As filed with the Securities and Exchange Commission on July 19,
2018
Registration No. 333-
UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM F-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933
INTELLIPHARMACEUTICS
INTERNATIONAL INC.
(Exact name of
Registrant as specified in its charter)
Not Applicable
(Translation of
Registrant’s name into English)
|
Canada
|
2834
|
Not Applicable
|
|
(State
or other jurisdiction of incorporation or
organization)
|
(Primary
Standard Industrial Classification Code Number)
|
(I.R.S.
Employer Identification Number)
|
Intellipharmaceutics
International
Inc.
30 Worcester Road
Toronto, Ontario
Canada, M9W 5X2
(416)
798-3001
(Address, including zip code, and telephone number, including area
code, of Registrant’s principal executive
offices)
Corporation Service Company
1090
Vermont Avenue N.W.
Washington, D.C. 20005
(800)
927-9800
(Name, address,
and telephone number of agent for service)
_________________________
With copies to:
|
Richard DiStefano, Esq.
Brian North, Esq.
Buchanan Ingersoll & Rooney PC
640 Fifth Avenue
New York, New York 10019-6102
Telephone: (212) 440-4455
Facsimile: (212) 440-4401
|
Tina M. Woodside, Esq.
Gowling WLG (Canada) LLP
Suite 1600, 1 First Canadian Place
100 King Street West
Toronto, Ontario M5X 1G5
Telephone: (416) 369-4584
Facsimile: (416) 862-7661
|
Approximate date of commencement of proposed
sale to the public: From time to time after the effective
date of this registration statement.
If any
of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following
box. ☐
If this
Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. ☐
If this
Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same
offering. ☐
If this
Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same
offering. ☐
Indicate by check
mark whether the registrant is an emerging growth company as
defined in Rule 405 of the Securities Act of 1933.
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 7(a)(2)(B) of the Securities
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.
CALCULATION OF REGISTRATION FEE
|
Title
of Each Class of Securities To Be Registered (1)
|
Amount
to be Registered (2)
|
Proposed
Maximum Offering Price Per Share(3)
|
Proposed
Maximum Aggregate OfferingPrice(3)
|
Amount
of Registration Fee(3)
|
|
Common shares, no
par value (“Common Shares”)
|
$6,858,334
|
$0.455
|
3,120,542
|
$388.51
|
(1)
Pursuant to Rule
416 under the U.S. Securities Act of 1933, as amended (the
“Securities Act”), (i) the securities being registered
hereunder include such indeterminate number of additional Common
Shares as may, from time to time, become issuable by reason of
stock splits, stock dividends, recapitalizations or other similar
transactions and (ii) if prior to completion of the distribution of
the securities covered hereby, all the securities of a class which
includes the registered securities are combined by a reverse stock
split into a lesser amount of securities of the same class, the
amount of undistributed securities of such class deemed to be
covered hereby shall be proportionately reduced.
(2)
Represents
6,858,334 Common Shares issuable upon the exercise of certain
outstanding warrants at exercise prices of $0.60, $1.25, $0.75 or
$1.375 per share, to be offered and sold by the selling
shareholders named in this registration statement.
(3)
Estimated solely
for purposes of computing the amount of the registration fee
pursuant to Rule 457(c) under the Securities Act, based on the
average of the high and low prices of the Registrant's Common
Shares on July 16, 2018 as reported on The Nasdaq Capital Market,
which date is within five business days of the filing of this
registration statement.
The
Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective
in accordance with Section 8(a) of the Securities Act or until this
Registration Statement shall become effective on such date as the
Securities and Exchange Commission, acting pursuant to Section 8(a)
of the Securities Act, may determine.
The information in this prospectus is not complete and may be
changed. The selling shareholders may not sell these securities
until the Securities and Exchange Commission declares our
registration statement effective. This preliminary prospectus is
not an offer to sell these securities and is not soliciting an
offer to buy these securities in any state where the offer or sale
is not permitted.
Subject to completion, dated July 19, 2018
PRELIMINARY PROSPECTUS
INTELLIPHARMACEUTICS INTERNATIONAL INC.
6,858,334 Common Shares
We are
registering an aggregate of 6,858,334 Common Shares for resale by
certain of our shareholders identified in this prospectus. The
6,858,334 Common Shares consist of (i) 4,416,667 Common Shares
underlying outstanding warrants having an initial exercise price of
$0.60 per share (subject to customary adjustments for share splits
and dividends), (ii) 1,818,182 Common Shares underlying outstanding
warrants having an initial exercise price of $1.25 per share
(subject to customary adjustments for share splits and dividends)
(iii) 441,667 Common Shares underlying outstanding warrants having
an initial exercise price of $0.75 per share (subject to customary
adjustments for share splits and dividends) and (iv) 181,818 Common
Shares underlying outstanding warrants having an initial exercise
price of $1.375 per share (subject to customary adjustments for
share splits and dividends). We will not receive any proceeds from
the resale of the Common Shares by the selling shareholders. Any
proceeds received by us from the exercise of the warrants will be
used for general corporate purposes, which may include working
capital, R&D, accounts payable, and other commercial
expenditures. The selling shareholders will bear all commissions
and discounts, if any, attributable to the sale of the Common
Shares. We will pay for the expenses of this offering, which are
estimated to be $145,570.
The
selling shareholders may offer our Common Shares from time to time
in a number of different methods and at varying prices. For more
information on possible methods of offer and sale by the selling
shareholders, please see the section entitled “Plan of
Distribution” beginning on page 21 of this
prospectus.
Our
Common Shares are listed for trading on the Toronto Stock Exchange
(the “TSX”), and on the Nasdaq Capital Market
(“Nasdaq”), under the symbol “IPCI.” On
July 16, 2018, the closing sale price of our Common Shares as
reported by the TSX and Nasdaq was Cdn$0.66 and $0.47,
respectively. We are seeking approval from our shareholders to
grant our Board of Directors the discretion to implement a reverse
stock split of our Common Shares (the “reverse split”)
if then necessary to attempt to meet the minimum bid price
continued listing requirement of Nasdaq. If the trading price of
our Common Shares increases before a reverse split is effected, the
reverse split may not be necessary. No decision has been made yet
by our Board of Directors to implement a reverse
split.
You
should rely only on the information contained herein or
incorporated by reference in this prospectus. Neither we nor any
selling shareholder has authorized any other person to provide you
with different information.
Investing in our securities involves risks. See “Risk
Factors” beginning on page 6 of this prospectus and in
the documents incorporated by reference into this prospectus for a
discussion of risks that should be considered in connection with an
investment in our securities.
The
Company’s registered office and head office is located at 30
Worcester Road, Toronto, Ontario, Canada, M9W 5X2.
We
are a foreign private issuer under United States
(“U.S.”) securities laws. The financial statements
incorporated herein by reference have been prepared in accordance
with accounting principles generally accepted in the United States
of America (“U.S. GAAP”).
The
enforcement by investors of civil liabilities under U.S. federal
securities laws may be affected adversely by the fact that the
Company is incorporated under the laws of Canada, that all of its
officers and directors are residents of Canada, that some or all of
the experts named in the registration statement are residents of a
foreign country, and that a substantial portion of the assets of
the Company and said persons are located outside the United
States.
NEITHER THE U.S. SECURITIES AND EXCHANGE COMMISSION (THE
“SEC”) NOR ANY STATE SECURITIES COMMISSION OR CANADIAN
SECURITIES REGULATOR HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The
date of this prospectus is , 2018
TABLE OF CONTENTS
|
|
Page
|
ABOUT THIS PROSPECTUS
This
prospectus relates to the resale by the selling shareholders
identified in this prospectus under the caption “Selling
Shareholders,” from time to time, of up to an aggregate of
6,858,334 Common Shares issuable upon exercise of certain
outstanding warrants. As described below under “Prospectus
Summary—Equity Offerings,” the Common Shares registered
by this prospectus are issuable upon exercise of warrants to
purchase up to 1,818,182 Common Shares for an initial exercise
price of $1.25 per share issued in October 2017, warrants to
purchase up to 181,818 Common Shares for an initial exercise price
of $1.375 per share issued in October 2017, warrants to purchase up
to 4,416,667 Common Shares for an initial exercise price of $0.60
per share issued in March 2018, and warrants to purchase up to
441,667 Common Shares for an initial exercise price of $0.75 per
share issued in March 2018. All of the warrants issued in October
2017 are exercisable by the selling shareholders; the warrants
issued in March 2018 are not yet exercisable. We are not selling
any Common Shares under this prospectus, and we will not receive
any proceeds from the sale of Common Shares offered hereby by the
selling shareholders.
The
registration statement we filed with the SEC includes exhibits that
provide more detail of the matters discussed in this prospectus.
You should read this prospectus, the related exhibits filed with
the SEC, and the documents incorporated by reference herein before
making your investment decision. You should rely only on the
information provided in this prospectus and the documents
incorporated by reference herein or any amendment thereto. In
addition, this prospectus contains summaries of certain provisions
contained in some of the documents described herein, but reference
is made to the actual documents for complete information. All of
the summaries are qualified in their entirety by the actual
documents. Copies of some of the documents referred to herein have
been filed, will be filed or will be incorporated by reference as
exhibits to the registration statement of which this prospectus is
a part, and you may obtain copies of those documents as described
below under the heading “Where You Can Find More Information:
Incorporation by Reference.” Information contained in
later-dated documents incorporated by reference will automatically
supplement, modify or supersede, as applicable, the information
contained in this prospectus or in earlier-dated documents
incorporated by reference.
We have
not, and the selling shareholders have not, authorized anyone to
provide any information or to make any representations other than
those contained in this prospectus, the documents incorporated by
reference herein or in any free writing prospectuses prepared by or
on behalf of us or to which we have referred you. We take no
responsibility for, and can provide no assurance as to the
reliability of, any other information that others may give you.
This prospectus is an offer to sell only the securities offered
hereby, and only under circumstances and in jurisdictions where it
is lawful to do so. This prospectus does not constitute, and may
not be used in connection with, an offer to sell, or a solicitation
of an offer to buy, any securities offered by this prospectus by
any person in any jurisdiction in which it is unlawful for such
person to make such an offer or solicitation. The information
contained in this prospectus, the documents incorporated by
reference herein or in any applicable free writing prospectus is
current only as of its date, regardless of its time of delivery or
any sale of our securities. Our business, financial condition,
results of operations and prospects may have changed since that
date.
For
investors outside the United States: We have not, and the selling
shareholders have not, done anything that would permit this
offering or possession or distribution of this prospectus in any
jurisdiction where action for that purpose is required, other than
in the United States. Persons outside the United States who come
into possession of this prospectus must inform themselves about,
and observe any restrictions relating to, the offering of the
securities and the distribution of this prospectus outside the
United States.
We
further note that the representations, warranties and covenants
made by us in any agreement that is filed as an exhibit to any
document that is incorporated by reference into this prospectus
were made solely for the benefit of the parties to such agreement,
including, in some cases, for the purpose of allocating risk among
the parties to such agreement, and should not be deemed to be a
representation, warranty or covenant to you. Moreover, such
representations, warranties or covenants were accurate only as of
the date when made. Accordingly, such representations, warranties
and covenants should not be relied on as accurately representing
the current state of our affairs.
References to
“$,” “U.S. $” or “dollars” are
to U.S. dollars, and all references to “Cdn $” are to
the lawful currency of Canada. In this prospectus, where
applicable, and unless otherwise indicated, amounts are converted
from U.S. dollars to Canadian dollars and vice versa by applying
the closing rate of exchange of the Bank of Canada on July 16,
2018. See “Exchange Rate Information.” Except as
otherwise indicated, our consolidated financial statements and
other information are presented in U.S. dollars.
Any
reference in this prospectus to our “products” includes
a reference to our product candidates and future products we may
develop.
Whenever we refer
to any of our current product candidates (including additional
product strengths of products we are currently marketing) and
future products we may develop, no assurances can be given that we,
or any of our strategic partners, will successfully commercialize
or complete the development of any of such product candidates or
future products under development or proposed for development, that
regulatory approvals will be granted for any such product candidate
or future product, or that any approved product will be produced in
commercial quantities or sold profitably.
1
In this
prospectus, any prospectus supplement, and/or the documents
incorporated by reference herein or therein, we refer to
information regarding potential markets for our products, product
candidates and other industry data. We believe that all such
information has been obtained from reliable sources that are
customarily relied upon by companies in our industry. However, we
have not independently verified any such information.
Unless
the context otherwise requires, references in this prospectus to
our Common Shares, including prices per Common Share, do not
reflect the implementation of a proposed reverse split to be
considered at our 2018 Special Meeting of Shareholders scheduled to
be held on August 15, 2018.
Intellipharmaceutics™,
Hypermatrix™, Drug
Delivery Engine™,
IntelliFoam™,
IntelliGITransporter™,
IntelliMatrix™,
IntelliOsmotics™,
IntelliPaste™,
IntelliPellets™,
IntelliShuttle™,
Rexista™,
nPODDDS™ ,
PODRAS™ and
Regabatin™ are our
trademarks. These trademarks are important to our business.
Although we may have omitted the “TM” trademark designation for such
trademarks in this prospectus or in any prospectus supplement, all
rights to such trademarks are nevertheless reserved. Unless
otherwise noted, other trademarks used in this prospectus are the
property of their respective holders.
This summary highlights information contained elsewhere in this
prospectus or incorporated by reference herein. This summary is not
complete and may not contain all of the information that you should
consider before deciding whether or not you should purchase the
securities offered hereunder. You should read this entire
prospectus carefully, including the section entitled “Risk
Factors” beginning on page 6 of this prospectus and the
section entitled “Risks Factors” in our annual report
on Form 20-F for the fiscal year ended November 30, 2017, and all
other information included or incorporated herein by reference in
this prospectus before you decide whether to purchase our
securities.
Our Company
We are
a pharmaceutical company specializing in the research, development
and manufacture of novel and generic controlled-release and
targeted-release oral solid dosage drugs. Our patented
Hypermatrix™ technology
is a multidimensional controlled-release drug delivery platform
that can be applied to the efficient development of a wide range of
existing and new pharmaceuticals. Based on this technology
platform, we have developed several drug delivery systems and a
pipeline of products (some of which have received U.S. Food and
Drug Administration, or FDA, approval) and product candidates in
various stages of development, including abbreviated new drug
applications, or ANDAs, filed with the FDA (and one Abbreviated New
Drug Submission, or ANDS, filed with Health Canada) in therapeutic
areas that include neurology, cardiovascular, gastrointestinal
tract, or GIT, diabetes and pain.
We also
have new drug application, or NDA, 505(b)(2) specialty drug product
candidates in our development pipeline. These include our oxycodone
hydrochloride extended-release tablets (previously referred to as
Rexista™), or Oxycodone
ER, an abuse deterrent oxycodone based on our proprietary
nPODDDS™ novel Point Of
Divergence Drug Delivery System (for which an NDA has been filed
with the FDA), and Regabatin™ XR (pregabalin extended-release
capsules). The NDA 505(b)(2) pathway (which relies in part upon the
approving agency’s
findings for a previously approved drug) both accelerates
development timelines and reduces costs in comparison to NDAs for
new chemical entities. An advantage of our strategy for development
of NDA 505(b)(2) drugs is that our product candidates can, if
approved for sale by the FDA, potentially enjoy an exclusivity
period which may provide for greater commercial opportunity
relative to the generic ANDA route.
Equity Offerings
Pursuant to a
placement agent agreement dated October 10, 2017 between the
Company and H.C. Wainwright & Co., LLC, or H.C. Wainwright, in
October 2017, we completed a registered direct offering of
3,636,364 Common Shares at a price of $1.10 per share for gross
proceeds of approximately $4 million. We also issued to the
investors unregistered warrants to purchase an aggregate of
1,818,182 Common Shares at an initial exercise price of $1.25 per
share. The warrants became exercisable six months following the
October 13, 2017 closing date and will expire 30 months after the
date they became exercisable. The Common Shares (but not the
warrants or the Common Shares underlying the warrants) were offered
by us through a prospectus supplement pursuant to our Shelf
Registration Statement (as defined below) on Form F-3 as previously
filed and declared effective by the SEC and the base prospectus
contained therein (Registration Statement No. 333-218297). We also
issued to the placement agents 181,818 warrants to purchase Common
Shares at an initial exercise price of $1.375 per share. The total
net proceeds from the offering were $3.5 million, after deducting
offering expenses.
2
Pursuant to a placement agent agreement dated March 12,
2018 between the Company and H.C. Wainwright, on March 16, 2018, we
completed a registered direct offering of 5,833,334 Common Shares
at a price of $0.60 per share for gross proceeds of approximately
$3.5 million. We also issued to the investors unregistered warrants
to purchase an aggregate of 2,916,667 Common Shares at an initial
exercise price of $0.60 per share. The warrants are exercisable six
months following the March 16, 2018 closing date and will expire 30
months after the date they become exercisable. The Common Shares
(but not the warrants or the Common Shares underlying the warrants)
were offered by us through a prospectus supplement pursuant to our
Shelf Registration Statement. We also issued to the placement agent
291,667 warrants to purchase Common Shares at an initial exercise
price of $0.75 per share. The total net proceeds from the offering
were approximately $3 million, after deducting offering
expenses.
Pursuant to a
placement agent agreement dated March 18, 2018 between the Company
and H.C. Wainwright, on March 21, 2018, we completed a registered
direct offering of 3,000,000 Common Shares at a price of $0.60 per
share for gross proceeds of approximately $1.8 million. We also
issued to the investors unregistered warrants to purchase an
aggregate of 1,500,000 Common Shares at an initial exercise price
of $0.60 per share. The warrants are exercisable six months
following the March 21, 2018 closing date and will expire 30 months
after the date they become exercisable. The Common Shares (but not
the warrants or the Common Shares underlying the warrants) were
offered by us through a prospectus supplement pursuant to our Shelf
Registration Statement. We also issued to the placement agent
150,000 warrants to purchase Common Shares at an initial exercise
price of $0.75 per share. The total net proceeds from the offering
were approximately $1.6 million, after deducting offering
expenses.
The
warrants described above were offered in private placements under
Section 4(a)(2) of the U.S. Securities Act of 1933, as amended (the
U.S. Securities Act”), and Regulation D promulgated
thereunder and, along with the Common Shares underlying the
warrants, were not registered under the U.S. Securities Act, or
applicable state securities laws. All of such warrants contain
certain ownership limitations that may restrict their exercise, as
described under the caption “Selling Shareholders” in
this prospectus. In addition, all such warrants are exercisable on
a cashless basis if at the time of exercise there is no effective
registration statement registering, or the prospectus contained
therein is not available for, the resale of Common Shares for which
the warrants are exercisable.
We have
filed a registration statement on Form F-1, of which this
prospectus is a part, to provide for the resale, by the holders of
all of the unregistered warrants we issued in the offerings
described above, of all of the Common Shares issuable upon exercise
of such warrants, totaling an aggregate of up to 6,858,334 Common
Shares. The registration statement of which this prospectus is a
part does not register the offer or sale of any of the
warrants.
Recent Developments
Proposed Reverse Stock Split
As more
fully described below (under “Nasdaq Notices and Nasdaq Hearings Panel Grant
of Request for Continued Listing”), in order to
qualify for continued listing on Nasdaq, we have to meet certain
continued listing criteria, including a closing bid price of at
least $1.00 for a minimum of 10 consecutive business days. In
connection with the minimum bid price requirement, we are seeking
approval from our shareholders to grant our Board of Directors
discretionary authority to implement a reverse split. If the
trading price of our Common Shares increases before a reverse split
is effected, the reverse split may not be necessary. No decision
has been made yet by our Board of Directors to implement a reverse
split. Because we do not know if a reverse split will be
implemented, or the ratio at which the shares would be
consolidated, all information in this prospectus is presented on a
pre-reverse split basis.
Nasdaq Notices and Nasdaq Hearings Panel Grant of Request for
Continued Listing
While
we are currently not in compliance with the requirements for the
continued listing of our Common Shares on the Nasdaq Capital
Market, as described below, we have until September 28, 2018 to
satisfy those requirements. The proposed reverse split is an
important part of our plan to regain compliance with Nasdaq’s
requirements for the continued listing of our Common
Shares.
In
September 2017, we were notified by Nasdaq that we were not in
compliance with the minimum market value of listed securities
required for continued listing on Nasdaq. Nasdaq Listing Rule
5550(b) requires listed securities to maintain a minimum market
value of $35.0 million, among other alternatives, including minimum
stockholders’ equity of $2.5 million. A failure to meet the
minimum market value requirement exists if the deficiency continues
for a period of 30 consecutive business days. Based on the market
value of our Common Shares for the 30 consecutive business days
from August 8, 2017, we did not satisfy the minimum market value of
listed securities requirement. By rule, we were provided 180
calendar days, or until March 19, 2018, to regain compliance with
that requirement. To regain compliance, our Common Shares were
required to have a market value of at least $35.0 million for a
minimum of 10 consecutive business days prior to March 19, 2018,
which they did not. In the alternative, if the minimum market value
requirement for continued listing is not met, an issuer may
maintain continued listing under Nasdaq Listing Rule 5550(b) if it
has stockholders’ equity of at least $2.5
million.
3
On
April 20, 2018, we received notice that the Nasdaq Listings
Qualification staff (the “Nasdaq Staff”) had determined
to delist our Common Shares as a result of our failure to meet
either the minimum market value of listed securities requirement or
the minimum stockholders’ equity requirement for continued
listing. However, any delisting action by the Nasdaq Staff was
stayed pending the ultimate conclusion of the Company’s
hearing before a Nasdaq Hearings Panel (the
“Panel”).
In
addition to not meeting the minimum market value of listed
securities or minimum stockholders’ equity requirements, we
were separately notified in December 2017 that our Common Shares no
longer satisfied the minimum $1.00 per share bid requirement under
Nasdaq Listing Rule 5550(a)(2).
We
attended a hearing before the Panel on May 17, 2018, and
subsequently received formal notice that the Panel had granted our
request for continued listing until September 28, 2018, by which
date we are required to evidence compliance with the requirements
for continued listing on Nasdaq. Specifically, on or before
September 28, 2018, the Panel has required that: (i) our
common shares evidence a closing bid price of at least $1.00 per
share for a minimum of ten consecutive business days, (ii) we
evidence stockholders’ equity of at least $2.5 million, and
(iii) we provide the Panel with updated financial projections
demonstrating our ability to maintain compliance with the minimum
stockholders’ equity requirement over the following 12
months.
There
is no assurance that we will be able to regain or maintain
compliance with the Nasdaq listing requirements or, if we do regain
compliance, that we will be able to maintain such compliance over
the long term. If we are unable to do so, our Common Shares may be
delisted from Nasdaq and the liquidity and market price of our
Common Shares may be adversely impacted as a result. If our Common
Shares are delisted from Nasdaq, they may trade in the
over-the-counter system, which may be a less liquid market. In such
case, our shareholders’
ability to trade, or obtain quotations of the market value of, our
Common Shares could be severely limited because of lower trading
volumes and transaction delays. See “—Risk Factors--Our Common
Shares will be delisted from the Nasdaq Capital Market if we do not
satisfy certain requirements of the Nasdaq Hearing Panel by
September 28, 2018.”
FDA Meeting
In
February 2018, we and the FDA discussed a previously-announced
Complete Response Letter for Oxycodone ER, including issues related
to the blue dye in the product candidate. Based on the meeting, the
product candidate will no longer include the blue dye. The blue dye
was intended to act as an additional deterrent if Oxycodone ER is
abused and serve as an early warning mechanism to flag potential
misuse or abuse. The FDA confirmed that the removal of the blue dye
is unlikely to have any impact on formulation quality and
performance. As a result, we will not be required to repeat in vivo
bioequivalence studies and pharmacokinetic studies submitted in the
Oxycodone ER NDA. The FDA also indicated that, from an abuse
liability perspective, Category 1 studies will not have to be
repeated on Oxycodone ER with the blue dye removed.
In May
2018, we announced that we had commenced our Category 2 and 3 human
abuse liability studies for our Oxycodone ER product candidate to
support its abuse-deterrent label claims for the intranasal route
of administration. We also announced
that planned studies to support abuse-deterrent label claims for
the oral route of abuse were scheduled to commence. Both studies
are now underway.
There
can be no assurance that our products will be successfully
commercialized or produce significant revenues for us. Also, there
can be no assurance that we will not be required to conduct further
studies for our Oxycodone ER product candidate, that the FDA will
approve any of our requested abuse-deterrence label claims or that
the FDA will ultimately approve the NDA for the sale of our
Oxycodone ER product in the U.S. market, or that it will ever be
successfully commercialized, that we will be successful in
submitting any additional ANDAs or NDAs with the FDA or ANDSs with
Health Canada, that the FDA or Health Canada will approve any of
our current or future product candidates for sale in the U.S.
market and Canadian market, or that they will ever be successfully
commercialized and produce significant revenue for us.
At-The-Market Termination
On
March 13, 2018, we terminated the continuous offering by us under
the prospectus supplement dated July 18, 2017 and prospectus dated
July 17, 2017 in respect of our at-the-market program. If we seek
to offer and sell Common Shares under our at-the-market program, we
will file another prospectus supplement prior to making such
additional offers and sales. We are not required to sell shares
under the equity distribution agreement. There can be no assurance
that any additional shares will be sold under our at-the-market
program. For further information regarding the at-the-market
program and sales thereunder, see “—Risk Factors--Sales of a
significant number of our Common Shares in the public markets, or
the perception that such sales could occur, could depress the
market price of the Common Shares.”
For
more information about these offerings, see the documents we have
filed with the SEC in connection with such offerings. See
“Where You Can Find More
Information; Incorporation by Reference” in this
prospectus.
4
Our Corporate Information
We were
formed under the Canada Business Corporations Act (the
“CBCA”) by certificate and articles of arrangement
dated October 22, 2009. Our registered principal office is located
at 30 Worcester Road, Toronto, Ontario, Canada M9W 5X2. Our
telephone number is (416) 798-3001 and our facsimile number is
(416) 798-3007. Our website address is
http://www.intellipharmaceutics.com. Information on or accessed
through our website is not incorporated into this prospectus and is
not a part of this prospectus. Our Common Shares are listed for
trading on the TSX and on Nasdaq under the symbol
“IPCI.”
|
Common
Shares being offered by the selling shareholders:
|
6,858,334
Common Shares issuable upon exercise of certain outstanding
warrants
|
|
Common
Shares outstanding before this offering:
|
43,537,850
Common Shares
|
|
Common
Shares to be outstanding after this offering (assuming full
exercise of the warrants that are exercisable for the shares
offered hereby):
|
50,396,184
Common Shares
|
|
Use of
Proceeds:
|
All
proceeds from the sale of Common Shares offered hereby will be for
the account of the selling shareholders. We will not receive any
proceeds from the sale of Common Shares offered pursuant to this
prospectus. We will receive proceeds upon cash exercises of the
warrants to purchase the Common Shares offered hereby, if any. See
“Use of Proceeds” in this prospectus.
|
|
Nasdaq
and TSX symbol/listing:
|
Our
Common Shares are listed under the symbol “IPCI.” There
is no established trading market for the warrants that are
exercisable for the Common Shares offered hereby, and we do not
intend to list the warrants on any securities exchange or other
trading system. See “Recent Developments” above for
important information about the listing of our Common Shares on
Nasdaq.
|
|
Risk
Factors:
|
Investing
in our securities involves substantial risks. You should carefully
review and consider the “Risk Factors” section of this
prospectus for a discussion of factors to consider before deciding
to invest in our securities.
|
The
number of Common Shares shown above to be outstanding after this
offering is based on 43,537,850 shares outstanding as of July
16, 2018 and
excludes, as of that date:
●
an aggregate of
5,613,169 Common Shares issuable upon the exercise of outstanding
options, with a weighted average exercise price of U.S. $ 3.15 per
Common Share;
●
up to 1,504,556
additional Common Shares that have been reserved for issuance in
connection with future grants under our stock option
plan;
●
an aggregate of
1,606,861 Common Shares issuable upon the exercise of outstanding
Common Share purchase warrants, with a weighted average exercise
price of U.S. $2.01 per Common Share (excluding, only for purposes
of the number of shares outstanding immediately before this
offering, the Common Shares subject to the warrants that are
exercisable for the Common Shares offered hereby);
●
an aggregate of
102,791 deferred share units granted to non-management directors
(to defer receipt of all or a portion of their board fees until
termination of the board service and to receive such fees in the
form of Common Shares at that time); and
5
●
an aggregate of
450,000 Common Shares issuable upon the conversion of a Debenture
(as defined below) held by Drs. Isa and Amina Odidi, who are
directors, executive officers and principal stockholders of our
company.
RISK
FACTORS
Our past experience may not be indicative of future performance,
and as noted elsewhere in this prospectus and documents
incorporated by reference into this prospectus, we have included
forward-looking statements about our business, plans and prospects
that are subject to change. In addition to the other risks or
uncertainties contained in this prospectus and documents
incorporated by reference into this prospectus, the following risks
may affect our operating results, financial condition and cash
flows. If any of these risks occurs, either alone or in combination
with other factors, our business, financial condition or operating
results could be adversely affected. Moreover, readers should note
this is not an exhaustive list of the risks we face. Some risks are
unknown or not quantifiable, and other risks that we currently
perceive as immaterial may ultimately prove more significant than
expected. Statements about plans, predictions or expectations
should not be construed to be assurances of performance or promises
to take a given course of action. Before making an investment
decision, you should carefully consider these risks, including
those set forth below and those described in the “Risk
Factors” section of our Annual Report on Form 20-F, as filed
with the SEC on March 1, 2018, which is incorporated by reference
into this prospectus, as well as any amendment or update to our
risk factors reflected in subsequent filings with the SEC, and you
should also carefully consider any other information we include or
incorporate by reference in this prospectus.
Any of the risks we describe below or in the information
incorporated herein by reference in this prospectus could cause our
business, financial condition or operating results to suffer. The
market price of our Common Shares could decline if one or more of
these risks and uncertainties develop into actual events. You could
lose all or part of your investment.
Risks Relating to this Offering
Our management will have broad discretion in allocating the net
proceeds of this offering, if any, and may use the proceeds in ways
with which you disagree.
Our
management has significant flexibility in applying the net
proceeds, if any, from the exercise of the warrants which are
exercisable for the Common Shares offered hereby. Because the net
proceeds are not required to be allocated to any specific product,
investment or transaction, and therefore you cannot determine at
this time the value or propriety of our application of those
proceeds, you and other shareholders may not agree with our
decisions. In addition, our use of any such proceeds may not yield
a significant return or any return at all for our shareholders. The
failure by our management to apply these funds effectively could
have a material adverse effect on our business, results of
operations or financial condition. See “Use of
Proceeds” for a further description of how management intends
to apply the proceeds, if any, from the exercise of the warrants
which are exercisable for the Common Shares offered
hereby.
You may experience future dilution as a result of future equity
offerings.
In
order to raise additional capital, we intend to offer additional
Common Shares or other securities convertible into or exchangeable
for our Common Shares. Those Common Shares or other securities may
be offered at prices that may not be the same as the price per
share paid by the investors in this offering. We may sell shares or
other securities in any other offering at a price per share that is
less than the price per share paid by investors in this offering,
and investors purchasing shares or other securities in the future
could have rights superior to existing stockholders. The price per
share at which we sell additional Common Shares, or securities
convertible or exchangeable into Common Shares, in future
transactions may be higher or lower than the price per share paid
by investors in this offering.
Future sales of substantial amounts of Common Shares in the public
market, or the perception that such sales may occur, could
adversely affect the market price of our Common
Shares.
If the
selling shareholders exercise their warrants for the Common Shares
offered hereby, they will not be restricted as to the price or
prices at which those shares may be sold. Sales of shares by such
holders may depress the market price of our Common Shares since the
number of shares which may be sold by them may be relatively large
compared to the historical average weekly trading of our Common
Shares. Accordingly, if the holders were to sell, or attempt to
sell, all or a substantial portion of such shares at once or during
a short time period, we believe such transactions could adversely
affect the market price of our Common Shares.
In
addition, we have registered a substantial number of outstanding
Common Shares and Common Shares that are issuable upon the exercise
of other warrants. If the holders of our registered Common Shares
choose to sell such shares in the public market or if holders of
our warrants exercise their purchase rights and sell the underlying
Common Shares in the public market, or if holders of currently
restricted Common Shares choose to sell such shares in the public
market, the prevailing market price of our Common Shares may
decline. The sale of shares issued upon the exercise of our
warrants (and options) could also further dilute the holdings of
our then existing shareholders. In addition, future public sales by
holders of our Common Shares could impair our ability to raise
capital through equity offerings.
6
Sales of a significant number of our Common Shares in the public
markets, or the perception that such sales could occur, could
depress the market price of the Common Shares.
Sales
of a substantial number of our Common Shares or securities
convertible or exchangeable into Common Shares in the public
markets could depress the market price of the Common Shares and
impair our ability to raise capital through the sale of additional
equity securities. We cannot predict the effect that future sales
of Common Shares would have on the market price of our Common
Shares.
A
substantial portion of our Common Shares are currently freely
trading without restriction under the U.S. Securities Act, having
been registered for resale or held by their holders for over six
months and are eligible for sale under Rule 144. If the holders of
our registered Common Shares choose to sell such shares in the
public market or if holders of our warrants exercise their purchase
rights and sell the underlying Common Shares in the public market,
or if holders of currently restricted Common Shares choose to sell
such shares in the public market, the prevailing market price of
our Common Shares may decline. The sale of shares issued upon the
exercise of our warrants (and options) could also further dilute
the holdings of our then-existing shareholders. In addition, future
public sales by holders of our Common Shares could impair our
ability to raise capital through equity offerings.
In
order to raise additional capital, we intend to offer additional
Common Shares or other securities convertible into or exchangeable
for our Common Shares. In November 2013, we established an
at-the-market equity program pursuant to which we originally could,
from time to time, sell up to 5,305,484 of our Common Shares for up
to an aggregate of $16.8 million (or such lesser amount as may then
be permitted under applicable exchange rules and securities laws
and regulations). As of July 16, 2018, we issued and sold
an aggregate of 4,740,350 Common Shares for aggregate gross
proceeds of $13,872,929 under the at-the-market program. On March
13, 2018, we terminated the continuous offering by us under the
prospectus supplement dated July 18, 2017 and prospectus dated July
17, 2017 in respect of our at-the-market program. If we seek to
continue to offer and sell Common Shares under our at-the-market
program, we will file another prospectus supplement prior to making
such additional offers and sales. We are not required to sell
shares under the equity distribution agreement.
On July
17, 2017, our most recent shelf registration statement was declared
effective by the SEC (the “Shelf Registration
Statement”). The Shelf Registration Statement allows for,
subject to securities regulatory requirements and limitations, the
potential offering of up to an aggregate of U.S. $100 million (or
such lesser amount as may then be permitted under applicable
exchange rules and securities laws and regulations) of the
Company’s Common Shares, preference shares, warrants,
subscription receipts, subscription rights and units, or any
combination thereof, from time to time in one or more offerings,
and is intended to give the Company the flexibility to take
advantage of financing opportunities when, and if, market
conditions are favorable to the Company. The specific terms of such
future offerings, if any, would be established, subject to the
approval of the Company’s board of directors, at the time of
such offering and will be described in detail in a prospectus
supplement filed at the time of any such offering. To the extent
any of our securities are issued under the Shelf Registration
Statement, a shareholder’s percentage ownership will be
diluted and our stock price could be further adversely affected. As
of July 16, 2018, the Company has not sold any securities under the
Shelf Registration Statement, other than (i) the sale since
July 17, 2017 of 485,239 Common Shares under our at-the-market
program, (ii) the sale in October 2017 of 3,636,364 Common
Shares in a registered direct offering, (iii) the sale in
March 2018 of 5,833,334 Common Shares in a registered direct
offering and (iv) the sale in March 2018 of 3,000,000 Common
Shares in a registered direct offering, and there can be no
assurance that any additional securities will be sold under the
Shelf Registration Statement or the shelf prospectus.
On
October 22, 2009, IntelliPharmaCeutics Ltd., or IPC Ltd., and
Vasogen Inc., or Vasogen, completed a plan of arrangement and
merger (the “IPC Arrangement Agreement”) resulting in
the formation of the Company. Our shareholders who received shares
under the IPC Arrangement Agreement who were not deemed
“affiliates” of either Vasogen, IPC Ltd., or us prior
to the IPC Arrangement Agreement were able to resell the Common
Shares that they received without restriction under the U.S.
Securities Act. The Common Shares received by an
“affiliate” after the IPC Arrangement Agreement or who
were “affiliates” of either Vasogen, IPC Ltd., or us
prior to the IPC Arrangement Agreement are subject to certain
restrictions on resale under Rule 144.
As of
July 16, 2018, there are currently Common Shares issuable upon the
exercise of outstanding options and warrants and deferred share
units and the conversion of the outstanding Debenture for an
aggregate of approximately 7,772,821 Common Shares, excluding the
shares offered hereby. To the extent any of our options and
warrants are exercised and the Debenture is converted, a
shareholder’s percentage ownership will be diluted and our
stock price could be further adversely affected. Moreover, the
market price of the shares could drop significantly if the holders
of these shares sell them or if the market perceives that the
holders intend to sell these shares.
The
market price of our Common Shares could decline as a result of
sales of Common Shares or securities that are convertible into or
exchangeable for, or that represent the right to receive, our
Common Shares after this offering or the perception that such sales
could occur.
7
Our Common Shares will be delisted from the Nasdaq Capital Market
if we do not satisfy certain requirements of the Nasdaq Hearing
Panel by September 28, 2018.
On
April 20, 2018, we received notice of the determination of the
Nasdaq Staff to delist our Common Shares as a result of the failure
to meet either the minimum market value requirement or the minimum
stockholders’ equity requirement for continued listing. After
an appeal before the Nasdaq Hearings Panel, the Panel approved our
request for continued listing, subject to our compliance with the
following by September 28, 2018:
●
Our Common Shares
having a closing bid price of over $1.00 for ten consecutive
trading days;
●
A
stockholders’ equity position of over $2.5 million;
and
●
Providing the Panel
with updated financial projections demonstrating our ability to
maintain compliance with the $2.5 million stockholders equity
requirement for the coming year.
There
is no assurance that we will be able to satisfy these requirements
or that, if we do, we will be able to maintain such compliance with
Nasdaq’s requirements. If we are unable to do so, our Common
Shares will no longer be listed on Nasdaq or another U.S. national
securities exchange and the liquidity and market price of our
Common Shares may be adversely affected. If our Common Shares are
delisted from Nasdaq, they may trade in the U.S. on the
over-the-counter market, which is a less liquid market. In such
case, our shareholders’ ability to trade, or obtain
quotations of the market value of, our Common Shares would be
severely limited because of lower trading volumes and transaction
delays. These factors could contribute to lower prices and larger
spreads in the bid and ask prices for our securities.
If our Common Shares are not listed on a national securities
exchange, compliance with applicable state securities laws may be
required for subsequent offers, transfers and sales of the Common
Shares offered hereby.
Because
our Common Shares are currently listed on Nasdaq, we are not
required to register or qualify in any state the subsequent offer,
transfer or sale of the Common Shares. If our Common Shares are
delisted from Nasdaq and are not eligible to be listed on another
national securities exchange, subsequent transfers of our Common
Shares offered hereby by U.S. holders may not be exempt from state
securities laws. In such event, it will be the responsibility of
the holder of Common Shares to register or qualify the Common
Shares for any subsequent offer, transfer or sale in the United
States or to determine that any such offer, transfer or sale is
exempt under applicable state securities laws.
Risks Associated with a Proposed Reverse Stock Split
We are seeking approval from our shareholders to grant our Board of
Directors discretion to implement a reverse split of our Common
Shares for the purpose of attempting to meet the minimum bid price
continued listing requirement of Nasdaq. However, any reverse split
ultimately may not increase our share price.
In
order to maintain our continued listing on Nasdaq, we have to meet
certain continued listing criteria by September 28, 2018, including
a closing bid price of at least $1.00 for a minimum of 10
consecutive trading days. In connection with the minimum bid price
requirement, we are seeking approval from our shareholders to grant
our Board of Directors discretionary authority to implement the
proposed reverse split. We are seeking such shareholder approval
pursuant to a notice of special meeting and management information
circular filed with the SEC on July 13, 2018 in respect of a
special meeting of our shareholders scheduled to be held on
August 15, 2018 (the “Special Meeting”).
Shareholders of record on June 28, 2018 are entitled to
receive notice of, and to vote at, the Special Meeting. We intend
to, if approved, implement the reverse split of our Common Shares
if then necessary to attempt to meet the minimum bid price
continued listing requirement of Nasdaq.
The
reverse split could result in a significant devaluation of our
market capitalization and trading price of the Common Shares. We
expect that the reverse split of the outstanding Common Shares will
increase the market price of the Common Shares if and when
effected. However, we cannot be certain whether the reverse split
would lead to a sustained increase in the trading price or the
trading market for our Common Shares. The history of similar stock
split combinations for companies in like circumstances is varied.
Accordingly, there is no assurance that the market price per share
of our Common Shares after the reverse split will rise in
proportion to the reduction in the number of pre-split Common
Shares outstanding before the reverse split, or that the market
price per share post reverse split will remain in excess of the
$1.00 minimum closing bid price as required by the Nasdaq
Marketplace Rules or that we would otherwise meet the requirements
of Nasdaq for continued inclusion for trading on The Nasdaq Capital
Market.
The
market price of the Common Shares will also be based on our
performance and other factors, some of which are unrelated to the
number of shares outstanding. If the reverse split is consummated
and the trading price of our Common Shares declines, the percentage
decline as an absolute number and as a percentage of our overall
market capitalization may be greater than would occur in the
absence of the reverse split. Furthermore, the liquidity of the
Common Shares could be adversely affected by the reduced number of
shares that would be outstanding after the reverse split and this
could have an adverse effect on the market price of the Common
Shares. If the market price of the Common Shares declines
subsequent to the effectiveness of the reverse split, this will
detrimentally impact our market capitalization and the market value
of our public float. The reverse split may result in some
shareholders owning “odd lots” that may be more
difficult to sell or require greater transaction costs per share to
sell. The reverse split may result in some shareholders owning
“odd lots” of less than 100 Common Shares on a
post-split basis. These odd lots may be more difficult to sell, or
require greater transaction costs per share to sell, than shares in
“round lots” of even multiples of 100 shares. Depending
on the reverse split ratio, certain shareholders may no longer have
any equity interest in us and therefore would not participate in
our future earnings or growth, if any. The reverse split may not
help generate additional investor interest. There can be no
assurance that the reverse split will result in a per share price
that will attract institutional investors or investment funds or
that such share price will satisfy the investing guidelines of
institutional investors or investment funds. As a result, the
trading liquidity of our Common Shares may not necessarily
improve.
8
Risks Relating to our Company
Our business is capital intensive and requires significant
investment to conduct R&D, clinical and regulatory activities
necessary to bring our products to market, which capital may not be
available in amounts or on terms acceptable to us, if at
all.
Our
business requires substantial capital investment in order to
conduct the research and development (“R&D”),
clinical and regulatory activities necessary and to defend against
patent litigation claims in order to bring our products to market
and to establish commercial manufacturing, marketing and sales
capabilities. As of November 30, 2017, we had a cash balance of
$1.9 million. As of July 16, 2018, our cash balance was $0.2
million. While we expect to satisfy certain short term capital
needs from cash on hand and profit transfer payments from our
commercial partners, we need to obtain additional funding as we
further the development of our product candidates. Potential
sources of capital may include payments from licensing agreements,
cost savings associated with managing operating expense levels,
other equity and/or debt financings, and/or new strategic
partnership agreements which fund some or all costs of product
development. We intend to utilize the equity markets to bridge any
funding shortfall and to provide capital to continue to advance our
most promising product candidates. Our future operations are highly
dependent upon our ability to source additional capital to support
advancing our product pipeline through continued R&D activities
and to fund any significant expansion of our operations. Our
ultimate success will depend on whether our product candidates
receive the approval of the FDA or Health Canada and whether we are
able to successfully market approved products. We cannot be certain
that we will be able to receive FDA or Health Canada approval for
any of our current or future product candidates, that we will reach
the level of sales and revenues necessary to achieve and sustain
profitability or that we can secure other capital sources on terms
or in amounts sufficient to meet our needs, or at all. Our cash
requirements for R&D during any period depend on the number and
extent of the R&D activities we focus on. At present, we are
working principally on our Oxycodone ER 505(b)(2), PODRAS™
technology, additional 505(b)(2) product candidates for development
in various indication areas, and selected generic product candidate
development projects. Our development of Oxycodone ER will require
significant expenditures, including costs to defend against the
Purdue litigation (as defined below). For our RegabatinTM XR 505(b)(2)
product candidate, Phase III clinical trials can be capital
intensive, and will only be undertaken consistent with the
availability of funds and a prudent cash management strategy. We
anticipate some investment in fixed assets and equipment over the
next several months, the extent of which will depend on cash
availability.
Effective September
28, 2017, the maturity date for the Debenture was extended to
October 1, 2018. The Company currently expects to repay the current
outstanding principal amount of $1,350,000 on or about October 1,
2018, if the Company then has cash available.
The
availability of equity or debt financing will be affected by, among
other things, the results of our R&D, our ability to obtain
regulatory approvals, our success in commercializing approved
products with our commercial partners and the market acceptance of
our products, the state of the capital markets generally, strategic
alliance agreements and other relevant commercial considerations.
In addition, if we raise additional funds by issuing equity
securities, our then-existing security holders will likely
experience dilution, and the incurring of indebtedness would result
in increased debt service obligations and could require us to agree
to operating and financial covenants that would restrict our
operations. In the event that we do not obtain sufficient
additional capital, it will raise substantial doubt about our
ability to continue as a going concern, realize our assets, and pay
our liabilities as they become due. Our cash outflows are expected
to consist primarily of internal and external R&D, legal and
consulting expenditures to advance our product pipeline and
selling, general and administrative expenses to support our
commercialization efforts. Depending upon the results of our
R&D programs, the impact of the Purdue litigation (as defined
below) and the availability of financial resources, we could decide
to accelerate, terminate, or reduce certain projects, or commence
new ones. Any failure on our part to successfully commercialize
approved products or raise additional funds on terms favorable to
us, or at all, may require us to significantly change or curtail
our current or planned operations in order to conserve cash until
such time, if ever, that sufficient proceeds from operations are
generated, and could result in us not taking advantage of business
opportunities, in the termination or delay of clinical trials or us
not taking any necessary actions required by the FDA or Health
Canada for one or more of our product candidates, in curtailment of
our product development programs designed to identify new product
candidates, in the sale or assignment of rights to our
technologies, products or product candidates, and/or our inability
to file ANDAs, ANDSs or NDAs, at all or in time to competitively
market our products or product candidates.
9
We have a history of operating losses, which may continue in the
foreseeable future.
We have
incurred net losses from inception through May 31, 2018 and had an
accumulated deficit of $77,882,323 as of such date and have
incurred additional losses since such date. As we engage in the
development of products in our pipeline, we may continue to incur
further losses. There can be no assurance that we will ever be able
to achieve or sustain profitability or positive cash flow. In
addition to the other factors described in this prospectus, our
ultimate success will depend on how many of our product candidates
receive the approval of the FDA or Health Canada and whether we are
able to successfully market approved products. We cannot be certain
that we will be able to receive FDA or Health Canada approval for
any of our current or future product candidates, or that we will
reach the level of sales and revenues necessary to achieve and
sustain profitability.
Approvals for our product candidates may be delayed or become more
difficult to obtain if the FDA changes its approval
requirements.
The FDA
may institute changes to its ANDA approval requirements, which may
make it more difficult or expensive for us to obtain approval for
our new generic products. For instance, in July 2012, the Generic
Drug User Fee Amendments of 2012, or GDUFA, were enacted into law.
The GDUFA legislation implemented substantial fees for new ANDAs,
Drug Master Files, product and establishment fees. In return, the
program is intended to provide faster and more predictable ANDA
reviews by the FDA and more timely inspections of drug facilities.
For the FDA’s fiscal year 2018, the user fee rate is $171,823
for new ANDAs. For the FDA’s fiscal year 2018, the FDA will
also charge an annual facility user fee of $226,087 plus a new
general program fee of $159,079. Under GDUFA, generic product
companies face significant penalties for failure to pay the new
user fees, including rendering an ANDA not “substantially
complete” until the fee is paid. It is currently uncertain
the effect the new fees will have on our ANDA process and business.
However, any failure by us or our suppliers to pay the fees or to
comply with the other provisions of GDUFA may adversely impact or
delay our ability to file ANDAs, obtain approvals for new generic
products, generate revenues and thus may have a material adverse
effect on our business, results of operations and financial
condition.
We operate in a highly litigious environment.
From
time to time, we may be exposed to claims and legal actions in the
normal course of business. As of the date of this prospectus, we
are not aware of any pending or threatened material litigation
claims against us, other than as described below and under the
caption “Legal Proceedings” in this prospectus.
Litigation to which we are, or may be, subject could relate to,
among other things, our patent and other intellectual property
rights or such rights of others, business or licensing arrangements
with other persons, product liability or financing activities. Such
litigation could include an injunction against the manufacture or
sale of one or more of our products or potential products or a
significant monetary judgment, including a possible punitive
damages award, or a judgment that certain of our patent or other
intellectual property rights are invalid or unenforceable or
infringe the intellectual property rights of others. If such
litigation is commenced, our business, results of operations,
financial condition and cash flows could be materially adversely
affected.
There
has been substantial litigation in the pharmaceutical industry
concerning the manufacture, use and sale of new products that are
the subject of conflicting patent rights. When we file an ANDA or
505(b)(2) NDA for a bioequivalent version of a drug, we may, in
some circumstances, be required to certify to the FDA that any
patent which has been listed with the FDA as covering the branded
product has expired, the date any such patent will expire, or that
any such patent is invalid or will not be infringed by the
manufacture, sale or use of the new drug for which the application
is submitted. Approval of an ANDA is not effective until each
listed patent expires, unless the applicant certifies that the
patents at issue are not infringed or are invalid and so notifies
the patent holder and the holder of the branded product. A patent
holder may challenge a notice of non-infringement or invalidity by
suing for patent infringement within 45 days of receiving notice.
Such a challenge prevents FDA approval for a period which ends 30
months after the receipt of notice, or sooner if an appropriate
court rules that the patent is invalid or not infringed. From time
to time, in the ordinary course of business, we face and have faced
such challenges and may continue to do so in the
future.
In
April 2017, the Purdue litigation plaintiffs (as defined below)
commenced the Purdue litigation (as defined below) against us in
the U.S. District Court for the District of Delaware (docket number
17-392) in respect of our NDA filing for our Oxycodone ER product
candidate (abuse-deterrent oxycodone hydrochloride extended-release
tablets), alleging that it infringes the OxyContin® patents,
listed in the Orange Book (as defined below). In our NDA filed in
November 2016 for Oxycodone ER, we relied on the 505(b)(2)
regulatory pathway, which allowed us to reference data from Purdue
Pharma L.P.’s file for its OxyContin® extended-release
oxycodone hydrochloride. Our Oxycodone ER application was accepted
by the FDA for further review in February 2017. We certified to the
FDA that we believed that our Oxycodone ER product candidate would
not infringe any of the OxyContin® patents, or that such
patents are invalid, and so notified Purdue Pharma L.P. and the
other owners of the subject patents listed in the Orange Book (as
defined below) of such certification. The complaint seeks
injunctive relief as well as attorneys’ fees and costs and
such other and further relief as the Court may deem just and
proper. An answer and counterclaim have been filed.
10
Subsequent to the
above-noted filing of lawsuit, 4 further such patents were listed
and published in the Orange Book. We then similarly certified to
the FDA concerning such further patents. On March 16, 2018, we
received notice that the Purdue litigation plaintiffs (as defined
below) had commenced further such patent infringement proceedings
against us adding the 4 further patents. This lawsuit is also in
the District of Delaware federal court under docket number
18-404.
As a
result of the commencement of the first of these legal proceedings,
the FDA is stayed for 30 months from granting final approval to our
Oxycodone ER product candidate. That time period commenced on
February 24, 2017, when the Purdue litigation plaintiffs received
notice of our certification concerning the patents, and will expire
on August 24, 2019, unless the stay is earlier terminated by a
final declaration of the courts that the patents are invalid, or
are not infringed, or the matter is otherwise settled among the
parties. A trial date for the Purdue litigation (as defined below)
has been set for October 22, 2018. We are confident that we do not
infringe the subject patents, and will vigorously defend against
these claims.
Brand-name
pharmaceutical manufacturers routinely bring patent infringement
litigation against ANDA applicants seeking FDA approval to
manufacture and market generic forms of their branded products. We
are routinely subject to patent litigation that can delay or
prevent our commercialization of products, force us to incur
substantial expense to defend, and expose us to substantial
liability.
In July
2017, three complaints were filed in the U.S. District Court for
the Southern District of New York asserting claims under the
federal securities laws against us and two of our executive
officers on behalf of a putative class of purchasers of our
securities. In a subsequent order, the Court consolidated the three
actions under the caption Shanawaz
v. Intellipharmaceutics Int’l Inc., et al., No.
1:17-cv-05761 (S.D.N.Y.), appointed lead plaintiffs in the
consolidated action, and approved lead plaintiffs’ selection
of counsel. Lead plaintiffs filed a consolidated amended complaint
on January 29, 2018. In the amended complaint, lead plaintiffs
purport to assert claims on behalf of a putative class consisting
of purchasers of our securities between May 21, 2015 and July 26,
2017. The amended complaint alleges that the defendants violated
Sections 10(b) and 20(a) of the United States Securities Exchange
Act of 1934, as amended, or the U.S. Exchange Act, and Rule 10b-5
promulgated thereunder by making allegedly false and misleading
statements or failing to disclose certain information regarding our
NDA for Oxycodone ER abuse-deterrent oxycodone hydrochloride
extended-release tablets. The complaint seeks, among other
remedies, unspecified damages, attorneys’ fees and other
costs, equitable and/or injunctive relief, and such other relief as
the court may find just and proper. On March 30, 2018, we filed a
motion to dismiss in response to the claim. A response by the
plaintiffs was filed May 31, 2018. A reply in support of the motion
to dismiss was filed by the Company on June 29, 2018. We intend to
vigorously defend against the claims asserted in the consolidated
action.
We may be subject to intellectual property claims that could be
costly and could disrupt our business.
Third
parties may claim we have infringed their patents, trademarks,
copyrights or other rights. We may be unsuccessful in defending
against such claims, which could result in the inability to protect
our intellectual property rights or liability in the form of
substantial damages, fines or other penalties such as injunctions
precluding our manufacture, importation or sales of products. The
resolution of a claim could also require us to change how we do
business or enter into burdensome royalty or license agreements.
Insurance coverage may be denied or may not be adequate to cover
every claim that third parties could assert against us. Even
unsuccessful claims could result in significant legal fees and
other expenses, diversion of management’s time and
disruptions in our business. Any of these claims could also harm
our reputation.
We are
a defendant in the litigation matters described under the heading
“Legal Proceedings.” The defense of such litigation may
increase our expenses and divert our management’s attention
and resources, and any unfavorable outcome could have a material
adverse effect on our business and results of operations. Any
adverse determination in such litigation, or any amounts paid to
settle such litigation matters could require that we make
significant payments. In addition, we may be the target of other
litigation in the future. See “Legal
Proceedings.”
Our significant shareholders have the ability to exercise
significant influence over certain corporate actions.
Our
principal shareholders, Drs. Amina and Isa Odidi, our President and
Chief Operating Officer and our Chairman and Chief Executive
Officer, respectively, and Odidi Holdings Inc., a privately-held
company controlled by Drs. Amina and Isa Odidi, owned in the
aggregate approximately 13.28% of our issued and outstanding Common
Shares as of July 16, 2018 (and collectively beneficially owned in
the aggregate approximately 20.8% of our Common Shares, including
Common Shares issuable upon the exercise of outstanding options and
the conversion of the Debenture in respect of the loan to us in the
original principal amount of $1,500,000 by Drs. Isa and Amina
Odidi, of which $1,350,000 remains outstanding, that are
exercisable or convertible within 60 days of the date hereof). As a
result, the principal shareholders have the ability to exercise
significant influence over all matters submitted to our
shareholders for approval.
11
We may be classified as a “passive foreign investment
company” or PFIC for U.S. income tax purposes, which could
have significant and adverse tax consequences to U.S.
investors.
The
possible classification of our company as a passive foreign
investment company, or PFIC, for U.S. federal income tax purposes
could have significant and adverse tax consequences for U.S.
Holders (as defined below) of our Common Shares. It may be possible
for U.S. Holders of Common Shares to mitigate certain of these
consequences by making an election to treat us as a
“qualified electing fund” or “QEF” under
Section 1295 of the Code, or a QEF Election, or a mark-to-market
election under Section 1296 of the Code. A non-U.S. corporation
generally will be a PFIC if, for a taxable year (a) 75% or more of
the gross income of such corporation for such taxable year consists
of specified types of passive income or (b) on average, 50% or more
of the assets held by such corporation either produce passive
income or are held for the production of passive income, based on
the fair market value of such assets (or on the adjusted tax basis
of such assets, if such non-U.S. corporation is not publicly traded
and either is a “controlled foreign corporation” under
Section 957(a) of the Code, or makes an election to determine
whether it is a PFIC based on the adjusted basis of the
assets).
The
determination of whether we are, or will be, a PFIC for a taxable
year depends, in part, on the application of complex U.S. federal
income tax rules, which are subject to various interpretations.
Although the matter is not free from doubt, we believe that we were
not a PFIC during our 2017 taxable year and will not likely be a
PFIC during our 2018 taxable year. Because PFIC status is based on
our income, assets and activities for the entire taxable year, and
our market capitalization, it is not possible to determine whether
we will be characterized as a PFIC for the 2018 taxable year until
after the close of the taxable year. The tests for determining PFIC
status are subject to a number of uncertainties. These tests are
applied annually, and it is difficult to accurately predict future
income, assets and activities relevant to this determination. In
addition, because the market price of our Common Shares is likely
to fluctuate, the market price may affect the determination of
whether we will be considered a PFIC. There can be no assurance
that we will not be considered a PFIC for any taxable year
(including our 2018 taxable year). Absent one of the elections
described above, if we are a PFIC for any taxable year during which
a U.S. Holder holds our Common Shares, we generally will continue
to be treated as a PFIC regardless of whether we cease to meet the
PFIC tests in one or more subsequent years. Accordingly, no
assurance can be given that we will not constitute a PFIC in the
current (or any future) tax year or that the Internal Revenue
Service (the “IRS”) will not challenge any
determination made by us concerning our PFIC status.
If we
are a PFIC, the U.S. federal income tax consequences to a U.S.
Holder of the ownership and disposition of our Common Shares will
depend on whether such U.S. Holder makes a QEF or mark-to-market
election. Unless otherwise provided by the IRS, a U.S. holder
of our Common Shares is generally required to file an informational
return annually to report its ownership interest in the Company
during any year in which we are a PFIC.
The
foregoing only speaks to the United States federal income tax
considerations as to the Code in effect on the date of this
prospectus.
12
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
INFORMATION
Certain
statements included and incorporated by reference in this
prospectus constitute “forward-looking statements”
within the meaning of the United States Private Securities
Litigation Reform Act of 1995 and/or “forward-looking
information” under the Securities Act (Ontario). These
statements include, without limitation, statements expressed or
implied regarding our expectations regarding the proposed reverse
split, our plans, goals and milestones, status of developments or
expenditures relating to our business, plans to fund our current
activities, and statements concerning our partnering activities,
health regulatory submissions, strategy, future operations, future
financial position, future sales, revenues and profitability,
projected costs, and market penetration. In some cases, you can
identify forward-looking statements by terminology such as
“appear,” “unlikely,” “target,”
“may,” “will,” “should,”
“expects,” “plans,” “plans to,”
“anticipates,” “believes,”
“estimates,” “predicts,”
“confident,” “prospects,”
“potential,” “continue,”
“intends,” “look forward,”
“could,” “would,” “projected,”
“goals”, “set to,” “seeking,”
or the negative of such terms or other comparable terminology. We
made a number of assumptions in the preparation of our
forward-looking statements. You should not place undue reliance on
our forward-looking statements, which are subject to a multitude of
known and unknown risks and uncertainties that could cause actual
results, future circumstances or events to differ materially from
those stated in or implied by the forward-looking
statements.
Risks,
uncertainties and other factors that could affect our actual
results include, but are not limited to, the effects of general
economic conditions, securing and maintaining corporate alliances,
our estimates regarding our capital requirements, and the effect of
capital market conditions and other factors, including the current
status of our product development programs, on capital
availability, the estimated proceeds (and the expected use of any
proceeds) we may receive from this or any other offering of our
securities, the potential dilutive effects of this or any future
financing, potential liability from and costs of defending pending
or future litigation, our ability to maintain compliance with the
continued listing requirements of the principal markets on which
our securities are traded, including risks or uncertainties related
to our ability to implement our plan to comply with Nasdaq’s
continued listing standards, our programs regarding research,
development and commercialization of our product candidates, the
timing of such programs, the timing, costs and uncertainties
regarding obtaining regulatory approvals to market our product
candidates and the difficulty in predicting the timing and results
of any product launches, the timing and amount of profit-share
payments from our commercial partners, and the timing and amount of
any available investment tax credits. Other factors that could
cause actual results to differ materially include but are not
limited to:
●
the actual or
perceived benefits to users of our drug delivery technologies,
products and product candidates as compared to others;
●
our ability to
establish and maintain valid and enforceable intellectual property
rights in our drug delivery technologies, products and product
candidates;
●
the scope of
protection provided by intellectual property rights for our drug
delivery technologies, products and product
candidates;
●
recent and future
legal developments in the United States and elsewhere that could
make it more difficult and costly for us to obtain regulatory
approvals for our product candidates and negatively affect the
prices we may charge;
●
increased public
awareness and government scrutiny of the problems associated with
the potential for abuse of opioid-based medications,
●
pursuing growth
through international operations could strain our
resources;
●
our limited
manufacturing, sales, marketing or distribution capability and our
reliance on third parties for such;
●
the actual size of
the potential markets for any of our products and product
candidates compared to our market estimates;
●
our selection and
licensing of products and product candidates;
●
our ability to
attract distributors and/or commercial partners with the ability to
fund patent litigation and with acceptable product development,
regulatory and commercialization expertise and the benefits to be
derived from such collaborative efforts;
●
sources of revenues
and anticipated revenues, including contributions from distributors
and commercial partners, product sales, license agreements and
other collaborative efforts for the development and
commercialization of product candidates;
●
our ability to
create an effective direct sales and marketing infrastructure for
products we elect to market and sell directly;
●
the rate and degree
of market acceptance of our products;
●
delays in product
approvals that may be caused by changing regulatory
requirements;
13
●
the difficulty in
predicting the timing of regulatory approval and launch of
competitive products;
●
the difficulty in
predicting the impact of competitive products on volume, pricing,
rebates and other allowances;
●
the number of
competitive product entries, and the nature and extent of any
aggressive pricing and rebate activities that may
follow;
●
the inability to
forecast wholesaler demand and/or wholesaler buying
patterns;
●
seasonal
fluctuations in the number of prescriptions written for our generic
Focalin XR® capsules, and our generic Seroquel XR®
tablets, which may produce substantial fluctuations in
revenue;
●
the timing and
amount of insurance reimbursement regarding our
products;
●
changes in laws and
regulations affecting the conditions required by the FDA for
approval, testing and labeling of drugs including abuse or overdose
deterrent properties, and changes affecting how opioids are
regulated and prescribed by physicians;
●
changes in laws and
regulations, including Medicare and Medicaid, affecting among other
things, pricing and reimbursement of pharmaceutical
products;
●
the effect of
recently-enacted changes in U.S. federal income tax laws,
including, but not limited to, limitations on the deductibility of
business interest, limitations on the use of net operating losses
and application of the base erosion minimum tax, on our U.S.
corporate income tax burden;
●
the success and
pricing of other competing therapies that may become
available;
●
our ability to
retain and hire qualified employees;
●
the availability
and pricing of third-party sourced products and
materials;
●
challenges related
to the development, commercialization, technology transfer,
scale-up, and/or process validation of manufacturing processes for
our products or product candidates;
●
the manufacturing
capacity of third-party manufacturers that we may use for our
products;
●
potential product
liability risks;
●
the recoverability
of the cost of any pre-launch inventory should a planned product
launch encounter a denial or delay of approval by regulatory
bodies, a delay in commercialization, or other potential
issues;
●
the successful
compliance with FDA, Health Canada and other governmental
regulations applicable to us and our third-party
manufacturers’ facilities, products and/or
businesses;
●
our reliance on
commercial partners, and any future commercial partners, to market
and commercialize our products and, if approved, our product
candidates;
●
difficulties,
delays or changes in the FDA approval process or test criteria for
ANDAs and NDAs;
●
challenges in
securing final FDA approval for our product candidates, including
our Oxycodone ER product candidate in particular, if a patent
infringement suit is filed against us with respect to any
particular product candidates (such as in the case of Oxycodone
ER), which could delay the FDA’s final approval of such
product candidates;
●
healthcare reform
measures that could hinder or prevent the commercial success of our
products and product candidates;
●
the FDA may not
approve requested product labeling for our product candidate(s)
having abuse-deterrent properties and targeting common forms of
abuse (oral, intra nasal and intravenous);
●
risks associated
with cyber-security and the potential for vulnerability of our
digital information or the digital information of a current and/or
future drug development or commercialization partner of ours;
and
●
risks arising from
the ability and willingness of our third-party commercialization
partners to provide documentation that may be required to support
information on revenues earned by us from those commercialization
partners.
Additional risks
and uncertainties relating to us and our business can be found in
the “Risk Factors” section of this prospectus, as well
as in our other public filings incorporated by reference herein.
The forward-looking statements reflect our current views with
respect to future events and are based on what we believe are
reasonable assumptions as of the date hereof, and we disclaim any
intention and have no obligation or responsibility, except as
required by law, to update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise.
14
Nothing
contained in this document should be construed to imply that the
results discussed herein will necessarily continue into the future
or that any conclusion reached herein will necessarily be
indicative of our actual operating results.
The
financial statements of the Company incorporated herein by
reference are reported in United States dollars and have been
prepared in accordance with U.S. GAAP. References to
“$,” “U.S. $” or “dollars” are
to U.S. dollars, and all references to “Cdn $” or
“C$” are to the lawful currency of Canada. In this
prospectus, where applicable, and unless otherwise indicated,
amounts are converted from U.S. dollars to Canadian dollars and
vice versa by applying the closing spot rate of exchange of the
Bank of Canada on July 16, 2018. See “Exchange Rate
Information” below.
The
following table sets out the high and low rates of exchange for one
U.S. dollar expressed in Canadian dollars in effect at the end of
each of the following periods; the average rate of exchange for
those periods; and the rate of exchange in effect at the end of
each of those periods, each based on the closing rate published by
the Bank of Canada.
|
|
Period-End
|
Average for Period
|
Low
|
High
|
|
|
(Cdn dollar per U.S. dollar)
|
|
||
|
Year Ended November 30:
|
|
|
|
|
|
2013
|
1.0620
|
1.0241
|
0.9837
|
1.0620
|
|
2014
|
1.1440
|
1.0971
|
1.0587
|
1.1440
|
|
2015
|
1.3353
|
1.2603
|
1.1328
|
1.3418
|
|
2016
|
1.3429
|
1.3276
|
1.2536
|
1.4559
|
|
2017
|
1.2888
|
1.3030
|
1.2128
|
1.3743
|
|
Month Ended:
|
|
|
|
|
|
January 31,
2018
|
1.2293
|
1.2427
|
1.2293
|
1.2535
|
|
February 28,
2018
|
1.2809
|
1.2586
|
1.2288
|
1.2809
|
|
March 31,
2018
|
1.2894
|
1.2932
|
1.2830
|
1.3088
|
|
April 30,
2018
|
1.2836
|
1.2733
|
1.2552
|
1.2908
|
|
May 31,
2018
|
1.2948
|
1.2873
|
1.2775
|
1.3020
|
|
June 30,
2018
|
1.3168
|
1.3129
|
1.2913
|
1.3310
|
|
July 1 to 16,
2018
|
1.3137
|
1.3141
|
1.3097
|
1.3171
|
On July
16, 2018, the closing rate for Canadian dollars in terms of the
United States dollar, as reported by the Bank of Canada, was U.S.
$1.00=Cdn$1.3137 or Cdn$1.00=U.S. $0.7612.
History and Development of the Company
The
Company was formed under the CBCA by certificate and articles of
arrangement dated October 22, 2009.
Our
registered principal office is located at 30 Worcester Road,
Toronto, Ontario, Canada M9W 5X2. Our telephone number is (416)
798-3001 and our facsimile number is (416) 798-3007.
Our
agent for service in the United States is Corporation Service
Company at 1090 Vermont Avenue N.W., Washington, D.C.
20005.
On
October 19, 2009, the shareholders of IPC Ltd. and Vasogen approved
the IPC Arrangement Agreement that resulted in the October 22, 2009
court-approved merger of IPC Ltd. and another U.S. subsidiary of
Intellipharmaceutics, Inc. coincident with an arrangement pursuant
to which a predecessor of the Company combined with 7231971 Canada
Inc., a new company that acquired substantially all of the assets
and certain liabilities of Vasogen, including the proceeds from its
non-dilutive financing transaction with Cervus LP. The completion
of that transaction on October 22, 2009 resulted in the formation
of the Company, which is governed by the CBCA. The Common Shares of
the Company are traded on the TSX and Nasdaq. See “Prospectus
Summary-Recent Developments—Nasdaq Notices and Nasdaq
Hearings Panel Grant of Request for Continued Listing” and
“—Risk Factors--Our Common Shares will be delisted from
the Nasdaq Capital Market if we do not satisfy certain requirements
of the Nasdaq Hearing Panel by September 28, 2018” in this
prospectus for important information about the listing of our
Common Shares on Nasdaq.
15
In this
prospectus, any prospectus supplement, and/or the documents
incorporated by reference herein or therein, unless the context
otherwise requires, the terms “we,” “us,”
“our,” “Intellipharmaceutics,” and the
“Company” refer to Intellipharmaceutics International
Inc. and its subsidiaries.
Business Overview
We are
a pharmaceutical company specializing in the research, development
and manufacture of novel and generic controlled-release and
targeted-release oral solid dosage drugs. Our patented
Hypermatrix™ technology is a multidimensional
controlled-release drug delivery platform that can be applied to
the efficient development of a wide range of existing and new
pharmaceuticals. Based on this technology platform, we have
developed several drug delivery systems and a pipeline of products
(some of which have received FDA approval) and product candidates
in various stages of development, including ANDAs filed with the
FDA (and one ANDS filed with Health Canada) and one NDA filing, in
therapeutic areas that include neurology, cardiovascular,
gastrointestinal tract, or GIT, diabetes and pain.
In
November 2005, we entered into a license and commercialization
agreement (as amended, the “Par agreement”) with Par
Pharmaceutical, Inc. (“Par), pursuant to which we granted Par
an exclusive, royalty-free license to make and distribute in the
U.S. all strengths of our generic Focalin XR®
(dexmethylphenidate hydrochloride extended-release) capsules for a
period of 10 years from the date of commercial launch (which was
November 19, 2013). Under the Par agreement, we made a filing with
the FDA for approval to market generic Focalin XR® capsules in
various strengths in the U.S. (the “Company ANDA”), and
are the owner of that Company ANDA, as approved in part by the FDA.
We retain the right to make and distribute all strengths of the
generic product outside of the U.S. Calendar quarterly
profit-sharing payments for its U.S. sales under the Company ANDA
are payable by Par to us as calculated pursuant to the Par
agreement. Within the purview of the Par agreement, Par also
applied for and owns an ANDA pertaining to all marketed strengths
of generic Focalin XR® (the “Par ANDA”), and is
now approved by the FDA to market generic Focalin XR® capsules
in all marketed strengths in the U.S. As with the Company ANDA,
calendar quarterly profit-sharing payments are payable by Par to us
for its U.S. sales of generic Focalin XR® under the Par ANDA
as calculated pursuant to the Par agreement.
We
received final approval from the FDA in November 2013 under the
Company ANDA to launch the 15 and 30 mg strengths of our generic
Focalin XR® capsules. Commercial sales of these strengths were
launched immediately by our commercialization partner in the U.S.,
Par.
In
January 2017, Par launched the 25 and 35 mg strengths of its
generic Focalin XR® capsules in the U.S., and in May 2017, Par
launched the 10 and 20 mg strengths, complementing the 15 and 30 mg
strengths of our generic Focalin XR® marketed by Par. The FDA
granted final approval under the Par ANDA for its generic Focalin
XR® capsules in the 5, 10, 15, 20, 25, 30, 35 and 40 mg
strengths, and subsequently Par launched the remaining 5 and 40 mg
strengths. Under the Par agreement, we receive quarterly profit
share payments on Par’s U.S. sales of generic Focalin
XR®. We currently expect revenues from sales of the generic
Focalin XR® capsules to somewhat improve over the longer term,
however, results for the next several quarters are expected to
continue to be impacted by ongoing competitive pressures in the
generic market. There can be no assurance whether revenues from
this product will improve going forward or that any recently
launched strengths will be successfully commercialized. We depend
significantly on the actions of our marketing partner Par in the
prosecution, regulatory approval and commercialization of our
generic Focalin XR® capsules and on its timely payment to us
of the contracted calendar quarterly payments as they come
due.
In
February 2017, we received final approval from the FDA for our ANDA
for metformin hydrochloride extended-release tablets in the 500 and
750 mg strengths. This product is a generic equivalent for the
corresponding strengths of the branded product Glucophage® XR
sold in the U.S. by Bristol-Myers Squibb. The Company is aware that
several other generic versions of this product are currently
available that serve to limit the overall market opportunity for
this product. We are continuing to evaluate options to realize
commercial returns on this product, particularly in international
markets. There can be no assurance that our metformin hydrochloride
extended-release tablets for the 500 and 750 mg strengths will be
successfully commercialized.
In
February 2016, we received final approval from the FDA of our ANDA
for generic Keppra XR® (levetiracetam extended-release)
tablets for the 500 and 750 mg strengths. Our generic Keppra
XR® is a generic equivalent for the corresponding strengths of
the branded product Keppra XR® sold in the U.S. by UCB, Inc.,
and is indicated for use in the treatment of partial onset seizures
associated with epilepsy. We are aware that several other generic
versions of this product are currently available that serve to
limit the overall market opportunity. We are actively exploring the
best approach to maximize our commercial returns from this approval
and are looking at several international markets where, despite
lower volumes, product margins are typically higher than in the
U.S. There can be no assurance that our generic Keppra XR® for
the 500 and 750 mg strengths will be successfully
commercialized.
In
October 2016, we received tentative approval from the FDA for our
ANDA for quetiapine fumarate extended-release tablets in the 50,
150, 200, 300 and 400 mg strengths, and in May 2017, our ANDA
received final FDA approval for all of these strengths. Our
approved product is a generic equivalent for the corresponding
strengths of the branded product Seroquel XR® sold in the U.S.
by AstraZeneca Pharmaceuticals LP, or AstraZeneca. Pursuant to a
settlement agreement between us and AstraZeneca dated July 30,
2012, we were permitted to launch our generic versions of the 50,
150, 200, 300 and 400 mg strengths of generic Seroquel XR®, on
November 1, 2016, subject to FDA final approval of our ANDA for
those strengths. The Company manufactured and shipped commercial
quantities of all strengths of generic Seroquel XR® to our
marketing and distribution partner Mallinckrodt LLC
(“Mallinckrodt”), and Mallinckrodt launched all
strengths in June 2017. In October 2016, we announced a license and
commercial supply agreement with Mallinckrodt, or
(“Mallinckrodt Agreement”), granting Mallinckrodt an
exclusive license to market, sell and distribute in the U.S. the
following extended-release drug product candidates (the
“licensed products”) which have either been launched
(generic Seroquel XR) or for which we have ANDAs filed with the
FDA:
16
●
Quetiapine fumarate
extended-release tablets (generic Seroquel XR®)
–Approved and launched
●
Desvenlafaxine
extended-release tablets (generic Pristiq®) – ANDA under
FDA Review
●
Lamotrigine
extended-release tablets (generic Lamictal® XR™)
–ANDA under FDA Review
Under
the terms of the 10-year agreement, we received a non-refundable
upfront payment of $3 million in October 2016. In addition, the
agreement also provides for a long-term profit sharing arrangement
with respect to these licensed products (which includes up to $11
million in cost recovery payments that are payable on future sales
of licensed product). We have agreed to manufacture and supply the
licensed products exclusively for Mallinckrodt on a cost plus
basis. The Mallinckrodt Agreement contains customary terms and
conditions for an agreement of this kind, and is subject to early
termination in the event we do not obtain FDA approvals of the
Mallinckrodt licensed products by specified dates, or pursuant to
any one of several termination rights of each party.
Our
goal is to leverage our proprietary technologies and know-how in
order to build a diversified portfolio of revenue generating
commercial products. We intend to do this by advancing our products
from the formulation stage through product development, regulatory
approval and manufacturing. We believe that full integration of
development and manufacturing will help maximize the value of our
drug delivery technologies, products and product candidates. We
also believe that out-licensing sales and marketing to established
organizations, when it makes economic sense, will improve our
return from our products while allowing us to focus on our core
competencies. We expect our expenditures for the purchase of
production, laboratory and computer equipment and the expansion of
manufacturing and warehousing capability to be higher as we prepare
for the commercialization of ANDAs, one NDA and one ANDS that are
pending FDA and Health Canada approval, respectively.
Our Strategy
Our
Hypermatrix™ technologies are central to the development and
manufacture of novel and generic controlled-release and
targeted-release oral solid dosage drugs. The Hypermatrix™
technologies are a multidimensional controlled-release drug
delivery platform that we believe can be applied to the efficient
development of a wide range of existing and new pharmaceuticals. We
believe that the flexibility of these technologies allows us to
develop complex drug delivery solutions within an
industry-competitive timeframe. Based on this technology platform,
we have developed several drug delivery systems and a pipeline of
products (some of which have received FDA approval) and product
candidates in various stages of development, including ANDAs filed
with the FDA (and one ANDS filed with Health Canada) and one NDA
filing, in therapeutic areas that include neurology,
cardiovascular, GIT, diabetes and pain. We expect that certain, but
not all, of the products in our pipeline may be developed from time
to time for third parties pursuant to drug development agreements
with those third parties, under which our commercialization partner
would generally pay certain of the expenses of development,
sometimes make certain milestone payments to us and receive a share
of revenues or profits if the drug is developed successfully to
completion, the control of which would generally be in the
discretion of our drug development partner.
The
principal focus of our development activities previously targeted
difficult-to-develop controlled-release generic drugs which follow
an ANDA regulatory path. Our current development effort is
increasingly directed towards improved difficult-to-develop
controlled-release drugs which follow an NDA 505(b)(2) regulatory
pathway. We have increased our research and development emphasis
towards specialty new product development, facilitated by the
505(b)(2) regulatory pathway, by advancing the product development
program for both Oxycodone ER and Regabatin™. We have also
identified several additional 505(b)(2) product candidates for
development in various indication areas including cardiovascular,
dermatology, pulmonary disease and oncology. The technology that is
central to our abuse deterrent formulation of our Oxycodone ER is
the novel Point of Divergence Drug Delivery System
(“nPODDDS™”). nPODDDS™ is designed to
provide for certain unique drug delivery features in a product.
These include the release of the active substance to show a
divergence in a dissolution and/or bioavailability profile. The
divergence represents a point or a segment in a release timeline
where the release rate, represented by the slope of the curve,
changes from an initial rate or set of rates to another rate or set
of rates, the former representing the usually higher rate of
release shortly after ingesting a dose of the drug, and the latter
representing the rate of release over a later and longer period of
time, being more in the nature of a controlled-release or sustained
action. It is applicable for the delivery of opioid analgesics in
which it is desired to discourage common methods of tampering
associated with misuse and abuse of a drug, and also dose dumping
in the presence of alcohol. It can potentially retard tampering
without interfering with the bioavailability of the
product.
17
In
addition, our Paradoxical OverDose Resistance Activating System, or
PODRAS™, delivery technology was initially introduced to
enhance our Oxycodone ER product candidate. The PODRAS™
delivery technology platform was designed to prevent overdose when
more pills than prescribed are swallowed intact. Preclinical
studies of prototypes of oxycodone with PODRAS technology suggest
that, unlike other third-party abuse-deterrent oxycodone products
in the marketplace, if more tablets than prescribed are
deliberately or inadvertently swallowed, the amount of drug active
released over 24 hours may be substantially less than expected.
However, if the prescribed number of pills is swallowed, the drug
release should be as expected. Certain aspects of our PODRAS
technology are covered by U.S. Patent Nos. 9,522,119, 9,700,515,
9,700,516 and 9,801,939 and Canadian Patent No. 2,910,865 issued by
the U.S. Patent and Trademark Office and the Canadian Intellectual
Property Office in respect of “Compositions and Methods for
Reducing Overdose” in December 2016, July 2017 and October
2017.The issuance of these patents provides us with the opportunity
to accelerate our PODRAS™ development plan by pursuing proof
of concept studies in humans. We intend to incorporate this
technology in future product candidates, including Oxycodone ER and
other similar pain products, as well as pursuing out-licensing
opportunities.
The NDA
505(b)(2) pathway (which relies in part upon the FDA’s
findings for a previously approved drug) both accelerates
development timelines and reduces costs in comparison to NDAs for
new chemical entities.
An
advantage of our strategy for development of NDA 505(b)(2) drugs is
that our product candidates can, if approved for sale by the FDA,
potentially enjoy an exclusivity period which may provide for
greater commercial opportunity relative to the generic ANDA
route.
The
market we operate in is created by the expiration of drug product
patents, challengeable patents and drug product exclusivity
periods. There are three ways that we employ our controlled-release
technologies, which we believe represent substantial opportunities
for us to commercialize on our own or develop products or
out-license our technologies and products:
●
For branded
immediate-release (multiple-times-per-day) drugs, we can formulate
improved replacement products, typically by developing new,
potentially patentable, controlled-release once-a-day drugs. Among
other out-licensing opportunities, these drugs can be licensed to
and sold by the pharmaceutical company that made the original
immediate-release product. These can potentially protect against
revenue erosion in the brand by providing a clinically attractive
patented product that competes favorably with the generic
immediate-release competition that arises on expiry of the original
patent(s). The regulatory pathway for this approach requires NDAs
via a 505(b)(2) application for the U.S. or corresponding pathways
for other jurisdictions where applicable.
●
Some of our
technologies are also focused on the development of abuse-deterrent
and overdose preventive pain medications. The growing abuse and
diversion of prescription “painkillers,” specifically
opioid analgesics, is well documented and is a major health and
social concern. We believe that our technologies and know-how are
aptly suited to developing abuse-deterrent pain medications. The
regulatory pathway for this approach requires NDAs via a 505(b)(2)
application for the U.S. or corresponding pathways for other
jurisdictions where applicable.
●
For existing
controlled-release (once-a-day) products whose active
pharmaceutical ingredients (“APIs”) are covered by drug
molecule patents about to expire or already expired, or whose
formulations are covered by patents about to expire, already
expired or which we believe we do not infringe, we can seek to
formulate generic products which are bioequivalent to the branded
products. Our scientists have demonstrated a successful track
record with such products, having previously developed several drug
products which have been commercialized in the U.S. by their former
employer/clients. The regulatory pathway for this approach requires
ANDAs for the U.S. and ANDSs for Canada.
We
intend to collaborate in the development and/or marketing of one or
more products with partners, when we believe that such
collaboration may enhance the outcome of the project. We also plan
to seek additional collaborations as a means of developing
additional products. We believe that our business strategy enables
us to reduce our risk by (a) having a diverse product
portfolio that includes both branded and generic products in
various therapeutic categories, and (b) building
collaborations and establishing licensing agreements with companies
with greater resources thereby allowing us to share costs of
development and to improve cash-flow. There can be no assurance
that we will be able to enter into additional collaborations or, if
we do, that such arrangements will be commercially viable or
beneficial.
The
following table sets forth our capitalization as of May 31,
2018:
●
on an actual basis,
without giving effect to this offering and the use of net proceeds
as discussed in “Use of
Proceeds”;
and
18
●
on an as-adjusted
basis to reflect the issuance of the 6,858,334 Common Shares
offered for resale hereby upon full exercise by the selling
shareholders of the warrants issued in October 2017 and March 2018
at the current exercise prices described herein, and the use of net
proceeds therefrom as discussed in “Use of Proceeds.”
This
capitalization table should be read in conjunction with our report
on Form 6-K including our financial statements in respect of the
three and six months ended May 31, 2018, and the other financial
information included and incorporated by reference in this
prospectus.
As of
May 31, 2018, the Company had cash totaling $1.4 million.
|
|
As
of May 31, 2018
|
|
|
|
Actual
|
As
Adjusted
|
|
Short term debt-due
to related parties based on contractual maturities:
|
$1,403,224
|
$1,403,224
|
|
Common shares,
unlimited amount authorized, 43,537,850 issued and
outstanding:
|
$38,697,900
|
$44,056,308
|
|
|
$40,101,124
|
$45,459,532
|
All
Common Shares offered by this prospectus are being registered for
the account of the selling shareholders identified herein. We will
not receive any of the proceeds from the sale of these
shares.
We will
receive proceeds from any cash exercise of the warrants, which, if
exercised in cash at the current exercise prices described herein
with respect to all of the 6,858,334 Common Shares offered hereby,
would result in gross proceeds to us of approximately $5.5
million.
We
intend to use any proceeds received by us from the cash exercise of
the warrants for general corporate purposes, which may include
working capital, R&D, accounts payable, and other commercial
expenditures. The holders of the warrants may exercise the warrants
at their own discretion and at any time until their expiration in
accordance with the terms of the warrants. As a result, we cannot
predict when or if the warrants will be exercised, and it is
possible that the warrants may expire and never be exercised. In
addition, the warrants are exercisable on a cashless basis if at
the time of exercise there is no effective registration statement
registering, or the prospectus contained therein is not available
for, the issuance of Common Shares for which the warrants are
exercisable. As a result, we may never receive meaningful, or any,
cash proceeds from the exercise of the warrants, and we cannot plan
on any specific uses of any proceeds we may receive beyond the
purposes described herein.
Pending
the use of the net proceeds from this offering as described above,
we intend to invest the net proceeds in investment-grade,
interest-bearing securities.
This
prospectus covers an aggregate of up to 6,858,334 Common Shares
that may be sold or otherwise disposed of by the selling
shareholders identified herein. Such shares are issuable to the
selling shareholders upon the exercise of certain outstanding
common share purchase warrants we issued and sold to the selling
shareholders in private placement transactions and as compensation
for certain placement agent services in connection with such
transactions and certain other offerings.
The
following table sets forth certain information with respect to each
selling shareholder, including (i) the Common Shares beneficially
owned by the selling shareholder prior to this offering, (ii) the
number of shares being offered by the selling shareholder pursuant
to this prospectus and (iii) the selling shareholder’s
beneficial ownership after completion of this offering, assuming
that all of the shares covered hereby (but none of the other
shares, if any, held by the selling shareholders) are
sold.
The
table is based on information supplied to us by the selling
shareholders, with beneficial ownership and percentage ownership
determined in accordance with the rules and regulations of the SEC
and includes voting or investment power with respect to shares of
stock. This information does not necessarily indicate beneficial
ownership for any other purpose. In computing the number of shares
beneficially owned by a selling shareholder and the percentage
ownership of that selling shareholder, Common Shares subject to
warrants held by that selling shareholder that are exercisable as
of July 17, 2018, or exercisable within 60 days after July 17,
2018, are deemed outstanding. Such shares, however, are not deemed
outstanding for the purposes of computing the percentage ownership
of any other person. The percentage of beneficial ownership after
this offering is based on 43,537,850 shares outstanding on July 16,
2018.
The
registration of these Common Shares does not mean that the selling
shareholders will sell or otherwise dispose of all or any of those
securities. The selling shareholders may sell or otherwise dispose
of all, a portion or none of such shares from time to time. We do
not know the number of shares, if any, that will be offered for
sale or other disposition by any of the selling shareholders under
this prospectus. Furthermore, the selling shareholders may have
sold, transferred or disposed of the Common Shares covered hereby
in transactions exempt from the registration requirements of the
U.S. Securities Act since the date on which we filed this
prospectus.
19
To our
knowledge and except as noted below, none of the selling
shareholders has, or within the past three years has had, any
position, office or other material relationship with us or any of
our predecessors or affiliates.
|
|
Beneficial
Ownership Before This Offering
|
Shares Underlying
|
Beneficial Ownership After This Offering
|
||
|
Selling Shareholders
|
Number
of Shares Owned
|
Percentage
|
Warrants Offered Hereby
|
Number of Shares Owned(1)
|
Percentage(1)
|
|
Anson
Funds Management LP (2)
c/o
Anson Advisors Inc.
155
University Ave., Ste. 207
Toronto, Ontario,
Canada
M5H
3B7
|
1,613,613
(3)
|
3.6%
|
1,833,333
|
155,280
|
*
|
|
Armistice Capital
Master Fund Ltd. (4)
c/o
Armistice Capital, LLC510 Madison Avenue, 22nd Floor
New
York, NY 10022
|
10,967,425
(5)
|
23.9%
|
3,492,425
|
8,600,000
|
17.1%
|
|
Sabby
Volatility Warrant Master Fund, Ltd.(6)
c/o
Sabby Management, LLC
10
Mountain Road, Ste. 205
Upper
Saddle River, NJ 07458
|
909,191
(7)
|
2.0%
|
909,091
|
Nil
|
*
|
|
Mark
Viklund*
430
Park Avenue, 3rd Floor
New
York, New York
|
5,455
(8)
|
*
|
5,455
|
Nil
|
*
|
|
Noam
Rubinstein*
430
Park Avenue, 3rd Floor
New
York, New York
|
149,147
(9)
|
*
|
196,397
|
Nil
|
*
|
|
Charles
Worthman*
430
Park Avenue, 3rd Floor
New
York, New York
|
4,735
(10)
|
*
|
6,235
|
Nil
|
*
|
|
Michael
Vasinkevich*
430
Park Avenue, 3rd Floor
New
York, New York
|
314,148
(11)
|
*
|
415,398
|
Nil
|
*
|
*Less
than 1%
|
(1)
|
Assumes
all shares to be sold in this offering are sold.
|
|
(2)
|
Anson
Advisors Inc. and Anson Funds Management LP, the Co-Investment
Advisers of Anson Investments Master Fund LP (“Anson”),
hold voting and dispositive power over the Common Shares held by
Anson. Bruce Winson is the managing member of Anson Management GP
LLC, which is the general partner of Anson Funds Management LP.
Moez Kassam and Amin Nathoo are directors of Anson Advisors Inc.
Mr. Winson, Mr. Kassam and Mr. Nathoo each disclaim beneficial
ownership of these Common Shares except to the extent of their
pecuniary interest therein. The principal business address of Anson
is 190 Elgin Ave; George Town, Grand Cayman.
|
|
(3)
|
This
amount does not include 375,000 Common Shares issuable upon
exercise of warrants issued in March 2018 and registered for sale
under this prospectus, which are not currently exercisable. All of
the Anson warrants, pursuant to their terms, may not be
exercised to the extent such exercise would cause the holder,
together with its affiliates and attribution parties, to
beneficially own a number of Common Shares which would exceed 4.99%
of our then outstanding Common Shares following such exercise,
excluding for purposes of such determination Common Shares issuable
upon exercise of such warrants which have not been
exercised.
|
|
(4)
|
Armistice
Capital Master Fund, Ltd (“Armistice”) has shared
voting power with Steven Boyd and Armistice Capital, LLC. Mr. Boyd
is managing member of Armistice Capital, LLC and director of
Armistice Capital Master Fund Ltd.. Each of Armistice Capital, LLC
and Mr. Boyd disclaims beneficial ownership of the Common Shares,
except to the extent of his or its pecuniary interest
therein.
|
|
(5)
|
This
amount does not include 1,125,000 Common Shares issuable upon
exercise of warrants issued in March 2018 and registered for sale
under this prospectus, which are not currently exercisable. All of
the Armistice warrants, pursuant to their terms, may not be
exercised to the extent such exercise would cause the holder,
together with its affiliates and attribution parties, to
beneficially own a number of Common Shares which would exceed 9.99%
of our then outstanding Common Shares following such exercise,
excluding for purposes of such determination Common Shares issuable
upon exercise of such warrants which have not been
exercised.
|
20
|
(6)
|
Voting and dispositive power over the securities held by Sabby
Volitatility Warrant Master Fund is held by Hal
Mintz.
|
|
(7)
|
All of the Sabby
warrants, pursuant to their terms, may not be exercised to the
extent such exercise would cause the holder, together with its
affiliates and attribution parties, to beneficially own a number of
Common Shares which would exceed 4.99% of our then outstanding
Common Shares following such exercise, excluding for purposes of
such determination Common Shares issuable upon exercise of such
warrants which have not been exercised.
|
|
(8)
|
All of
Mr. Viklund’s warrants, pursuant to their terms, may not be
exercised to the extent such exercise would cause the holder,
together with its affiliates and attribution parties, to
beneficially own a number of Common Shares which would exceed 4.99%
of our then outstanding Common Shares following such exercise,
excluding for purposes of such determination Common Shares issuable
upon exercise of such warrants which have not been
exercised.
|
|
(9)
|
This
amount does not include an aggregate of 47,250 Common Shares
issuable upon exercise of warrants issued in March 2018 and
registered for sale under this prospectus, which are not currently
exercisable. All of Mr. Rubinstein’s warrants, pursuant
to their terms, may not be exercised to the extent such exercise
would cause the holder, together with its affiliates and
attribution parties, to beneficially own a number of Common Shares
which would exceed 4.99% of our then outstanding Common Shares
following such exercise, excluding for purposes of such
determination Common Shares issuable upon exercise of such warrants
which have not been exercised.
|
|
(10)
|
This
amount does not include an aggregate of 1,500 Common Shares
issuable upon exercise of warrants issued in March 2018 and
registered for sale under this prospectus, which are not currently
exercisable. All of Mr. Worthman’s warrants, pursuant to
their terms, may not be exercised to the extent such exercise would
cause the holder, together with its affiliates and attribution
parties, to beneficially own a number of Common Shares which would
exceed 4.99% of our then outstanding Common Shares following such
exercise, excluding for purposes of such determination Common
Shares issuable upon exercise of such warrants which have not been
exercised.
|
|
(11)
|
This
amount does not include an aggregate of 101,250 Common Shares
issuable upon exercise of warrants issued in March 2018 and
registered for sale under this prospectus, which are not currently
exercisable. All of Mr. Vasinkevich’s warrants, pursuant to
their terms, may not be exercised to the extent such exercise would
cause the holder, together with its affiliates and attribution
parties, to beneficially own a number of Common Shares which would
exceed 4.99% of our then outstanding Common Shares following such
exercise, excluding for purposes of such determination Common
Shares issuable upon exercise of such warrants which have not been
exercised.
|
|
|
Those
shareholders shown with an asterisk (*) after their name in the
“Selling Shareholders” column are registered
broker-dealers or affiliates of broker-dealers.
|
We are
registering the Common Shares issuable to the selling shareholders
to permit the resale of these Common Shares by the holders of the
Common Shares from time to time after the date of this prospectus.
We will not receive any of the proceeds from the sale by the
selling shareholders of the Common Shares. We will bear all fees
and expenses incident to the registration of the Common
Shares.
The
selling shareholders may sell all or a portion of the Common Shares
beneficially owned by them and offered hereby from time to time
directly or through one or more underwriters, broker-dealers or
agents. If the Common Shares are sold through underwriters or
broker-dealers, the selling shareholders will be responsible for
underwriting discounts or commissions or agent’s commissions.
The Common Shares may be sold on any national securities exchange
or quotation service on which the securities may be listed or
quoted at the time of sale, in the over-the-counter market or in
transactions otherwise than on these exchanges or systems or in the
over-the-counter market and in one or more transactions at fixed
prices, at prevailing market prices at the time of the sale, at
varying prices determined at the time of sale, or at negotiated
prices. These sales may be effected in transactions, which may
involve crosses or block transactions. The selling shareholders may
use any one or more of the following methods when selling
shares:
|
●
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
|
|
|
●
|
block
trades in which the broker-dealer will attempt to sell the shares
as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
|
|
|
|
|
●
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its account;
|
21
|
|
|
|
●
|
an
exchange distribution in accordance with the rules of the
applicable exchange;
|
|
|
|
|
●
|
privately
negotiated transactions;
|
|
|
|
|
●
|
settlement
of short sales entered into after the effective date of the
registration statement of which this prospectus is a
part;
|
|
|
|
|
●
|
broker-dealers
may agree with the selling shareholders to sell a specified number
of such shares at a stipulated price per share;
|
|
|
|
|
●
|
through
the writing or settlement of options or other hedging transactions,
whether such options are listed on an options exchange or
otherwise;
|
|
|
|
|
●
|
a
combination of any such methods of sale; and
|
|
|
|
|
●
|
any
other method permitted pursuant to applicable law.
|
The
selling shareholders also may resell all or a portion of the shares
in open market transactions in reliance upon Rule 144 under the
U.S. Securities Act, as permitted by that rule, or Section 4(a)(1)
under the U.S. Securities Act, if available, rather than under this
prospectus, provided that they meet the criteria and conform to the
requirements of those provisions.
Broker-dealers
engaged by the selling shareholders may arrange for other
broker-dealers to participate in sales. If the selling shareholders
effect such transactions by selling Common Shares to or through
underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of
discounts, concessions or commissions from the selling shareholders
or commissions from purchasers of the Common Shares for whom they
may act as agent or to whom they may sell as principal. Such
commissions will be in amounts to be negotiated, but, except as set
forth in a supplement to this prospectus, in the case of an agency
transaction will not be in excess of a customary brokerage
commission in compliance with applicable rules of the Financial
Industry Regulatory Authority, or FINRA.
In
connection with sales of the Common Shares or otherwise, and unless
limited by any contractual arrangements with us, the selling
shareholders may enter into hedging transactions with
broker-dealers or other financial institutions, which may in turn
engage in short sales of the Common Shares in the course of hedging
in positions they assume and the selling shareholders may also sell
Common Shares short and if such short sales shall take place after
the date that this registration statement is declared effective by
the SEC, the selling shareholders may deliver Common Shares covered
by this prospectus to close out short positions and to return
borrowed shares in connection with such short sales. The selling
shareholders may also loan or pledge Common Shares to
broker-dealers that in turn may sell such shares, to the extent
permitted by applicable law. The selling shareholders may also
enter into option or other transactions with broker-dealers or
other financial institutions or the creation of one or more
derivative securities which require the delivery to such
broker-dealer or other financial institution of shares offered by
this prospectus, which shares such broker-dealer or other financial
institution may resell pursuant to this prospectus (as supplemented
or amended to reflect such transaction). Notwithstanding the
foregoing, the selling shareholders have been advised that they may
not use shares registered pursuant to the registration statement,
of which this prospectus is a part, to cover short sales of our
Common Shares made prior to the date the registration statement is
declared effective by the SEC.
The
selling shareholders may, from time to time, pledge or grant a
security interest in some or all of the Common Shares owned by them
and, if they default in the performance of their secured
obligations, the pledgees or secured parties may offer and sell the
Common Shares from time to time pursuant to this prospectus or any
amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the U.S. Securities Act, amending, if
necessary, the list of selling shareholders to include the pledgee,
transferee or other successors in interest as selling shareholders
under this prospectus. The selling shareholders also may transfer
and donate the Common Shares in other circumstances in which case
the transferees, donees, pledgees or other successors in interest
will be the selling beneficial owners for purposes of this
prospectus.
The
selling shareholders and any broker-dealer or agents participating
in the distribution of the Common Shares offered hereby may be
deemed to be “underwriters” within the meaning of
Section 2(a)(11) of the U.S. Securities Act in connection with such
sales. In such event, any commissions paid, or any discounts or
concessions allowed to, any such broker-dealer or agent and any
profit on the resale of the shares purchased by them may be deemed
to be underwriting commissions or discounts under the U.S.
Securities Act. Selling shareholders who are
“underwriters” within the meaning of Section 2(a)(11)
of the U.S. Securities Act will be subject to the prospectus
delivery requirements of the U.S. Securities Act and may be subject
to certain statutory liabilities of, including without limitation,
Sections 11, 12 and 17 of the U.S. Securities Act and
Rule 10b-5 under the U.S. Exchange Act.
22
Except
as noted under the caption “Selling Shareholders”
above, each selling shareholder has informed the Company that it is
not a registered broker-dealer and does not have any written or
oral agreement or understanding, directly or indirectly, with any
person to distribute the Common Shares. Upon the Company being
notified in writing by a selling shareholder that any material
arrangement has been entered into with a broker-dealer for the sale
of Common Shares through a block trade, special offering, exchange
distribution or secondary distribution or a purchase by a broker or
dealer, a supplement to this prospectus will be filed, if required,
pursuant to Rule 424(b) under the U.S. Securities Act, disclosing
(i) the name of each such selling shareholder and of the
participating broker-dealer(s), (ii) the number of shares
involved, (iii) the price at which such the Common Shares were
sold, (iv) the commissions paid or discounts or concessions
allowed to such broker-dealer(s), where applicable, (v) that
such broker-dealer(s) did not conduct any investigation to verify
the information set out or incorporated by reference in this
prospectus, and (vi) other facts material to the transaction.
In no event shall any broker-dealer receive fees, commissions and
markups, which, in the aggregate, would exceed 8%.
Under
the securities laws of some states, the Common Shares may be sold
in such states only through registered or licensed brokers or
dealers. In addition, in some states the Common Shares may not be
sold unless such shares have been registered or qualified for sale
in such state or an exemption from registration or qualification is
available and is complied with in all respects.
Any
selling shareholder may sell some, all or none of the Common Shares
to be registered pursuant to the registration statement of which
this prospectus forms a part.
Each
selling shareholder and any other person participating in such
distribution will be subject to applicable provisions of the U.S.
Exchange Act, and the rules and regulations thereunder, including,
without limitation, Regulation M of the U.S. Exchange Act, which
may limit the timing of purchases and sales of any of the Common
Shares by the selling shareholder and any other participating
person. Regulation M may also restrict the ability of any person
engaged in the distribution of the Common Shares to engage in
market-making activities with respect to the Common Shares. All of
the foregoing may affect the marketability of the Common Shares and
the ability of any person or entity to engage in market-making
activities with respect to the Common Shares.
We will
pay all expenses of the registration of the Common Shares,
including, without limitation, SEC filing fees and expenses of
compliance with state securities or “blue sky” laws;
provided, however, that each selling shareholder will pay all
underwriting discounts and selling commissions, if any, and any
legal expenses incurred by it. We may indemnify the selling
shareholders against certain liabilities, including some
liabilities under the U.S. Securities Act, in accordance with the
agreements with the selling shareholders, or the selling
shareholders may be entitled to contribution.
The
following is a statement of the expenses (all of which are
estimated), other than any underwriting discounts and commission
and expenses reimbursed by us, to be incurred in connection with a
distribution of the securities registered under this registration
statement.
|
U.S. SEC
registration fees
|
$389
|
|
Nasdaq
expenses
|
26,681
|
|
Printing
expenses
|
3,500
|
|
Legal fees and
expenses
|
80,000
|
|
Accountants’
fees and expenses
|
33,000
|
|
Miscellaneous
|
2,000
|
|
Total
|
$145,570
|
|
_________________________
|
|
* All
amounts in the table are estimates except the U.S. Securities and
Exchange Commission registration and the Nasdaq listing fee. The
Company will pay all of the expenses of this offering.
In
January 2013, the Company completed the private placement financing
of an unsecured debenture in the original principal amount of $1.5
million (the “Debenture”). The Debenture bears interest
at a rate of 12% per annum, payable monthly, is pre-payable at any
time at the option of the Company, and is convertible at any time
into Common Shares at a conversion price of $3.00 per Common Share
at the option of the holder. Drs. Isa and Amina Odidi, our
principal shareholders, directors and executive officers provided
us with the original $1.5 million of the proceeds for the
Debenture. In December 2016, a principal repayment of $150,000 was
made on the Debenture and the maturity date was extended. Effective
September 28, 2017, the maturity date for the Debenture was further
extended to October 1, 2018. The Company currently expects to repay
the current outstanding principal amount of $1,350,000 on or about
October 1, 2018, if the Company then has cash
available.
23
To the
Company’s knowledge, Armistice Capital Master Fund, Ltd.
and/or its affiliates (collectively “Armistice”),
currently a holder of in excess of 10% of the Company’s
outstanding Common Shares, participated in (i) a registered
direct offering in October 2017, pursuant to a placement agent
agreement dated October 10, 2017 between the Company and H.C.
Wainwright, and (ii) the registered direct offerings completed in
March 2018, pursuant to placement agent agreements dated March 12,
2018 and March 18, 2018 between the Company and H.C.
Wainwright.
Since
the beginning of the Company’s preceding three financial
years to the date hereof, other than discussed above, there have
been no transactions or proposed transactions which are material to
the Company or to any of the Company’s associates, holders of
10% of the Company’s outstanding shares, to the
Company’s directors or officers or any transactions that are
unusual in their nature or conditions to which the Company or any
of its subsidiaries was a party.
The
Company’s Corporate Governance Committee, made up of
independent directors, oversees any potential transaction and
negotiation that could give rise to a related party transaction or
create a conflict of interest, and conducts an appropriate
review.
Our
authorized share capital consists of an unlimited number of Common
Shares, all without nominal or par value and an unlimited number of
Preference Shares issuable in series. As of July 16, 2018, there
were 43,537,850 Common Shares and no Preference Shares issued and
outstanding.
Common Shares
Each of
our Common Shares entitles the holder thereof to one vote at any
meeting of our shareholders, except meetings at which only holders
of a specified class of shares are entitled to vote. Common Shares
are entitled to receive, as and when declared by the board of
directors, dividends in such amounts as shall be determined by the
board of directors. Subject to the prior rights of the holders of
any Preference Shares, the holders of Common Shares have the right
to receive our remaining property in the event of our liquidation,
dissolution, or winding-up, whether voluntary or
involuntary.
Preference Shares
The
Preference Shares may at any time and from time to time be issued
in one or more series. The board of directors will, by resolution,
from time to time, before the issue thereof, fix the rights,
privileges, restrictions and conditions attaching to the Preference
Shares of each series. Except as required by law, the holders of
any series of Preference Shares will not as such be entitled to
receive notice of, attend or vote at any meeting of our
shareholders. Holders of Preference Shares will be entitled to
preference with respect to payment of dividends and the
distribution of assets in the event of our liquidation, dissolution
or winding-up, whether voluntary or involuntary, or any other
distribution of our assets among our shareholders for the purpose
of winding up our affairs, on such shares over the Common Shares
and over any other shares ranking junior to the Preference
Shares.
Warrants
At July
16, 2018, an aggregate of 8,465,195 Common Shares were issuable
upon the exercise of outstanding Common Share purchase warrants,
with a weighted average exercise price of $1.03 per Common
Share.
Options
As of
July 16, 2018, there were 5,613,169 Common Shares issuable upon the
exercise of outstanding options. The weighted average exercise
price of these options is $3.15 per Common Share. As at July 16,
2018, up to 1,504,556 additional Common Shares were reserved for
issuance under our option plan.
Convertible Debenture
On
January 10, 2013, we completed a private placement financing of an
unsecured Debenture in the original principal amount of $1.5
million. The Debenture was originally due to mature on January 1,
2015, but through a series of extensions, the current maturity date
is October 1, 2018. The Debenture bears interest at a rate of 12%
per annum, payable monthly, is pre-payable at any time at our
option, and is convertible at any time into Common Shares at a
conversion price of $3.00 per Common Share at the option of the
holder. Drs. Isa and Amina Odidi, our principal shareholders,
directors and executive officers provided us with the $1.5 million
of the proceeds for the Debenture. Effective December 1, 2016, the
maturity date for the Debenture was extended to April 1, 2017 and a
principal repayment of $150,000 was made at the time of the
extension. After giving effect to such partial repayment, the
Debenture is now convertible at any time into 450,000 Common Shares
at a conversion price of $3.00 per Common Share at the option of
the holder. We currently expect to repay the current net amount of
$1,350,000 on or about October 1, 2018, if we then have cash
available.
24
Deferred Share Units
At July
16, 2018, there were 102,791 DSUs issued and outstanding. At July
16, 2018, 7,209 additional DSUs are reserved for issuance under our
Deferred Share Unit (“DSU”) plan. The DSU plan permits
certain non-management directors to defer receipt of all or a
portion of their board fees until termination of the board service
and to receive such fees in the form of Common Shares at that time.
A DSU is a unit equivalent in value to one Common Share based on
the trading price of our Common Shares on the TSX.
Restricted Share Units
We
established a restricted share unit (“RSU”) plan (the
“RSU Plan”) to form part of our incentive compensation
arrangements available for our officers and employees and officers
and employees of our designated affiliates. An RSU is a unit
equivalent in value to one Common Share. Upon vesting of the RSUs
and the corresponding issuance of Common Shares to the participant,
or on the forfeiture and cancellation of the RSUs, the RSUs
credited to the participant’s account will be cancelled. No
RSUs have been issued under the RSU Plan. At the date of this
prospectus, 330,000 RSUs are reserved for issuance under our RSU
Plan.
Registration Rights
We
conducted a private placement issuance of units comprised of Common
Shares and warrants in February 2011, which was exempt from
registration under the U.S. Securities Act pursuant to Regulation D
and Section 4(2) and/or Regulation S thereof and other
available exemptions. As such, the Common Shares, the warrants, and
the Common Shares underlying the warrants may not be offered or
sold in the United States unless they are registered under the U.S.
Securities Act, or an exemption from the registration requirements
of the U.S. Securities Act is available.
In
connection with the private placement, we agreed to file a
registration statement on Form F-3, or the Registration Statement,
within 40 days after the closing and use our best efforts to have
it declared effective within 150 days after the closing to register
(i) 100% of the Common Shares issued in the private placement;
and (ii) 100% of the Common Shares underlying the investor
warrants issued in the private placement, or the Registrable
Securities.
The
Registration Statement was declared effective as of March 30, 2011.
If (i) the Registration Statement ceases to be continuously
effective for more than twenty consecutive calendar days or more
than an aggregate of thirty calendar days during any consecutive
12-month period, or (ii) at a time in which the Registrable
Securities cannot be sold under the Registration Statement, we
shall fail for any reason to satisfy the current public information
requirement under Rule 144 as to the applicable Registrable
Securities, we shall pay to the investors, on a pro rata basis,
partial liquidated damages of one percent (1%) of the aggregate
purchase price paid by each investor on the occurrence of an event
listed above and for each calendar month (pro rata for any period
less than a calendar month) from an event, until
cured.
The
securities shall cease to be Registrable Securities when
(i) they have been sold (A) pursuant to a registration
statement; or (B) in accordance with Rule 144 or any other
rule of similar effect; or (ii) such securities become
eligible for resale without volume or manner-of-sale restrictions,
and when either we are compliant with any current public
information requirements pursuant to Rule 144 or the current public
information requirements no longer apply.
Our
Common Shares are currently listed on the TSX and Nasdaq under the
symbol “IPCI.” Prior to March 20, 2017, our Common
Shares traded on the TSX under the symbol “I”;
effective that date, our TSX trading symbol was harmonized with our
Nasdaq symbol. See “Prospectus Summary-Recent
Developments—Nasdaq Notices and Nasdaq Hearings Panel Grant
of Request for Continued Listing” and “—Risk
Factors--Our Common Shares will be delisted from the Nasdaq Capital
Market if we do not satisfy certain requirements of the Nasdaq
Hearing Panel by September 28, 2018” in this prospectus for
important information about the listing of our Common Shares on
Nasdaq.
The
following table sets forth the monthly trading history for the
preceding 12 month period, the reported high, low and closing
prices (in Canadian dollars) and total volume traded of our Common
Shares on the TSX and reported high, low and closing prices (in
U.S. dollars) and total volume of our Common Shares traded on
Nasdaq.
25
|
|
TSX
|
Nasdaq
|
||||||
|
|
(Cdn$
per share)
|
(U.S.
$ per share)
|
||||||
|
Date
|
High
|
Low
|
Close
|
Volume
Traded
|
High
|
Low
|
Close
|
Volume
Traded
|
|
July-17
|
$3.73
|
$1.47
|
$1.59
|
956,500
|
$2.92
|
$1.19
|
$1.27
|
11,834,293
|
|
Aug
-17
|
$1.62
|
$1.00
|
$1.15
|
457,000
|
$1.30
|
$0.81
|
$0.95
|
7,355,946
|
|
Sept -
17
|
$1.50
|
$1.00
|
$1.28
|
354,100
|
$1.17
|
$0.82
|
$0.99
|
6,883,068
|
|
Oct -
17
|
$1.58
|
$1.13
|
$1.20
|
473,000
|
$1.25
|
$0.88
|
$0.94
|
8,234,049
|
|
Nov-17
|
$1.23
|
$1.09
|
$1.09
|
345,300
|
$0.97
|
$0.84
|
$0.85
|
3,754,382
|
|
Dec-17
|
$1.15
|
$0.92
|
$0.99
|
451,100
|
$0.89
|
$0.70
|
$0.80
|
5,155,984
|
|
Jan-18
|
$1.29
|
$0.97
|
$1.01
|
1,259,000
|
$1.05
|
$0.77
|
$0.81
|
13,607,197
|
|
Feb-18
|
$1.02
|
$0.78
|
$0.85
|
421,800
|
$0.82
|
$0.61
|
$0.64
|
4,455,688
|
|
Mar
-18
|
$0.90
|
$0.70
|
$0.72
|
384,600
|
$0.67
|
$0.51
|
$0.57
|
6,395,539
|
|
Apr
-18
|
$0.80
|
$0.43
|
$0.48
|
184,600
|
$0.65
|
$0.33
|
$0.35
|
3,529,513
|
|
May
-18
|
$0.58
|
$0.41
|
$0.52
|
123,900
|
$0.45
|
$0.32
|
$0.42
|
5,926,913
|
|
June
-18
|
$0.75
|
$0.49
|
$0.56
|
151,300
|
$0.55
|
$0.39
|
$0.48
|
5,965,409
|
|
July 1
to
July
16-18
|
$0.72
|
$0.56
|
$0.66
|
42,500
|
$0.54
|
$0.44
|
$0.47
|
878,273
|
PRIOR
SALES
During
the 12 month period prior to the date of this prospectus, we have
issued Common Shares, or securities convertible into Common Shares,
as follows:
In
November 2013, we entered into an equity distribution agreement
with Roth Capital Partners, LLC, or Roth, pursuant to which we
originally could, from time to time, sell up to 5,305,484 of our
Common Shares for up to an aggregate of $16.8 million (or such
lesser amount as may then be permitted under applicable exchange
rules and securities laws and regulations) through at-the-market
issuances on the Nasdaq or otherwise. Under the equity distribution
agreement, we may at our discretion, from time to time, offer and
sell Common Shares through Roth or directly to Roth for resale to
the extent permitted under Rule 415 under the U.S. Securities Act.
Sales of Common Shares through Roth, if any, will be made at such
time and at such price as are acceptable to us, from time to time,
by means of ordinary brokers’ transactions on the Nasdaq or
otherwise at market prices prevailing at the time of sale or as
determined by us. We pay Roth a commission, or allow a discount, of
2.75% of the gross proceeds we receive from any sales of our Common
Shares under the equity distribution agreement. We have also agreed
to reimburse Roth for certain expenses relating to the
at-the-market offering program. As of the date of this prospectus,
we have issued and sold an aggregate of 4,740,350 Common Shares
with an aggregate offering price of $13,872,929, including 485,239
Common Shares with an aggregate offering price of $1,035,756 during
the 12-month period prior to the date of this prospectus, under the
equity distribution agreement. Roth received aggregate compensation
of $392,827 in connection with all of such sales, including $28,547
relating to sales made in the 12-month period prior to the date of
this prospectus. The Common Shares were offered by us through
prospectus supplements pursuant to our shelf registration
statements on Form F-3 (Registration No. 333-218297, and prior
thereto Registration Nos. 333-178190 and 333-196112) as previously
filed and declared effective by the SEC and the base prospectuses
contained therein.
Pursuant to a
placement agent agreement dated October 10, 2017 between the
Company and H.C. Wainwright, in October 2017, we completed a
registered direct offering of 3,636,364 Common Shares at a price of
$1.10 per share for gross proceeds of approximately $4 million. We
also issued to the investors unregistered warrants to purchase an
aggregate of 1,818,182 Common Shares at an initial exercise price
of $1.25 per share. The warrants became exercisable six months
following the October 13, 2017 closing date and will expire 30
months after the date they became exercisable. The Common Shares
(but not the warrants or the Common Shares underlying the warrants)
were offered by us through a prospectus supplement pursuant to our
Shelf Registration Statement. The warrants described above were
offered in a private placement under Section 4(a)(2) of the U.S.
Securities Act, and Regulation D promulgated thereunder and, along
with the Common Shares underlying the warrants, have not been
registered under the U.S. Securities Act, or applicable state
securities laws. We also issued to the placement agents 181,818
warrants to purchase Common Shares at an initial exercise price of
$1.375 per share. The total net proceeds from the offering were
$3.5 million, after deducting offering expenses.
Pursuant to a
placement agent agreement dated March 12, 2018 between the Company
and H.C. Wainwright, on March 16, 2018, we completed a registered
direct offering of 5,833,334 Common Shares at a price of $0.60 per
share for gross proceeds of approximately $3.5 million. We also
issued to the investors unregistered warrants to purchase an
aggregate of 2,916,667 Common Shares at an initial exercise price
of $0.60 per share. The warrants are exercisable six months
following the March 16, 2018 closing date and will expire 30 months
after the date they become exercisable. The Common Shares (but not
the warrants or the Common Shares underlying the warrants) were
offered by us through a prospectus supplement pursuant to our Shelf
Registration Statement. The warrants described above were offered
in a private placement under Section 4(a)(2) of the U.S. Securities
Act, and Regulation D promulgated thereunder and, along with the
Common Shares underlying the warrants, have not been registered
under the U.S. Securities Act, or applicable state securities laws.
We also issued to the placement agent 291,667 warrants to purchase
Common Shares at an initial exercise price of $0.75 per share, paid
$245,000 in cash for placement agent fees and an aggregate of
$75,000 for certain expenses. The total net proceeds from the
offering were approximately $3 million, after deducting offering
expenses.
26
Pursuant to a
placement agent agreement dated March 18, 2018 between the Company
and H.C. Wainwright, on March 21, 2018, we completed a registered
direct offering of 3,000,000 Common Shares at a price of $0.60 per
share for gross proceeds of approximately $1.8 million. We also
issued to the investors unregistered warrants to purchase an
aggregate of 1,500,000 Common Shares at an initial exercise price
of $0.60 per share. The warrants are exercisable six months
following the March 21, 2018 closing date and will expire 30 months
after the date they become exercisable. The Common Shares (but not
the warrants or the Common Shares underlying the warrants) were
offered by us through a prospectus supplement pursuant to our Shelf
Registration Statement. The warrants described above were offered
in a private placement under Section 4(a)(2) of the U.S. Securities
Act, and Regulation D promulgated thereunder and, along with the
Common Shares underlying the warrants, have not been registered
under the U.S. Securities Act, or applicable state securities laws.
We also issued to the placement agent 150,000 warrants to purchase
Common Shares at an initial exercise price of $0.75 per share, paid
$126,000 in cash for placement agent fees and an aggregate of
$45,000 for certain expenses. The total net proceeds from the
offering were approximately $1.6 million, after deducting offering
expenses.
During
the 12-month period prior to the date of this prospectus, warrants
to purchase an aggregate of 15,000 Common Shares were
exercised.
During
the 12-month period prior to the date of this prospectus, 496,000
options were granted and no options were exercised.
Also,
during the 12-month period prior to the date of this prospectus, a
total of 16,842 deferred share units were granted. For a
description of our deferred share units see “Description of
Share Capital--Deferred Share Units.”
During
the 12-month period prior to the date of this prospectus, no
restricted share units were granted. For a description of our
restricted share units see --“Description of Share
Capital--Restricted Share Units.”
We have
not paid any cash dividends on our Common Shares and do not intend
to pay cash dividends in the foreseeable future. We intend to
retain future earnings, if any, for reinvestment in the development
and expansion of our business. Dividend payments in the future may
also be limited by loan agreements or covenants contained in other
securities we may issue. Any future determination to pay cash
dividends will be at the discretion of our board of directors and
depend on our financial condition, results of operations, capital
and legal requirements and such other factors as our board of
directors deems relevant.
The
following discussion is a general summary of certain material U.S.
federal income tax considerations applicable to a U.S. Holder (as
defined below) arising from and relating to the acquisition,
ownership, and disposition of common shares acquired pursuant to
this prospectus supplement.
For
purposes of this summary, the term “U.S. Holder” means a beneficial owner of common
shares acquired pursuant to this offering that is any of the
following for U.S. federal income tax purposes:
(i)
an individual who
is a citizen or resident of the U.S. or an individual treated as a
U.S. citizen or resident for U.S. federal income tax
purposes;
(ii)
a corporation (or
other entity taxable as a corporation for U.S. federal income tax
purposes) created or organized in or under the laws of the U.S. or
any state thereof or the District of Columbia or otherwise
considered a U.S. domestic corporation for U.S. federal income tax
purposes;
(iii)
an estate whose
income is subject to U.S. federal income taxation regardless of its
source; or
(iv)
a trust that
(1) is subject to the primary supervision of a court within the
U.S. and the control of one or more U.S. persons for all
substantial decisions or (2) was in existence on August 20, 1996
and has a valid election in effect under applicable Treasury
Regulations to be treated as a U.S. person.
27
For
purposes of this summary, a “non-U.S. Holder” is a beneficial owner of common
shares that is not a U.S. Holder nor a partnership for U.S. federal
income tax purposes.
This
summary does not address the U.S. federal income tax consequences
relevant to non-U.S. Holders arising from and relating to the
acquisition, ownership, and disposition of common
shares.
This
summary is for general information purposes only and does not
purport to be a complete discussion of all of the potential U.S.
federal income tax considerations that may be relevant to a U.S.
Holder arising from and relating to the acquisition, ownership, and
disposition of common shares. In addition, this summary does not
take into account the individual facts and circumstances of any
particular U.S. Holder that may affect the U.S. federal income tax
consequences to such U.S. Holder, including specific tax
consequences to a U.S. Holder under an applicable tax treaty.
Accordingly, this summary is not intended to be, and should not be
construed as, legal or U.S. federal income tax advice with respect
to any U.S. Holder. This summary does not address the U.S. federal
alternative minimum tax, U.S. federal estate and gift tax, U.S.
state and local tax, and foreign tax consequences relating to U.S.
Holders regarding the acquisition, ownership and disposition of
common shares. Each prospective U.S. Holder should consult its own
tax advisor regarding the U.S. federal tax, U.S. federal
alternative minimum tax, U.S. federal estate and gift tax, U.S.
state and local tax, and foreign tax consequences to U.S. Holders
relating to the acquisition, ownership, and disposition of common
shares.
No
legal opinion from U.S. legal counsel or ruling from the Internal
Revenue Service, or the IRS, or any other federal, state or local
agency has been requested, or will be obtained, regarding any of
the tax issues affecting the Company or its U.S. Holders. This
summary is not binding on the IRS, and the IRS is not precluded
from taking a position that is different from, and contrary to, the
positions taken in this summary. In addition, because the
authorities on which this summary is based are subject to various
interpretations, the IRS and the U.S. courts could disagree with
one or more of the conclusions described in this
summary.
This
summary is based on current provisions of the Internal Revenue Code
of 1986, as amended, or the Code, Treasury Regulations promulgated
under the Code by the U.S. Treasury Department (whether final,
temporary, or proposed, the “Treasury Regulations”), published rulings of the IRS,
published administrative interpretations and official
pronouncements by the IRS, and U.S. court decisions that are
applicable and, in each case, as in effect and available, as of the
date of this prospectus supplement. The rules and guidance
contained in such laws, regulations, rulings and decisions may
change, possibly on a retroactive basis, and any change could
affect the continuing validity of this discussion. Any of the
authorities on which this summary is based could be changed in a
material and adverse manner at any time, and any such change could
be applied on a retroactive or prospective basis which could affect
the U.S. federal income tax considerations described in this
summary. This summary also does not discuss the potential effects,
whether adverse or beneficial, of any proposed or future
legislation that, if enacted, could be applied on a retroactive or
prospective basis. Moreover, we cannot predict whether, when, or to
what extent U.S. federal tax laws will be changed, or regulations,
interpretations, or rulings will be issued or revoked, nor is the
long-term impact of the significant changes made to the Code in
2017 known at this time. No assurance can be given that the IRS
would not assert, or that a court would not sustain, a position
contrary to any of the tax consequences described
below.
This
summary does not address the U.S. federal income tax considerations
applicable to U.S. Holders that are subject to special provisions
under the Code, including, but not limited to, the following: (a)
U.S. Holders that are qualified retirement plans, individual
retirement accounts, or other tax-deferred accounts; (b) U.S.
Holders that are financial institutions, underwriters, insurance
companies, real estate investment trusts, or regulated investment
companies; (c) U.S. Holders that are broker-dealers, dealers, or
traders in securities; (d) U.S. Holders that have a “functional currency” other than the U.S. dollar; (e)
U.S. Holders that own common shares as part of a straddle, hedging
transaction, conversion transaction, constructive sale, or other
arrangement involving more than one position; (f) U.S. Holders that
acquired common shares in connection with the exercise of employee
stock options or otherwise as compensation for services; (g) U.S.
Holders that hold common shares other than as a capital asset
within the meaning of Section 1221 of the Code (generally, property
held for investment purposes is considered to be held as a capital
asset); or (h) U.S. Holders that own or have owned (directly,
indirectly, or by attribution) 10% or more of the total combined
voting power or value of the outstanding shares of the Company.
This summary also does not address the U.S. federal income tax
considerations applicable to U.S. Holders who are: (a) U.S.
expatriates or former long-term residents of the U.S.; (b) persons
that have been, are, or will be residents or deemed to be residents
in Canada for purposes of the Income Tax Act (Canada), or the Tax
Act; (c) persons that use or hold, will use or hold, or that are or
will be deemed to use or hold common shares in connection with
carrying on a business in Canada; (d) persons whose common shares
constitute “taxable
Canadian property” under
the Tax Act; or (e) persons that have a permanent establishment in
Canada for the purposes of the Canada-U.S. Tax Convention. U.S.
Holders that are subject to special provisions under the Code,
including, but not limited to, U.S. Holders described immediately
above, should consult their own tax advisor regarding the U.S.
federal income tax, U.S. federal alternative minimum tax, U.S.
federal estate and gift, U.S. state and local, and foreign tax
consequences relating to the acquisition, ownership and disposition
of common shares.
28
If an
entity or arrangement that is treated as a partnership (or other
“pass-through” entity) for U.S. federal income tax
purposes holds common shares, the U.S. federal income tax
consequences to such beneficial owner generally will depend on the
activities of the partnership and the status of such partner. This
summary does not address the tax consequences to any such
beneficial owner. A U.S. Holder of common shares that is a
partnership and partners in such partnership should consult their
own tax advisors regarding the U.S. federal income tax consequences
arising from and relating to the acquisition, ownership, and
disposition of common shares.
THIS
SUMMARY OF MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. EACH HOLDER
IS URGED TO CONSULT ITS TAX ADVISOR REGARDING THE APPLICATION OF
UNITED STATES FEDERAL INCOME TAX LAWS WITH RESPECT TO ITS
PARTICULAR SITUATION AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER
THE UNITED STATES FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE
LAWS OF ANY FOREIGN, STATE OR LOCAL JURISDICTION OR UNDER ANY
APPLICABLE TAX TREATY.
Passive Foreign Investment Company Considerations
Special, generally
unfavorable, U.S. federal income tax rules apply to a U.S.
Holder’s ownership and
disposition of the stock of a passive foreign investment company,
or PFIC. As discussed below, however, if we are considered a PFIC,
a U.S. Holder may be able to mitigate these consequences with
respect to our common shares by making a timely and effective
election to treat the Company as a qualified electing fund, i.e., a
QEF Election, or by making a timely and effective mark-to-market
election with respect to its common shares, i.e., a Mark-to-Market
Election.
For
U.S. federal income tax purposes, a foreign corporation is
classified as a PFIC for each taxable year in which, applying the
relevant look-through rules, either:
●
at least 75% of its
gross income for the taxable year consists of specified types of
“passive” income (referred to as the
“income test”); or
●
at least 50% of the
average value of its assets during the taxable year is attributable
to certain types of assets that produce passive income or are held
for the production of passive income (referred to as the
“asset test”).
For
purposes of the income and asset tests, if a foreign corporation
owns directly or indirectly at least 25% (by value) of the stock of
another corporation, that foreign corporation will be treated as if
it held its proportionate share of the assets of the other
corporation and received its proportionate share of the income of
that other corporation. Also, for purposes of the income and asset
tests, passive income does not include any income that is an
interest, dividend, rent or royalty payment if it is received or
accrued from a related person to the extent that amount is properly
allocable to the active income of the related person. Under
applicable attribution rules, if the Company is a PFIC, U.S.
Holders of common shares will be treated as holding stock of the
Company’s subsidiaries
that are PFICs in certain circumstances. In these circumstances,
certain dispositions of, and distributions on, stock of such
subsidiaries may have consequences for U.S. Holders under the PFIC
rules.
We
believe that we were not a PFIC during our 2017 taxable year and
are unlikely to be a PFIC during our 2018 taxable year. Because
PFIC status is based on our income, assets and activities for the
entire taxable year, and our market capitalization, it is not
possible to determine whether we will be characterized as a PFIC
for the 2018 taxable year until after the close of the taxable
year. The tests for determining PFIC status are subject to a number
of uncertainties. These tests are applied annually, and it is
difficult to accurately predict future income, assets and
activities relevant to this determination. In addition, because the
market price of our common shares is likely to fluctuate, the
market price may affect the determination of whether we will be
considered a PFIC. There can be no assurance that we will not be
considered a PFIC for any taxable year (including our 2018 taxable
year). Absent one of the elections described below, if we are a
PFIC for any taxable year during which a U.S. Holder holds our
common shares, such U.S. Holder’s share of our income for such year
will continue to be subject to the regime described below,
regardless of whether we cease to meet the PFIC tests in one or
more subsequent years. Accordingly, no assurance can be given that
we will not constitute a PFIC in the current (or any future) tax
year or that the IRS will not challenge any determination made by
us concerning our PFIC status. If we are a PFIC, the U.S. federal
income tax consequences to a U.S. Holder of the ownership and
disposition of our shares will depend on whether such U.S. Holder
makes a QEF or Mark-to-Market election. Unless otherwise provided
by the IRS, a U.S. Holder of our common shares is generally
required to file an informational return annually to report its
ownership interest in the PFIC during any year in which we are a
PFIC.
29
U.S.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS ABOUT THE PFIC RULES,
THE POTENTIAL APPLICABILITY OF THESE RULES TO THE COMPANY CURRENTLY
AND IN THE FUTURE, AND THEIR FILING OBLIGATIONS IF THE COMPANY IS A
PFIC.
The “No Election” Alternative – Taxation of
Excess Distributions
If we
are classified as a PFIC for any year during which a U.S. Holder
has held common shares and that U.S. Holder has not made a QEF
Election or a Mark-to-Market Election, special rules may subject
that U.S. Holder to increased tax liability, including loss of
favorable capital gains rates and the imposition of an interest
charge upon the sale or other disposition of the common shares or
upon the receipt of any excess distribution (as defined below).
Under these rules:
● the
gain, if any, realized on such disposition will be allocated
ratably over the U.S. Holder’s holding period;
●
the amount of gain
allocated to the taxable year in which the disposition or excess
distribution occurs and any year prior to the first year in which
we are a PFIC will be taxed as ordinary income in the year of
disposition or excess distribution;
●
the amount of gain
allocated to each of the taxable years other than the year in which
the disposition or excess distribution occurs or pre-PFIC years
will be subject to tax at the highest ordinary income tax rate in
effect for that year; and
●
an interest charge
for the deemed deferral benefit will be imposed with respect to the
resulting tax attributable to each of such other taxable
years.
These
rules will continue to apply to the U.S. Holder even after we cease
to meet the definition of a PFIC, unless the U.S. Holder elects to
be treated as having sold our common shares on the last day of the
last taxable year in which we qualified as a PFIC.
An
“excess
distribution,” in
general, is any distribution on common shares received in a taxable
year by a U.S. Holder that is greater than 125% of the average
annual distributions received by that U.S. Holder in the three
preceding taxable years or, if shorter, during that U.S.
Holder’s holding period
for common shares.
Any
portion of a distribution paid to a U.S. Holder that does not
constitute an excess distribution will be treated as ordinary
dividend income to the extent of our current and accumulated
earnings and profits (as computed for U.S. federal income tax
purposes). Such dividends generally will not qualify for the
dividends-received deduction otherwise available to U.S.
corporations which own a 10% or greater interest in a dividend
paying foreign corporation. Any amounts treated as dividends paid
by a PFIC generally will not constitute “qualified dividend
income” within the
meaning of Section 1(h)(11) of the Code and will, therefore, not be
eligible for the preferential 20% maximum rate for such income
generally in effect for U.S. Holders that are individuals under
current law. Any such amounts in excess of our current and
accumulated earnings and profits will be applied against the U.S.
Holder’s tax basis in the
common shares and, to the extent in excess of such tax basis, will
be treated as gain from a sale or exchange of such common shares.
It is possible that any such gain may be treated as an excess
distribution. (See “Additional Considerations
– Additional Tax on
Passive Income”
below).
The QEF Election Alternative
A U.S.
Holder of common shares who elects (an “Electing U.S. Holder”) under Section 1295 of the Code in a
timely manner to treat us as a QEF with respect to such common
shares (i.e., who makes a “QEF Election”) would generally include in gross
income (and be subject to current U.S. federal income tax on) its
pro rata share of (a) the Company’s ordinary earnings, as ordinary
income, and (b) our net capital gains, as long-term capital gain.
An Electing U.S. Holder will generally be subject to U.S. federal
income tax on such amounts for each taxable year in which we are
classified as a PFIC, regardless of whether such amounts are
actually distributed to that Holder. An Electing U.S. Holder may
further elect, in any given taxable year, to defer payment of U.S.
federal income tax on such amounts to the extent that such amounts
remain undistributed, subject to certain limitations. However, if
payment of such tax is deferred, the taxes will be subject to an
interest charge calculated from the due date for the due date of
the tax return for the year in which the QEF inclusion occurs until
the date the tax is paid.
A U.S.
Holder may make a QEF Election only if the Company furnishes the
U.S. Holder with certain tax information. If the Company should
determine that it is a PFIC, it is anticipated that it will attempt
to timely and accurately disclose such information to its U.S.
Holders and provide U.S. Holders with information reasonably
required to make such election.
A U.S.
Holder that makes a QEF Election with respect to the Company
generally (a) may receive a tax-free distribution on its common
shares from the Company to the extent that such distribution
represents “earnings and
profits” of the Company
that were previously included in income by the U.S. Holder because
of such QEF Election and (b) will adjust such U.S.
Holder’s tax basis in
his, her or its common shares to reflect the amount that is
included in income (resulting in an increase in basis) or that is
allowed as a tax-free distribution (resulting in a decrease in
basis) because of the QEF Election.
30
Similarly, if any
of our non-U.S. subsidiaries were classified as PFICs, a U.S.
Holder that makes a timely QEF Election with respect to any of our
subsidiaries would be subject to the QEF rules as described above
with respect to the Holder’s pro rata share of the ordinary
earnings and net capital gains of any of our subsidiaries. Our
earnings (or earnings of any of our subsidiaries) attributable to
distributions from any of our subsidiaries that had previously been
included in the income of an Electing U.S. Holder under the QEF
rules would generally not be taxed to the Electing U.S. Holder
again.
Upon
the sale or other disposition of common shares, an Electing U.S.
Holder who makes a QEF Election for the first taxable year in which
it owns common shares (and such election remains in place
throughout such U.S. Holder’s ownership of common shares) will
recognize capital gain or loss for U.S. federal income tax purposes
in an amount equal to the difference between the net amount
realized on the disposition and the U.S. Holder’s adjusted tax basis in the common
shares. Such gain or loss will be long-term capital gain or loss if
the U.S. Holder’s holding
period in the common shares is more than one year, otherwise it
will be short-term capital gain or loss. The deductibility of
capital losses is subject to certain limitations. A U.S.
Holder’s gain realized
upon the disposition of shares generally will be treated as U.S.
source income, and losses from the disposition generally will be
allocated to reduce U.S. source income.
A QEF
Election must be made in a timely manner as specified in applicable
Treasury Regulations. Generally, the QEF Election must be made by
filing the appropriate QEF election documents at the time such U.S.
Holder timely files its U.S. federal income tax return for the
first taxable year of the Company during which it was a PFIC while
the Holder beneficially owns common shares.
Each
U.S. Holder should consult its own tax advisor regarding the
availability of, procedure for making, and consequences of a QEF
Election with respect to the Company.
Mark-to-Market Election Alternative
Assuming that our
common shares are treated as marketable stock (as defined for these
purposes), a U.S. Holder that does not make a QEF Election may
avoid the application of the excess distribution rules, at least in
part, by electing, under Section 1296 of the Code, to mark the
common shares to market annually. Consequently, the U.S. Holder
will generally recognize as ordinary income or loss each year an
amount equal to the difference as of the close of the taxable year
between the fair market value of its common shares and the U.S.
Holder’s adjusted tax
basis in such common shares. Any mark-to-market loss is treated as
an ordinary deduction, but only to the extent of the net
mark-to-market gain that the Holder has included pursuant to the
election in prior tax years. Any gain on a disposition of our
common shares by a U.S. Holder that has made a Mark-to-Market
Election would be treated as ordinary income. Such U.S.
Holder’s basis in its
common shares would be adjusted to reflect any of these income or
loss amounts. For purposes of making this election, stock of a
foreign corporation is “marketable” if it is “regularly traded” on any of certain “qualified exchanges”. Under applicable Treasury
Regulations, a “qualified
exchange” includes a
national securities exchange that is registered with the SEC or the
national market system established pursuant to Section 11A of the
U.S. Exchange Act, and certain foreign securities exchanges.
Currently, our common shares are traded on a “qualified exchange.” Under applicable Treasury
Regulations, PFIC stock traded on a qualified exchange is
“regularly
traded” on such exchange
for any calendar year during which such stock is traded, other than
in de
minimis quantities, on at least 15 days during each calendar
quarter. Special rules apply if an election is made after the
beginning of the taxpayer’s holding period in PFIC
stock.
To the
extent available, a Mark-to-Market election applies to the taxable
year in which such election is made and to each subsequent taxable
year, unless the Company’s common shares cease to be
“marketable
stock” or the IRS
consents to revocation of such election. In addition, a U.S. Holder
that has made a Mark-to-Market Election does not include
mark-to-market gains, or deduct mark-to-market losses, for years
when the Company ceases to be treated as a PFIC.
The
mark-to-market rules generally do not appear to prevent the
application of the excess distribution rules in respect of stock of
any of our subsidiaries in the event that any of our subsidiaries
were considered PFICs.
Accordingly, if we
and any of our subsidiaries were both considered PFICs and a U.S.
Holder made a Mark-to-Market Election with respect to our common
shares, the U.S. Holder may remain subject to the excess
distribution rules described above with respect to its indirectly
owned shares of stock in such subsidiaries.
U.S.
HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE
POSSIBLE APPLICABILITY OF THE PFIC RULES AND THE AVAILABILITY OF,
PROCEDURES FOR MAKING, AND CONSEQUENCES OF A QEF ELECTION OR
MARK-TO-MARKET ELECTION WITH RESPECT TO THE COMPANY’S COMMON SHARES.
31
Ownership and Disposition of Common Shares to the Extent that the
PFIC Rules do not Apply
Distributions on Common Shares
If we
are not, and at no time during a U.S. Holder’s ownership of our common stock have
been, a PFIC, such a U.S. Holder that receives a distribution,
including a constructive distribution, with respect to a common
share will be required to include the amount of such distribution
in gross income as a dividend (without reduction for any Canadian
income tax withheld from such distribution) to the extent of the
current or accumulated “earnings and profits” of the Company, as computed for
U.S. federal income tax purposes. Any amount considered to be a
dividend received by a U.S. Holder who is an individual should be
eligible for the 20% maximum rate of U.S. federal income tax under
Section 1(h)(11) of the Code (possibly supplemented by the 3.8%
Medicare surtax on net investment income described under
“Additional
Considerations,” below).
To the extent that a distribution exceeds the current and
accumulated “earnings and
profits” of the Company,
such distribution will be treated first as a tax-free return of
capital to the extent of a U.S. Holder’s tax basis in the common shares and
thereafter as gain from the sale or exchange of such common shares.
(See “Sale or Other
Taxable Disposition of Common Shares” below). However, the Company may
not maintain the calculations of earnings and profits in accordance
with U.S. federal income tax principles, and each U.S. Holder
should (unless advised to the contrary) therefore assume that any
distribution by the Company with respect to the common shares will
constitute ordinary dividend income. Dividends received on common
shares generally will not be eligible for the “dividends received
deduction”. The dividend
rules are complex, and each U.S. Holder should consult its own tax
advisor regarding the application of such rules.
Sale or Other Taxable Disposition of Common Shares
Upon
the sale or other taxable disposition of common shares, a U.S.
Holder generally will recognize capital gain or loss in an amount
equal to the difference between the U.S. dollar value of cash
received plus the fair market value of any property received and
such U.S. Holder’s tax
basis in such common shares sold or otherwise disposed of. A U.S.
Holder’s tax basis in
common shares generally will be such Holder’s U.S. dollar cost for such common
shares.
Gain or
loss recognized on such sale or other disposition generally will be
long-term capital gain or loss if, at the time of the sale or other
disposition, the common shares have been held for more than one
year. The long-term capital gains realized by non-corporate U.S.
Holders are generally subject to a lower marginal U.S. federal
income tax rate than ordinary income other than qualified dividend
income, as defined above. Currently, the maximum rate on long-term
capital gains is 20% (possibly supplemented by the 3.8% Medicare
surtax on net investment income described under “Additional
Considerations,” below),
although the actual rates may be higher due to the phase out of
certain tax deductions, exemptions and credits, at least for
taxable years beginning after 2025. However, given the uncertain
economic conditions in the United States and the size of the
federal deficit, tax rates are subject to change and prospective
U.S. Holders should consult their tax advisors. The deductibility
of losses may be subject to limitations. See “Passive Foreign Investment Company
Considerations”
above.
Additional Considerations
Tax-Exempt Investors
Special
considerations apply to U.S. Holders that are pension plans and
other investors that are subject to tax only on their unrelated
business taxable income. Such a tax-exempt investor’s income from an investment in our
common shares generally will not be treated as resulting in
unrelated business taxable income under current law, so long as
such investor’s
acquisition of common shares is not debt-financed. Tax-exempt
investors should consult their own tax advisors regarding an
investment in our common shares.
Additional Tax on Passive Income
Certain
individuals, estates and trusts whose income exceeds certain
thresholds will generally be required to pay a 3.8% Medicare surtax
on the lesser of (1) the U.S. Holder’s “net investment income” for the relevant taxable year and
(2) the excess of the U.S. Holder’s modified gross income for the
taxable year over a certain threshold (which, in the case of
individuals, will generally be between U.S.$125,000 and
U.S.$250,000 depending on the individual’s circumstances). A U.S.
Holder’s “net investment income” may generally include, among other
items, certain interest, dividends, gain, and other types of income
from investments, minus the allowable deductions that are properly
allocable to that gross income or net gain. U.S. Holders are urged
to consult with their own tax advisors regarding the effect, if
any, of this tax on their ownership and disposition of common
shares.
32
Receipt of Foreign Currency
The
amount of any distribution paid to a U.S. Holder in foreign
currency, or on the sale, exchange or other taxable disposition of
common shares, generally will be equal to the U.S. dollar value of
such foreign currency based on the exchange rate applicable on the
date of receipt (regardless of whether such foreign currency is
converted into U.S. dollars at that time). A U.S. Holder will have
a basis in the foreign currency equal to its U.S. dollar value on
the date of receipt. Any U.S. Holder who converts or otherwise
disposes of the foreign currency after the date of receipt may have
a foreign currency exchange gain or loss that would be treated as
ordinary income or loss, and generally will be U.S. source income
or loss for foreign tax credit purposes. Each U.S. Holder should
consult its own U.S. tax advisor regarding the U.S. federal income
tax consequences of receiving, owning, and disposing of foreign
currency.
Foreign Tax Credit
Subject
to the PFIC rules discussed above, a U.S. Holder that pays (whether
directly or through withholding) Canadian income tax with respect
to dividends paid on the common shares generally will be entitled,
at the election of such U.S. Holder, to receive either a deduction
or a credit for such Canadian income tax paid. Generally, subject
to the limitations described in the next paragraph, a credit will
reduce a U.S. Holder’s
U.S. federal income tax liability on a dollar-for-dollar basis,
whereas a deduction will reduce the amount of a U.S.
Holder’s income that is
subject to U.S. federal income tax. This election is made on a
year-by-year basis and generally applies to all foreign income
taxes paid (whether directly or through withholding) or accrued by
a U.S. Holder during a year.
Complex
limitations apply to the foreign tax credit, including the general
limitation that the credit cannot exceed the proportionate share of
a U.S. Holder’s U.S.
federal income tax liability (determined before application of the
foreign tax credit) that such U.S. Holder’s “foreign source” taxable income bears to such U.S.
Holder’s worldwide
taxable income. In applying this limitation, a U.S.
Holder’s various items of
income and deduction must be classified, under complex rules, as
either “foreign
source” or “U.S. source.” Generally, dividends paid by a
foreign corporation should be treated as foreign source for this
purpose, and gains recognized on the sale of stock of a foreign
corporation by a U.S. Holder should generally be treated as U.S.
source for this purpose, except as otherwise provided in an
applicable income tax treaty or, in certain circumstances, in the
event that an election is properly made under the Code. However,
the amount of a distribution with respect to the common shares that
is treated as a “dividend” may be lower for U.S. federal
income tax purposes than it is for Canadian federal income tax
purposes, potentially resulting in a reduced foreign tax credit
allowance to a U.S. Holder. In addition, this limitation is
calculated separately with respect to specific categories of
income. The foreign tax credit rules are complex, and each U.S.
Holder should consult its own U.S. tax advisor regarding the
foreign tax credit rules.
State and Local Tax
In
addition to the U.S. federal income tax discussed above, U.S.
Holders may also be subject to state and local income taxation for
amounts received on the disposition of common shares and on
dividends received. Amounts paid to U.S. Holders will not have
state and local tax amounts withheld from payments and U.S. Holders
should consult with a tax advisor regarding the state and local
taxation implications of such amounts received.
Information Reporting
In
general, U.S. Holders of common shares are subject to certain
information reporting under the Code relating to their purchase
and/or ownership of stock of a foreign corporation such as the
Company. Failure to comply with these information reporting
requirements may result in substantial penalties.
For
example, U.S. federal income tax information reporting rules
generally require certain individuals who are U.S. Holders to file
Form 8938 to report the ownership of specified foreign financial
assets if the total value of those assets exceeds an applicable
threshold amount (subject to certain exceptions). For these
purposes, a specified foreign financial asset includes not only a
financial account (as defined for these purposes) maintained by a
foreign financial institution, but also any stock or security
issued by a non-U.S. person, any financial instrument or contract
held for investment that has an issuer or counterparty other than a
U.S. person and any interest in a foreign entity, provided that the
asset is not held in an account maintained by a financial
institution. The minimum applicable threshold amount is generally
U.S.$50,000 in the aggregate, but this threshold amount varies
depending on whether the individual lives in the U.S., is married,
files a joint income tax return with his or her spouse, and on
certain other factors. Certain domestic entities that are U.S.
Holders may also be required to file Form 8938 if both (i) such
entities are owned at least 80% by an individual who is a U.S.
citizen or U.S. tax resident (or in some cases, by a nonresident
alien who meets certain criteria) or are trusts with beneficiaries
that are such individuals and (ii) more than 50% of their income
consists of certain passive income or more than 50% of their assets
is held for the production of such income. U.S. Holders are urged
to consult with their tax advisors regarding their reporting
obligations, including the requirement to file IRS Form
8938.
33
In
addition, in certain circumstances, a U.S. Holder of common shares
who disposes of such common shares in a transaction resulting in
the recognition by such Holder of losses in excess of certain
significant threshold amounts may be obligated to disclose its
participation in such transaction in accordance with the Treasury
Regulations governing tax shelters and other potentially
tax-motivated transactions or tax shelter regulations. Potential
purchasers of common shares should consult their tax advisors
concerning any possible disclosure obligation under the tax shelter
rules with respect to the disposition of their common
shares.
Backup Withholding
Generally,
information reporting requirements will apply to distributions on
our common shares or proceeds on the disposition of our common
shares paid within the U.S. (and, in certain cases, outside the
U.S.) to U.S. Holders. Such payments will generally be subject to
backup withholding tax, at the rate of 28% if: (a) a U.S. Holder
fails to furnish such U.S. Holder’s correct U.S. taxpayer
identification number to the payor (generally on Form W-9), as
required by the Code and Treasury Regulations, (b) the IRS notifies
the payor that the U.S. Holder’s taxpayer identification number is
incorrect, (c) a U.S. Holder is notified by the IRS that it has
previously failed to properly report interest and dividend income,
or (d) a U.S. Holder fails to certify, under penalty of perjury,
that such U.S. Holder has furnished its correct U.S. taxpayer
identification number. However, certain exempt persons generally
are excluded from these information reporting and backup
withholding rules.
Backup
withholding is not an additional tax. Any amounts withheld under
the U.S. backup withholding tax rules will be allowed as a credit
against a U.S. Holder’s
U.S. federal income tax liability, if any, or will be refunded, if
such U.S. Holder furnishes required information to the IRS in a
timely manner. Each U.S. Holder should consult its own tax advisor
regarding the backup withholding rules.
The following is a summary of the
principal Canadian federal income tax considerations generally
applicable to a purchaser of Common Shares of the Company pursuant
to this prospectus supplement who, for purposes of the Income Tax Act (Canada) (the
“Canadian Tax Act”) and at all relevant times, is not
resident in Canada nor deemed to be resident in Canada, deals at
arm’s length and is not affiliated with the Company, holds
the Common Shares as capital property, and does not use or hold and
is not deemed to use or hold the Common Shares in or in the course
of carrying on business in Canada (a “Non-resident
Holder”). Special rules which are not discussed in this
summary may apply to a Non-resident Holder that is a financial
institution, as defined in the Canadian Tax Act, or an insurer
carrying on business in Canada and elsewhere.
This
summary is based upon the current provisions of the Canadian Tax
Act and the Canada- U.S. Tax
Convention (1980) (the “Treaty”) both as in
force as of the date hereof and counsel’s understanding of
the current administrative policies and assessing practices
published in writing by the Canada Revenue Agency (the
“CRA”). This summary takes into account all specific
proposals to amend the Canadian Tax Act and the Treaty publicly
announced by or on behalf of the Minister of Finance (Canada) prior
to the date hereof (the “Tax Proposals”) and assumes
that the Tax Proposals will be enacted in the form proposed,
although no assurance can be given that the Tax Proposals will be
enacted in their current form or at all.
This
summary does not otherwise take into account any changes in law or
in the administrative policies or assessing practices of the CRA,
whether by legislative, governmental or judicial decision or
action, nor does it take into account or consider any provincial,
territorial or foreign (including U.S.) income tax considerations,
which considerations may differ significantly from the Canadian
federal income tax considerations discussed in this
summary.
This
summary is not exhaustive of all possible Canadian federal income
tax considerations applicable to a Non-resident Holder in respect
of the securities described herein. The income or other tax
consequences will vary depending on the particular circumstances of
the Non-resident Holder.
This
summary is of a general nature only and is not intended to be, and
should not be interpreted as, legal or tax advice to any
prospective purchaser or holder of the Common Shares and no
representation with respect to the Canadian federal income tax
consequences to any such prospective purchaser is made.
Accordingly, prospective purchasers
and holders of the Common Shares should consult their own tax
advisors with respect to their particular
circumstances.
Dividends on Common Shares
Generally,
dividends paid or credited (or deemed to be paid or credited) by
Canadian corporations to non-resident shareholders are subject to a
withholding tax of 25% of the gross amount of such dividends. Such
withholding tax rate may be reduced by an applicable tax treaty
entered into by Canada and a Non-resident Holder’s country of
residence. For example, where applicable, under the Treaty, the
withholding tax rate on the gross amount of dividends paid or
credited to a Non-resident Holder who is eligible for benefits
under such treaty, is reduced to 15% or, in the case of an eligible
Non-resident Holder that is a U.S. company that beneficially owns
at least 10% of the voting stock of the Canadian corporation paying
the dividends, to 5% of the gross amount of such
dividends.
34
Disposition of Common Shares
In
general, a Non-resident Holder will not be subject to Canadian
income tax on capital gains arising on the disposition or deemed
disposition of the Common Shares, unless such Common Shares are or
are deemed to be “taxable Canadian property” within the
meaning of the Canadian Tax Act.
Generally, Common
Shares acquired pursuant to this offering will not be
“taxable Canadian property” to a Non-resident Holder at
the time of disposition if the Common Shares are listed at that
time on a designated stock exchange for purposes of the Canadian
Tax Act (which includes the TSX and Nasdaq) unless, at any
particular time during the 60 month period immediately preceding
the disposition (i) 25% or more of the issued shares of any class
or series of the capital stock of the Company were owned by: (a)
such Non-resident Holder, (b) persons with whom the Non-resident
Holder did not deal at arm’s length, (c) a partnership in
which the Non-resident Holder, or persons with whom the
Non-resident Holder did not deal at arm’s length, holds a
membership interest directly or indirectly through one or more
partnerships, or (d) any combination thereof, and (ii) the shares
derived more than 50% of their fair market value directly or
indirectly from one or any combination of real or immovable
property situated in Canada, “Canadian resource
property”, “timber resource property” (each as
defined under the Canadian Tax Act), or options in respect of, or
interests in, or for civil law rights in such properties, whether
or not such property exists.
Although no
assurance can be given in this regard, the value of the
Company’s Common Shares is not now, and is not expected to be
in the future, derived more than 50% from any of these properties.
Consequently, any gain realized by a Non-resident Holder upon the
disposition of the Common Shares should be exempt from tax under
the Canadian Tax Act.
The
consolidated financial statements for the years ended November 30,
2017 and 2016 incorporated by reference in this prospectus from our
Annual Report on Form 20-F for the year ended November 30, 2017,
have been audited by MNP LLP, an independent registered public
accounting firm, 111 Richmond Street West, Suite 300, Toronto, ON
M5H 2G4, as stated in their report incorporated herein by reference
(which report expresses an unqualified opinion and includes an
explanatory paragraph relating to the conditions and events that
raise substantial doubt on the Company’s ability to continue
as a going concern). Such consolidated financial statements have
been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and
auditing.
The
consolidated financial statements for the year ended November 30,
2015 incorporated in this prospectus by reference from our Annual
Report on Form 20-F for the year ended November 30, 2017, have been
audited by Deloitte LLP, an independent registered public
accounting firm, as stated in their report (which report expresses
an unqualified opinion and includes an explanatory paragraph
relating to the conditions and events that raise substantial doubt
about the Company’s ability to continue as a going concern),
which is incorporated herein by reference. Such consolidated
financial statements have been so incorporated in reliance upon the
report of such firm given upon their authority as experts in
accounting and auditing.
From
time to time, we may be exposed to claims and legal actions in the
normal course of business. As of the date of this prospectus, we
are not aware of any pending or threatened material litigation
claims against us, other than as described
below.
In
November 2016, we filed an NDA for our Oxycodone ER product
candidate, relying on the 505(b)(2) regulatory pathway, which
allowed us to reference data from Purdue Pharma L.P.’s file
for its OxyContin® extended-release oxycodone hydrochloride.
Our Oxycodone ER application was accepted by the FDA for further
review in February 2017. We certified to the FDA that we believed
that our Oxycodone ER product candidate would not infringe any of
the OxyContin® patents listed in the FDA’s Approved Drug
Products with Therapeutic Equivalence Evaluations, commonly known
as the “Orange Book”, or that such patents are invalid,
and so notified Purdue Pharma L.P. and the other owners of the
subject patents listed in the Orange Book of such certification. On
April 7, 2017, we received notice that Purdue Pharma L.P., Purdue
Pharmaceuticals L.P., The P.F. Laboratories, Inc., or collectively
the Purdue parties, Rhodes Technologies, and Grünenthal GmbH,
or collectively the Purdue litigation plaintiffs or plaintiffs, had
commenced patent infringement proceedings, or the Purdue
litigation, against us in the U.S. District Court for the District
of Delaware (docket number 17-392) in respect of our NDA filing for
Oxycodone ER, alleging that our proposed Oxycodone ER infringes 6
out of the 16 patents associated with the branded product
OxyContin®, or the OxyContin® patents, listed in the
Orange Book. The complaint seeks injunctive relief as well as
attorneys’ fees and costs and such other and further relief
as the Court may deem just and proper. An answer and counterclaim
have been filed.
35
Subsequent to the
above-noted filing of lawsuit, 4 further such patents were listed
and published in the Orange Book. We then similarly certified to
the FDA concerning such further patents. On March 16, 2018, we
received notice that the Purdue litigation plaintiffs had commenced
further such patent infringement proceedings against us adding the
4 further patents. This lawsuit is also in the District of Delaware
federal court under docket number 18-404. .
As a
result of the commencement of the first of these legal proceedings,
the FDA is stayed for 30 months from granting final approval to our
Oxycodone ER product candidate. That time period commenced on
February 24, 2017, when the Purdue litigation plaintiffs received
notice of our certification concerning the patents, and will expire
on August 24, 2019, unless the stay is earlier terminated by a
final declaration of the courts that the patents are invalid, or
are not infringed, or the matter is otherwise settled among the
parties.
On or
about June 26, 2018, the court issued an order to sever 6
“overlapping” patents from the second Purdue case, but
ordered litigation to proceed on the 4 new (2017-issued) patents.
An answer and counterclaim was filed July 9, 2018. The existence
and publication of additional patents in the Orange Book, and
litigation arising therefrom, is an ordinary and to be expected
occurrence in the course of such litigation
On July
6, 2018, the court issued a so-called “Markman” claim
construction ruling on the first case and the October 22, 2018
trial date remains unchanged. We are confident that we do not
infringe any of the subject patents in either of the two cases and
will vigorously defend against these claims.
In July
2017, three complaints were filed in the U.S. District Court for
the Southern District of New York asserting claims under the
federal securities laws against us and two of our executive
officers on behalf of a putative class of purchasers of our
securities. In a subsequent order, the Court consolidated the three
actions under the caption Shanawaz v. Intellipharmaceutics
Int’l Inc., et al., No. 1:17-cv-05761 (S.D.N.Y.), appointed
lead plaintiffs in the consolidated action, and approved lead
plaintiffs’ selection of counsel. Lead plaintiffs filed a
consolidated amended complaint on January 29, 2018. In the amended
complaint, lead plaintiffs purport to assert claims on behalf of a
putative class consisting of purchasers of our securities between
May 21, 2015 and July 26, 2017. The amended complaint alleges that
the defendants violated Sections 10(b) and 20(a) of the U.S.
Exchange Act and Rule 10b-5 promulgated thereunder by making
allegedly false and misleading statements or failing to disclose
certain information regarding our NDA for Oxycodone ER
abuse-deterrent oxycodone hydrochloride extended-release tablets.
The complaint seeks, among other remedies, unspecified damages,
attorneys’ fees and other costs, equitable and/or injunctive
relief, and such other relief as the court may find just and
proper. On March 30, 2018, we filed a motion to dismiss in response
to the claim. A response by the plaintiffs was filed May 31, 2018.
A reply in support of the motion to dismiss was filed by the
Company on June 29, 2018. We intend to vigorously defend against
the claims asserted in the consolidated action.
Certain
legal matters relating to the offering of securities hereunder will
be passed upon on behalf of the Company by Gowling WLG (Canada)
LLP. At the date hereof, the partners and associates of Gowling WLG
(Canada) LLP, as a group, beneficially own, directly or indirectly,
less than one per cent of any outstanding securities of the Company
or any associate or affiliate of the Company.
The
Canadian transfer agent and registrar for our Common Shares is AST
Trust Company (Canada), 1 Toronto Street, Suite 1200 Toronto, ON
M5C 2V6. The United States co-transfer agent and registrar for our
Common Shares is American Stock Transfer & Trust Company LLC,
6201 15th
Avenue, Brooklyn, NY 11219.
Available Information
We file
reports and other information with the securities commissions and
similar regulatory authorities in each of the provinces and
territories of Canada. These reports and information are available
to the public free of charge on the System for Electronic Document
Analysis and Retrieval, or SEDAR, at www.sedar.com.
We have
filed a registration statement on Form F-1 with the SEC covering
the Common Shares the selling shareholders are offering by this
prospectus. This prospectus does not include all of the information
contained in the registration statement. You should refer to the
registration statement and its exhibits for additional information.
Whenever we make reference in this prospectus to any of our
contracts, agreements or other documents, the references are not
necessarily complete and you should refer to the exhibits filed or
documents incorporated by reference as part of the registration
statement for copies of the actual contract, agreement or other
document.
36
We are
subject to the information requirements of the U.S. Exchange Act
relating to foreign private issuers and applicable Canadian
securities legislation and, in accordance therewith, file reports
and other information with the SEC and with the securities
regulatory authorities in Canada. As a foreign private issuer, we
are exempt from the rules under the U.S. Exchange Act prescribing
the furnishing and content of proxy statements, and our officers,
directors and principal shareholders are exempt from the reporting
and short-swing profit recovery provisions contained in Section 16
of the U.S. Exchange Act. In addition, we are not required to
publish financial statements as promptly as U.S.
companies.
Investors may read
any document that we have filed with the SEC at the SEC’s
public reference room in Washington, D.C. Investors may also obtain
copies of those documents from the public reference room of the SEC
at 100 F Street, N.E., Washington, D.C., 20549 by paying a fee.
Investors should call the SEC at 1-800-SEC-0330 or access its
website at www.sec.gov for
further information about the public reference rooms. Investors may
read and download some of the documents we have filed with the
SEC’s Electronic Data Gathering and Retrieval system at
www.sec.gov.
Readers
should rely only on information contained or incorporated by
reference in this prospectus and any applicable prospectus
supplement. We have not authorized anyone to provide the reader
with different information. We are not making an offer of any
securities in any jurisdiction where the offer is not permitted.
Readers should not assume that the information contained in this
prospectus is accurate as of any date other than the date on the
front of this prospectus, unless otherwise noted herein or as
required by law. It should be assumed that the information
appearing in this prospectus and the documents incorporated herein
by reference are accurate only as of their respective dates. Our
business, financial condition, results of operations and prospects
may have changed since those dates.
Documents Incorporated by Reference
The SEC
allows us to “incorporate by reference” the information
we file with it, which means that we can disclose important
information to you by referring you to those documents. The
information incorporated by reference is considered to be part of
this prospectus. The documents we are incorporating by reference as
of their respective dates of filing are:
(a)
our annual report
on Form 20-F for the fiscal year ended November 30, 2017, which was
filed with the SEC on March 1, 2018, including our audited
consolidated balance sheets as at November 30, 2017 and November
30, 2016, and the consolidated statements of operations and
comprehensive loss, shareholders’ equity (deficiency) and
cash flows for each of the years in the three-year period ended
November 30, 2017;
(b)
our report on Form
6-K furnished to the SEC on April 16, 2018, including our notice of
2018 annual and special meeting of shareholders and management
proxy circular dated April 5, 2018, for the annual meeting of
shareholders held on May 15, 2018, which was included as part of
Exhibit 99.2, but excluding Exhibits 99.1, 99.3, 99.4 and 99.5
thereto;
(c)
our report on Form
6-K furnished to the SEC on July 13, 2018, including our notice of
2018 special meeting of shareholders and management proxy circular
dated July 6, 2018, for the special meeting of shareholders to be
held on August 15, 2018, which was included as part of Exhibit
99.2, but excluding Exhibits 99.1, 99.3, 99.4, 99.5 and 99.6
thereto;
(d)
our condensed
unaudited interim consolidated financial statements and notes to
the condensed unaudited interim consolidated financial statements
(i) for the three months ended February 28, 2018, which were
included as Exhibit 99.2 to the report on Form 6-K furnished to the
SEC on April 16, 2018, together with the Management Discussion and
Analysis of Financial Condition and Results of Operations for the
three months ended February 28, 2018, which was included as Exhibit
99.1 to the report on Form 6-K furnished to the SEC on April 16,
2018 and (ii) for the three and six months ended May 31, 2018,
which were included as Exhibit 99.2 to the report on Form 6-K
furnished to the SEC on July 16, 2018, together with the Management
Discussion and Analysis of Financial Condition and Results of
Operations for the three and six months ended May 31, 2018, which
was included as Exhibit 99.1 to the report on Form 6-K furnished to
the SEC on July 16, 2018; and
(e)
our reports on Form
6-K furnished to the SEC on March 14, 2018, March 16, 2018, March
19, 2018 (both reports filed on such date), March 20, 2018, March
21, 2018, March 22, 2018, March 29, 2018, April 23, 2018, April 27,
2018, May 8, 2018, May 16, 2018, May 22, 2018 and June 8,
2018.
Copies
of the documents incorporated herein by reference may be obtained
on request without charge from our Chief Financial Officer at 30
Worcester Road, Toronto, Ontario, Canada, M9W 5X2, telephone (416)
798-3001 or on our website at www.intellipharmaceutics.com. The
information on our website is not incorporated by reference into
this prospectus. These documents are also available through the
Internet on SEDAR, which can be accessed online at www.sedar.com, and on the SEC’s
Electronic Data Gathering and Retrieval System at www.sec.gov.
37
You
should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have
not authorized anyone else to provide you with different
information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that
the information in this prospectus or any prospectus supplement is
accurate as of any date other than the date on the front of those
documents.
Any
statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained herein, or in a
subsequently filed document incorporated by reference herein,
modifies or supersedes that statement. Any statement so modified or
superseded shall not be deemed, except as so modified or
superseded, to constitute part of this prospectus.
ENFORCEMENT OF CERTAIN CIVIL LIABILITIES
The
Company is incorporated under the CBCA and its principal place of
business is in Canada. Most of the Company’s directors and
officers, and some of the experts named in this prospectus, are
residents of Canada, and all or a substantial portion of their
assets, and a substantial portion of the Company’s assets,
are located outside the United States. The Company has appointed an
agent for service of process in the United States but it may be
difficult for holders of securities who reside in the United States
to effect service within the United States upon the Company or
those directors, officers and experts who are not residents of the
United States. Investors should not assume that a Canadian court
would enforce a judgment of a U.S. court obtained in an action
against the Company or such other persons predicated on the civil
liability provisions of the U.S. federal securities laws or the
securities or “blue sky” laws of any state within the
United States or would enforce, in original actions, liabilities
against the Company or such persons predicated on the U.S. federal
securities laws or any such state securities or “blue
sky” laws. The Company’s Canadian counsel has advised
the Company that a monetary judgment of a U.S. court predicated
solely upon the civil liability provisions of U.S. federal
securities laws would likely be enforceable in Canada if the U.S.
court in which the judgment was obtained had a basis for
jurisdiction in the matter that was recognized by a Canadian court
for such purposes. The Company cannot provide assurance that this
will be the case. It is less certain that an action could be
brought in Canada in the first instance on the basis of liability
predicated solely upon such laws.
The
following documents have been or will be filed with the SEC as part
of the registration statement of which this prospectus forms a
part: the documents set out under the heading “Where You Can
Find More Information; Incorporation by Reference”; the
consents of the auditor and legal counsel and the powers of
attorney from the directors and certain officers of the
Company.
INDEMNIFICATION FOR U.S. SECURITIES ACT
LIABILITY
Insofar
as indemnification for liabilities arising under the U.S.
Securities Act may be permitted to directors, officers or persons
controlling us pursuant to the foregoing provisions, we have been
informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the U.S. Securities Act and is therefore
unenforceable.
38
INTELLIPHARMACEUTICS INTERNATIONAL INC.
6,858,334 Common Shares
PROSPECTUS
, 2018
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 6. Indemnification of Directors and Officers
Under
Section 124 of the Canada Business
Corporations Act (the “CBCA”), a corporation may
indemnify a present or former director or officer of the
corporation or another individual who acts or acted at the
corporation’s request as a director or officer, or an
individual acting in a similar capacity, of another entity, against
all costs, charges and expenses, including an amount paid to settle
an action or satisfy a judgment, reasonably incurred by the
individual in respect of any civil, criminal, administrative,
investigative or other proceeding in which the individual is
involved because of that association with the corporation or other
entity. A corporation may not indemnify an individual unless the
individual (i) acted honestly and in good faith with a view to
the best interests of the corporation or, as the case may be, to
the best interests of the other entity for which the individual
acted as director or officer or in a similar capacity at the
corporation’s request, and (ii) in the case of a
criminal or administrative action or proceeding that is enforced by
a monetary penalty, had reasonable grounds for believing that his
or her conduct was lawful. Such indemnification may be made in
connection with an action by or on behalf of the corporation or
other entity to procure a judgment in its favor only with court
approval and only if the conditions set forth in
subclauses (i) and (ii) above are met. A director or officer
is entitled to indemnification from the corporation as a matter of
right if he or she was not judged by the Court or other competent
authority to have committed any fault or omitted to do anything
that he or she ought to have done and fulfilled the conditions set
forth in subclauses (i) and (ii) above. The corporation
may advance moneys to a director, officer or other individual for
the costs, charges and expenses of a proceeding referred to above.
The individual shall repay the moneys if he or she does not fulfill
the conditions set forth in subclauses (i) and (ii) above
to qualify for indemnification.
Our
By-Law No. 1 (a by-law relating generally to the transaction of the
business and affairs of the Company) provides for the
indemnification of the directors and officers of the Company, and
former directors and officers of the Company, against all costs,
charges and expenses, including an amount paid to settle an action
or satisfy a judgment reasonably incurred by the individual in
respect of any civil, criminal, administrative, investigative or
other proceeding in which the individual is involved because of
that association with the Company, subject to certain limitations
in By-Law No. 1 and the limitations in the CBCA.
The
Company may also indemnify other individuals who act or acted at
the Company’s request as a director or officer, or an
individual acting in a similar capacity, of another
entity.
A
policy of directors’ and officers’ liability insurance
is maintained by the Company which insures directors and officers
of the Company for losses as a result of claims based upon their
acts or omissions as directors and officers including liabilities
under securities laws, and also reimburses the Company for payments
made pursuant to the indemnity provisions under the CBCA. The
directors and officers are not required to pay any premium in
respect of this insurance.
Insofar
as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the “U.S. Securities Act”) may be
permitted to directors, officers and controlling persons of the
registrant pursuant to any charter provision, by-law, contract,
arrangement, statute or otherwise, the Company has been advised
that in the opinion of the U.S. Securities and Exchange Commission
(the “Commission”) such indemnification is against
public policy as expressed in the U.S. Securities Act and is,
therefore, unenforceable.
Item 7. Recent Sales of Unregistered Securities
Pursuant to a
placement agent agreement dated October 10, 2017 between the
Company and H.C. Wainwright & Co., LLC, in October 2017, we
completed a registered direct offering of 3,636,364 Common Shares
at a price of $1.10 per share for gross proceeds of approximately
$4 million. We also issued to the investors unregistered warrants
to purchase an aggregate of 1,818,182 Common Shares at an initial
exercise price of $1.25 per share. The warrants became exercisable
six months following the October 13, 2017 closing date and will
expire 30 months after the date they became exercisable. The Common
Shares (but not the warrants or the Common Shares underlying the
warrants) were offered by us through a prospectus supplement
pursuant to our shelf registration statement on Form F-3 as
previously filed and declared effective by the SEC and the base
prospectus contained therein (Registration Statement No.
333-218297). The warrants described above were offered in a private
placement under Section 4(a)(2) of the U.S. Securities Act, and
Regulation D promulgated thereunder and, along with the Common
Shares underlying the warrants, were not registered under the U.S.
Securities Act. We also issued to the placement agents 181,818
warrants to purchase Common Shares at an initial exercise price of
$1.375 per share. The total net proceeds from the offering were
$3.5 million, after deducting offering expenses.
Pursuant to a
placement agent agreement dated March 12, 2018 between the Company
and H.C. Wainwright & Co., LLC, on March 16, 2018, we completed
a registered direct offering of 5,833,334 Common Shares at a price
of $0.60 per share for gross proceeds of approximately $3.5
million. We also issued to the investors unregistered warrants to
purchase an aggregate of 2,916,667 Common Shares at an initial
exercise price of $0.60 per share. The warrants are exercisable six
months following the March 16, 2018 closing date and will expire 30
months after the date they become exercisable. The Common Shares
(but not the warrants or the Common Shares underlying the warrants)
were offered by us through a prospectus supplement pursuant to our
shelf registration statement on Form F-3 as previously filed and
declared effective by the SEC and the base prospectus contained
therein (Registration Statement No. 333-218297). The warrants
described above were offered in a private placement under Section
4(a)(2) of the U.S. Securities Act, and Regulation D promulgated
thereunder and, along with the Common Shares underlying the
warrants, have not been registered under the U.S. Securities Act.
We also issued to the placement agent 291,667 warrants to purchase
Common Shares at an initial exercise price of $0.75 per share, paid
$245,000 in cash for placement agent fees and an aggregate of
$75,000 for certain expenses. The total net proceeds from the
offering were approximately $3 million, after deducting offering
expenses.
II-1
Pursuant to a
placement agent agreement dated March 18, 2018 between the Company
and H.C. Wainwright & Co., LLC, on March 21, 2018, we completed
a registered direct offering of 3,000,000 Common Shares at a price
of $0.60 per share for gross proceeds of approximately $1.8
million. We also issued to the investors unregistered warrants to
purchase an aggregate of 1,500,000 Common Shares at an initial
exercise price of $0.60 per share. The warrants are exercisable six
months following the March 21, 2018 closing date and will expire 30
months after the date they become exercisable. The Common Shares
(but not the warrants or the Common Shares underlying the warrants)
were offered by us through a prospectus supplement pursuant to our
shelf registration statement on Form F-3 as previously filed and
declared effective by the SEC and the base prospectus contained
therein (Registration Statement No. 333-218297). The warrants
described above were offered in a private placement under Section
4(a)(2) of the U.S. Securities Act, and Regulation D promulgated
thereunder and, along with the Common Shares underlying the
warrants, have not been registered under the U.S. Securities Act.
We also issued to the placement agent 150,000 warrants to purchase
Common Shares at an initial exercise price of $0.75 per share, paid
$126,000 in cash for placement agent fees and an aggregate of
$45,000 for certain expenses. The total net proceeds from the
offering were approximately $1.6 million, after deducting offering
expenses.
Item 8. Exhibits and Financial Statement Schedules
|
Exhibit Number
|
|
Description
(a) The following
documents are filed as part of this registration
statement:
|
|
3.1
|
|
|
|
3.2
|
|
|
|
4.1
|
|
|
|
4.2
|
|
|
|
4.3
|
|
|
|
4.4
|
|
|
|
4.5
|
|
|
|
4.6
|
|
|
|
4.7
|
|
|
|
4.8
|
|
II-2
|
4.9
|
|
|
|
4.10
|
|
|
|
4.11
|
|
|
|
4.12
|
|
|
|
4.13
|
|
|
|
4.14
|
|
|
|
4.15
|
|
|
|
4.16
|
|
|
|
4.17
|
|
|
|
4.18
|
|
|
|
4.19
|
|
|
|
4.20
|
|
|
|
4.21
|
|
|
|
4.22
|
|
|
|
4.23
|
|
|
|
4.24
|
|
|
|
5.1
|
|
Opinion
of Gowling WLG (Canada) LLP
|
|
10.1
|
|
|
|
10.2
|
|
II-3
|
10.3
|
|
|
|
10.4
|
|
|
|
10.5
|
|
|
|
10.6
|
|
|
|
10.7(†)
|
|
|
|
10.8
|
|
|
|
10.9
|
|
|
|
10.10
|
|
|
|
10.11(†)
|
|
|
|
10.12
|
|
|
|
10.13
|
|
|
|
10.14
|
|
|
|
10.15
|
|
II-4
|
10.16
|
|
|
|
10.17
|
|
|
|
21.1
|
|
|
|
23.1
|
|
Consent
of Independent Registered Public Accounting Firm (MNP
LLP)
|
|
23.2
|
|
Consent
of Independent Registered Public Accounting Firm (Deloitte
LLP)
|
|
23.3
|
|
Consent
included in opinion of Gowling WLG (Canada) LLP filed as Exhibit
5.1.
|
|
24.1
|
|
Power
of Attorney (included on the signature pages to this Registration
Statement).
|
|
--------------
|
|
|
†
Confidential treatment has been granted for certain portions of
this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
Item 9. Undertakings
a)
The undersigned
registrant hereby undertakes:
(1)
To file, during any
period in which offers or sales are being made, a post-effective
amendment to this registration statement:
(i)
To include any
prospectus required by Section 10(a)(3) of the Securities Act of
1933;
(ii)
To reflect in the
prospectus any facts or events arising after the effective date of
the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth
in the “Calculation of Registration Fee” table in the
effective registration statement; and
(iii)
To include any
material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material
change to such information in the registration
statement.
(2)
That, for the
purpose of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona
fide offering thereof.
II-5
(3)
To remove from
registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination
of the offering.
(4)
To file a
post-effective amendment to the registration statement to include
any financial statements required by Item 8.A. of Form 20-F at the
start of any delayed offering or throughout a continuous offering.
Financial statements and information otherwise required by Section
10(a)(3) of the Securities Act of 1933 need not be furnished,
provided, that the
registrant includes in the prospectus, by means of a post-effective
amendment, financial statements required pursuant to this paragraph
(a)(4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of
those financial statements. Notwithstanding the foregoing, with
respect to registration statements on Form F-3, a post-effective
amendment need not be filed to include financial statements and
information required by Section 10(a)(3) of the Securities Act of
1933 or Rule 3-19 of this chapter if such financial statements and
information are contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to section
13 or section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Form F-3.
(5)
That, for the
purpose of determining liability under the Securities Act of 1933
to any purchaser:
(i)
If the registrant
is relying on Rule 430B:
A.
Each prospectus
filed by the registrant pursuant to Rule 424(b)(3) shall be deemed
to be part of the registration statement as of the date the filed
prospectus was deemed part of and included in the registration
statement; and
B.
Each prospectus
required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7)
as part of a registration statement in reliance on Rule 430B
relating to an offering made pursuant to Rule 415(a)(1)(i), (vii),
or (x) for the purpose of providing the information required by
section 10(a) of the Securities Act of 1933 shall be deemed to be
part of and included in the registration statement as of the
earlier of the date such form of prospectus is first used after
effectiveness or the date of the first contract of sale of
securities in the offering described in the prospectus. As provided
in Rule 430B, for liability purposes of the issuer and any person
that is at that date an underwriter, such date shall be deemed to
be a new effective date of the registration statement relating to
the securities in the registration statement to which that
prospectus relates, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering
thereof.
Provided, however, that no statement made in a
registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or
prospectus that is part of the registration statement will, as to a
purchaser with a time of contract of sale prior to such effective
date, supersede or modify any statement that was made in the
registration statement or prospectus that was part of the
registration statement or made in any such document immediately
prior to such effective date; or
(ii)
If the registrant
is subject to Rule 430C, each prospectus filed pursuant to Rule
424(b) as part of a registration statement relating to an offering,
other than registration statements relying on Rule 430B or other
prospectuses filed in reliance on Rule 430A, shall be deemed to be
part of and included in the registration statement as of the date
it is first used after effectiveness. Provided, however, that no
statement made in a registration statement or prospectus that is
part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such
document immediately prior to such date of first use.
(6)
That, for the
purpose of determining liability of the registrant under the
Securities Act of 1933 to any purchaser in the initial distribution
of the securities:
II-6
The
undersigned registrant undertakes that in a primary offering of
securities of the undersigned registrant pursuant to this
registration statement, regardless of the underwriting method used
to sell the securities to the purchaser, if the securities are
offered or sold to such purchaser by means of any of the following
communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities
to such purchaser:
(i)
Any preliminary
prospectus or prospectus of the undersigned registrant relating to
the offering required to be filed pursuant to Rule
424;
(ii)
Any free writing
prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned
registrant;
(iii)
The portion of any
other free writing prospectus relating to the offering containing
material information about the undersigned registrant or its
securities provided by or on behalf of the undersigned registrant;
and
(iv)
Any other
communication that is an offer in the offering made by the
undersigned registrant to the purchaser.
b)
The undersigned
registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the
registrant’s annual report pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan’s annual report pursuant
to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
c)
Insofar as
indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
II-7
SIGNATURES
Pursuant to the
requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form F-1 and has duly caused
this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Toronto,
Province of Ontario, Canada, on July 18, 2018.
|
|
|
|
|
|
|
INTELLIPHARMACEUTICS INTERNATIONAL INC.
|
||
|
|
|
|
|
|
|
By:
|
/s/ Dr. Amina
Odidi
|
|
|
|
|
Dr. Amina
Odidi
|
|
|
|
|
President, Chief
Operating Officer and Director
|
|
POWER OF ATTORNEY
Each
person whose signature appears below hereby authorizes each of Dr.
Isa Odidi and Andrew Patient or either of them as his true and
lawful attorney-in-fact with full power of substitution to execute
in the name and on behalf of each person, individually and in each
capacity stated below, and to file, any and all amendments to this
registration statement, including any and all post-effective
amendments thereto.
Pursuant to the
requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the
capacities and on the dates indicated.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/ Dr. Isa Odidi
|
|
Chairman
of the Board of Directors
|
|
July
18,
2018
|
|
Dr. Isa
Odidi
|
|
and
Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
/s/ Andrew
Patient
|
|
Chief
Financial Officer
|
|
July
18,
2018
|
|
Andrew
Patient
|
|
(Principal
Financial and Accounting
Officer)
|
|
|
|
|
|
|
|
|
|
/s/ Dr. Amina Odidi
|
|
President,
Chief Operating Officer
|
|
July
18,
2018
|
|
Dr.
Amina Odidi
|
|
and
Director
|
|
|
|
|
|
|
|
|
|
/s/ Kenneth
Keirstead
|
|
Director
|
|
July
18,
2018
|
|
Kenneth
Keirstead
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Bahadur
Madhani
|
|
Director
|
|
July
18,
2018
|
|
Bahadur
Madhani
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Eldon R.
Smith
|
|
Director
|
|
July
18,
2018
|
|
Eldon
R. Smith
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Shawn Graham
|
|
Director
|
|
July
18,
2018
|
|
Shawn
Graham
|
|
|
|
|
AUTHORIZED REPRESENTATIVE
Pursuant to the
requirements of Section 6(a) of the Securities Act of 1933, the
undersigned has signed this Registration Statement, solely in the
capacity of the duly authorized representative of
Intellipharmaceutics International Inc. in the United States, on
July 18, 2018.
|
|
VASOGEN INC.
|
||
|
|
|
||
|
|
By:
|
/s/ Dr. Amina
Odidi
|
|
|
|
|
Name:
Dr. Amina Odidi
|
|
|
|
|
Title:
President, Chief Operating Officer and Director
|
|