As filed with the Securities and Exchange Commission on
August 3, 2018
Registration
No. 333-226239
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Pre-Effective
Amendment No. 2
to
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.
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 August 3, 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 34 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
August 1, 2018, the closing sale price of our Common Shares as
reported by the TSX and Nasdaq was Cdn$0.43 and $0.33,
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 9 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.
1
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 August 1,
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.
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.
2
PROSPECTUS SUMMARY
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 9 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.
3
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.
4
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.
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”).
5
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.
6
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.
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.
|
7
The number of
Common Shares shown above to be outstanding after this offering is
based on 43,537,850 shares outstanding as of August 1, 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
1,389,361 Common Shares issuable upon the exercise of outstanding
Common Share purchase warrants, with a weighted average exercise
price of U.S. $1.93 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
●
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.
8
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.
9
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.
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.
10
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 August 1, 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 prior to the
registration statement of which this prospectus forms a part 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 August 1, 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 August 1,
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 7,555,321 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.
11
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.
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.
12
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.
13
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 August 1, 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 Regabatin™ 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.
14
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.
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.
15
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.
16
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.
17
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 litigation and are at risk of additional
similar litigation in the future that could divert
management’s attention and adversely affect our business and
could subject us to significant liabilities.
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 August 1, 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.
18
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.
19
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;
20
●
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;
●
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;
21
●
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;
22
●
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.
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 August
1, 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.
23
|
|
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 31,
2018
|
1.3017
|
1.3130
|
1.3017
|
1.3255
|
|
August 1,
2018
|
1.3002
|
1.3002
|
1.3002
|
1.3002
|
On August 1, 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
$1.3002 or Cdn $1.00 = U.S. $0.7691.
THE COMPANY
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.
24
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.
25
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:
●
Quetiapine fumarate
extended-release tablets (generic Seroquel XR®)
–Approved and launched
26
●
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.
27
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.
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.
28
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:
29
●
on an actual basis,
without giving effect to this offering and the use of net proceeds
as discussed in “Use of Proceeds”; and
●
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
|
USE OF PROCEEDS
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.
30
SELLING SHAREHOLDERS
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 August 1, 2018, or
exercisable within 60 days after August 1, 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 August 1,
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.
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.
31
|
|
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
|
*
|
6,235
|
Nil
|
*
|
|
Michael
Vasinkevich*
430 Park Avenue,
3rd Floor
New York, New
York
|
314,148
|
*
|
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.
|
32
|
(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.
|
|
(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.
|
33
|
(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.
|
PLAN OF DISTRIBUTION
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;
|
|
|
●
|
an exchange
distribution in accordance with the rules of the applicable
exchange;
|
|
|
●
|
privately
negotiated transactions;
|
|
34
|
●
|
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.
35
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.
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.
36
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.
EXPENSES OF THE OFFERING
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.
37
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.
DESCRIPTION OF SHARE CAPITAL
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 August 1, 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.
38
Warrants
At August 1, 2018,
an aggregate of 8,247,695 Common Shares were issuable upon the
exercise of outstanding Common Share purchase warrants, with a
weighted average exercise price of $0.99 per Common
Share.
Options
As of August 1,
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 August 1, 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.
Deferred
Share Units
At August 1, 2018,
there were 102,791 DSUs issued and outstanding. At August 1, 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.
39
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.
40
|
|
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 -
18
|
$0.72
|
$0.41
|
$0.43
|
141,100
|
$0.54
|
$0.31
|
$0.34
|
2,280,900
|
|
August 1,
18
|
$0.43
|
$0.43
|
$0.43
|
nil
|
$0.35
|
$0.33
|
$0.33
|
91,400
|
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.
41
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.
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, no warrants were
exercised.
42
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.”
DIVIDEND POLICY
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.
43
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.
44
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.
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.
45
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.
46
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).
47
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.
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.
48
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.
49
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.
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.
50
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.
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.
51
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.
52
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.
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.
53
UNITED STATES RESIDENTS
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.
54
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.
55
LEGAL PROCEEDINGS
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.
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.
56
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.
On July 24, 2018,
the parties to the case mutually agreed to dismiss the infringement
claims related to the Grunenthal ‘060 patent. The Grunenthal
‘060 patent is one of the six patents included in the
original litigation case, however, the dismissal does not by itself
result in a termination of the 30-month litigation stay.
Infringement claims related to this patent have been dismissed
without prejudice.
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.
LEGAL MATTERS
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.
57
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.
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:
58
(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
our report on Form 6-K/A furnished to the SEC on July 24, 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.
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.
59
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.
60
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.
II-1
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.
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.
II-2
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
|
||
|
4.9
|
||
|
4.10
|
||
|
4.11
|
||
|
4.12
|
||
|
4.13
|
||
II-3
|
4.14
|
||
|
4.15
|
||
|
4.16
|
||
|
4.17
|
||
|
4.18
|
||
|
4.19
|
||
|
4.20
|
||
|
4.21
|
||
|
4.22
|
||
|
4.23
|
||
|
4.24
|
||
|
5.1**
|
||
|
10.1
|
||
|
10.2
|
||
|
10.3
|
||
|
10.4
|
||
|
10.5
|
||
|
10.6
|
||
|
10.7(†)
|
||
II-4
|
10.8
|
|
||
|
10.9
|
|
||
|
10.10
|
|
||
|
10.11(†)
|
|
||
|
10.12
|
|
||
|
10.13
|
|
||
|
10.14
|
|
||
|
10.15
|
|
||
|
10.16
|
|
||
|
10.17
|
|
||
|
21.1
|
|
||
|
23.1
|
|
||
|
23.2
|
|
||
|
23.3**
|
|
||
|
24.1**
|
|
||
|
--------------
|
|
|
|
|
**Previously
filed.
|
|
|
|
†Confidential
treatment has been granted for certain portions of this exhibit.
Omitted portions have been filed separately with the Securities and
Exchange Commission.
II-5
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.
(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.
II-6
(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.
II-7
(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:
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-8
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 August 3, 2018.
|
|
|
|
|
|
|
INTELLIPHARMACEUTICS
INTERNATIONAL INC.
|
|
|
|
|
|
|
|
|
|
/s/ Dr. Amina
Odidi
|
|
|
|
|
Dr. Amina
Odidi
|
|
|
|
|
President, Chief
Operating Officer and Director
|
|
|
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
|
|
August 3,
2018
|
|
Dr. Isa
Odidi
|
|
and Chief Executive
Officer
|
|
|
|
|
|
|
|
|
|
/s/ Andrew
Patient
|
|
Chief Financial
Officer
|
|
August 3,
2018
|
|
Andrew
Patient
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
|
|
|
/s/ Dr. Amina
Odidi
|
|
President, Chief
Operating Officer
|
|
August 3,
2018
|
|
Dr. Amina
Odidi
|
|
and
Director
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
August 3,
2018
|
|
Kenneth
Keirstead
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
August 3,
2018
|
|
Bahadur
Madhani
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
August 3,
2018
|
|
Eldon R.
Smith
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
August 3,
2018
|
|
Shawn
Graham
|
|
|
|
|
“*”
By: /s/ Dr. Amina Odidi, as
Attorney-in-fact
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
August 3, 2018.
|
|
VASOGEN
INC.
|
||
|
|
|
||
|
|
By:
|
/s/ Dr. Amina
Odidi
|
|
|
|
|
Name: Dr. Amina
Odidi
|
|
|
|
|
Title: President,
Chief Operating Officer and Director
|
|
EXHIBIT INDEX
|
Exhibit
Number
|
Description
|
|
|
3.1
|
||
|
3.2
|
||
|
4.1
|
||
|
4.2
|
||
|
4.3
|
||
|
4.4
|
||
|
4.5
|
||
|
4.6
|
||
|
4.7
|
||
|
4.8
|
||
|
4.9
|
||
|
4.10
|
||
|
4.11
|
||
|
4.12
|
||
|
4.13
|
||
|
4.14
|
||
|
4.15
|
||
|
4.16
|
||
|
4.17
|
||
|
4.18
|
||
|
4.19
|
||
|
4.20
|
||
|
4.21
|
||
|
4.22
|
||
|
4.23
|
||
|
4.24
|
||
|
5.1**
|
||
|
10.1
|
||
|
10.2
|
||
|
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
|
|
||
|
10.16
|
|
||
|
10.17
|
|
||
|
21.1
|
|
||
|
23.1
|
|
||
|
23.2
|
|
||
|
23.3**
|
|
||
|
24.1**
|
|
||
|
--------------
|
|
|
|
|
**Previously
filed.
|
|
|
|
†Confidential
treatment has been granted for certain portions of this exhibit.
Omitted portions have been filed separately with the Securities and
Exchange Commission.