our attention and resources on completing the Merger and
therefore paused the
majority of our R&D activities during that time; following the termination of the Merger Agreement in the fourth
quarter of fiscal 2024, we determined that
searching for other business combination opportunities could maximize shareholder value, and
R&D focused on non-lead products remain suspended.
Year Ended
December 31,
2024
Year Ended
December 31,
2023
Research and Development Expenses:
Contracted
research organizations services
$
166,972 $
1,387,534
Sponsored research
39,972
17,149
Amortization and depreciation
251,567
1,071,455
Consultation
44,872
1,207,188
Loss on impairments
of an intangible asset
128,128
519,497
Impairment of properties,
plant and equipment
1,421,782
-
Payroll expenses
-
363,139
Other
R&D expenses
141,868
632,367
Total Research and Development
Expenses
$
2,195,161 $
5,198,329
116
General
and administrative fees
The
following table sets forth a summary of our general and administrative expenses for the years ended December 31, 2024, and 2023. The
decrease in general and administrative fees was primarily attributable to the streamlining of our operations to focus on preparation
for the Merger, which
has since been abandoned.
Year Ended
December 31,
2024
Year Ended
December 31,
2023
General and Administrative Fees:
Payroll
expenses
$
208,348 $
893,437
Rent and rates
97,253
213,701
Travelling expenses
205
59,874
Amortization and depreciation
3,480
53,799
Insurance
335,616
474,746
Advertising and marketing
expenses
-
48,982
Write-off of prepayment
and other receivables
9,782
-
Other
expenses
14,802
186,098
Total General and Administrative
Fees
$
669,486 $
1,930,637
Legal
and professional fees
For
the years ended December 31, 2024, and 2023, the legal and professional fees were $803,285 and $2,538,161, respectively. The decrease
in
legal and professional fees was primarily attributed to the lack of non-routine activities that were present in the same period last
year, such as the
implementation of reverse stock split, and amendments to the memorandum and articles of association. The absence of
such non-routine exercises in the
current period has resulted in a decrease in legal and professional fees.
Other
operating expenses
For
the years ended December 31, 2024, and 2023, the other operating expenses was $272,609 and $1,067,690, respectively. The decrease in
other
operating expenses was primarily due to the decrease in impairment loss of long-lived assets since the majority of long-lived assets
were impaired in prior
year and no such large impairment in current year.
Other
(expense) income, net
For
the years ended December 31, 2024, and 2023, the other expense, net, was $217,196 and other income, net, was $6,383,276, respectively.
The
changes from other income in 2023 to other expense in 2024 was mainly due to there was a one-off unrealized gain from fair value
change of the long-term
investments, amounted to $6.4 million in prior year, which there are no such gain in current year.
Net
loss attributable to Aptorum Group Limited
For
the years ended December 31, 2024, and 2023, net loss attributable to Aptorum Group Limited (excluding net loss attributable to non-
controlling
interests) was $4,267,806 and $2,824,647, respectively.
117
B.
Liquidity and capital resources
The
Group reported a net loss of $1,376,430 and net operating cash outflow of $1,836,546 for the year ended December 31, 2025 and had negative
working capital of $1,001,299 as of December 31, 2025. In addition, the Group had an accumulated deficit of $73,792,798 as of December
31, 2025. 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. Successful transition to attaining
profitable operations is dependent upon achieving a level of revenues
adequate to support the Company’s cost structure. In connection
with the Company’s assessment of going concern considerations in accordance with
Financial Accounting Standard Board’s Accounting
Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to
Continue as a Going
Concern,” management has determined that these conditions raise substantial doubt about the Company’s ability to continue
as a
going concern within one year after the date that these consolidated financial statements are issued.
If
the Group is unable to generate sufficient funds to finance the working capital requirements of the Group within the normal operating
cycle of a
twelve-month period from the date of these consolidated financial statements are issued, the Group may have to consider supplementing
its available
sources of funds through the following sources:
●
other available sources
of financing from banks and other financial institutions or private lender; and
●
equity financing.
The
Company can make no assurances that required financings will be available for the amounts needed, or on terms commercially acceptable
to
the Company, if at all. If one or all of these events does not occur or subsequent capital raises are insufficient to bridge financial
and liquidity shortfall,
there would likely be a material adverse effect on the Company and would materially adversely affect its ability
to continue as a going concern.
The
accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Accordingly, the consolidated financial statements have been prepared on a basis that assumes the Group will continue as a going concern
and which
contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
Condensed
Summary of Cash Flows for the Years Ended December 31, 2025, and 2024
Year Ended
December 31,
2025
Year Ended
December 31,
2024
Net cash used in operating activities
$
(1,836,546) $
(1,189,734)
Net cash provided by investing activities
-
58,621
Net cash provided by
financing activities
4,415,199
-
Net Increase (decrease)
in cash and cash equivalents
(2,578,653)
(1,131,113)
Operating
activities
Net
cash used in operating activities amounted to $1.8 million and $1.2 million for the years ended December 31, 2025, and 2024. The net
cash
used in operating activities increase due to the decrease in government grant received due to pausing for majority of the R&D
activities.
Investing
activities
Net
cash used in investing activities amounted to nil and $0.1 million for the years ended December 31, 2025, and 2024. The decrease in net
cash
provided by investing activities was due to the decrease in proceed from disposal of fixed assets.
Financing
activities
Net
cash provided by financing activities amounted to $4.4 and $nil for the year ended December 31, 2025, and 2024. The increase in net cash
inflow from financing activities is attributed to the placing of shares during the year.
118
Condensed
Summary of Cash Flows for the Years Ended December 31, 2024, and 2023
Year Ended
December 31,
2024
Year Ended
December 31,
2023
Net cash used in operating activities
$
(1,189,734) $
(7,724,364)
Net cash provided by investing activities
58,621
624,767
Net cash provided by
financing activities
-
4,092,068
Net decrease in cash and
cash equivalents
(1,131,113)
(3,007,529)
Operating
activities
Net
cash used in operating activities amounted to $1.2 million and $7.7 million for the years ended December 31, 2024, and 2023. The net
cash
used in operating activities declined due to the implementation of stringent budgetary control measures, as a result of the Company’s
exclusive emphasis on
the previously anticipated Merger.
Investing
activities
Net
cash used in investing activities amounted to $0.1 million and $0.6 million for the years ended December 31, 2024, and 2023. The decrease
in
net cash provided by investing activities was due to the decrease in cash received from related parties for loan repayment by $0.6
million.
Financing
activities
Net
cash provided by financing activities amounted to $nil and $4.1 million for the year ended December 31, 2024, and 2023. The decrease
in net
cash inflow from financing activities is attributed to the absence of financing activities during the period, as the Company was
solely focused on the
previously anticipated Merger.
CAPITAL
EXPENDITURES
Our
capital expenditures were $nil, $3,000 and $0.2 million for the years ended December 31, 2025, 2024 and 2023, respectively. These capital
expenditures were incurred primarily for investments in facilities, leasehold improvements, equipment and technology.
COMMITMENTS
The
following table sets forth our contractual obligations as of December 31, 2025.
Payment
Due by Period
Total
less than
one year
One to
three years
Three to
five years
US$
US$
US$
US$
Operating lease commitments
24,573
25,486
-
-
Debt obligations
3,418,500
3,418,500
-
-
Total
3,443,073
3,443,986
-
-
Operating
lease commitments
We
have an operating lease for laboratory as of December 31, 2025. Operating lease commitments reflect our obligation to make payments under
these operating leases.
119
Debt obligations
Debt
obligations reflects outstanding principal and accrued interest payable to Jurchen Investment Corporation, the largest shareholder of
the
Company, pursuant to a convertible note arrangement. This instrument features a conversion option at a price of $2.42 per share into
the Company’s Class
A Ordinary Shares. It carries a two-year maturity from the date of issuance and bears an annual interest rate
of 6%.
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,
and the respective credit line has been extended further to August 2026. 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
As
of December 31, 2025, the Group does not have any non-cancellable purchase commitments.
The
Group has 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 due upon achievements of specific 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
amounts of the contingent
milestone payments that the Group is required to pay up to different achievements of conditions and milestones
under all license agreements in effect as of
December 31, 2025, are below:
Amount
Drug molecules: up to the conditions and milestones
of
From entering phase 1 to before
first commercial sale
920,000
First commercial sale
800,000
Net sales amount more
than certain threshold in a year
7,000,000
Subtotal
$
8,720,000
For
the years ended December 31, 2025 and 2024, the Group incurred $nil and $61,123 milestone payments under license agreements,
respectively.
For the years ended December 31, 2025 and 2024, 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 2 exclusively licensed technologies in the area of infectious diseases, and diagnostics.
In
addition, the Company is actively developing 1 proprietary technology.
For
the years ended December 31, 2025, 2024 and 2023, the Group incurred $562,269, $2,195,161 and $5,198,329, respectively, on research and
development expenses.
120
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, 2025, that are reasonably likely to have a material adverse effect on
our revenues, net income, profitability,
liquidity or capital resources, or that would cause reported financial information not necessarily
to be indicative of future operating results or financial
conditions.
E.
Critical Accounting Estimates
In
preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying
notes.
However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to
the carrying amount of the
assets or liabilities in the future.
We
consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were
highly
uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from
period to period or use of
different estimates that we reasonably could have used in the current period, would have a material impact
on our financial condition or results of
operations. The management determines there are no critical accounting estimates.
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
August 2024, Mr. Martin Siu resigned from his position as Head of Finance of Aptorum Group due to personal reason. Mr. K.K. Wong (“Mr.
Wong”) has replaced Mr. Siu as the Company’s Head of Finance since August 2024.
In
October 2024, Dr. Mirko Scherer and Mr. Charles Bathurst resigned from their position as directors of Aptorum Group Limited’s Board
of
Directors, due to personal reasons. As a result of the resignations, Mr. Douglas Arner will assume Mr. Bathurst’s role as Chair
of our Audit Committee.
Name
Age
Position
Executive
Officers
Ian
Huen
47
Founder,
Chief Executive Officer and Executive Director
K.K.
Wong
71
Head
of Finance
Non-Management
Directors
Justin
Wu
57
Independent
Non-Executive Director and Chair of Compensation Committee
Douglas
Arner
57
Independent
Non-Executive Director and Chair of Nominating and Corporate Governance Committee and
Audit Committee
121
Executive
Officers
MR.
IAN HUEN, Founder, Chief Executive Officer and Executive Director
Mr.
Ian Huen is the Founder, Chief Executive Officer and an Executive Director of Aptorum Group Limited. Mr. Huen previous served as Non-
Executive
Director of Aptorum Group from June 2022 to November 2023, and 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.
K.K WONG, Head of Finance
Mr.
K.K. Wong is the Head of Finance of Aptorum Group Limited since August 2024. Mr. Wong has over twenty-eight years of banking
experience
specializing in credit, marketing, and management role in the Greater China region. Past roles that Mr. Wong has served includes being
the
General Manager at the Industrial & Commercial Bank of China (Macau) for 5 years, Deputy General Manager at Credit Agricole CIB
Bank in Hong Kong
for 5 years, and various senior roles in Hong Kong at BNP Paribas for over 16 years. Mr. Wong holds a degree in Master
of Business Administration from
Bangor University, United Kingdom, in cooperation with Alliance Manchester Business School, United Kingdom.
He is an associate of LIBF, CGI and
HKCGI and has also been awarded the CGP qualification. Additionally, Mr. Wong is a member of Institute
of Certified Management Account (ICMA,
Australia), Fellow of Institute of Financial accountants (FFA), Fellow of Institute of Public
accountant, Australia (FIPA) and an International Affiliate
Member of the Hong Kong Institute of Certified Public Accountants (HKICPA).
Non-Executive
Directors
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.
122
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-organized
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
We
did not remit any compensation to our officers or directions in fiscal 2025.
In
accordance with mutual agreements reached with the board of directors, Mr. Ian Huen has agreed to forgo their monthly remuneration
effective
July 1, 2023 until further notice. Before the suspension of remuneration, Mr. Ian Huen had a monthly remuneration
of $27,333.
In
accordance with mutual agreements reached with the board of directors, Professor Justin Wu and Professor Douglas Arner have consented
to
suspend their monthly remuneration from September 1, 2023 until further notice. Once it resumes, Professor Wu shall be entitled
to receive $31,673
annually for his combined services as a director and a committee member and Professor Arner shall be entitled to receive
$31,673 annually for his
combined services as a director and a committee member. In August 2024, Mr. Martin Siu resigned from his position
as Head of Finance of Aptorum
Group due to personal reason. Mr. K.K. Wong (“Mr. Wong”) has replaced Mr. Siu as the Company’s
Head of Finance since August 2024. As of this time,
Mr. Wong does not receive any remuneration, and it is subject to change based on
subsequent discussions between the Company and Mr. Wong.
In
October 2024, Dr. Mirko Scherer and Mr. Charles Bathurst resigned from their position as directors of Aptorum Group Limited’s Board
of
Directors, due to personal reasons. As a result of the resignations, Mr. Douglas Arner assumed Mr. Bathurst’s role as Chair
of our Audit Committee.
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.
123
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.
On
March 31, 2023, we entered into exchange agreements and cancelled 177,667 existing vested and unvested share options held by related
parties option holders and cancelled our obligations for deferred cash bonus payables of $3.1 million by granting of 403,820 share options
(“New Options”)
with 6 months vesting period. The New Options’ exercise price was $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. All options fully vested on October 1,
2023, and expires on September 30, 2033. On March 31, 2023, we
entered into supplemental agreements with the same related parties option
holders to provide additional cash compensation to cover the exercise price of
the New Options. On March 31, 2023, we entered into exchange
agreements and cancelled 70,428 existing vested and unvested share options held by non-
related parties option holders and cancelled our
obligations for deferred cash bonus payables of $1.6 million by issuance of 70,430 fully vested Class A
Ordinary Shares. We accounted
for this exchange for both related parties and non-related parties share option holders as a modification to share based
compensation
which required the remeasurement of existing share options value at the time of the modification. The total incremental cost as a result
of the
modification was $0.7 million.
124
For
the years ended December 31, 2025, 2024 and 2023, the Group issued 0, 446,842 and 427,060 Class A Ordinary Shares to share
option
holders as a result of exercise of options, respectively.
In
line with Nasdaq requirements, we have established a clawback policy which, subject to limited exceptions, requires that any incentive
compensation (including both cash and equity compensation) paid to any current or former executive officer on or after October 2, 2023,
is subject to
recoupment if (i) the incentive compensation was calculated based on financial statements that were required to be restated
due to material noncompliance
with financial reporting requirements, without regard to any fault or misconduct; and (ii) that noncompliance
resulted in overpayment of the incentive
compensation within the three fiscal years preceding the date the restatement. A copy of our
clawback policy has been filed as Exhibit 97.1 to this annual
report on Form 20-F.
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
Capital Market and SEC rules and regulations. Our Board of Directors may establish other committees from time to time.
Audit
Committee
Douglas
Arner and Justin Wu currently serve on the audit committee, which is chaired by Douglas Arner. 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 Capital 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;
125
●
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.
Audit
Committee Financial Expert
We
have one financial expert as of the date of this report. Our Board of Directors has determined that Douglas Arner, 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 Capital Market.
Compensation
Committee
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
Capital
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.
126
Nominating
and Corporate Governance Committee
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 Capital 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.
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.
127
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
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 II directors at the Company’s next Annual General Meeting; the Class III and I directors
shall not be required to stand for re-election until the years specified below.
Name
& Class
Positions
Expiration of Director
Term/Re-Election
Year
Class III
Ian Huen
Chief Executive Officer
& Executive Director
2027
Class II
Not applicable
Class I
Justin Wu
Independent Non-Executive
Director
2026
Douglas Arner
Independent Non-Executive
Director
2026
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.
128
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 1 full-time employees. Of these, 1 full-time are engaged in general and administrative functions.
As
of the date of this annual report, all of our employees are located in Asia. In addition, we have engaged and may continue to engage
8 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 6,346,823 Class A Ordinary Shares and 1,796,934 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 2 shareholders of record
holding beneficial ownership of 5% or more, none of which
are located in the United States.
129
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
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)
Ian Huen(3)
507,967
1,606,147
42.77%
86.71%
K.K. Wong
-
-
-
-
Justin Wu
*
-
*
*
Douglas Arner
*
-
*
*
All directors and executive officers as a group
(4 persons)
549,863
1,606,147
37.21%
86.73%
5% Beneficial Owner
Jurchen Investment Corporation(3)
370,308
1,606,147
35.33%
86.63%
CGY Investments Limited(4)
533,575
-
6.55%
0.29%
*
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 370,308 Class
A Ordinary Shares owned by Jurchen, warrants held by Jurchen to purchase 54,054 Class A Ordinary Shares, convertible
notes held by
Jurchen to convert 1,338,223 Class A Ordinary Shares, 137,659 Class A Ordinary Shares owned by Mr. Huen, 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.
(4) CGY Investments Limited
is 50% held by Seng Fun Yee, 25% held by Mandy Lui and 25% held by Adrian Lui (all of whom are related to our former
CEO, Mr. Darren
Lui). 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 533,575 Class A Ordinary Shares held by CGY Investments Limited.
F.
Disclosure of a registrant’s action to recover erroneously awarded compensation.
None.
130
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
hereof,
the maturity date of the promissory note with Jurchen has expired; the maturity of Aeneas Group Limited Agreement is extended
for additional three years
and was matured on August 12, 2024. 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 hereof, the
Company has not drawn down from the Line
of Credit. As of the date hereof, the undrawn line of credit facility is $12 million.
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
hereof, $0.5 million is outstanding from Libra Sciences Limited. For the year ended December
31, 2025 and 2024, the Group has
assessed that the amounts due from Libra Science Limited and its subsidiary are potentially unrecoverable, an allowance
for credit
loss amounting to $nil and $1,184 has been recognized for the year ended December 31, 2025 and 2024, respectively. Libra
Science Limited’s
current operating and financial position is dismal and it continues to suffer losses and is in a net
liability position; therefore, management determined the
amounts due from them are unrecoverable and provided a credit loss
allowance for such amounts.
131
Sales
and Purchases of Securities
Private
Placement Offering
Sales
of convertible notes
On
September 11, 2023, the Group entered into a securities purchase agreement with Jurchen Investment Corporation, the largest shareholder
of
the Company, pursuant to which the Group sold a secured convertible note in the aggregate principal amount of $3,000,000 (the “Sep
2023 Notes”). The
Sep 2023 Notes are convertible into the Aptorum Class A ordinary shares and have a maturity date that is
24 months from the issuance date, although upon
such date the investor has the right to extend the term of the Sep 2023 Note for
twelve (12) months or more or such term subject to mutual consent. The
Sep 2023 Notes have an interest rate of 6% per annum and
a conversion price of $2.42 per share. The Company has the right to repay the principal amount
of the Sep 2023 Notes, but in the case
of such prepayment it must be paid in cash, unless otherwise agreed by both parties. The Sep 2023 Note is secured
by a first priority
lien and security interest on certain shares that the Group owns (“Collateral”). Upon the Group’s disposal of all or
a portion of the
Collateral, the investor has the right, to request that the Group prepay the then-remaining outstanding balance of the
Sep 2023 Note, in part or in full and
the Group can make that payment in cash or in shares. The principal outstanding amount as of the
date hereof is $3,000,000. On September 11, 2025, the
parties agreed to extend the term of the Sep 2023 Note for an additional 12 months;
the parties also agreed to amend the terms of the Sep 2023 Note such
that Jurchen, at is sole discretion, shall be permitted to convert
the Sep 2023 Note upon three days written notice.
Employment
Agreements
We
entered into Appointment Letters with each of our executive officers. The terms of the Appointment Letters for each of our executive
officers
are consistent with each other, except with regard to the individual’s compensation, term of employment and duties and
responsibilities, the latter of which
coincides with the standard functions normally associated with the given position. In addition
to setting forth the individual compensation and such, the
appointment letters contain the following material terms:
We
may terminate employment for cause, at any time, without advance notice or remuneration, for certain acts of the executive officer, such
as
conviction or plea of guilty to a felony or any crime involving moral turpitude, negligent or dishonest acts to our detriment, or
misconduct or a failure to
perform agreed duties. We may also terminate an executive officer’s employment without cause upon three-month
advance written notice. In such case of
termination by us, we will provide severance payments to the executive officer as expressly required
by applicable law of the jurisdiction where the
executive officer is based. The executive officer may resign at any time with three-month
advance written notice.
Each
executive officer has agreed to hold, both during and after the termination or expiration of his or her Appointment Letter, in strict
confidence
and not to use, except as required in the performance of his or her duties in connection with the employment or pursuant to
applicable law, any of our
confidential information or trade secrets, any confidential information or trade secrets of our clients or
prospective clients, or the confidential or proprietary
information of any third-party received by us and for which we have confidential
obligations.
In
addition, each executive officer has agreed to be bound by non-solicitation and non-compete restrictions during the term of his or her
employment and typically for one year following the last date of employment. Specifically, each executive officer has agreed not to (i) solicit
or entice
away from the Company, any person, firm, company or organization that is or shall have been at any time within 12 months
prior to termination of
employee a customer, client, identified prospective customer or client of the Company or in the habit of dealing
with the Company; (ii) employ, solicit or
entice away from the Company any person who is or shall have been on the date of or within
12 months prior to termination of employment an employee
of the Company; or (iii) assume employment with or provide services
to, or otherwise engage in income generating activities with any of our competitors,
or engage, whether as principal, partner, licensor
or otherwise, any of our competitors, without our express consent.
Some
of our Appointment Letters also provide for the executive officer to participate in our mandatory provident fund, which is similar to
a
pension fund.
Effective
on November 27, 2023, we re-appointed Mr. Huen as Chief Executive Officer and Executive Director whereas all other previous
employment terms and conditions remain unchanged. Under the previous appointment letter, we paid Mr. Huen approximately USD27,308
per month. The
appointment letter can be earlier terminated by either party with two-months’ written notice.
Effective
on August 8, 2024, we appointed Mr. Wong as our Head of Finance. Under the appointment letter, the appointment carry no
remuneration
but is subject to change based on subsequent discussion between Mr. Wong and the Company. The appointment letter can be earlier
terminated by either party with one-month’ written notice.
C.
Interests of Experts and Counsel
Not
applicable.
132
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.
The
Company is party to a lawsuit initially filed on notice on September 3, 2024, by Karen Cheung (“Plaintiff”) in the Supreme
Court of the State
of New York, County of New York (“State Court Action”) (Index No. 654541/2024), which sought relief arising
from (i) violations of the federal Racketeer
Influenced and Corrupt Organizations Act (“RICO”), 18 § U.S.C. 1961(c),
(ii)conspiracy to violate RICO, 18 U.S.C. § 1961(d), (iii) fraud, (iii) breach of
fiduciary duty, (iv) negligent misrepresentation,
(v) unjust enrichment, (vi) civil conspiracy and (vii) violations of the federal Securities Act of 1933, 15 §
U.S.C. 77a et. seq.
On December 27, 2024, the Company filed a Notice of Removal in the U.S. District Court for the Southern District of New York (Case
No.1:24-cv-09969-VSB-OTW)
removing the State Court Action to federal court. On December 30, 2024, the Company filed a demand for service of the
complaint on the
Company. Plaintiff filed and served her Complaint on the Company on February 24, 2025, alleging claims for (i) violations of RICO 18
U.S.C. § 1962(c), (ii) conspiracy to violate RICO 18 U.S.C. § 1962(d), (iii) fraud; (iv) aiding and abetting breach of fiduciary
duty, (v) unjust enrichment,
and (vi) civil conspiracy. Following a motion, Plaintiff was granted leave to amend her Complaint and filed
a First Amended Complaint on June 2, 2025.
The parties entered into a briefing schedule on the Company’s anticipated motion to
dismiss (“Motion to Dismiss”), and the Company filed its opening
brief on the Motion to Dismiss on July 18, 2025. Plaintiff
filed her opposition to the Motion to Dismiss on September 5, 2025, and the Company’s reply in
support of the Motion to Dismiss
was due on October 6, 2025. The Company continues to believe that Plaintiff’s claims have no merit. As such, the
Company will continue
to vigorously defend against Plaintiff’s claims. At this time, it is too early to estimate the costs and expenses of defending
the
lawsuit, but we do not deem this to be material to our business and 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.
133
Item
9. THE OFFER AND LISTING
A.
Offering and Listing Details.
Our
Class A Ordinary Shares are currently listed on NASDAQ Capital Market under the symbol “APM.”
B.
Plan of Distribution
Not
applicable.
C.
Markets
Our
Class A Ordinary Shares are currently listed on NASDAQ Capital Market under the 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.
134
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,
6,346,823 Class A Ordinary Shares and 1,796,934 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.
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 “2023 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 2023 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.
135
E.
Taxation
Cayman
Islands Tax Considerations
The
Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is
no
taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government
of the Cayman Islands
except for stamp duties which may be applicable on instruments executed in, or brought within, the jurisdiction
of the Cayman Islands. The Cayman
Islands is not party to any double tax treaties which are applicable to any payments made by or to
our Company. There are no exchange control regulations
or currency restrictions in the Cayman Islands.
Payments
of dividends and capital in respect of our Class A Ordinary Shares will not be subject to taxation in the Cayman Islands and no
withholding
will be required on the payment of a dividend or capital to any holder of our Class A Ordinary Shares, nor will gains derived from the
disposal
of our Class A Ordinary Shares be subject to Cayman Islands income or corporation tax.
No
stamp duty is payable in respect of the issue of our Class A Ordinary Shares or on an instrument of transfer in respect of our Class
A Ordinary
Shares except on instruments executed in, or brought within, the jurisdiction of the Cayman Islands.
Material
U.S. Federal Income Tax Considerations for U.S. Holders
The
following is a description of the material U.S. federal income tax consequences to U.S. Holders (as defined below) of purchasing, owning
and
disposing of Class A Ordinary Shares. It is not a comprehensive description of all U.S. federal income tax considerations that may
be relevant to a
particular person’s decision to acquire Class A Ordinary Shares. This discussion applies only to a U.S. Holder
that holds a Class A Ordinary Share as a
capital asset for U.S. federal income tax purposes (generally, property held for investment).
In addition, it does not describe all of the tax consequences that
may be relevant in light of a U.S. Holder’s particular circumstances,
including state and local tax consequences, non-U.S. tax consequences, federal estate
or gift tax consequences, alternative minimum tax
consequences, the potential application of the provisions of the Code known as the Medicare
Contribution Tax, and tax consequences applicable
to U.S. Holders subject to special rules, such as:
●
banks
and other financial institutions;
●
insurance companies;
●
dealers or traders in securities
who use a mark-to-market method of tax accounting;
●
persons holding Class A
Ordinary Shares as part of a hedging transaction, “straddle,” wash sale, conversion transaction or integrated
transaction
or persons entering into a constructive sale with respect to the Class A Ordinary Shares;
●
persons whose “functional
currency” for U.S. federal income tax purposes is not the U.S. dollar;
●
tax exempt entities, including
“individual retirement accounts” and “Roth IRAs”;
●
former citizens or long-term
residents of the United States;
●
entities or arrangements
classified as partnerships for U.S. federal income tax purposes;
●
regulated investment companies
or real estate investment trusts;
●
persons who acquired our
Class A Ordinary Shares pursuant to the exercise of an employee share option or otherwise as compensation;
136
●
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.
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.
137
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 Capital 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.
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
138
●
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 cash and cash equivalents and investments that we had on hand during our year ending December 31, 2025, 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.
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.
139
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).
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.
140
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.
141
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, 2025, and 2024, 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 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 and time deposits held with banks are exposed to interest rate risk. However, Management considers the risk on cash
and time
deposits to be minimal as they are short-term with terms less than three months.
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.
142
Part
II
Item
13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
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, 2025. Based on that evaluation, our chief executive officer and chief financial accounting officer
concluded that our disclosure
controls and procedures, as of December 31, 2025, 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, 2025, 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 not effective as of December 31, 2025.
In connection with the audit of our financial statements for the year
ended December 31, 2025, 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.
143
Since 2019, we have taken actions to remediate the abovementioned material
weakness, and we believe we are working to remediate 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, 2025.
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, 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 Douglas Arner, 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 Capital Market. Douglas Arner is “independent” as that term is defined in the rules of the SEC
and the applicable rules of the NASDAQ Capital
Market.
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.
For
the years ended
December 31,
2025
2024
(In thousand)
Audit fees
$
427 $
308
Audit-related fees
-
-
Tax fees
-
-
All other fees
-
-
Total
$
427 $
308
144
“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 or services that in connection with statutory and regulatory
filings or engagements for those fiscal
years.
“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.
“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.
Item
16J. INSIDER TRADING POLICIES
Not
applicable.
Item
16K. CYBERSECURITY
Our
business activity to date has been focusing on the healthcare field and have not yet adopted formal cybersecurity risk management programs
or formal processes for assessing cybersecurity risks. We understand the importance of managing material risks from cybersecurity threats
and are
committed, as part of our continuing growth, to implementing and maintaining an adequate information security program to manage
such risks and
safeguard our systems and data.
We
currently manage our cybersecurity risk through a variety of practices that are applicable to all users of our information technology
and
information assets, including our employees and contractors. We use a combination of technology, policies, training, and monitoring
to promote security
awareness and prevent security incidents.
Due
to the early stage of development of our projects, we believe have limited exposure to cyber threats other than emails and project data
storage.
We
have not, as of the date of this annual report, experienced a cybersecurity threat or incident in the last three years, that materially
affected or is
reasonably likely to affect our business, results of operations, or financial condition. However, there can be no guarantee
that we will not experience such
an incident in the future.
Our
board of directors oversees cybersecurity risk as part of its role of overseeing enterprise-wide risk.
145
Part
III
Item
17. FINANCIAL STATEMENTS
We
have elected to provide financial statements pursuant to Item 18.
Item
18. FINANCIAL STATEMENTS
The
consolidated financial statements of Aptorum Group Limited, and its subsidiaries are included at the end of this annual report.
Item
19. EXHIBITS
EXHIBIT
INDEX
Exhibit
No.
Description
1.1
Third
Amended and Restated Articles of Association, as amended (21)
2.1
Registrant’s
Specimen Certificate for Ordinary Shares (21)
2.2
Form
of Underwriter’s Warrant+++
2.3
Description
of Securities registered under Section 12 of the Exchange Act of 1934, as amended (21)
2.4
Form
of Warrant+
4.1
Form
of Underwriting Agreement+++
4.2
Appointment
Letter between the Company and Ian Huen (Founder, Chief Executive Officer & Executive Director), dated September 25,
2017*
4.3
Appointment
letter between the Company and Ian Huen (Non-Executive Director), dated May 27, 2022 (21)
4.4
Appointment
letter between the Company and Ian Huen (Executive Director), dated November 20, 2023 (25)
4.5
Reserved.
4.6
Reserved.
4.7
Employment
Agreement between the Company and Justin Wu (Independent Non-Executive Director), dated September 18, 2017*
4.8
Employment
Agreement between the Company and Douglas Arner (Independent Non-Executive Director), dated February 13, 2018*
4.9
2017
Share Option Plan, as amended (15)
4.10
Service
Agreement Between Covar Pharmaceuticals Incorporated and Videns Incorporation Limited*
4.11
Exclusive
Patent License Agreement for ALS-4 dated October 18, 2017(3)
4.12
First
Amendment to Exclusive License Agreement for ALS-4 dated June 7, 2018*
4.13
Second
Amendment to Exclusive License Agreement for ALS-4 dated July 10, 2019(6)
4.14
Exclusive
License Agreement for ALS-4 dated January 11, 2019(4)
4.15
Master
Collaboration Agreement by and between the Company, A*ccelerate Technologies Pte. Ltd, and AENEAS CAPITAL LIMITED
dated April 24,
2019(1)
4.16
Bond
Repurchase Agreement dated April 24, 2019(1)
4.17
Form
of Line of Credit Agreement (2)
4.18
Form
of Promissory Note (2)
146
4.19
Form
of Securities Purchase Agreement+
4.20
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)
4.21
Placement
Agency Agreement, dated February 25, 2020, between the Company and Alliance Global Partners (8)
4.22
Form
of Securities Purchase Agreement (8)
4.23
Form
of Warrant (8)
4.24
Form
of Securities Purchase Agreement dates as of September 29, 2020, by and among the Company and the purchasers named therein (9)
4.25
Form
of Warrant (9)
4.26
Form
of Pre-Funded Warrant (9)
4.27
Form
of Placement Agent Warrant (9)
4.28
Exclusive
License Agreement with Accelerate Technologies Pte Ltd.’s dated September 25, 2020(11, 12)
4.29
Sales
Agreement, dated March 26, 2021, between the Company and H.C. Wainwright (10)
4.30
Share
Subscription and Shareholders Agreement dated as of September 25, 2020(11,12)
4.31
Private
Placement Shares Purchase Agreement with Jurchen Investment Corporation (14)
4.32
Reserved.
4.33
Reserved.
4.34
Reserved.
4.35
Form
of Securities Purchase Agreement (18)
4.36
Non-binding
Letter of Intent (20)
4.37
Securities
Purchase Agreement and Form of convertible note dated September 11, 2023 (22)
4.38
Securities
Purchase Agreement dated June 28, 2023 (23)
4.39
Securities
Purchase Agreement dated January 2, 2025 (24)
4.40
Merger
Agreement by and between Aptorum and DiamiR, dated July 14, 2025(26)
4.41
Management
Services Agreement by and between Aptorum Therapeutics and DiamiR, dated July 14, 2025(26)
4.42
Intellectual
Property License Agreement by and between Aptorum Therapeuctis, Aptorum, DiamiR LLC and DiamiR, dated July 14,
2025(26)
4.43
Voting
and support Agreement by and between Aptorum and its major shareholder, dated July 14, 2025(26)
4.44
Form
of stockholders Agreement(26)
4.45
Form
of the Purchase Agreement(27)
4.46
Form
of Restricted Warrant(27)
4.47
Form
of Lock-Up Agreement(27)
8.1
List
of Subsidiaries (21)
10.3
Amendment
to the Management Services Agreement dated as of December 2, 2025(28)
10.4
Amendment to the Management Services Agreement dated as of March 25, 2026(29)
12.1
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)**
12.2
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)**
13.1
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
Consent of Marcum Asia CPAs LLP**
97.1
Policy
for the Recovery of Erroneously Awarded Compensation (25)
99.1
Code
of Business Ethics*
101.INS
Inline XBRL Instance Document**
101.SCH
Inline XBRL Taxonomy Extension Schema Document**
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase
Document**
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase
Document**
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document**
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase
Document**
104
Cover Page Interactive Data File (formatted as Inline
XBRL and contained in Exhibit 101) **
***
Furnished with this annual
report on Form 20-F
**
Filed with this annual
report on Form 20-F
*
Incorporated by reference
to our Registration Statement Filed on Form F-1 on September 5, 2018
+++ 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) 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.
(4) 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) 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.
(7) 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)Reserved.
(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.
(21)Incorporated by reference
to our annual report on Form 20-F filed on April 28, 2023.
(22)Incorporated by reference
to our Current Report on Form 6-K filed on September 11, 2023.
(23)Incorporated by reference
to our Current Report on Form 6-K filed on June 30, 2023.
(24) Incorporated by reference
to our Current Report on Form 6-K filed on January 7, 2025.
(25)Incorporated by reference
to our Annual Report on Form 20-F filed on April 30, 2024.
(26)Incorporated by reference
to our Current Report on Form 6-K filed on July 22, 2025.
(27)Incorporated by reference
to our Current Report on Form 6-K filed on October 16, 2025
(28)Incorporated by reference
to our Current Report on Form 6-K/A filed on December 5, 2025
(29)Incorporated by reference to our Current Report on Form 6-K/A filed
on March 26, 2026
148
SIGNATURES
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 annual report on its behalf.
Aptorum Group Limited
Date: March
27, 2026
By:
/s/
Ian Huen
Ian Huen
Chief Executive Officer,
Chairman of the Board of Directors
(Principal Executive Officer)
Date: March 27,
2026
By: /s/
Wong Kwok Kuen
Wong Kwok Kuen
Head of Finance
(Principal Financial Officer)
149
APTORUM
GROUP LIMITED
INDEX
TO FINANCIAL STATEMENTS
INDEX
TO APTORUM’S CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID: 5395)
F-2
Consolidated Balance Sheets as of December 31, 2025 and 2024
F-3
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2025, 2024 and 2023
F-4
Consolidated Statements of Changes of Equity for the years ended December 31, 2025, 2024 and 2023
F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2025, 2024 and 2023
F-6
Notes to Consolidated Financial Statements
F-8
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, 2025 and 2024, the
related consolidated statements
of operations and comprehensive loss, changes in equity and cash flows for each of the three years in the period ended
December
31, 2025, 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, 2025 and 2024, and the results of its
operations and its cash flows for each
of the three years in the period ended December 31, 2025, in conformity with accounting principles
generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. As more fully described in Note
2, the Company has a significant
working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and
sustain its
operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in
regard to
these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
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.
Critical Audit Matters
Critical audit matters are matters arising from
the current period audit of the financial statements that were communicated or required to be communicated
to the audit committee and
that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially
challenging,
subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Marcum Asia CPAs LLP
Marcum Asia CPAs LLP
We have served as the Company’s auditor since 2017.
Guangzhou, China
March 27, 2026
F-2
APTORUM
GROUP LIMITED
CONSOLIDATED BALANCE SHEETS
December 31,
2025 and 2024
(Stated
in U.S. Dollars, except for number of shares)
December 31,
2025
December 31,
2024
ASSETS
Current assets:
Cash
and cash equivalents
$
3,452,891 $
874,238
Other
receivables and prepayments
139,633
85,316
Total
current assets
3,592,524
959,554
Long-term
investments, net
15,098,846
15,098,846
Long-term
deposits
—
71,823
Total
Assets
$
18,691,370 $
16,130,223
LIABILITIES
AND EQUITY
LIABILITIES
Current
liabilities:
Amounts
due to related parties
$
79,180 $
79,644
Accounts
payable and accrued expenses
1,071,715
918,611
Operating
lease liabilities, current
24,428
102,225
Convertible
notes to a related party
3,418,500
3,238,500
Total
current liabilities
4,593,823
4,338,980
Operating
lease liabilities, non-current
—
14,182
Warrant
liability
306,000
—
Total
Liabilities
4,899,823
4,353,162
Commitments
and contingencies (Note 21)
—
—
TEMPORARY EQUITY
Contingently redeemable
warrants
47,000
—
Total
temporary equity
47,000
—
EQUITY
Class A Ordinary Shares ($0.00001 par value, 9,999,996,000,000 shares authorized, 6,346,823 shares issued and
outstanding as of December 31, 2025; 3,811,823 shares issued and outstanding as of December 31, 2024)
62
37
Class B Ordinary Shares ($0.00001 par value; 4,000,000 shares authorized, 1,796,934 shares issued and outstanding
as of December 31, 2025 and 2024)
18
18
Additional
paid-in capital
97,000,188
93,474,825
Accumulated
other comprehensive (loss) income
(92,310)
89,162
Accumulated
deficit
(73,792,798)
(72,429,528)
Total
equity attributable to the shareholders of Aptorum Group Limited
23,115,160
21,134,514
Non-controlling
interests
(9,370,613)
(9,357,453)
Total
equity
13,744,547
11,777,061
Total
Liabilities, Temporary Equity and Equity
$
18,691,370 $
16,130,223
See
accompanying notes to the consolidated financial statements.
F-3
APTORUM
GROUP LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For Years
Ended December 31, 2025, 2024 and 2023
(Stated
in U.S. Dollars, except for number of shares)
Year
Ended
December 31,
2025
Year
Ended
December 31,
2024
Year
Ended
December 31,
2023
Revenue
Healthcare
services income
$
— $
—
431,378
Operating
expenses
Cost
of healthcare services
—
—
(420,812)
Research
and development expenses
(352,879)
(2,195,161)
(5,198,329)
General
and administrative fees
(573,059)
(669,486)
(1,930,637)
Legal
and professional fees
(1,062,346)
(803,285)
(2,538,161)
Other
operating income (expenses)
170,756
(272,609)
(1,067,690)
Total
operating expenses
(1,817,528)
(3,940,541)
(11,155,629)
Other
(expense) income, net
Loss
on investments in marketable securities, net
—
—
(9,266)
Unrealized
gain from fair value change of the long-term investments, net
—
—
6,431,088
Impairment
loss of long-term investment
—
(1,000,000)
(77,200)
Interest
expense, net
(95,713)
(146,924)
(121,145)
Gain
on disposal of subsidiaries
—
703
—
Issuance
cost allocated to warrant liability
(153,189)
—
—
Change
in fair value of warrant liability
690,000
—
—
Government
subsidies
—
928,461
123,015
Sundry
income
—
564
36,784
Total
other income (expense), net
441,098
(217,196)
6,383,276
Net
loss
(1,376,430)
(4,157,737)
(4,340,975)
Net
income (loss) attributable to non-controlling interests
13,160
(110,069)
1,516,328
Net
loss attributable to Aptorum Group Limited
$
(1,363,270) $
(4,267,806)
(2,824,647)
Net
loss per share attributable to Aptorum Group Limited
–Basic
and diluted(1)
$
(0.19) $
(0.78)
(0.62)
Weighted-average shares
outstanding
–Basic
and diluted(1)
7,351,784
5,453,103
4,521,133
Net
loss
$
(1,376,430) $
(4,157,737)
(4,340,975)
Other
comprehensive (loss) income
Exchange
differences on translation of foreign operations
(181,472)
99,785
(44,430)
Other
comprehensive (loss) income
(181,472)
99,785
(44,430)
Comprehensive
loss
(1,557,902)
(4,057,952)
(4,385,405)
Comprehensive
(loss) income attributable to non-controlling interests
(13,160)
110,069
(1,516,328)
Comprehensive
loss attributable to the shareholders of Aptorum Group Limited
(1,544,742)
(4,168,021)
(2,869,077)
(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 CHANGES IN EQUITY
For Years Ended December 31, 2025, 2024 and 2023
(Stated
in U.S. Dollars, except for number of shares)
Class
A
Ordinary Shares
Class
B
Ordinary Shares
Additional
Paid-in
Accumulated
Accumulated
other
Comprehensive
Non-
Controlling
Shares(1)
Amount
Shares(1)
Amount
Capital
Amount
deficit
Amount
income
(loss)
Amount
Interests
Amount
Total
Amount
Balance,
January 1 2023
1,326,953 $
13,269,528
2,243,776 $
22,437,754 $
45,308,080 $ (65,337,075) $
33,807 $
(7,878,789) $
7,833,305
Adjustment for change
of par value
—
(13,269,514)
—
(22,437,732)
35,707,246
—
—
—
—
Issuance
of shares to
non-controlling interest
—
—
—
—
67,766
—
—
(67,766)
—
Issuance
of shares in exchange of share
options and settlement of liabilities
70,430
1
—
—
3,078,195
—
—
—
3,078,196
Issuance
of shares for share-based
compensation
65,770
1
—
—
176,263
—
—
—
176,264
Issuance of shares
215,959
2
—
—
1,575,560
—
—
—
1,575,562
Share-based
compensation
—
—
—
—
1,088,925
—
—
—
1,088,925
Conversion
of convertible notes
1,250,000
13
—
—
5,999,987
—
—
—
6,000,000
Exercise of share
options
791
—
—
—
16,506
—
—
—
16,506
Rounding
up for reverse stock split
8,018
—
—
—
—
—
—
—
—
Exchange
difference on translation of
foreign operation
—
—
—
—
—
—
(44,430)
—
(44,430)
Net
loss
—
—
—
—
—
(2,824,647)
—
(1,516,328)
(4,340,975)
Balance,
December 31, 2023
2,937,921
31
2,243,776
22
93,018,528
(68,161,722)
(10,623)
(9,462,883)
15,383,353
Conversion
of Class B Ordinary Shares to
Class A Ordinary Shares
446,842
4
(446,842)
(4)
—
—
—
—
—
Exercise of options
427,060
2
—
—
451,658
—
—
—
451,660
Exchange
difference on translation of
foreign operation
—
—
—
—
—
—
99,785
—
99,785
Disposal of NCI
—
—
—
—
4,639
—
—
(4,639)
—
Net
loss
—
—
—
—
—
(4,267,806)
—
110,069
(4,157,737)
Balance,
December 31, 2024
3,811,823
37
1,796,934
18
93,474,825
(72,429,528)
89,162
(9,357,453)
11,777,061
Issuance
of Class A Ordinary Shares upon
January 2025 Offering
1,535,000
15
—
—
2,699,185
—
—
—
2,699,200
Net
loss
—
—
—
—
—
(1,363,270)
—
(13,160)
(1,376,430)
Exchange
difference on translation of
foreign operations
—
—
—
—
—
—
(181,472)
—
(181,472)
Issuance
of Class A Ordinary Shares upon
October 2025 Offering
1,000,000
10
—
—
873,178
—
—
—
873,188
Accretion
of redemption value to
contingently redeemable warrants
—
—
—
—
(47,000)
—
—
—
(47,000)
Balance,
December 31, 2025
6,346,823
62
1,796,934
18
97,000,188
(73,792,798)
(92,310)
(9,370,613)
13,744,547
(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, 2025, 2024 and 2023
(Stated in U.S. Dollars)
Year
Ended
December 31,
2025
Year
Ended
December 31,
2024
Year
Ended
December 31,
2023
Cash flows from operating activities
Net loss
$
(1,376,430) $
(4,157,737)
(4,340,975)
Adjustments to reconcile net loss to net cash
used in operating activities
Amortization and depreciation
—
255,046
1,125,254
Issuance cost in relation to warrant
153,189
—
—
Change in fair value of warrant liability
(690,000)
—
—
Share-based compensation
—
—
1,265,189
Loss on investments in marketable securities,
net
—
—
9,266
Unrealized loss (gain) from fair value change
of the long-term investments, net
—
—
(6,431,088)
Impairment loss of long-term investment
—
1,000,000
77,200
(Gain) loss on disposal of long-lived assets
—
(58,621)
110,852
Impairment loss on long-lived assets
—
1,699,481
750,381
Allowance for credit loss of due from a related
party
—
—
521,007
Write-off of prepayment and other receivables
—
45,677
62,369
Write-off of accounts receivable
—
6,280
—
Write-down of inventories
—
—
13,206
Gain on disposal of subsidiaries
—
(703)
—
Amortization of right-of-use assets
—
50,520
252,345
Interest expense and accretion of convertible
debts
180,000
180,000
45,266
Reversal of deferred cash bonus
—
—
(1,646,228)
Changes in operating assets
and liabilities
Accounts receivable
—
41,349
126,717
Inventories
—
—
14,516
Other receivables and prepayments
17,506
291,078
227,457
Long-term deposits
—
—
29,106
Amounts due from related parties
—
961
63,050
Amounts due to related parties
(464)
464
(8,524)
Accounts payable and accrued expenses
(28,368)
(422,705)
398,635
Operating lease liabilities
(91,979)
(120,824)
(389,365)
Net cash used in operating
activities
(1,836,546)
(1,189,734)
(7,724,364)
Cash flows from investing
activities
Purchases of property and equipment
—
—
(3,015)
Proceeds from disposal of property and equipment
—
58,621
15,385
Proceeds from sales of investment securities
—
—
93,215
Loan to a related party
—
—
(92,459)
Repayment of loan and interest from a related
party
—
—
611,641
Net cash provided by investing
activities
—
58,621
624,767
Cash flows from financing
activities
Loan from related parties
—
—
2,500,000
Proceeds from issuance of Class A Ordinary
Shares and warrant
2,000,000
—
1,575,562
Exercise of share options
—
—
16,506
Payments related to offering costs
(284,001)
—
—
Repayment of bank loan
—
—
(3,000,000)
Proceeds from issuance of convertible notes
—
—
3,000,000
F-6
APTORUM
GROUP LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
For Years Ended December 31, 2025, 2024 and 2023
(Stated in U.S. Dollars)
Year
Ended
December 31,
2025
Year
Ended
December 31,
2024
Year
Ended
December 31,
2023
Proceeds
from issuance of Class A Ordinary Shares
3,070,000
—
—
Payments
related to offering costs
(370,800)
—
—
Net
cash provided by financing activities
4,415,199
—
4,092,068
Net increase
(decrease) in cash and cash equivalents and restricted cash
2,578,653
(1,131,113)
(3,007,529)
Cash
and cash equivalents – Beginning of year
874,238
2,005,351
5,012,880
Cash
and cash equivalents – End of year
$
3,452,891 $
874,238
2,005,351
Supplemental
disclosures of cash flow information
Interest
paid
$
— $
—
94,108
Non-cash
operating, investing and financing activities
Reclassification
of placement agent warrant redemption amount
$
47,000 $
—
—
Right-of-use
assets obtained in exchange for new operating lease liabilities
—
—
338,525
Convertible
notes converted to Class A Ordinary Shares
—
—
6,000,000
Settlement
of deferred cash bonus by issuance of share options
$
— $
451,660
3,078,196
See
accompanying notes to the consolidated financial statements.
F-7
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.
On July 14, 2025 the Group
and DiamiR Biosciences Corp. (“DiamiR”), have entered into a definitive agreement for an all-stock merger transaction,
in
which DiamiR will retain its name and become a wholly-owned subsidiary of Aptorum Group upon consummation of the merger. The combined
company expects to remain listed on the Nasdaq Stock Market following the closing of the merger. Under the terms of the merger agreement
and subject to
stockholder approval, the Company will re-domicile to the state of Delaware prior to the closing of the merger (“Domestication”),
and following the
Domestication, acquire all of the outstanding capital stock of DiamiR in exchange for a number of shares of its common
stock which will represent
approximately 70% of the outstanding common stock of the Group, with the current equity holders of the
Group retaining 30% of the common stock
immediately following the consummation of the merger. The merger agreement has been approved
by the boards of directors of both companies, and is
subject to stockholder approval of both companies and other customary closing conditions.
Concurrently with the execution
of the Merger Agreement, DiamiR and Aptorum Therapeutics, entered into a management services agreement,
pursuant to which, Aptorum Therapeutics
shall pay a monthly service fee and reimburse expenses to DiamiR in exchange for the officers and employees of
DiamiR providing services
to Aptorum Therapeutics to develop a diagnostic test for early detection and monitoring of progression of glioblastoma until the
earlier
of the closing of the Merger or December 31, 2025, and the respective agreement is extended to March 31, 2026, and then further extended to June
30, 2026.
In addition, concurrently with the execution of the Merger Agreement, DiamiR, DiamiR LLC, a wholly owned subsidiary of DiamiR, the
Company
and Aptorum Therapeutics entered into an intellectual property license agreement (“Licensing Agreement”), pursuant to which
DiamiR and
DiamiR LLC shall license on a non-exclusive basis their respective intellectual properties to Aptorum Therapeutics in exchange
for upfront and periodic
payments and royalties until the earlier of the closing of the Merger or December 31, 2025, the respective agreement
have extended to March 31, 2026, and
then further extended to June 30, 2026. Ian Huen, the Group’s Chairman and CEO, who beneficially owns approximately 87% of
the Group’s total voting
power, signed a voting and support agreement simultaneously with the execution of the Merger Agreement,
pursuant to which he agreed to vote in favor of
the transactions contemplated in the Merger Agreement.
Below
summarizes the list of the major subsidiaries consolidated as of December 31, 2025:
Name
Incorporation
date
Ownership
Place of
incorporation
Principle activities
Aptorum Therapeutics Limited
(“ATL”)
June 30, 2016
100%
Cayman Islands Research and development of life science and
biopharmaceutical products
APTUS MANAGEMENT LIMITED
May 16, 2017
100%
Hong Kong
Provision of management services to its holding
company and fellow subsidiaries
Paths Innovations Limited
April 15, 2019
100%
Cayman Islands Investment holding company
Paths Diagnostics Pte. Limited
June 5, 2019
75%
Singapore
Research and development of life science and
biopharmaceutical products
Acticule Life Sciences Limited
June 30, 2017
80%
Cayman Islands Research and development of life science and
biopharmaceutical products
2.
GOING CONCERN
The
Group reported a net loss of $1,376,430 and net operating cash outflow of $1,836,546 for the year ended December 31, 2025 and had
negative
working capital of $ 1,001,299 as of December 31, 2025. In addition, the Group had an accumulated deficit of $73,792,798 as
of December 31, 2025. 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. Successful transition
to attaining profitable operations is dependent upon achieving a level of revenues
adequate to support the Group’s cost structure.
In connection with the Group’s assessment of going concern considerations in accordance with Financial
Accounting Standard Board’s
Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to
Continue as a
Going Concern,” management has determined that these conditions raise substantial doubt about the Group’s ability
to continue as a going concern within
one year after the date that these consolidated financial statements are issued.
If
the Group is unable to generate sufficient funds to finance the working capital requirements of the Group within the normal operating
cycle of a
twelve-month period from the date of these consolidated financial statements are issued, the Group may have to consider supplementing
its available
sources of funds through the following sources:
●
other
available sources of financing from banks and other financial institutions or private lender;
and
●
equity
financing.
F-8
APTORUM
GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
2.
GOING CONCERN (cont.)
The
Group can make no assurances that required financings will be available for the amounts needed, or on terms commercially acceptable to
the
Group, if at all. If one or all of these events does not occur or subsequent capital raises are insufficient to bridge financial
and liquidity shortfall, there
would likely be a material adverse effect on the Group and would materially adversely affect its ability
to continue as a going concern.
The
Group’s consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Accordingly, the
consolidated financial statements have been prepared on a basis that assumes the Group will continue as a going concern
and which contemplates the
realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
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 pursuant to the rules and regulations of the
United Stated Securities and Exchange
Commission (the “SEC”), and include the accounts of the Group, its direct and indirect
wholly and majority owned subsidiaries. In accordance with the
provisions of Accounting Standards Codification (“ASC”) 810,
Consolidation, the Group also consolidate any variable interest entity (“VIE”) of which the
Group is 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. The
Group does not consolidate a VIE in which the Group has a
majority ownership interest when we are not considered the primary beneficiary.
The Group has determined that the Group is the primary beneficiary of the
VIE (see Note 13, Variable Interest Entity). The Group
evaluate its relationships with the VIE on an ongoing basis to determine whether it becomes the
primary beneficiary. All material intercompany
balances and transactions have been eliminated in preparation of the consolidated financial statements.
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 and consolidated
statements of equity 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. Actual results could differ from those estimates. There
is no significant accounting estimate.
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”) and the functional currency of a subsidiary in the United Kingdom
is Great British Pound (“GBP”). 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.
F-9
APTORUM
GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
In
the consolidated financial statements, the financial information of the Company and its subsidiaries, which use HKD, SGD and GBP 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
and cash equivalents
Cash
and cash equivalents consists of cash on hand, bank deposits and time deposits with an original maturity of three months or less
at the date of
purchase.
Accounts
receivable and amounts due from related parties
Accounts receivable and amounts due from related parties are stated at the original amount less an allowance for credit losses, 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 or amounts due from related parties, and the expected
credit losses charged to the allowance is included in other
operating expenses in the consolidated statements of operations and comprehensive
loss. In determining expected credit losses, the Group considers 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, 2025 and 2024, $522,191 and $522,191
allowance for credit losses were made. During December 31, 2025, 2024 and 2023, $nil, $nil and
$522,191 of allowance for credit losses
were made.
Long-term
investments, net
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. The Group also makes a qualitative assessment of whether
the investment is impaired at
each reporting date. If a qualitative assessment indicates that the investment is impaired, the Group has
to estimate the investment’s fair value in accordance
with the principles of ASC 820. If the fair value is less than the investment’s
carrying value, the Group recognizes an impairment loss in earnings equal to
the difference between the carrying value and fair value.
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 (expenses), net in the consolidated
statements of operations and comprehensive loss.
F-10
APTORUM
GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
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.
Assets
and Liabilities Measured at Fair Value on a Recurring Basis
The
following tables represent the fair value hierarchy of the Group’s financial assets and liabilities measured at fair value on
a recurring basis as of
December 31, 2025 and there is no such financial liabilities measured at fair value on a recurring basis as
of December 31, 2024.
As
of December 31, 2025
Fair
Value Measurement at the Reporting Date using
Quoted
price
in active
markets for
identical
assets
Level 1
Significant
other
observable
inputs
Level 2
Significant
unobservable
inputs
Level 3
Total
Financial liabilities:
Warrant
liabilities
-
-
306,000
306,000
Total
$
- $
- $
306,000 $
306,000
The
Group has determined that the carrying value of the Group’s cash and cash equivalents, other receivables and prepayments, amounts
due to related
parties, accounts payable and accrued expenses, convertible notes to a related party approximate fair value due to the
short-term nature of these assets and
liabilities.
F-11
APTORUM
GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Property
and equipment, net
Property
and equipment, net, 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 and equipment is provided using the straight-line method over their estimated useful lives:
Computer equipment
3 years
Furniture, fixture, and office and medical equipment
5 years
Leasehold improvements
Shorter of the remaining lease
terms or 5 years
Laboratory equipment
5 years
Motor vehicle
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 operating expenses.
Intangible
assets, net
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.
The
Group’s intangible assets mainly consist of computer software and is amortized over its useful life. The estimated useful life
is generally 5 years.
The Group will reassess the remaining useful life on annual basis.
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 compares 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 accounts 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 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.
F-12
APTORUM
GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
The
Group accounts for the convertible notes as a single unit of account, unless the conversion feature requires bifurcation and recognition
as
derivatives. Additionally, the Group uses 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.
Operating
leases
At
the inception of a contract, the Group determines if the arrangement is, or contains, a lease. Operating lease liabilities are recognized
at lease
commencement based on the present value of lease payments over the lease term. Operating lease right-of-use assets are initially
measured at cost, which
comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement
date, plus any initial direct costs
incurred and less any lease incentives received. As the rate implicit in the lease cannot be readily
determined, the Group uses incremental borrowing rate at
the lease commencement date in determining the imputed interest and present
value of lease payments. The incremental borrowing rate is determined based
on the rate of interest that the Group would have to pay
to borrow an amount equal to the lease payments on a collateralized basis over a similar term in a
similar economic environment. The
lease term for all of the Group’s leases includes the non-cancellable period of the lease plus any additional periods
covered by
either a Group’s option to extend (or not to terminate) the lease that the Group is reasonably certain to exercise, or an option
to extend (or not to
terminate) the lease controlled by the lessor. For operating leases, the Group recognizes a single lease cost on
a straight-line basis over the remaining lease
term.
The
Group has elected not to recognize right-of-use assets or lease liabilities for leases with an initial term of 12 months or less
and the Group
recognizes lease expense for these leases on a straight-line basis over the lease terms.
Warrants
The
Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s
specific terms
and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 480, Distinguishing
Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging
(“ASC 815”). The assessment considers whether the warrants are freestanding
financial instruments pursuant to ASC 480, meet
the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for
equity classification under
ASC 815, including whether the warrants are indexed to the Group’s own ordinary shares and whether the warrant holders could
potentially
require “net cash settlement” in a circumstance outside of the Group’s control, among other conditions for equity classification.
This
assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent
quarterly period end
date while the warrants are outstanding.
For
issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component
of equity
at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants
are required to be recorded as
liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter.
Changes in the estimated fair value of the warrants are
recognized as a non-cash gain or loss on the consolidated statements of operations.
For
equity-classified warrants that contain redemption features not solely within the control of the Company, the Company evaluates whether
temporary equity classification is required pursuant to ASC 480-10-S99-3A. When temporary equity classification is required, the initial
amount presented
in temporary equity is based on the redemption provisions of the instrument. If the redemption event is contingent and
not probable of occurring, no
subsequent adjustment to the temporary equity amount is required pursuant to S99-3A Paragraph 15.
Issuance
costs
Specific
incremental costs directly attributable to an offering of securities are allocated among the freestanding financial instruments issued
in the
transaction. The Company allocates issuance costs in proportion to the allocation of proceeds between the freestanding financial
instruments. Issuance costs
allocated to liability-classified instruments that are subsequently measured at fair value through earnings
are recognized in earnings in the period incurred.
Issuance costs allocated to equity-classified instruments are charged to additional
paid-in capital.
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.
F-13
APTORUM
GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Cost
of healthcare services
Cost
of healthcare services rendered represents cost in relation to the medical services provided including the compensation of the physicians,
cost of
pharmaceutical supplies and medicine and write-down of inventories.
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,
sponsored research expenses to universities and research institutions, and impairment of patent license
and laboratory equipment.
Government
Subsidies
The
Company’s subsidiaries received government subsidies from certain local governments. The Company’s government subsidies consisted
of
specific subsidies that are subsidies from the local government for a specific purpose, such as subsidies for research and development.
The Company
recorded specific subsidies as other income which is included in the consolidated statements of income upon receipt as further
performance by the
Company is not required. The government subsidies were approximately $nil, $0.9 million and $0.1 for the years
ended December 31, 2025, 2024 and
2023, respectively.
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 and comprehensive loss. Warrants issued to placement agents
or other non-
employees in exchange for services rendered in connection with equity offerings are accounted for under ASC 718 and classified
as equity when the
criteria for equity classification are met. Such warrants are measured at their grant date fair value using the Black-Scholes
option pricing model and
recognized as issuance costs of the related offering.
In
accordance with ASC 718, modifications to stock-based awards are accounted for as exchanges of the original awards for new awards.
The
incremental fair value, which is the difference between the fair value of the modified award and the original award immediately before
modification, is
measured at the modification date. This incremental fair value is recognized immediately as compensation cost for vested
awards. For unvested awards, the
incremental compensation cost, along with any remaining unrecognized compensation cost of the original
award, is recognized over the remaining requisite
vesting period.
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.
F-14
APTORUM
GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
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. Penalties and
interest incurred related to underpayment of income tax are classified
as income tax expense in the period incurred. 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
and the United States, 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, 2025, 2024 and 2023, and did not have any significant
unrecognized uncertain tax positions as of December 31, 2025 and 2024. The Group
does not believe that its assessment regarding
unrecognized tax benefits will materially change over the next twelve months.
Comprehensive
income or loss
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.
Segment
reporting
The
Group uses the management approach to determine operating segment. The management approach considers the internal organization and
reporting
used by the Group’s chief operating decision maker (“CODM’’) for making decisions, allocation of resource and
assessing performance.
The
Group operates and manages its business as a single operating and reportable segment. The Group’s CODM has been identified as the
Chief
Executive Officer who reviews the consolidated net income (loss) when making decisions about allocating resources and assessing
performance of the
Group. Significant segment expenses are the same as these presented under the operating costs and expenses in the
consolidated statements of operations,
and the difference between net revenue less the significant segment expenses and consolidated
net income are the other segment items. The CODM reviews
and utilizes these financial metrics together with non-financial metrics to
make operation decisions, such as the determination of the fee rate at which the
Company charges for its services and the allocation
of budget between operating costs and expense.
The
Group’s long-lived assets are substantially all located in Hong Kong and substantially all of the Group’s revenues are
derived from within
Hong Kong. Therefore, no geographical segments are presented.
Concentration
of 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 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.
F-15
APTORUM
GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Recently
adopted accounting pronouncements
In
December 2023, the FASB issued Accounting Standards Update (ASU) 2023-09, Income Taxes (Topic 740): Improvements to Income
Tax
Disclosures, which enhances the transparency and decision usefulness of income tax disclosures. The amendments address more transparency
about income
tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes
paid information. The ASU
also includes certain other amendments to improve the effectiveness of income tax disclosures. The amendments
in this ASU are effective for public
business entities for annual periods beginning after December 15, 2024 on a prospective basis.
Early adoption is permitted. The Group adopted ASU 2023-
09 from January 1, 2025 on a retrospective basis. The adoption of ASU2023-09 did not have material impact on the Company’s consolidated balance
sheets, statements of operations and
comprehensive loss, changes in equity and cash flows, but resulted in expanded income tax disclosures in Note 11 to
the consolidated financial
statements.
Recently
issued accounting standards which have not yet been adopted
ASU
No. 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation
of
Income Statement Expenses (“ASU 2024-03”), was issued in November 2024, which requires disclosure in the notes
to the financial statements, of
disaggregated information about certain costs and expenses that are included in expense line items on
the face of the income statement. The requirements of
ASU 2024-03 are effective for fiscal years beginning after December 15,
2026 and interim periods within fiscal years beginning after December 15, 2027
with early adoption permitted. The Company is
currently evaluating the impact, if any, that the adoption of this standard will have on its Consolidated
Financial Statements and disclosures.
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 financial statements.
4.
LONG-TERM INVESTMENT
As
of December 31, 2025 and 2024, the Group’s long-term investment consists of non-marketable investments with carrying value of $15,098,846
and
equity method investment at fair value option with carrying value of $nil.
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 (expenses), net in the consolidated statements
of operations and comprehensive loss.
F-16
APTORUM
GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
4.
LONG-TERM INVESTMENT (cont.)
The
following table summarizes the total carrying value of the non-marketable investments held as of December 31, 2025 and 2024 including
cumulative unrealized upward adjustments and impairment made to the initial cost basis of the investments:
December 31,
2025
December 31,
2024
Cost
basis
Upward
adjustments Impairment
Carrying
value
Cost
basis
Upward
adjustments Impairment
Carrying
value
Investment
A (1)
$ 2,558,886 $ 12,539,960 $
- $15,098,846 $ 2,558,886 $ 12,539,960 $
- $15,098,846
Investment
B (2)
1,000,000
- (1,000,000)
- 1,000,000
- (1,000,000)
-
Investment
C
520,821
-
(520,821)
-
520,821
-
(520,821)
-
$ 4,079,707 $ 12,539,960 $ (1,520,821) $15,098,846 $ 4,079,707 $ 12,539,960 $ (1,520,821) $15,098,846
The
following is a summary of annual upward or downwards adjustments and impairment recorded in other income (expenses), net, and included
as
adjustments to the carrying value of non-marketable investments held as of December 31, 2025, 2024 and 2023 based on the
observable price in an orderly
transaction for the same or similar security of the same issuers:
Year
ended
December 31,
2025
Year
ended
December 31,
2024
Year
ended
December 31,
2023
Upward adjustments (1)
$
— $
— $
6,431,088
Impairment (2)
—
(1,000,000)
-
Total
unrealized (loss) gain from fair value change of non-marketable investments, net
$
— $
(1,000,000) $
6,431,088
(1) The Group holds 622,600 Series B preferred stock of Alzheon, Inc. (“Alzheon”) with initial cost of $2.6 million with unit price of $4.11, which
represents 240,773 common stock converted as a conversion rate of $10.63. Pursuant to ASC 321-10-35-2, as the investment in Alzheon lacks readily
determinable fair values, the Group elects to account for this investment using the measurement alternative. The Group reviews Alzehon’s available
financial information and adjusts the carrying value of its investment based on preferred stock issuances reflected therein, which were deemed as
observable price changes in orderly transactions for the identical or similar investment of the same issuer.
During the year ended December 31, 2022, Alzheon issued its Series D preferred stock at $36.00 per share for aggregate gross proceeds of $50 million.
During the year ended December 31, 2023, Alzheon issued its Series E convertible preferred stock at a per share price of $62.71 for gross proceeds of
$45 million. During the year ended December 31, 2024, Alzheon issued its Series E convertible preferred stock at a per share price of $62.71 for gross
proceeds of $78 million. During the year ended December 31, 2025, Alzheon issued its Series E convertible preferred stock at a per share price of
$62.71 for gross proceeds of $5 million. Aside from the conversion price of the conversion rights being different, the other key terms, including
liquidation right, conversion right, voting power, dividend right and redemption right are aligned for Series B, Series D and Series E convertible
preferred stocks. The Group determines the Series D and Series E convertible preferred stocks financings are orderly transactions between market
participants for the identical or a similar investment of the same issuer and recorded as an upward in the carrying value of the security measured in
accordance with paragraph 321-10-35-2 to reflect the current fair value of the security as of the date that the observable transaction for the similar
security took place.
The Group made an upward adjustment of $6,108,872, from $2,558,886 to $8,667,758, based on Series D convertible preferred stock financing for the
year ended December 31, 2022, and made an upward adjustment of $6,431,088, from $8,667,758 to $15,098,846, based on Series E convertible
preferred stock financing for the year ended December 31, 2023. No such upward adjustments were made during the years ended December 31, 2025
and 2024.
The Group conducts a quarterly assessment to determine whether impairment exists in Alzheon’s equity securities, considering, among other factors,
the nature of the securities, financial condition of Alzheon and expected future cash flows. No impairment indicator was identified, and no impairment
was made during the years ended December 31, 2025 and 2024. The carrying value of the investment with Alzheon was $15,098,846 as of December
31, 2025 and 2024.
As
of December 31, 2025 and 2024, this investment was pledged for a convertible note issued to a related party (Note 15).
(2) The Group holds 3,333,333 Series B preferred stock of Investee B with
initial cost of $1.0 million at a purchase price of $0.30 per unit. There was no
observable orderly transactions of identical or similar
securities from the same issuer. The Group monitored the financial statements of the Investee B.
The Group recorded $1 million impairment
for this investment in the year ended December 31, 2024 since the Group considered the investees’ ability
to continue as a going
concern and the investment is not recoverable. The carrying value of this investment was $nil as of December 31, 2025 and
2024, respectively.
The
Group did not sell or transfer any non-marketable investments or record any realized gains or losses for the non-marketable investments
measured
at fair value on a non-recurring basis during the years ended December 31, 2025, 2024 and 2023.
F-17
APTORUM
GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
4.
LONG-TERM INVESTMENT (cont.)
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. The initial carrying value of the investment
was $77,200. For the year ended
December 31, 2023, the Group has determined that the carrying value of the investment is not recoverable
and this condition is determined to be other-
than-temporary. Consequently, an impairment for the investment of $nil, $nil and $77,200
has been recognized as of December 31, 2025, 2024 and 2023.
The
Company’s involvement with Libra includes equity ownership as mentioned in above and also amounts due from Libra as disclosed in
note 12.
The primary risks associated with this involvement include potential financial losses due to Libra’s operational performance
or inability to generate
sufficient cash flows. The Company’s maximum exposure to loss resulting from its involvement with Libra
is nil for the year ended December 31, 2025
and December 31, 2024 which was the amount due from Libra.
5.
REVENUE
During the second quarter of 2023, the Group made a decision to streamline its operations by terminating clinic services and suspending
non-lead
R&D projects. No revenue was generated for the year ended December 31, 2025 and 2024.
For the year ended December 31, 2023,
all revenue came from provision of healthcare services in Hong Kong.
6. OTHER
RECEIVABLES AND PREPAYMENTS
Other
receivables and prepayments as of December 31, 2025 and 2024 consisted of:
December 31,
2025
December 31,
2024
Prepaid
insurance
17,490
17,794
Prepaid
service fee
44,810
50,538
Rental
deposits
71,823
4,206
Other
receivables
—
4,545
Other
deposits
5,510
8,233
$
139,633 $
85,316
For
the years ended December 31, 2025, 2024 and 2023, the Group considered certain other receivables and prepayments were not recoverable
and
recorded write-off of other receivables and prepayments of $nil, $45,677 and $62,369, respectively.
7.
PROPERTY AND EQUIPMENT, NET
Property
and equipment as of December 31, 2025 and 2024 consisted of:
December 31,
2025
December 31,
2024
Computer
equipment
$
69,291 $
69,291
Furniture,
fixture, and office and medical equipment
32,435
32,435
Leasehold
improvements
108,187
108,187
Laboratory
equipment
4,335,722
4,335,722
Motor
vehicle
239,093
239,093
4,784,728
4,784,728
Less:
accumulated depreciation
4,784,728
4,784,728
Property
and equipment, net
$
— $
—
F-18
APTORUM
GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
7.
PROPERTY AND EQUIPMENT, NET (cont.)
Depreciation
expenses for property, plant and equipment amounted to $nil, $235,827 and $1,041,234 for the years ended December 31, 2025,
2024 and
2023 respectively.
For
the year ended December 31, 2025, no impairment loss was recorded.
For
the year ended December 31, 2024, an impairment loss relating to laboratory equipment, computer equipment, and furniture, fixture, and
office
equipment amounted to $1,421,782 and $5,520 were recorded in research and development expenses and other operating expenses, respectively,
as the
Group considered that the carrying amount of these property and equipment may not be recoverable.
For
the year ended December 31, 2023, an impairment loss relating to the office and medical equipment, and computer equipment related to
the Hong
Kong healthcare services amounted to $28,128, was recorded in other operating expenses, as the Group considered that, with the
termination of the
healthcare services, the carrying amount of these property and equipment are not recoverable and are fully impaired.
For
the years ended December 31, 2025 and 2024, the Group recorded $nil and $58,621 gain on disposal of medical equipment in other operation
expenses, respectively. For the year ended December 31, 2023, the Group recorded $79,822 of loss on disposal of laboratory equipment,
and furniture,
fixture, and office and medical equipment in other operating expenses.
8.
INTANGIBLE ASSETS, NET
December 31,
2025
December 31,
2024
Gross
carrying amount
Prepaid
patented licenses
$
200,000 $
200,000
Computer
software
223,858
223,858
423,858
423,858
Less:
accumulated amortization
Prepaid
patented licenses
200,000
200,000
Computer
software
223,858
223,858
423,858
423,858
Intangible
assets, net
Prepaid
patented licenses
—
—
Computer
software
—
—
Intangible
assets, net
$
— $
—
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 $ nil and $19,219 for the year ended December 31, 2025 and 2024 respectively.
For
the year ended December 31, 2023, the Group terminated two of the licenses. For the year ended December 31, 2024, the Group terminated
four of
the licenses. For the year ended December 31, 2025, the Group terminated 5 of the licenses.
The
Group considered that the carrying amount of these intangible assets are not recoverable and are fully impaired. As a result, the Group
recorded
$519,496 impairment loss on intangible assets in research and development expenses for the year ended December 31, 2023. Besides,
an impairment loss
related to the computer software for Hong Kong healthcare services amounted to $128,128 was recorded in research and
development expenses, and
$1,841 was recorded in other operating expenses for the year ended December 31, 2024 and 2023, respectively.
There is no such impairment loss during the
year ended December 31, 2025.
The
Group does not expect any amortization expense related to its finite-lived intangible assets for the next five years and thereafter
to be as follows as
of December 31, 2025.
F-19
APTORUM
GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
9.
LONG-TERM DEPOSITS
Long-term
deposits as of December 31, 2025 and 2024 consisted of:
December 31,
2025
December 31,
2024
Rental
deposits
$
— $
71,823
$
— $
71,823
10.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts
payable and accrued expenses as of December 31, 2025 and 2024 consisted of:
December 31,
2025
December 31,
2024
Research
and development expenses payable
830,189
778,205
Professional
fees payable
185,247
127,031
Others
56,279
13,375
$
1,071,715 $
918,611
11.
INCOME TAXES
The Company
and its subsidiaries file tax returns separately.
Income
taxes
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, 2025, 2024 and 2023. Therefore, no
Hong Kong profit tax has been provided for in the periods presented.
Our returns for 2019 and subsequent tax years remain subject
to examination by Hong Kong Inland Revenue Department.
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, 2025, 2024 and 2023. Therefore, no United Kingdom
profit tax has been provided for in the periods
presented. Our returns for 2021 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,
2025, 2024 and 2023. Therefore, no Singapore profit tax has been provided for in the periods
presented. Our returns for 2021 and subsequent tax years
remain subject to examination by the Singapore tax authority.
F-20
APTORUM
GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
11.
INCOME TAXES (cont.)
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, 2025, 2024
and 2023. Therefore, no United States profit tax has been provided for in the
periods presented. Our returns for 2022 and subsequent
tax years remain subject to examination by Internal Revenue Service.
Income/(loss)
before income tax expense is attributable to the following geographic locations:
Year
ended
December 31,
2025
Year
ended
December 31,
2024
Year
ended
December 31,
2023
Hong
Kong
$
(1,409,614) $
(3,944,692) $
(1,297,897)
Singapore
111,972
(252,611)
(2,956,296)
Other
jurisdictions
(78,788)
39,566
(86,782)
Loss
before income tax expense
$
(1,376,430)
(4,157,737)
(4,340,975)
For
the year ended December 31, 2025, 2024 and 2023, there was no current income tax expense and deferred income tax expense.
The
reconciliation of income taxes expenses computed at the Hong Kong statutory tax rate applicable to income tax expense is as follows:
Year
ended
December 31,
2025
Year
ended
December 31,
2024
Year
ended
December 31,
2023
Net
loss before tax
$(1,376,430)
100% $(4,157,737)
100% $(4,340,975)
100%
Hongkong
statutory income tax rate
16.5%
16.5%
16.5%
Provision for income tax benefit at Hong Kong statutory
income tax rate (16.5%)
(227,110)
16.5%
(686,027)
16.5%
(716,261)
16.5%
Domestic
tax effects
Non-taxable
interest income
(13,907)
1.0%
(5,477)
0.1% (1,071,774)
24.7%
Non-deductible
expenses
—
0.0%
195
0.0%
98,704
(2.3)%
Change
in valuation allowance
223,918
(16.3)%
702,123
(16.9)% 1,705,603
(39.3)%
Foreign
tax effects
Cayman
-Statutory
tax rate difference between Cayman and
Hong Kong
16,128
(1.2)%
(9,191)
0.2%
(5,078)
0.1%
Other
foreign jurisdictions
917
0.0%
(1,623)
0.1%
(11,185)
0.3%
Effective
income tax expense
$
—
—
$
—
—
$
—
—
F-21
APTORUM
GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
11.
INCOME TAXES (cont.)
Income
taxes paid by jurisdiction is as follows:
Year
ended
December 31,
2025
Year
ended
December 31,
2024
Year
ended
December 31,
2023
Hong Kong
$
— $
—
—
Singapore
—
—
—
Other jurisdictions
—
—
—
Total income taxes paid
$
—
—
—
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.
December 31,
2025
December 31,
2024
Deferred tax asset:
Net operating losses carryforwards
$
15,365,786 $
15,107,318
Depreciation and amortization
86,843
128,896
Impairment loss on assets
537,830
537,830
Total Deferred tax asset
15,990,459
15,774,044
Valuation allowance
(15,990,459)
(15,774,044)
Deferred tax asset,
net of valuation allowance
$
— $
—
As
of December 31, 2025 and 2024, the Group had net operating losses carryforwards of $93,107,417 and $91,436,307, respectively, including
its
Hong Kong, Singapore, the United States, and the United Kingdom operations, which are available to reduce future taxable
income and have an unlimited
carryover period. For the year ended December 31, 2025, there was no net operating losses carryforwards
expired, while net operating losses carryforwards
of $39,489 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 net operating losses carryforwards,
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:
December 31,
2025
December 31,
2024
December 31,
2023
Balance as of
January 1
$
15,774,044 $
17,407,156
15,705,088
Additions
223,918
702,123
1,705,603
Disposal
(7,503)
(2,335,235)
(3,535)
Balance
as of December 31
$
15,990,459 $
15,774,044
17,407,156
Uncertain
tax position
The
Group evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits,
and
measure the unrecognized benefits associated with the tax positions. As of December 31, 2025 and 2024, the Group did not have any
unrecognized
uncertain tax positions. For the years ended December 31, 2025, 2024 and 2023, the Company did not incur any interest and
penalties related to potential
underpaid income tax expenses.
12.
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, the Chief Executive Officer and Executive Director of the Group since November 2023.
He was a Non-executive Director from
June 2022 to November 2023. Before June 2022,
he was the Chief Executive Officer and Executive Director;
F-22
APTORUM
GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
12.
RELATED PARTY BALANCES AND TRANSACTIONS (cont.)
(b) Jurchen
Investment Corporation, the holding company and an entity controlled by Ian Huen;
(c) CGY Investment Limited, an entity owns more than 10% voting interest of the Group before April 2024;
(d) Aeneas
Group Limited, an entity controlled by Ian Huen;
(e) Aenco Technologies Ltd, an entity being 34.56% effectively owned by Ian Huen;
(f)
Aeneas
Management Limited, an entity controlled by Ian Huen;
(g) 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 13)
Amounts
due from related parties, net
Amounts
due from related parties consisted of the following as of December 31, 2025 and 2024:
December 31,
2025
December 31,
2024
Current
Libra
Sciences Limited (Note b)
522,192
522,192
Allowance
for credit loss
(522,192)
(522,192)
Total
$
— $
—
Amounts
due to related parties
Amounts
due to related parties consisted of the following as of December 31, 2025 and 2024:
December 31,
2025
December 31,
2024
Current
Aeneas Group Limited (Note a)
$
79,180 $
79,180
Ian Huen
—
464
$
79,180 $
79,644
Convertible notes to a related party
Jurchen Investment Corporation (Note 15)
3,418,500
3,238,500
Total
$
3,418,500 $
3,238,500
F-23
APTORUM
GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
12.
RELATED PARTY BALANCES AND TRANSACTIONS (cont.)
Related
party transactions
Related
party transactions consisted of the following for the years ended December 31, 2025, 2024 and 2023:
Year
ended
December 31,
2025
Year
ended
December 31,
2024
Year
ended
December 31,
2023
Loan from related parties
(Note a)
-
Aeneas Group Limited
$
- $
- $
2,500,000
Issuance
of Convertible Note to related parties (Note 15)
-
Jurchen Investment Corporation
$
- $
- $
3,000,000
Settlement
of loan from a related party through issuance of Convertible Note (Note 15)
-
Aeneas Group Limited
$
- $
- $
3,000,000
Interest
expenses (Note a and Note 15)
-
Aeneas Group Limited
$
- $
- $
71,123
-
Jurchen Investment Corporation
$
180,000 $
180,000 $
58,500
-
Aenco Technologies Ltd
$
- $
- $
(13,234)
Loan
to related parties (Note b)
-
Libra Sciences Limited
$
- $
- $
92,459
Loan
repayment and interest received from a related party (Note b)
-
Talem Medical Group Limited
$
- $
- $
611,641
Interest
income (Note b)
-
Talem Medical Group Limited
$
- $
- $
4,637
-
Libra Sciences Limited
$
- $
- $
8,963
Consultant,
secondment, management and administrative services fees (Note c)
-
CGY Investments Limited
$
- $
- $
153,640
-
ACC Medical Limited
$
- $
- $
138,768
Administrative
management services (Note d)
-
Libra Sciences Limited
$
- $
- $
9,615
Healthcare
services income
-
Aeneas Management Limited
$
- $
- $
961
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 four years to August 12, 2026.
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 issuance date of this consolidated financial statements, the
undrawn line of
credit facility is $12 million.
F-24
APTORUM
GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
12.
RELATED PARTY BALANCES AND TRANSACTIONS (cont.)
Note
b: On November 17, 2021, ATL entered into a loan agreement with Talem Medical Group Limited (the “Borrower”). According to
the loan
agreement, ATL granted a loan of up to AUD 4,700,000 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 was extended for 6 months to the first extended
maturity date, and further extended for another 6 months to the second extended
maturity date. As of the date of the issuance of this consolidated financial
statements, there is no outstanding balance from the Borrower
following a repayment in February 2023.
On
January 13, 2022, ATL 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. ATL and Libra Science Limited mutually agreed to terminate
the line of credit agreement effect as of March
31, 2023. All existing liabilities arising from the line of credit agreement shall remain
enforceable and repayable on demand by ATL. As of the issuance
date of this consolidated financial statements, $0.5 million is outstanding
from Libra Sciences Limited. For the year ended December 31, 2025, 2024 and
2023, the Group has assessed that the amounts due from Libra
Science Limited and its subsidiary are potentially unrecoverable, and an allowance for credit
loss amounting to $nil, $1,184 and $521,007
has been recognized, respectively.
Note
c: 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 monthly service fee is adjusted to HK$171,200 (approximately US$21,949) with effect from
March 1, 2022. In August 2023, CGY
Investment Limited agreed to suspend its monthly services fee from August 1, 2023. In November 2023,
CGY Investment Limited and the Group reached a
mutual agreement to terminate their contractual relationship.
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. During the year
ended December 31, 2023 and 2022, ACC Medical Limited also received $28,615 and $23,275 one-off compensation
respectively. The agreement was
terminated on June 30, 2023.
Note
d: On January 1, 2022, Aptus Management Limited (“AML”), a wholly owned subsidiary of the Company, entered into an administrative
management services agreement with Libra Sciences Limited. According to the agreement, AML 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. AML is entitled to receive a fixed amount of services fees of HKD 25,000 (approximately
$3,205) per calendar month with the original
expiry date on December 31, 2023. AML and Libra Sciences Limited mutually agreed to terminate
the administrative management service agreement effect
as of March 31, 2023.
F-25
APTORUM
GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
13.
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.
In
November 2024, the Group acquired 10,000 Class A Ordinary Shares and 5,850,000 Class B Ordinary Shares of Scipio, achieving
control over the
entity. As a result of this acquisition, Scipio is no longer classified as a VIE under the Group and it became a subsidiary
under the Group.
In
October 2024, Mios was dissolved and ceased operation and it was deemed disposed by the Group.
As
at the year ended December 31, 2025 and 2024, the asset and liability of the consolidated VIE is both zero.
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.
F-26
APTORUM
GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
14.
LEASE
As
of December 31, 2025, the Group has a long-term operating lease for laboratories with remaining term expiring in 2026 and a remaining
lease term
of 0.2 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.
For the
year ended
December 31,
2025
For the
year ended
December 31,
2024
For the
year ended
December 31,
2023
Lease cost
Operating lease cost
—
50,520
252,345
Short-term lease cost
—
3,374
65,221
Total lease cost
$
— $
53,894
317,566
Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
$
98,448 $
120,824
389,365
Weighted-average remaining lease term – operating leases
0.2 years
1.2 years
1.9 years
Weighted-average discount rate – finance leases
—%
—%
—%
Weighted-average discount rate – operating leases
8.0%
8.0%
8.0%
For
the years ended December 31, 2025, the Group did not recognize any impairment losses and loss on disposal of right-of-use assets.
For
the year ended December 31, 2024, an impairment loss of $144,051 on right-of-use assets was recognized in other operating expenses as
the Group
considered that the carrying amount of a right-of-use asset related to a lease of laboratory may not be recoverable.
For
the year ended December 31, 2023, an impairment loss of $200,916 on right-of-use assets was recognized in other operating expenses as
the Group
considered that the carrying amount of a right-of-use asset related to a lease of clinic may not be recoverable. Additionally,
the Group early terminated a
lease agreement for a right-of-use asset relating to an office, which resulted in a recognized loss on early
termination of the right-of-use asset totaling
$31,030 in other operating expenses.
The
maturity analysis of operating leases liabilities as of December 31, 2025 is as follows:
December 31,
2025
Remaining
periods ending December 31,
2026
24,573
Total
future undiscounted cash flow
24,573
Less:
Discount on operating lease liabilities
(145)
Present
value of operating lease liabilities
24,428
F-27
APTORUM
GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
15.
CONVERTIBLE NOTE
On
September 11, 2023, the Group entered into a securities purchase agreement with Jurchen Investment Corporation, the largest shareholder
of the
Company, pursuant to which the Group sold a secured convertible note in the aggregate principal amount of $3,000,000 (the “Sep
2023 Notes”). The Sep
2023 Notes are convertible into the Company’s Class A Ordinary Shares and have a maturity date
that is 24 months from the issuance date, although upon
such date the investor has the right to extend the term of the Sep 2023
Note for twelve (12) months or more or such term subject to mutual consent. The
Sep 2023 Notes have an interest rate of 6% per annum
and a conversion price of $2.42 per share. The Company has the right to repay the principal amount
of the Sep 2023 Notes, but in the
case of such prepayment it must be paid in cash, unless otherwise agreed by both parties. The Sep 2023 Note is secured
by a first priority
lien and security interest on certain preferred shares that the Group owns (“Collateral”) (Note 4). Upon the Group’s
disposal of all or a
portion of the Collateral, the investor has the right, to request that the Group prepay the then-remaining outstanding
balance of the Sep 2023 Note, in part or
in full and the Group can make that payment in cash or in shares.
16.
ORDINARY SHARES
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) were 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) were consolidated into 1 Class B Ordinary Share, par value of
US$10.00 per share. As
a consequence of the reverse stock split, fractional shares were rounded up to the next whole share, resulting in the creation of an
additional 8,018 Class A Ordinary Shares.
On
February 21, 2023, the Company was merged with Aptorum Group Cayman Limited, a newly established wholly owned subsidiary of the
Company,
whereby the Company is the surviving company on the terms of the plan of merger. According to the plan of merger, the par value of its
Class A
and Class B Ordinary Shares are changed from USD 10 to USD 0.00001.
On
March 31, 2023, the Group issued 70,430 Class A Ordinary Shares to a majority of the share option holders. This issuance served
as an exchange
for their share options and facilitated the reversal of deferred cash bonus payables owed to these holders (See Note 10).
On
March 31, 2023, the Group also issued 65,770 fully vested Class A Ordinary Shares to certain employees and external consultants.
The grant date
fair value of each of the shares was $2.68 based on grant date quoted market price.
On
June 28, 2023, the Group entered into a securities purchase agreement with 4 investors. Pursuant to the securities purchase agreement,
the investors
are purchasing a convertible note in the original principal amount of $3,000,000 (the “June 2023 Note”).
The whole proceeds from the June 2023 Note was
used to settle a related party loan. The June 2023 Note is unsecured, convertible into
the Company’s restricted Class A Ordinary Shares at the Note holders’
option. The June 2023 Notes have a maturity date of
12 months subject to the investors extension, a bullet interest rate of 7% per annum, and a conversion
price of $3.00 per Class
A Ordinary share. The Company shall have an obligation to repay the principal amount and interest of the June 2023 Note on the
maturity
date in cash or in unregistered Class A Ordinary Shares or a combination of such at the Company’s discretion. Immediately following
the issuance
of June 2023 Note, the June 2023 Note was fully converted into 1,000,000 Class A Ordinary Shares.
For
the year ended December 31, 2023, the Group issued 1,250,000 Class A Ordinary Shares to convertible note holders upon conversion
(See Note
15).
F-28
APTORUM
GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
16.
ORDINARY SHARES (cont.)
For
the year ended December 31, 2024 and 2023, the Group issued 427,060 and 791 Class A Ordinary Shares to share option holders as a result
of
exercise of options, respectively.
For
the year ended December 31, 2024, the Group issued 446,842 Class A Ordinary Shares to Class B Ordinary Shares holders upon conversion.
On
January 2, 2025, the Company entered into a certain securities purchase agreement (the “Securities Purchase Agreement”) with
certain non-
affiliated institutional investors (the “Purchasers”) pursuant to which the Company sold 1,535,000 Class A ordinary
shares of the Company (the “Shares”),
par value $0.00001 per share (the “Ordinary Shares”) at a per share price
of $2.00 in a registered direct offering, for gross proceeds of $3,070,000 (the
“January 2025 Offering”) and the net proceeds
after deducting the related expense is $2,699,200. The Securities Purchase Agreement was fully executed on
January 3, 2025.
On
October 14, 2025, the Company closed an offering of 1,000,000 Class A ordinary shares at a purchase price of $2.00 per unit, with each
unit
consisting of one Class A ordinary share and two restricted warrants (the "Investor Warrants", see Note 20) to purchase
one Class A ordinary share each,
for aggregate gross proceeds of $2,000,000 (the "October 2025 Offering"). Cash issuance costs
are $284,001 and the net proceeds from the October 2025
Offering were approximately $1,716,000.
Of
the $2,000,000 gross proceeds, $996,000 was allocated to the liability-classified Investor Warrants at their fair value (see Note 20),
with the residual
$1,004,000 allocated to the equity-classified Class A ordinary shares.
In
connection with the October 2025 Offering, the Company issued warrants to purchase 60,180 Class A ordinary shares to the placement agent’s
designees (the "Placement Agent Warrants") at an exercise price of $2.50 per share. The Placement Agent Warrants had a grant-date
fair value of $23,606
(see Note 17) which was treated as an issuance cost of the offering.
Cash
issuance costs of $284,001 and the Placement Agent Warrant fair value of $23,606 were allocated between the liability and equity instruments
in
proportion to the allocation of proceeds ($141,433 and $11,756, respectively, to the warrant liability, expensed as incurred; and
$142,568 and $11,850,
respectively, to equity, charged to additional paid-in capital).
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.
17.
SHARE BASED COMPENSATION
Share
option plan
On
October 13, 2017, the Group adopted the 2017 Share Option Plan (the “Option Plan”) and on November 5, 2021, the Group amended
the Option
Plan. A total of 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.
F-29
APTORUM
GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
17.
SHARE BASED COMPENSATION (cont.)
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.
On
March 31, 2023, the Group entered into exchange agreements and cancelled 177,667 existing vested and unvested share options
held by related
parties option holders and cancelled the Group’s obligations for deferred cash bonus payables of $3.1 million
by granting of 403,820 share options (“New
Options”) with 6 months vesting period. The New Options’
exercise price was $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. All options fully vested on October 1, 2023 and expires on September 30, 2033. On March 31,
2023, the Group entered
into supplemental agreements with the same related parties option holders to provide additional cash compensation to cover the
exercise
price of the New Options. On March 31, 2023, the Group entered into exchange agreements and cancelled 70,428 existing vested
and unvested
share options held by non-related parties option holders and cancelled the Group’s obligations for deferred cash bonus
payables of $1.6 million by issuance
of 70,430 fully vested Class A Ordinary Shares. The Group accounted for this exchange
for both related parties and non-related parties share option holders
as a modification to share based compensation which required the
remeasurement of existing share options value at the time of the modification. The total
incremental cost as a result of the modification
was $0.7 million.
A
summary of the option activity for the years ended December 31, 2025, 2024 and 2023 changes during the period are presented
below:
Number of
share
options(1)
Weighted
average
exercise
price
$
Remaining
contractual
term in years
Aggregate
Intrinsic
value
Outstanding, January 1, 2025
—
—
—
Outstanding, December 31, 2025
—
—
—
—
Exercisable, December 31, 2025
—
—
—
—
Vested, December 31, 2025
—
—
—
—
Outstanding, January 1, 2024
427,060
3.59
9.28
Exercised
(427,060)
1.49
1,436,963
Outstanding, December 31, 2024
—
—
—
—
Exercisable, December 31, 2024
—
—
—
—
Outstanding, January 1, 2023
272,126
21.54
10.83
Granted
403,820
2.68
Exercised
(791)
20.90
—
Modified
(248,095)
21.74
Outstanding, December 31, 2023
427,060
3.59
9.28
—
Exercisable, December 31, 2023
420,157
3.43
9.42
—
(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.
F-30
APTORUM
GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
17.
SHARE BASED COMPENSATION (cont.)
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.
Placement
agent warrants
In
connection with the October 2025 Offering (see Note 16), the Company issued warrants to purchase 60,180 Class A ordinary shares to the
placement agent’s designees at an exercise price of $2.50 per share. The Placement Agent Warrants were immediately exercisable
upon issuance on
October 10, 2025 and expire on the earlier of 24 months from the effective date of a registration statement or October
10, 2030. The Placement Agent
Warrants are accounted for under ASC 718 as share-based compensation issued in exchange for services. The
grant date fair value of the Placement Agent
Warrants was $23,606 which was treated as an issuance cost of the October 2025 Offering
(see Note 16). The Placement Agent Warrants were classified as
temporary equity under ASC 480-10-S99-3A due to certain contingent redemption
provisions in the warrant. The contractual redemption amount of the
Placement Agent Warrants on the issuance date was $47,000, which
was reclassified from additional paid-in capital to temporary equity. Since the
contingent event is not probable to occur, no subsequent
remeasurement of the temporary equity amount is required. See Note 20 for additional information
regarding warrants.
18.
NON-CONTROLLING INTEREST
On
February 1, 2023, Aptorum Medical Limited issued 122 shares to Clark Cheng in according to the appointment agreement, decreasing
the equity
interest of the Company from 91% to 90%. As a result, a total deficit of $67,766 was reclassified from additional
paid-in capital to non-controlling interests
within the Group’s consolidated financial statements for the years ended December
31, 2023.
In
November 2024, the Group acquired 10,000 Class A Ordinary Shares and 5,850,000 Class B Ordinary Shares of Scipio, achieving
control over the
entity. As a result of this acquisition, Scipio is no longer classified as a VIE under the Group and it became a subsidiary
under the Group.
19.
NET LOSS PER SHARE
The
following table sets forth the computation of basic and diluted loss per share:
Year
ended
December 31,
2025
Year
ended
December 31,
2024
Year
ended
December 31,
2023
Numerator:
Net
loss attributable to Aptorum Group Limited
$
(1,363,270) $
(4,267,806)
(2,824,647)
Denominator:
Basic
and diluted weighted average shares outstanding
7,351,784
5,453,103
4,521,133
Net
loss per share attributable to Aptorum Group Limited(1)
Basic
and diluted loss per share
$
(0.19) $
(0.78)
(0.62)
Basic
loss per share is computed by dividing net loss attributable to ordinary shareholders by the weighted average number of ordinary shares
outstanding during the period. Diluted 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. For the year ended December 31, 2025, 2024 and 2023,
the total number of share options, warrants and convertible notes
excluded from the calculation of diluted earnings per share due to
their anti-dilutive nature, are 3,452,457, 1,392,277 and 1,293,723, respectively.
20.
WARRANTS
In
connection with the October 2025 Offering (see Note 16), the Company issued Investor Warrants to purchase 2,000,000 Class A ordinary
shares and
Placement Agent Warrants to purchase 60,180 Class A ordinary shares.
The
Investor Warrants are exercisable immediately at an exercise price of $2.00 per share and expire twenty-four months from the effective
date of a
registration statement registering for resale the ordinary shares underlying the Investor Warrants. The Investor Warrants were
classified as liabilities under
ASC 815 due to certain settlement provisions that preclude equity classification.
F-31
APTORUM
GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
20.
WARRANTS (cont.)
The
fair value of the Investor Warrants was determined using a binomial option pricing model with the following inputs:
As
of
October 14,
2025
As
of
December 31,
2025
Stock price
$
1.59 $
1.06
Exercise price
$
2.00 $
2.00
Expected term
2.5 years
1.93 years
Risk-free rate
3.49%
3.48%
Expected volatility
58.80%
58.10%
Dividend rate
0.00%
0.00%
Dilution factor
1
1
Fair value per share
$
0.498 $
0.153
Expected
volatility was based on the historical volatility of comparable publicly traded companies. The Company recognized a gain of $690,000
on the
change in fair value of the Investor Warrant liability for the year ended December 31, 2025, included in "Change in fair
value of warrant liability" in the
consolidated statements of operations.
The
Placement Agent Warrants are exercisable immediately upon issuance and expire on the earlier of (i) 24 months from the effective date
of a
registration statement or (ii) October 10, 2030.
The
grant-date fair value of the Placement Agent Warrants was $23,606, determined using the Black-Scholes option pricing model with the following
inputs: stock price of $1.59, exercise price of $2.50, expected term of 2.5 years, risk-free rate of 3.48%, and expected volatility of
58.8% based on
comparable public companies. The fair value of the Placement Agent Warrants was treated as an issuance cost of the October
2025 Offering (see Note 16).
See Note 20 for additional information regarding warrants.
The
Placement Agent Warrants were classified as temporary equity under ASC 480-10-S99-3A due to certain contingent redemption provisions
in the
warrant. The contractual redemption amount of the Placement Agent Warrants on the issuance date was $47,000, computed using the
following
contractually specified inputs: stock price of $1.59, exercise price of $2.50, expected volatility of 100%, risk-free rate
of 3.48%, and remaining term of 2.5
years. This amount was reclassified from additional paid-in capital to temporary equity on the issuance
date. Since the contingent event is not probable to
occur, no subsequent remeasurement of the temporary equity amount is required.
As
of December 31, 2025, the Company had 2,060,180 warrants outstanding to purchase Class A ordinary shares with a weighted-average exercise
price of $2.01 and a weighted-average remaining contractual term of approximately 1.9 years.
F-32
APTORUM
GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)
21.
COMMITMENTS AND CONTINGENCIES
Contingent
Payment Obligations
As
of December 31, 2025, the Group does not have any non-cancellable purchase commitments.
The
Group has 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 due upon achievements of specific 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
amounts of the contingent
milestone payments that the Group is required to pay up to different achievements of conditions and milestones
under all license agreements in effect as of
December 31, 2025 are below:
Amount
Drug molecules: up to the
conditions and milestones of
From
entering phase 1 to before first commercial sale
920,000
First
commercial sale
800,000
Net
sales amount more than certain threshold in a year
7,000,000
Subtotal
$
8,720,000
For
the years ended December 31, 2025, 2024 and 2023, the Group incurred $nil, $61,123 and $50,000 milestone payments under license
agreements,
respectively. For the years ended December 31, 2025, 2024 and 2023, the Group did not incur any royalties or research
and development funding,
respectively.
Legal
proceedings
The
Group is party to a lawsuit initially filed on notice on September 3, 2024, by Karen Cheung (“Plaintiff”) in the Supreme
Court of the State of New
York, County of New York (“State Court Action”) (Index No. 654541/2024), which sought relief arising
from (i) violations of the federal Racketeer
Influenced and Corrupt Organizations Act (“RICO”), 18 § U.S.C. 1961(c),
(ii)conspiracy to violate RICO, 18 U.S.C. § 1961(d), (iii) fraud, (iii) breach of
fiduciary duty, (iv) negligent misrepresentation,
(v) unjust enrichment, (vi) civil conspiracy and (vii) violations of the federal Securities Act of 1933, 15 §
U.S.C. 77a et. seq.
On December 27, 2024, the Group filed a Notice of Removal in the U.S. District Court for the Southern District of New York (Case
No.1:24-cv-09969-VSB-OTW)
removing the State Court Action to federal court. On December 30, 2024, the Group filed a demand for service of the
complaint on the
Group. Plaintiff filed and served her Complaint on the Group on February 24, 2025, alleging claims for (i) violations of RICO 18 U.S.C.
§
1962(c), (ii) conspiracy to violate RICO 18 U.S.C. § 1962(d), (iii) fraud; (iv) aiding and abetting breach of fiduciary duty,
(v) unjust enrichment, and (vi)
civil conspiracy. Following a motion, Plaintiff was granted leave to amend her Complaint and filed a
First Amended Complaint on September 2, 2025. The
parties entered into a briefing schedule on the Group’s anticipated motion to
dismiss (“Motion to Dismiss”), and the Group filed its opening brief on the
Motion to Dismiss on July 18, 2025. Plaintiff
filed her opposition to the Motion to Dismiss on September 5, 2025, and the Company’s reply in support of
the Motion to Dismiss
is due on October 6, 2025. The Group continues to believe that Plaintiff’s claims have no merit. As such, the Group will continue
to
vigorously defend against Plaintiff’s claims. At this time, it is too early to estimate the costs and expenses of defending
the lawsuit.
From
time to time, the Group may be subject to certain legal proceedings, claims and disputes that arise in the ordinary course of business.
Although
the outcomes of these legal proceedings cannot be predicted, the Group does not believe these actions, in the aggregate, will
have a material adverse impact
on its financial position, results of income or liquidity.
22.
SUBSEQUENT EVENTS
The
Group evaluates all events and transactions that occur after December 31, 2025, there is no subsequent event occurred that
would require
recognition or disclosure in the Group’s consolidated financial statements.
F-33
Exhibit 12.1
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
I, Ian Huen, 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:
March 27, 2026
/s/ Ian Huen
Name: Ian Huen
Title:
Chief Executive Officer
(Principal Executive Officer)
Exhibit 12.2
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
I, Wong Kwok Kuen, 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:
March 27, 2026
/s/ Wong Kwok Kuen
Name: Wong Kwok Kuen
Title:
Head of Finance
(Principal Financial Officer)
Exhibit 13.1
Certifications Pursuant
to 18 U.S.C. Section 1350
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
officers of Aptorum Group Limited (the “Company”), do hereby certify, to such officer’s knowledge, that:
The Annual Report on
Form 20-F for the year ended December 31, 2025, 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: March 27, 2026
/s/ Ian Huen
Ian Huen
Chief Executive Officer
(Principal Executive Officer)
/s/ Wong Kwok Kuen
Wong Kwok Kuen
Head of Finance
(Principal Financial Officer)
Exhibit
15.1
Independent Registered Public Accounting
Firm’s Consent
We consent to the incorporation by reference in the Registration Statement on Form F-3 (FILE NO. 333-292793) and Form S-8 (FILE NO. 333-281028)
of
our report dated March 27, 2026 relating to the financial statements of Aptorum Group Limited appearing in this Annual Report on Form
20-F for the year
ended December 31, 2025.
/s/ Marcum Asia CPAs LLP
Guangzhou, China
March 27, 2026