UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended: December 31, 2019

 

or

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________ to ________

 

000-52218

 

(Commission File Number)

 

OncBioMune Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada		20-2590810
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification Number)

 

11441 Industriplex Blvd., STE 190,Baton Rouge, LA 70809		(225) 227-2384
(Address of principal executive offices and zip code)		(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class		Trading Symbol		Name of each Exchange on which registered
N/A		N/A		N/A

 

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.0001 per share

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [  ] No [X]

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	Accelerated filer	Non-accelerated filer	Smaller reporting company	Emerging growth company
[  ]	[  ]	[X]	[X]	[X]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]

 

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of June 28, 2019, the last business day of the registrant’s last completed second quarter, based upon the closing price of the common stock of $4.89 on such date, is $1,360,910.

 

As of March 17, 2020, there were 881,118 shares of the issuer’s common stock, par value $0.0001, issued and outstanding.

 

 

 

TABLE OF CONTENTS

 

		Page
	PART I
Item 1.	Business	3
Item 1A.	Risk Factors	14
Item 1B.	Unresolved Staff Comments	25
Item 2.	Properties	25
Item 3	Legal Proceedings	25
Item 4.	Mine Safety Disclosures	25
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	25
Item 6.	Selected Financial Data	27
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 8.	Financial Statements and Supplementary Data	37
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	38
Item 9A.	Controls and Procedures	38
Item 9B.	Other Information	39
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	39
Item 11.	Executive Compensation	42
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	45
Item 13.	Certain Relationships and Related Transactions, and Director Independence	46
Item 14.	Principal Accounting Fees and Services	47
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	48
Item 16	Form 10-K Summary	50
	Signatures	51

 

 

PART I

 

FORWARD-LOOKING STATEMENTS

 

This report contains forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended). The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This report and other written and oral statements that we make from time to time contain such forward-looking statements that set out anticipated results based on management’s plans and assumptions regarding future events or performance. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will,” “may,” “could,” “should” and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance or results of current and anticipated sales efforts, expenses, the outcome of contingencies, such as legal proceedings, and financial results. Factors that could cause our actual results of operations and financial condition to differ materially are discussed in greater detail under Item 1A – “Risk Factors” of this report.

 

Forward-looking statements include, but are not limited to, statements about:

 

	●	our ability to continue as a going concern;
	●	our ability to raise additional capital when needed;
	●	our ability to achieve commercial success for ProscaVax™;
	●	our ability to generate revenues from ProscaVax™;
	●	the outcome of our disposal of Vitel Laboratories;
	●	competition;
	●	our ability to hire and retain key personnel;
	●	our collaboration arrangements and reliance on third parties;
	●	our clinical trial and product development initiatives;
	●	our ability to maintain or gain required regulatory approvals;
	●	the availability and extent of coverage and reimbursement from third-party payers;
	●	our use of hazardous materials;
	●	our ability to safeguard against security;
	●	our ability to insure against product liability claims;
	●	our ability to protect our intellectual property;
	●	the cost of intellectual property litigation;
	●	our ability to obtain and maintain our patent protection;
	●	our ability to protect our intellectual property throughout the world;
	●	the volatility of our stock price;
	●	our ability to pay dividends.

 

We caution that the factors described herein and other factors could cause our actual results of operations and financial condition to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. These forward-looking statements are subject to a number of risks, uncertainties and assumptions including without limitation the risks described in “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K. New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

 

ITEM 1. BUSINESS

 

OncBioMune Pharmaceuticals, Inc., a Nevada corporation (referred to collectively with its subsidiaries as “OncBioMune”, “we”, “us”, “our” or the “Company” in this Annual Report) is the registrant for SEC reporting purposes.

 

Business Overview

 

We are a clinical-stage biopharmaceutical company engaged in the development of novel cancer immunotherapy products, with a proprietary vaccine technology that is designed to stimulate the immune system to attack its own cancer while not attacking the patient’s healthy cells. The Company has proprietary rights to an investigational immunotherapy platform with an initial focus on prostate and breast cancers but that may be used to fight any solid tumor. The Company is also developing targeted therapies. Our mission is to improve overall patient condition through innovative bio-immunotherapy with proven treatment protocols, to lower deaths associated with cancer and to reduce the cost of cancer treatment. We believe our technology is safe, and utilizes clinically proven research methods of treatment to provide optimal likelihood of patient recovery.

 

 

Strategy

 

We seek to create a portfolio of product candidates that may be developed as therapeutics for our own proprietary programs or for development by potential collaborative partners. We recognize that the product development process is subject to both high costs and a high risk of failure. We believe that identifying a variety of product candidates and working in conjunction with other pharmaceutical partners may minimize the risk of failure, fill the product pipeline gap at major pharmaceutical companies, and ultimately increase the likelihood of advancing clinical development and potential commercialization of the product candidates.

 

The key elements to our business and scientific strategy are to:

 

	●	Develop and commercialize ProscaVax™ as well as the other technologies that come from our vaccine platform, as cancer treatments where we believe a company our size can successfully compete;
	●	Develop and commercialize a diverse portfolio of licensed and acquired drugs that address a focused brand of therapeutic indications or that represent significant market opportunities;
	●	Develop and commercialize drugs globally through joint ventures;
	●	Develop and commercialize our targeted therapies globally;
	●	Develop our drug candidates by establishing strategic collaborations with pharmaceutical and biotechnology companies to further develop and market our product candidates; and
	●	Establish infrastructure and capabilities to support the future commercialization of our products. Our management team has extensive experience developing and/or commercializing pharmaceutical products and as our product candidates advance, we intend to add the appropriate additional regulatory and commercial expertise to maximize the potential for successful product launches and franchise management. In certain instances, we will seek partners to maximize the commercial potential of our product candidates, develop drug candidates and establish strategic collaborations with pharmaceutical and biotechnology companies to further develop and market our product candidates.

 

ProscaVax™

 

We completed a Phase 1a clinical trial of our lead product, ProscaVax™, the Company’s lead immunotherapy product from its platform. On May 11, 2018, the Institutional Review Board and Scientific Review Committee at the Dana-Farber Cancer Institute approved the Phase 2 clinical trial of ProscaVax™. The Phase 2 trial ProscaVax™, which is being evaluated for use as a vaccine for prostate cancer, is being hosted by Beth Israel Deaconess Medical Center (BIDMC), a teaching hospital of Harvard University, and its affiliate hospital, the Dana-Farber Cancer Institute. The trial commenced in March 2019. The trial is expected to last 43 months and enroll 120 prostate cancer patients (80 in the ProscaVax™ arm, 40 in active surveillance arm). Although the trial has commenced as of March of 2020 no patients have been enrolled due to lack of funding.

 

Our Company’s clinical efforts began with a mouse model used to test a whole cell mouse mammary cancer vaccine. Laboratory research conducted by OncBioMune demonstrated that when mice are vaccinated either subcutaneously or intraperitoneally with a series of whole cell preparations of mouse mammary carcinoma cells combined with granulocyte-macrophage colony-stimulating factor (GM-CSF) and Interleukin-2 (IL-2) and then transplanted with the same tumor cells, the growth of the cancerous tumor is significantly inhibited. Also, the adjuvants alone (GM-CSF and IL-2) either injected subcutaneously or intraperitoneally do not inhibit growth of the tumor.

 

Dr. Jonathan Head, our Chief Scientific Officer noted that development of this mouse model should allow future studies to investigate the possible use of allogeneic mammary cell lines in a whole cell vaccine with IL-2 and GM-CSF as adjuvants. This early research is important in our efforts to expand into additional indications for our platform. Our intent is to continue studies of our technology that we believe could lead to an off-the-shelf breast cancer therapeutic vaccine and possible preventative vaccine for high-risk breast cancer patients.

 

This preclinical finding further supports the efficacy of the Company’s proprietary therapeutic cancer vaccine platform. Our prostate cancer vaccine, ProscaVax™ (a combination of prostate cancer associated prostate specific antigen (PSA) with the biological adjuvants interleukin-2 (IL-2) and granulocyte-macrophage colony-stimulating factor (GM-CSF)) was evaluated in a Phase 1 clinical trial in PSA (Prostate Specific Antigen) recurrent prostate cancer in both hormone-naïve and hormone-independent patients in the United States.

 

 

The trial was hosted at the University of California San Diego Moores Cancer Center and Veterans Hospital in La Jolla, California (UCSD/VA) under the U.S. Food and Drug Administration’s Investigational New Drug (IND) program with funding from the U.S. Navy Cancer Vaccine Program.

 

Twenty patients were enrolled in the Phase 1a trial, all of which completed vaccination and are in long term follow-up. The trial established a strong safety profile for ProscaVax™, and to date no serious adverse events or dose limiting adverse events have been reported. All adverse events due to the vaccine were Grade 1 with no Grade 2, 3 or 4 adverse events attributable to the vaccine. We believe these results further validate a showing of minimal toxicity due to the Company’s vaccine technology.

 

Preliminary data from the UCSD/VA trial shows ProscaVax™ is safe and may provide a clinical benefit to prostate cancer patients. These data include:

 

	●	All 20 patients in the Phase 1a portion of the trial have received their complete vaccine injection series and are in long term follow-up.
	●	None of the 20 patients who have completed their vaccine series have had a dose limiting adverse event (DLAE)
	●	None of the 20 patients who have completed their vaccine series have had a serious adverse event (SAE).
	●	15 of 18 patients (83%) at 31 weeks post first vaccine have had an increased immune response to PSA as determined with a LBA
	●	14 of 20 patients (57%) have had an increase in their PSA doubling time (slowed progression)
	●	4 of the 20 patients who have completed their vaccine series have experienced disease progression (one radiological, three PSA) at 31 weeks.

 

At 19 weeks post-therapy, 80 percent of the patients (n=20) treated with ProscaVax™ demonstrated stable disease/no prostate cancer progression. At 43 weeks post-therapy, overall survival was 100% for all 20 patients and 12 of the 17 evaluable patients (70.6%) continued to live with stable, progression-free disease.

 

The trial was originally designed as a Phase 1a/1b study with 20 patients to be enrolled in the Phase 1a portion and 28 in the Phase 1b. As previously disclosed, based upon encouraging preliminary data, we are foregoing the Phase 1b portion of the trial and advancing into Phase 2 clinical trials.

 

We initiated work on the Phase 2 trial of ProscaVax™ in early-stage prostate cancer patients in the “active surveillance” stage of disease at Harvard’s BIDMC with additional patients from Harvard-affiliated Hospitals and Research Institutes. This will be a 120 patient clinical trial with 40 control patients in active surveillance and 80 active surveillance patients receiving ProscaVax™ (full series of vaccines and vaccines with IL-2). This trial was approved by the IRB at BIDMC and Dana-Farber Cancer Institute on May 11, 2018. This protocol was amended after IRB approval and did not activate at that time. Amendment 2 was IRB approved on February 28, 2019. The trial is at present date on hold due to lack of funding.

 

This study will evaluate the safety and efficacy of ProscaVax™ in patients with low-risk localized prostate cancer. The goal of the study is to evaluate the frequency of prostate cancer “progression” at 2 years following administration of ProscaVax™ in men with localized prostate cancer who would otherwise be candidates for active surveillance (AS).Active surveillance is a frequently used disease management option for patients with localized prostate cancer that elect to work with their doctor to monitor the disease for progression before taking more drastic intervention measures, such as surgery or radiotherapy that are often accompanied by unpleasant side effects, including impotence and urinary incontinence.

 

In the ProscaVax™ arm of the study, during the first four months of induction treatment, six doses of the ProscaVax™ vaccine will be administered intradermally at weeks 1, 2, 3, 7, 11, and 15, followed by maintenance booster injections once every month which will alternate between low dose IL-2 alone (at weeks 19, 27 and 35) and ProscaVax™ vaccine (at weeks 23, 31, 39) for six months.

 

Primary outcomes for the study shall be determined by:

 

	●	Prostate cancer progression measured by PSA test (Time Frame: At pre-study, week 7, 19, 35, 52, 65, 78, 91, 104) for both arms of the study.
	●	Prostate cancer progression measured by digital rectal examination (Time Frame: At pre-study and then at week 19, 52, 78, 104)

 

 

	●	Prostate cancer progression measured by prostate biopsy (Time Frame: At pre-study and then every twelve-months for two years)
	●	Assessment of Adverse Events (Time Frame: At week 7, 19, 35, 52, 65, 78, 91, 104)

 

We anticipate that the Phase 2 trials will expand the results that we found in our Phase 1 clinical trial in a different patient population. We also plan to develop our other proprietary technologies, with the lead being PGT or paclitaxel, gallium, transferrin, which is currently being manufactured for preclinical studies to assess comparative efficacy in these models. Our tentative clinical development strategy is to file an orphan drug indication followed by a tumor agnostic indication. Timelines are yet to be determined.

 

With a strong safety profile now established for ProscaVax™ with no serious adverse events or dose limiting adverse events reported, we believe we have further validated prior research in hundreds of patients showing minimal toxicity of our vaccine technology. We believe that additional clinical data will further support the previously reported efficacy of ProscaVax™ in both early and late stage prostate cancer.

 

Intellectual Property

 

We have obtained, and intend to actively seek to obtain, when appropriate, protection for our current and prospective products and proprietary technology by means of United States and foreign patents, trademarks, and applications for each of the foregoing. In addition, we rely upon trade secrets and contractual agreements to protect certain of our proprietary technology and products. ProscaVax™ is a novel biologic, and it is difficult to predict how competition could develop and accordingly which aspects of our related intellectual property may prove the most significant in the future. We currently have a patent application relating to protein therapeutic cancer vaccines and a provisional patent application relating to taxane- and taxoid-protein compositions. Both United States patent applications expire in 2031. In addition, we had a patent that expired in 2014 relating to vaccination of cancer patients using tumor-associated antigens mixed with interleukin-2 and granulocyte-macrophage colony stimulating factor.

 

Patent expiration dates may be subject to patent term extension depending on certain factors. In addition, following expiration of a basic product patent or loss of patent protection resulting from a legal challenge, it may be possible to continue to obtain commercial benefits from other characteristics such as clinical trial data, product manufacturing trade secrets, uses for products, and special formulations of the product or delivery mechanisms.

 

We intend to continue using our scientific experience to pursue and patent new developments to enhance our position in the cancer field. Patents, if issued, may be challenged, invalidated, declared unenforceable, circumvented or may not cover all applications we desire. Thus, any patent that we own or license from third parties may not provide adequate protection against competitors. Our pending patent applications, those we may file in the future, or those we may license from third parties may not result in issued patents. Also, patents may not provide us with adequate proprietary protection or advantages against competitors with, or who could develop, similar or competing technologies, or who could design around our patents. In addition, future legislation may impact our competitive position in the event brand-name and follow-on biologics do not receive adequate patent protection. From time to time, we have received invitations to license third-party patents.

 

We also rely on trade secrets and know-how that we seek to protect, in part, by using confidentiality agreements. Our policy is to require our officers, employees, consultants, contractors, manufacturers, outside scientific collaborators and sponsored researchers and other advisors to execute confidentiality agreements. These agreements provide that all confidential information developed or made known to the individual during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties except in specific limited circumstances. We also require signed confidentiality agreements from companies that receive our confidential data. For employees, consultants and contractors, we require agreements providing that all inventions conceived while rendering services to us shall be assigned to us as our exclusive property.

 

Competition

 

All though there is no competition in the active surveillance patient population, we have prepared below the overall competition in prostate cancer including industry standards for care.

 

The biotechnology and biopharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. Pharmaceutical and biotechnology companies, academic institutions and other research organizations are actively engaged in the discovery, research and development of products designed to address prostate cancer and other indications. There are products currently under development by other companies and organizations that could compete with ProscaVax™ or other products that we are developing. Products such as chemotherapeutics, androgen metabolism or androgen receptor antagonists, endothelin A receptor antagonists, antisense compounds, angiogenesis inhibitors and gene therapies for cancer are also under development by a number of companies and could potentially compete with ProscaVax™ and our other product candidates. In addition, many universities and private and public research institutes may in the future become active in cancer research, which may be in direct competition with us. Docetaxel (also referred to by its brand name Taxotere) was approved by the FDA for the therapeutic treatment of metastatic, androgen-independent prostate cancer in 2004 and JEVTANA® (cabazitaxel) was approved in 2010 for use in men as a second line therapy following progression after initial treatment with docetaxel.

 

 

In 2011, ZYTIGA® (abiraterone acetate) was approved for use in men with prostate cancer with progression following treatment with a chemotherapeutic regime. In 2012, ZYTIGA was approved, in combination with prednisone, to treat men with metastatic castrate-resistant prostate cancer prior to receiving chemotherapy, and Xtandi (Enzalutamide), an androgen receptor inhibitor, was approved to treat men with metastatic castrate-resistant prostate cancer who previously received docetaxel chemotherapy. In 2013, Xofigo (radium RA 223 dichloride) injection was approved for the treatment of patients with castration-resistant prostate cancer (CRPC), symptomatic bone metastases and no known visceral metastatic disease. Other therapies such as Bavarian Nordic’s PROSTVAC® are the subject of ongoing clinical trials in men with metastatic castrate-resistant prostate cancer. PROSTVAC®, currently in Phase 3 clinical development, is a therapeutic cancer vaccine being studied in men with asymptomatic or minimally symptomatic metastatic castrate-resistant prostate cancer.

 

Our competitors include major pharmaceutical companies. These companies may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing. In addition, smaller competitors may collaborate with these large established companies to obtain access to their resources.

 

Our ability to successfully commercialize ProscaVax™ and our other potential products, and compete effectively with third parties will depend, in large part, on:

 

	●	the perception of physicians and other healthcare professionals of the safety, efficacy and relative benefits of ProscaVax™ or our other products compared to those of competing products or therapies;
	●	the effectiveness of our sales and marketing efforts in appropriately targeting a resonant clinical message to both oncologists and urologists;
	●	the willingness of physicians to adopt a new treatment regimen consisting of infusion of an immunotherapy;
	●	reimbursement policies for ProscaVax™ or our other product candidates, if developed and approved;
	●	the price of ProscaVax™ and that of other products we may develop and commercialize relative to competing products;
	●	our ability to manufacture ProscaVax™ and other products we may develop on a cost-effective commercial scale;
	●	our ability to accurately forecast demand for ProscaVax™, and our product candidates if regulatory approvals are achieved; and
	●	our ability to advance our other product candidates through clinical trials and through the FDA approval process and those of non-United States regulatory authorities.

 

Competition among approved marketed products will be based upon, among other things, efficacy, reliability, product safety, price-value analysis, and patent position. Our competitiveness will also depend on our ability to advance our product candidates, license additional technology, maintain a proprietary position in our technologies and products, obtain required government and other approvals on a timely basis, attract and retain key personnel and enter into corporate relationships that enable us and our collaborators to develop effective products that can be manufactured cost-effectively and marketed successfully.

 

Regulatory

 

General

 

Government authorities in the United States and other countries extensively regulate, among other things, the preclinical and clinical testing, manufacturing, labeling, storage, record-keeping, advertising, promotion, export, marketing and distribution of biologic products. In the United States, the FDA subjects pharmaceutical and biologic products to rigorous review under the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act and other federal statutes and regulations.

 

 

FDA Approval Process

 

To obtain approval of our product candidates from the FDA, we must, among other requirements, submit data supporting safety and efficacy as well as detailed information on the manufacture and composition of the product candidate. In most cases, this entails extensive laboratory tests and preclinical and clinical trials. The collection of these data, as well as the preparation of applications for review by the FDA, are costly in time and effort, and may require significant capital investment. We may encounter significant difficulties or costs in our efforts to obtain FDA approvals that could delay or preclude us from marketing any products we may develop.

 

A company typically conducts human clinical trials in three sequential phases, but the phases may overlap. Phase 1 trials consist of testing of the product in a small number of patients or healthy volunteers, primarily for safety at one or more doses. Phase 1 trials in cancer are often conducted with patients who are not healthy and who have end-stage or metastatic cancer. Phase 2 trials, in addition to safety, evaluate the efficacy of the product in a patient population somewhat larger than Phase 1 trials. Phase 3 trials typically involve additional testing for safety and clinical efficacy in an expanded population at geographically dispersed test sites. Prior to commencement of each clinical trial, a company must submit to the FDA a clinical plan, or “protocol,” which must also be approved by the Institutional Review Boards at the institutions participating in the trials. The trials must be conducted in accordance with the FDA’s good clinical practices. The FDA may order the temporary or permanent discontinuation of a clinical trial at any time.

 

To obtain marketing authorization, a company must submit to the FDA the results of the preclinical and clinical testing, together with, and among other things, detailed information on the manufacture and composition of the product, in the form of a New Drug Application (“NDA”) or, in the case of a biologic such as ProscaVax™, a Biologics License Application (“BLA”).

 

We are also subject to a variety of regulations governing clinical trials and sales of our products outside the United States. Whether or not FDA approval has been obtained, approval of conduct of a clinical trial or authorization of a product by the comparable regulatory authorities of foreign countries and regions must be obtained prior to the commencement of marketing the product in those countries. The approval process varies from one regulatory authority to another and the time may be longer or shorter than that required for FDA approval based on local regulations. In the E.U., Canada and Australia, regulatory requirements and approval processes are similar, in principle, requiring a rigorous assessment of the data to ensure a product has satisfactorily demonstrated an acceptable benefit/risk profile prior to regulatory approval for marketing.

 

Fast Track Designation/Priority Review

 

Congress enacted the Food and Drug Administration Modernization Act of 1997 (the “Modernization Act”) in part to ensure the availability of safe and effective drugs, biologics and medical devices by expediting the development and review for certain new products. The Modernization Act established a statutory program for the review of Fast Track products, including biologics. A Fast Track product is defined as a new drug or biologic intended for the treatment of a serious or life-threatening condition that demonstrates the potential to address unmet medical needs for this condition. Under the Fast Track program, the sponsor of a new drug or biologic may request that the FDA designate the drug or biologic as a Fast Track product at any time during the development of the product, prior to a new drug application or BLA submission.

 

Post-Marketing Obligations

 

All approved drug products are subject to continuing regulation by the FDA, including record-keeping requirements, reporting of adverse experiences with the product, sampling and distribution requirements, notifying the FDA and gaining its approval of certain manufacturing or labeling changes, complying with certain electronic records and signature requirements, submitting periodic reports to the FDA, maintaining and providing updated safety and efficacy information to the FDA, and complying with FDA promotion and advertising requirements. Failure to comply with the statutory and regulatory requirements can subject a manufacturer to possible legal or regulatory action, such as warning letters, suspension of manufacturing, seizure of product, injunctive action, criminal prosecution, or civil penalties.

 

The FDA may require post-marketing studies or clinical trials to develop additional information regarding the safety of a product. These studies or trials may involve continued testing of a product and development of data, including clinical data, about the product’s effects in various populations and any side effects associated with long-term use. The FDA may require post-marketing studies or trials to investigate known serious risks or signals of serious risks or identify unexpected serious risks and may require periodic status reports if new safety information develops. Failure to conduct these studies in a timely manner may result in substantial civil fines.

 

Drug and biologics manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and to list their products with the FDA. The FDA periodically inspects manufacturing facilities in the United States and abroad in order to assure compliance with the applicable current good manufacturing practices, or cGMP, regulations and other requirements. Facilities also are subject to inspections by other federal, foreign, state or local agencies. In complying with the cGMP regulations, manufacturers must continue to assure that the product meets applicable specifications, regulations and other post-marketing requirements. We must ensure that third-party manufacturers continue to ensure full compliance with all applicable regulations and requirements. Failure to comply with these requirements subjects the manufacturer to possible legal or regulatory action, such as suspension of manufacturing, recall or seizure of product, injunction, and criminal prosecution.

 

 

Also, newly discovered or developed safety or efficacy data may require changes to a product’s approved labeling, including the addition of new warnings and contraindications, additional preclinical or clinical studies, or even in some instances, revocation or withdrawal of the approval. Violations of regulatory requirements at any stage, including after approval, may result in various adverse consequences, including the FDA’s withdrawal of an approved product from the market, other voluntary or FDA-initiated action that could delay or restrict further marketing, and the imposition of civil fines and criminal penalties against the manufacturer and BLA holder. In addition, discovery of previously unknown problems may result in restrictions on the product, manufacturer or BLA holder, including withdrawal of the product from the market. Furthermore, new government requirements may be established that could delay or prevent regulatory approval of our products under development, or affect the conditions under which approved products are marketed.

 

We are also subject to a variety of regulations governing post-marketing obligations for our product in the European Union. As part of the approval process governed by European regulations, a company may be required to complete post marketing commitments as a condition of approval to assess additional information regarding the safety of a product. The European Medicines Agency (“EMA”) may require post-marketing studies to investigate known serious risks or signals of serious risks or identify unexpected serious risks and may require periodic status reports if new safety information develops. Failure to complete post-marketing requirements in a timely manner may result in substantial fines including the risk to continued marketing in the European Union.

 

Biosimilars

 

The Biologics Price Competition and Innovation Act (“BPCIA”) was passed on March 23, 2010 as Title VII to the Patient Protection and Affordable Care Act. The law provides for an abbreviated approval pathway for biological products that demonstrate biosimilarity to a previously-approved biological product. The BPCIA provides 12 years of exclusivity for innovator biological products. The BPCIA may be applied to our product in the future and could be applied to allow approval of biosimilars to our products.

 

Federal Anti-Kickback, False Claims Laws & The Federal Physician Payment Sunshine Act

 

In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws are relevant to certain marketing practices in the pharmaceutical industry. These laws include anti-kickback statutes, false claims statutes, and the federal Physician Payment Sunshine Act. The federal healthcare program anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, lease, order or recommendation of, any good or service for which payment may be made under federal health care programs such as the Medicare and Medicaid programs. For example, this statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other. The federal Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 and subsequent legislation (collectively, “PPACA”), among other things, amends the intent requirement of the federal anti-kickback statute. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, PPACA provides that the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the false claims statutes. There are a number of statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions; however, the exceptions and safe harbors are drawn narrowly, and practices that do not fit squarely within an exception or safe harbor may be subject to scrutiny and liability.

 

Federal false claims laws prohibit, among other things, any person from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment, or knowingly making, or causing to be made, a false record or statement material to a false or fraudulent claim. For example, several pharmaceutical and other healthcare companies have faced enforcement actions under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. In addition, anti-kickback statute violations and certain marketing practices, including off-label promotion, may also implicate false claims laws. Federal false claims laws violations may result in imprisonment, criminal fines, and exclusion from participation in federal healthcare programs. The majority of states also have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs. A number of states have anti-kickback laws that apply regardless of the payer.

 

In addition, the federal Physician Payment Sunshine Act requires extensive tracking of physician and teaching hospital payments, maintenance of a payments database, and public reporting of the payment data. The Centers for Medicare & Medicaid Services (“CMS”) has issued a final rule implementing the Physician Payment Sunshine Act provisions and clarified the scope of the reporting obligations. Failure to comply with the reporting obligations may result in civil monetary penalties. Following the enactment of the SUPPORT Act (Pub. Law No. 115-271), Section 6111 of the SUPPORT Act broadens the scope of the Physician Payment Sunshine Act such that effective January 1, 2022 reporting requirements will also include payments to physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetist, and certified nurse-midwives.

 

 

State Laws

 

Marketing Restrictions and Disclosure Requirements. A number of states, such as Minnesota, Massachusetts and Vermont, have requirements that restrict pharmaceutical marketing activities. These state requirements limit the types of interactions we may have with healthcare providers licensed in these jurisdictions. In addition, a number of states have laws that require pharmaceutical companies to track and report payments, gifts and other benefits provided to physicians and other health care professionals and entities similar to the Physician Payment Sunshine Act. Still other state laws mandate implementation of specific compliance policies to regulate interactions with health care professionals.

 

State Fraud and Abuse Laws. Several states have enacted state law equivalents of federal laws, such as anti-kickback and false claims laws. These state laws may apply to items or services reimbursed under Medicaid and other state programs or, in several states, apply regardless of the payer.

 

State Price Reporting Requirements. Several states have enacted state fraud and abuse laws similar to federal laws, such as anti-kickback and false claims laws. These state laws may apply to arrangements or claims involving items or services reimbursed under Medicaid and other state programs or, in several states, apply regardless of the payer.

 

Healthcare Reform. Certain states, such as Massachusetts, are pursuing their own programs for health reform. These programs may include cost containment measures that could affect state healthcare benefits, particularly for higher priced drugs. Under PPACA, states have authority to define packages of “essential health benefits” that health plans in the individual and small group markets offer. The definition of these packages affect coverage of our products by those plans.

 

Sale of Pharmaceutical Products. Many states have enacted their own laws and statutes applicable to the sale of pharmaceutical products within the state, with which we must comply. We are also subject to certain state privacy and data protection laws and regulations.

 

Coverage and Reimbursement by Third-Party Payers

 

Our sale of ProscaVax™ is dependent on the availability and extent of coverage and reimbursement from third-party payers, including government healthcare programs and private insurance plans.

 

Medicare Part B Coverage and Reimbursement of Drugs and Biologicals

 

In the United States, the Medicare program is administered by the Centers for Medicare and Medicaid Services (“CMS”). Coverage and reimbursement for products and services under Medicare are determined in accordance with the Social Security Act and pursuant to regulations promulgated by CMS, as well as the agency’s subregulatory coverage and reimbursement determinations. Medicare Part B provides limited coverage of outpatient drugs and biologicals that are furnished “incident to” a physician’s services. Generally, “incident to” drugs and biologicals are covered only if they satisfy certain criteria, including that they are the type of drug that is not usually self-administered by the patient and they are reasonable and necessary for a medically accepted diagnosis or treatment.

 

Medicare Part B pays providers under a payment methodology using average sales price (“ASP”) information. Manufacturers are required to provide ASP information to CMS on a quarterly basis. If a manufacturer is found to have made a misrepresentation in the reporting of ASP, the statute provides for civil monetary. This information is used to compute Medicare payment rates, updated quarterly based on this ASP information. The Medicare Part B payment methodology for physicians is ASP plus six percent and can change only through legislation. There is a mechanism for comparison of ASP for a product to the widely available market price and the Medicaid Average Manufacturer Price for the product, which could cause further decreases in Medicare payment rates, although this mechanism has yet to be utilized. The statute establishes the payment rate for new drugs and biologicals administered in hospital outpatient departments that are granted “pass-through status” at the rate applicable in physicians’ offices (i.e., ASP plus six percent) for two to three years after FDA approval. CMS establishes the payment rates for drugs and biologicals that do not have pass-through status by regulation.

 

The methodology under which CMS establishes reimbursement rates is subject to change, particularly because of budgetary pressures facing the Medicare program and the federal government. The Medicare regulations and interpretive determinations that determine how drugs and services are covered and reimbursed also are subject to change.

 

 

Pharmaceutical Pricing and Reimbursement Under Medicaid and Other Programs

 

In many of the markets in which we may do business in the future, the prices of pharmaceutical products are subject to direct price controls (by law) and to drug reimbursement programs with varying price control mechanisms.

 

We expect that ProscaVax™ will be made available to patients that are eligible for Medicaid benefits. A condition of federal funds being made available to cover our products under Medicaid and Medicare Part B is our participation in the Medicaid drug rebate program. Under the Medicaid drug rebate program, we will pay a rebate to each state Medicaid program for each unit of ProscaVax™ paid for by those programs. The rebate amount varies by quarter, and is based on pricing data reported by us on a monthly and quarterly basis to CMS. These data include the monthly and quarterly average manufacturer price (“AMP”) for our drugs, and in the case of innovator products like ProscaVax™, the quarterly best price (the “QBP”), which is our lowest price in a quarter to any commercial or non-governmental customer. If we become aware that our reported prices for prior quarters are incorrect or should be changed to reflect late-arriving pricing data, we would be obligated to submit the corrected data for a period not to exceed 12 quarters from the quarter in which the data originally were due. Any corrections to our pricing data could result in an overage or underage in our rebate liability for past quarters, depending on the nature of the correction.

 

The availability of federal funds under Medicaid and Medicare Part B to pay for any products that are approved for marketing also is conditioned on our participation in the Public Health Service 340B drug pricing program. The 340B drug pricing program requires participating manufacturers to agree to charge statutorily-defined covered entities no more than the 340B “ceiling price” for the manufacturer’s covered outpatient drugs. These covered entities include hospitals that serve a disproportionate share of low-income patients, as well as a variety of community health clinics and other recipients of health services grant funding. PPACA expanded the 340B program to include certain free standing cancer hospitals, critical access hospitals, rural referral centers and sole community hospitals. The 340B ceiling price for a drug is calculated using a statutory formula that is based on the AMP and Medicaid rebate amount for the drug. Any revisions to previously reported Medicaid pricing data also may require revisions to the 340B ceiling prices that were based on those data and could require the issuance of refunds.

 

If we make ProscaVax™ available for purchase by authorized users of the Federal Supply Schedule (“FSS”) of the General Services Administration pursuant to an FSS contract with the Department of Veterans Affairs (“VA”), the Veterans Health Care Act of 1992 (“VHCA”), would require us to offer deeply discounted FSS contract pricing to four federal agencies commonly referred to as the “Big Four” - the VA, the Department of Defense (“DoD”), the Coast Guard and the Public Health Service (including the Indian Health Service) - for federal funding to be made available for reimbursement of any of our products under the Medicaid program, Medicare Part B and for our products to be eligible to be purchased by those four federal agencies and certain federal grantees. FSS pricing to those four federal agencies must be equal to or less than the federal ceiling price (“FCP”). The FCP is based on a weighted average wholesale price known as the non-federal average manufacturer price (“Non-FAMP”). We are required to report Non-FAMP to the VA on a quarterly and annual basis. If we misstate Non-FAMP or FCP, we must restate these figures. In addition, if we are found to have knowingly submitted false information to the government, the VHCA provides for civil monetary penalties in addition to other penalties the government may impose.

 

The FSS contract is a federal procurement contract that includes standard government terms and conditions and extensive disclosure and certification requirements. All items on FSS contracts are subject to a standard FSS contract clause that requires FSS contract price reductions under certain circumstances where pricing is reduced to an agreed “tracking customer.” Further, in addition to the “Big Four” agencies, all other federal agencies and some non-federal entities are authorized to access FSS contracts. If we overcharge the government in connection with our FSS contract, whether due to a misstated FCP or otherwise, we would be required to refund the difference to the government.

 

Data Privacy

 

Numerous federal and state laws, including state security breach notification laws, state health information privacy laws and federal and state consumer protection laws, govern the collection, use and disclosure of personal information. Other countries also have, or are developing, laws governing the collection, use and transmission of personal information (e.g., the European Union’s General Data Protection Regulation). In addition, most healthcare providers who prescribe our product and from whom we obtain patient health information are subject to privacy, security, and breach notification requirements under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). We are not a HIPAA covered entity, and we do not operate as a business associate to any covered entities. Therefore, these privacy, security, and breach notification requirements do not apply to us. However, we could be subject to criminal penalties if we knowingly obtain individually identifiable health information from a covered entity in a manner that is not authorized or permitted by HIPAA or for aiding and abetting the violation of HIPAA. We are unable to predict whether our actions could be subject to prosecution in the event of an impermissible disclosure of health information to us. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing amount of focus on privacy and data protection issues with the potential to affect our business, including recently enacted laws in a majority of states requiring security breach notification. These laws could create liability for us or increase our cost of doing business.

 

 

Environmental and Safety Laws

 

We are subject to a variety of federal, state and local regulations relating to the use, handling, storage and disposal of hazardous materials, including chemicals and radioactive and biological materials. Our operations produce such hazardous waste products. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards prescribed by federal, state and local regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. We generally contract with third parties for the disposal of such substances, and store our low level radioactive waste at our facilities until the materials are no longer considered radioactive. We are also subject to various laws and regulations governing laboratory practices and the experimental use of animals.

 

We are also subject to regulation by the Occupational Safety and Health Administration (“OSHA”), and the Environmental Protection Agency (the “EPA”), and to regulation under the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other regulatory statutes, and may in the future be subject to other federal, state or local regulations. OSHA and/or the EPA may promulgate regulations that may affect our research and development programs.

 

Employees

 

As of March 17, 2020, we had two full time employees. None of our employees are represented by a union. We believe we have good relations with our employees.

 

Our Corporate History and Recent Developments

 

Historical Businesses

 

We were incorporated under the laws of the State of Nevada on March 18, 2005. From 2010 until 2013, we engaged in the pharmaceutical business. During 2013, we decided to divest the balance of our pharmaceutical assets and engage in the digital media business, which encompasses social discovery aspects of the internet, primarily through an engagement website with mobile and tablet applications.

 

Amended and Restated Articles of Incorporation

 

On August 12, 2015, we amended and restated our articles of incorporation to, among other things:

 

	●	change our corporate name from Quint Media, Inc. to OncBioMune Pharmaceuticals, Inc.,
	●	increase our authorized shares to 520,000,000, of which 500,000,000 shares were common stock, with a par value of $0.0001 per share, and 20,000,000 shares were preferred stock, with a par value of $0.0001 per share, and
	●	effect a reverse stock split, which became effective on August 27, 2015 (“Reverse Stock Split”), of our outstanding common stock pursuant to which every 139.23 issued and outstanding shares of our common stock was reclassified and converted into one share of common stock. No cash was paid or distributed as a result of the Reverse Stock Split, and no fractional shares were issued. All fractional shares which would otherwise have been required to be issued as a result of the Reverse Stock Split were rounded up to a whole share.

 

On August 20, 2015, we filed a Certificate of Designation with the Nevada Secretary of State, designating 1,333 shares of preferred stock as Series A Preferred Stock (“Series A Preferred Stock”). Each holder of Series A Preferred Stock is entitled to 500 votes for each share of Series A Preferred Stock held as of the applicable date on any matter that is submitted to a vote or for the consent of the stockholders of the Company. The holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of common stock as set forth herein) for taking any corporate action. On August 27, 2015, the Financial Industry Regulatory Authority approved the Reverse Stock Split and our corporate name change.

 

On March 7, 2017, the Company filed a certificate of designation, preferences and rights of Series B preferred stock (the “Certificate of Designation”) with the Secretary of State of the State of Nevada to designate 10,523 shares of its previously authorized preferred stock as Series B preferred stock, par value $0.0001 per share and a stated value of $0.0001 per share. The Certificate of Designation and its filing was approved by the Company’s board of directors without shareholder approval as provided for in the Company’s articles of incorporation and under Nevada law.

 

 

The holders of shares of Series B preferred stock are entitled to dividends or distributions share for share with the holders of the Common Stock, if, as and when declared from time to time by the Board of Directors. The holders of shares of Series B preferred stock have the following voting rights:

 

	●	Each share of Series B preferred stock entitles the holder to 100 votes on all matters submitted to a vote of the Company’s stockholders.
	●	Except as otherwise provided in the Certificate of Designation, the holders of Series B preferred stock, the holders of Company common stock and the holders of shares of any other Company capital stock having general voting rights and shall vote together as one class on all matters submitted to a vote of the Company’s stockholders; and
	●	Commencing at any time after the date of issuance of any shares of the Series B Preferred Stock (the “Issuance Date”) and upon the earliest of the occurrence of (i) a holder of the Series B Preferred Stock owning, directly or indirectly as a beneficiary or otherwise, shares of Common Stock which are less than 5.0% of the total outstanding shares of Common Stock, (ii) the date a holder of the Series B Preferred Stock is no longer an employee of the Company or any of its subsidiaries or (iii) five years after the Issuance Date, the Company shall have the right to redeem all of the then outstanding Series B Preferred Stock held by such holder at a price equal to the Stated Value (the “Redemption Price”). The Series B Preferred Stock which is redeemed as provided for in the Certificate of Designations shall be returned to the Company (and, if not so returned, shall automatically be deemed canceled). The Redemption Price shall be mailed to such holder at the holder’s address of record, and the Series B Preferred Stock owned by such holder shall be canceled.

 

On February 20, 2019, pursuant to the Certificate of Designation, the Company exercised its right to redeem 6,667 shares of the Series B Preferred outstanding held by to Banco Actinver, S.A., in its capacity as Trustee of the Trust Agreement for the benefit of Mr. Cosme and Mr. Alaman equal to the stated value. The total redemption price equaled $500 or $0.075 per share of Series B Preferred. As of December 31, 2019 and 2018, there were 3,856 and 10,523 shares of Series B Preferred issued and outstanding, respectively.

 

On April 3, 2019, the Company filed an amendment to its Articles of Incorporation to increase its authorized common stock from 500,000,000 shares to 1,500,000,000 shares. The Company’s 1,520,000,000 authorized shares consisted of 1,500,000,000 shares of common stock, par value $0.0001 per share, and 20,000,000 shares of preferred stock, par value $0.0001 per share.

 

On August 6, 2019, the Company filed an amendment to its Articles of Incorporation to increase its authorized common stock from 1,500,000,000 shares to 5,000,000,000 shares. The Company’s 5,020,000,000 authorized shares consisted of 5,000,000,000 shares of common stock at $0.0001 per share par value, and 20,000,000 shares of preferred stock at $0.0001 per share par value.

 

On August 28, 2019, the Company filed an amendment to its Articles of Incorporation to implement a reverse stock split of the Company’s issued and outstanding shares of common and preferred stock at a ratio of 1-for-750 (the “Reverse Stock Split”), which became effective on September 12, 2019. In addition, the Company amended the articles to reduce the Company’s authorized shares to; (i) 6,666,667 shares of common stock and; (ii) 26,667 shares of preferred stock, including 1,333 shares of Series A Preferred and 10,523 shares of Series B Preferred. The Reverse Stock Split did not have any effect on the stated par value of the common and preferred stock. All share and per share amounts in the accompanying audited consolidated financial statements have been retroactively adjusted to reflect the Reverse Stock Split.

 

As of March 17, 2020, we had 881,118 shares of common stock, 1,333 shares of Series A preferred stock and 3,856 shares of Series B preferred stock issued and outstanding.

 

Acquisition of OncBioMune, Inc.

 

Effective as of September 2, 2015, we closed the exchange (the “Exchange”) pursuant to that certain share exchange agreement dated as of June 22, 2015, as amended, among OncBioMune, the OncBioMune stockholders and us (the “Exchange Agreement”). On September 2, 2015, pursuant to the terms of the Exchange Agreement, we issued an aggregate of 62,667 shares of our common stock (representing approximately 91.3% of our then-outstanding common stock) and 1,333 shares of our Series A preferred stock (representing 100% of our outstanding Series A preferred shares) in exchange for 62,667 shares of OncBioMune’s common stock. As a result, the OncBioMune stockholders became our stockholders and OncBioMune became our wholly-owned subsidiary.

 

In connection with our corporate name change to OncBioMune Pharmaceuticals, Inc., the trading symbol for our common stock was changed from “QUNI” to “OBMP.” Also, effective as of September 2, 2015, we changed our fiscal year end from February 28 to December 31.

 

Shareholders Agreement with Vitel Laboratorios, S.A. de C.V.

 

On August 19, 2016, we entered into a Shareholders Agreement (the “Shareholders Agreement”) with Vitel Laboratorios related to their ownership of Oncbiomune México. Oncbiomune Mexico is authorized to issue 13 shares of Common Stock, of which 7 shares were subscribed for and issued to us and 7 shares were subscribed for and issued to Vitel Laboratorios.

 

 

This Agreement became effective as of August 19, 2016 and, except as otherwise set forth herein, will continue in effect thereafter until terminated upon the mutual consent of all of the Parties hereto. We plan to dissolve OBM Mexico after we dispose of Vitel. As of the filing date of this report, OBM Mexico has not been dissolved.

 

Acquisition of Vitel Laboratorios

 

On March 10, 2017 (the “Closing Date”), we completed the acquisition of 100% of the issued and outstanding capital stock of Vitel Laboratorios from its shareholders Manuel Cosme Odabachian and Carlos Fernando Alaman Volnie (collectively, the “Vitel Stockholders”) pursuant to the terms and conditions of a Contribution Agreement to the Property of Trust F/2868 entered into among we and the Vitel Stockholders on the Closing Date (the “Contribution Agreement”). Pursuant to the terms of the Contribution Agreement we issued 81,544 shares of our unregistered common stock, par value $0.0001 per share (the “Common Stock”) and 6,667 shares of Series B preferred stock (the “Series B Preferred”) to Banco Actinver, S.A., in its capacity as Trustee (the “Trustee”) of the Irrevocable Management Trust Agreement Trust No. 2868 (the “Trust Agreement”) for the benefit of the Vitel Stockholders in exchange for 100% of the issued and outstanding capital stock of Vitel Laboratorios (the “Vitel Shares”). The Common Stock and Series B Preferred are held by Trustee for the benefit of the Vitel Stockholders as provided for in the Trust Agreement and 98% of the Vitel Shares are held by the Trustee for the benefit of our company as provided for in the Trust Agreement and 2% of the Vitel Shares were transferred to OBMP. Vitel Laboratorios became a wholly owned subsidiary of our company as of the Closing Date. In addition, we agreed to issue 3,856 shares of Series B Preferred to Jonathan F. Head, Ph. D, our Chief Executive Officer and a member of the Board of Directors of our company as provided for in the Contribution Agreement.

 

On December 29, 2017, the Board of Directors of the Company determined to sell or otherwise dispose of its interest in Vitel Laboratorios S.A. de C.V. (“Vitel”) and Oncbiomune México, S.A. De C.V. (“OBMP Mexico”) due to disputes with the original Vitel Stockholders and resulting loss of operational control of the assets and operations of Vitel and Oncbiomune Mexico. Accordingly, Vitel and Oncbiomune México were treated as a discontinued operation through December 31, 2017 and were deconsolidated effective January 1, 2018. On February 20, 2019, pursuant to the Certificate of Designation, Rights and Preferences of the Series B Preferred, the Company exercised its right to redeem all of the 6,667 shares of the Series B Preferred outstanding held by to Banco Actinver, S.A., in its capacity as Trustee of the Trust Agreement for the benefit of Mr. Cosme and Mr. Alaman equal to the stated value. The total redemption price equaled $500 which was equal to $0.075 per share of Series B Preferred.

 

Discontinuation of the Vitel Business

 

On December 29, 2017, we determined to sell or otherwise dispose of our interest in Vitel and OBMP. Accordingly, Vitel and Oncbiomune Mexico are now treated as a discontinued operation. Accordingly, as of December 31, 2017, the Company presented Vitel and Oncbiomune Mexico as discontinued operations and effective January 1, 2018 has deconsolidated these wholly-owned subsidiaries.

 

This decision will enable us to focus more of our efforts and resources on the Phase 2 clinical trials of ProscaVax™ in the United States. In connection with the foregoing, Manuel Cosme Odabachian resigned as a member of the board of directors of OBMP and as an officer of the Company on December 22, 2017. Carlos Alaman also resigned as an officer of Vitel. We expect to terminate the Contribution Agreement, Stockholders Agreement and Trust Agreement during 2020.

 

ITEM 1A. RISK FACTORS

 

Risks Relating to Our Financial Position and Operations

 

There is substantial doubt about our ability to continue as a going concern.

 

We had net income (loss) of $(9,402,244) and $6,468,325 for the years ended December 31, 2019 and 2018, respectively, however the net income in 2018 resulted primarily from the change in fair value of derivative liabilities. The net loss from operations were $1,768,569 and $1,777,973 for the years ended December 31, 2019 and 2018, respectively. The net cash used in operations were $1,171,131 and $1,679,406 for the years ended December 31, 2019 and 2018, respectively. Additionally, the Company had an accumulated deficit of $26,589,908 and $17,187,664, at December 31, 2019 and 2018, respectively, had a stockholders’ deficit of $15,937,452 at December 31, 2019, had a working capital deficit of $15,969,504 at December 31, 2019. The Company had no revenues from continuing operations for the years ended December 31, 2019 and 2018, and we defaulted on our debt. Management believes that these matters raise substantial doubt about the Company’s ability to continue as a going concern for twelve months from the issuance date of this report.

 

 

Management cannot provide assurance that we will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital. Management believes that our capital resources are not currently adequate to continue operating and maintaining its business strategy for a period of twelve months from the issuance date of this report. The Company will seek to raise capital through additional debt and/or equity financings to fund its operations in the future.

 

Although management believes there is substantial doubt about our ability to continue as a going concern our consolidated financial statements, they do not reflect any adjustments that might result if we are unable to continue our business. Our consolidated financial statements contain additional note disclosure describing the circumstances that lead to this disclosure. Even if we are able to successfully realize our commercialization goals for ProscaVax™, because of the numerous risks and uncertainties associated with commercialization of a biologic, we may still require additional funding. And in any event, we are unable to predict when we will become profitable, if at all. Even if we do produce revenues and achieve profitability, we may not be able to maintain or increase profitability.

 

We will need additional funding and may be unable to raise additional capital when needed, which would force us to delay, reduce or eliminate our research and development activities.

 

We will need to raise additional funding. We may not be able to generate significant revenues for several years, if at all. Until we can generate significant revenues, if ever, we expect to satisfy our future cash needs through equity or debt financing. We cannot be certain that additional funding will be available on acceptable terms, or at all. If adequate funds are not available, we may be required to delay, reduce the scope of, or eliminate one or more of our research and development activities. 

 

Risks Relating to our Product Commercialization Pursuits

 

If we fail to achieve and sustain commercial success for ProscaVax™, our business will suffer, our future prospects may be harmed and our stock price would likely decline.

 

We have never sold or marketed our pharmaceutical products in our continuing operations. Unless we can successfully commercialize ProscaVax™ or another product candidate or acquire the right to market other approved products, our business will be materially adversely affected. Our ability to generate revenues for ProscaVax™ will depend on, and may be limited by, a number of factors, including the following:

 

	●	Our ability to complete the necessary clinical trials for ProscaVax™;
	●	Our ability to receive approval of ProscaVax™ by the FDA;
	●	acceptance of and ongoing satisfaction with ProscaVax™ by the medical community, patients receiving therapy and third-party payers in the United States, and eventually in foreign markets if we receive marketing approvals abroad;
	●	our ability to develop and expand market share for treating late stage prostate cancer patients, both in the United States and potentially in the rest of the world if we receive marketing approvals outside of the United States, in the midst of numerous competing products for late stage prostate cancer, many of which are in late stage clinical development;
	●	whether data from clinical trials for the additional indication of early stage prostate cancer patients are positive and whether such data, if positive, will be sufficient to achieve approval from the FDA and its foreign counterparts to market and sell ProscaVax™ for this additional indication;
	●	adequate coverage or reimbursement for ProscaVax™ by government healthcare programs and third-party payors, including private health coverage insurers and health maintenance organizations; and
	●	the ability of patients to afford any required co-payments for ProscaVax™.

 

 

If for any reason we are unable to sell ProscaVax™, our business would be seriously harmed and could fail.

 

If ProscaVax™ were to become the subject of problems related to its efficacy, safety, or otherwise, our ability to generate revenues from ProscaVax™ could be seriously harmed.

 

ProscaVax™, in addition to any other of our drug candidates that may be approved by the FDA, will be subject to continual review by the FDA, and we cannot assure you that newly discovered safety issues will not arise. With the use of any newly marketed drug by a wider patient population, serious adverse events may occur from time to time that initially do not appear to relate to the drug itself. Any safety issues could cause us to suspend or cease marketing of our approved products, cause us to modify how we market our approved products, subject us to substantial liabilities, and adversely affect our revenues and financial condition. In the event of a withdrawal of ProscaVax™ from the market, our revenues would decline significantly and our business would be seriously harmed and could fail.

 

Adoption of ProscaVax™ for the treatment of patients with either early stage or advanced prostate cancer may be slow or limited for a variety of reasons, including competing therapies and perceived difficulties in the treatment process or delays in obtaining reimbursement. If ProscaVax™ is not successful in broad acceptance as a treatment option for prostate cancer, our business would be harmed.

 

The rate of adoption of ProscaVax™ for early stage or advanced prostate cancer and the ultimate market size will be dependent on several factors, including the education of treating physicians on the patient treatment process with ProscaVax™ and immunotherapies generally. A significant portion of the prospective patient base for treatment with ProscaVax™ may be under the care of urologists who may be less experienced with immunotherapy than oncologists. Acceptance by urologists of ProscaVax™ as a treatment option may be measurably slower than adoption by oncologists of ProscaVax™ as a therapy and may require more educational effort by us.

 

To achieve global success for ProscaVax™ as a treatment, we will need to obtain approvals by foreign regulatory authorities. Data from our completed clinical trials of ProscaVax™ may not be sufficient to support approval for commercialization by regulatory agencies governing the sale of drugs outside of the United States. This could require us to spend substantial sums to develop sufficient clinical data for licensure by foreign authorities. Submissions for approval by foreign regulatory authorities may not result in marketing approval by these authorities for the requested indication. In addition, certain countries require pricing to be established before reimbursement for the specific indication may be obtained. We may not receive or maintain marketing approvals at favorable pricing levels or at all, which could harm our ability to market ProscaVax™ globally. Prostate cancer is common in many regions where the healthcare support systems are limited and reimbursement for ProscaVax™ may be limited or unavailable, which will likely limit or slow adoption in these regions. If we are unable to successfully achieve the full global market potential of ProscaVax™ due to diagnosis practices or regulatory hurdles, our future prospects would be harmed and our stock price could decline.

 

Risks from Competitive Factors

 

Our competitors may develop and market products that are less expensive, more effective, safer or reach the market sooner, which may diminish or eliminate the commercial success of any products we may commercialize.

 

Competition in the cancer therapeutics field is intense and is accentuated by the rapid pace of advancements in product development. In addition, we compete with other clinical-stage companies and institutions for clinical trial participants, which could reduce our ability to recruit participants for our clinical trials. Delay in recruiting clinical trial participants could adversely affect our ability to bring a product to market prior to our competitors. Further, research and discoveries by others may result in breakthroughs that render potential products obsolete before they generate revenue.

 

Products such as chemotherapeutics, androgen metabolism or androgen receptor antagonists, endothelin A receptor antagonists, antisense compounds, angiogenesis inhibitors and gene therapies for cancer are also under development by a number of companies and could potentially compete with ProscaVax™ and our other product candidates. In addition, many universities and private and public research institutes may in the future become active in cancer research, which may be in direct competition with us.

 

 

Some of our competitors in the cancer therapeutics field have substantially greater research and development capabilities and manufacturing, marketing, financial and managerial resources than we do. Acquisitions of competing companies by large pharmaceutical and biotechnology companies could enhance our competitors’ resources. In addition, our competitors may obtain patent protection or FDA approval and commercialize products more rapidly than we do, which may impact future sales of our products. We expect that competition among products approved for sale will be based, among other things, on product efficacy, price, safety, reliability, availability, patent protection, and sales, marketing and distribution capabilities. Our profitability and financial position will suffer if our products receive regulatory approval, but cannot compete effectively in the marketplace.

 

We could face competition for ProscaVax™ or other approved products from biosimilar products that could impact our profitability.

 

We may face competition in Europe from biosimilar products, and we expect we may face competition from biosimilars in the future in the United States as well. To the extent that governments adopt more permissive approval frameworks and competitors are able to obtain broader marketing approval for biosimilars, our products will become subject to increased competition. Expiration or successful challenge of applicable patent rights could trigger such competition, and we could face more litigation regarding the validity and/or scope of our patents. We cannot predict to what extent the entry of biosimilar products or other competing products could impact our future potential sale of ProscaVax™ in the E.U., where biosimilars to other innovator biological products are already available. Our inability to compete effectively in foreign territories would reduce global sales potential, which could have a material adverse effect on our results of operations.

 

On March 23, 2010, PPACA became law and authorized FDA approval of biosimilar products. PPACA established a period of 12 years of data exclusivity for reference products and outlined statutory criteria for science-based biosimilar approval standards. Under this framework, data exclusivity protects the data in the innovator’s regulatory application by prohibiting, for a period of 12 years, others from gaining FDA approval based in part on reliance or reference to the innovator’s data. FDA has issued a number of guidance documents concerning its biosimilar policies and has licensed a number of biosimilar products. The biosimilar law does not change the duration of patents granted on biologic products. Because of this pathway for the approval of biosimilars in the U. S., we may in the future face greater competition from biosimilar products and downward pressure on our product prices, sales and revenues, subject to our ability to enforce our patents.

 

Failure to retain key personnel could impede our ability to develop our products and to obtain new collaborations or other sources of funding.

 

We currently do not have the necessary senior management and senior scientific, clinical, regulatory, operational and other personnel to operate our business. The development of new therapeutic products requires expertise from a number of different disciplines, some of which are not widely available.

 

Companies like ours depend upon our scientific staff to discover new product candidates and to develop and conduct pre-clinical studies of those new potential products. Clinical and regulatory staff is responsible for the design and execution of clinical trials in accordance with FDA requirements and for the advancement of product candidates toward FDA approval and submission of data supporting approval. The quality and reputation of our scientific, clinical and regulatory staff, especially the senior staff, and their success in performing their responsibilities, may directly influence the success of our product development programs. As we pursue successful commercialization of ProscaVax™, we will need to hire sales and marketing, and operations executive management staff in order to ensure our organizational success. In addition, we require additional executive officers to provide strategic and operational guidance. r Our inability to recruit key management and scientific, clinical, regulatory, medical, operational and other personnel, may delay or prevent us from achieving our business objectives. We face intense competition for personnel from other companies, universities, public and private research institutions, government entities and other organizations.

 

Risks Relating to Collaboration Arrangements and Reliance on Third Parties

 

We must rely on relationships with third-party suppliers to supply necessary components used in our products, which relationships are not easy to replace.

 

We rely upon contract manufacturers for components used in the manufacture of ProscaVax™. Problems with any of our suppliers’ facilities or processes could result in failure to produce or a delay in production of adequate supplies of the antigen or other components we use in the manufacture of ProscaVax™. This could delay or reduce commercial sales and materially harm our business. Any prolonged interruption in the operations of our suppliers’ facilities could result in cancellation of orders, loss of components in the process of being manufactured or a shortfall in availability of a necessary component. A number of factors could cause interruptions, including the inability of a supplier to provide raw materials, equipment malfunctions or failures, damage to a facility due to natural disasters, changes in FDA or equivalent other country authorities’ regulatory requirements or standards that require modifications to manufacturing processes, or action by us to implement process changes or other similar factors. Because manufacturing processes are complex and are subject to a lengthy FDA or equivalent non-United States regulatory approval process, alternative qualified supply may not be available on a timely basis or at all. Difficulties or delays in our suppliers’ manufacturing and supply of components could delay our clinical trials, increase our costs, damage our reputation and, for ProscaVax™, cause us to lose revenue or market share if we are unable to timely meet market demands.

 

 

Risks Relating to Our Clinical Trial and Product Development Initiatives

 

The costs of our product candidate development and clinical trials are difficult to estimate and will be very high for many years, preventing us from making a profit for the foreseeable future, if ever.

 

Clinical and other studies necessary to obtain approval of a new drug can be time consuming and costly, especially in the United States, but also in foreign countries. Our estimates of the costs associated with future clinical trials and research may be substantially lower than what we actually experience. It is impossible to predict what we will face in the development of a product candidate, such as ProscaVax™. The purpose of clinical trials is to provide both regulatory authorities and us with safety and efficacy data in humans. It is relatively common to revise a trial or add subjects to a trial in progress. These examples of common variances in product development and clinical investigations demonstrate how predicted costs may exceed reasonable expectations. The difficult and often complex steps necessary to obtain regulatory approval especially that of the FDA and the European Union’s European Medicines Agency (the “EMA”) involve significant costs and may require several years to complete. We expect that we will need substantial additional financing over an extended period in order to fund the costs of future clinical trials, related research, and general and administrative expenses.

 

The extent of our clinical trials and research programs are primarily based upon the amount of capital available to us and the extent to which we receive regulatory approvals for clinical trials. We have established estimates of the future costs of the Phase 2 clinical trial for ProscaVax™, but, as explained above, that estimate may not prove correct. We expect the phase 2 clinical trial at Dana-Farber Hospital and Beth Israel Deaconess Hospital to take three and a half years and cost roughly $6,100,000.

 

Our clinical and pre-clinical candidates in the pipeline for other potential cancer immunotherapies and targeted products may never reach the commercial market for a number of reasons.

 

To sustain our business, we focus substantial resources on the search for new pharmaceutical products. These activities include engaging in discovery research and product development, conducting pre-clinical and clinical studies, and seeking regulatory approval in the United States for product candidates and in other countries for ProscaVax™ and other products we may market in the future. Our long-term success depends on the discovery and development of new drugs that we can commercialize. Our cancer immunotherapy and targeted program pipeline candidates are still at a relatively early stage in the development process. There can be no assurance that these product candidates or any other potential therapies we may pursue will become a marketed drug. In addition, we may find that certain products cannot be manufactured on a commercial scale and, therefore, they may not be economical to produce, or may be precluded from commercialization by proprietary rights of third parties.

 

A significant portion of the research that we are conducting involves new and unproven technologies. Research programs to identify disease targets and product candidates require substantial technical, financial and human resources, whether or not we ultimately identify any candidates. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield candidates for clinical development for a number of reasons, including difficulties in formulation which cannot be overcome, timing and competitive concerns.

 

An Investigational New Drug (“IND”) application must become effective before human clinical trials may commence. The IND application is automatically effective 30 days after receipt by the FDA unless before that time, the FDA raises concerns or questions about the product’s safety profile or the design of the trials as described in the application. In the latter case, any outstanding concerns must be resolved with the FDA before clinical trials can proceed. Thus, the submission of an IND may not result in FDA authorization to commence clinical trials in any given case. After authorization is received, the FDA retains the authority to place the IND, and clinical trials under that IND, on clinical hold. If we are unable to commence clinical trials or clinical trials are delayed indefinitely, we would be unable to develop additional product candidates and our business could be materially harmed. Clinical trials, both in the United States and in other countries, can be delayed for a variety of reasons, including:

 

	●	delays or failures in obtaining regulatory authorization to commence a trial because of safety concerns of regulators relating to our product candidates or similar product candidates of our competitors or failure to follow regulatory guidelines;
	●	delays or failures in obtaining clinical materials and manufacturing sufficient quantities of the product candidate for use in trials;
	●	delays or failures in reaching agreement on acceptable terms with prospective study sites;
	●	delays or failures in obtaining approval of our clinical trial protocol from an institutional review board (“IRB”) or ethics committee (“EC”) to conduct a clinical trial at a prospective study site;
	●	delays in recruiting patients to participate in a clinical trial;
	●	failure of our clinical trials and clinical investigators to be in compliance with the FDA’s Good Clinical Practices or equivalent other country regulations and requirements;
	●	unforeseen safety issues, including negative results from ongoing pre-clinical studies;

 

 

	●	inability to monitor patients adequately during or after treatment;
	●	unexpected adverse events occurring during the clinical trial;
	●	failure by third-party clinical trial managers to comply with regulations concerning protection of patient health data;
	●	difficulty monitoring multiple study sites;
	●	failure of our third-party clinical trial managers to satisfy their contractual duties, comply with regulations or meet expected deadlines; and
	●	determination by regulators that the clinical design of the trials is not adequate.

 

The nature and efforts required to complete a prospective research and development project are typically indeterminable at very early stages when research is primarily conceptual and may have multiple applications. Once a focus towards developing a specific product candidate has been developed, we obtain more visibility into the efforts that may be required to reach conclusion of the development phase. However, there are inherent risks and uncertainties in developing novel biologics in a rapidly changing industry environment. To obtain approval of a product candidate from the FDA or other country regulatory authorities, we must, among other requirements, submit data supporting safety and efficacy as well as detailed information on the manufacture and composition of the product candidate. In most cases, this entails extensive laboratory tests and pre-clinical and clinical trials. The collection of this data, as well as the preparation of applications for review by the FDA and other regulatory agencies outside the United States are costly in time and effort, and may require significant capital investment.

 

We may encounter significant difficulties or costs in our efforts to obtain FDA approvals or approvals to market products in foreign markets. For example, the FDA or the equivalent in jurisdictions outside the United States may determine that our data is not sufficiently compelling to warrant marketing approval, or may require we engage in additional clinical trials or provide further analysis which may be costly and time consuming. Regardless of the nature of our efforts to complete development of our products and receive marketing approval, we may encounter delays that render our product candidates uncompetitive or otherwise preclude us from marketing products.

 

We may be required to obtain additional funding to complete development of product candidates or in order to commercialize approved products. However such funding may not be available to us on terms we deem acceptable or at all. Our ability to access additional capital is dependent on the success of our business and the perception by the market of our future business prospects. In the event we were unable to obtain necessary funding, we might halt or temporarily delay ongoing development projects.

 

 

If we encounter difficulties enrolling patients in our clinical trials, our trials could be delayed or otherwise adversely affected.

 

Clinical trials for our product candidates may require that we identify and enroll a large number of patients with the disease under investigation. We may not be able to enroll a sufficient number of patients, or those with required or desired characteristics to achieve diversity in a study, to complete our clinical trials in a timely manner.

 

Patient enrollment is affected by factors including:

 

	●	design of the trial protocol;
	●	the size of the patient population;
	●	eligibility criteria for the study in question;
	●	perceived risks and benefits of the product candidate under study;
	●	availability of competing therapies and clinical trials;
	●	efforts to facilitate timely enrollment in clinical trials;
	●	patient referral practices of physicians;
	●	the ability to monitor patients adequately during and after treatment; and
	●	geographic proximity and availability of clinical trial sites for prospective patients.

 

Additionally, even if we are able to identify an appropriate patient population for a clinical trial, there can be no assurance that the patients will continue in the clinical trial through completion.

 

If we have difficulty enrolling or maintaining a sufficient number of patients with sufficient diversity to conduct our clinical trials as planned, we may need to delay or terminate ongoing or planned clinical trials either of which would have a negative effect on our business.

 

Risks Related to Regulation of the Pharmaceutical Industry

 

ProscaVax™ and our other products in development cannot be sold if we do not maintain or gain required regulatory approvals.

 

Our business is subject to extensive regulation by numerous state and federal governmental authorities in the United States, including the FDA, and potentially by foreign regulatory authorities, with regulations differing from country to country. In the United States, the FDA regulates, among other things, the pre-clinical testing, clinical trials, manufacturing, safety, efficacy, potency, labeling, storage, record keeping, quality systems, advertising, promotion, sale and distribution of therapeutic products. Other applicable non-United States regulatory authorities have equivalent powers. Failure to comply with applicable requirements could result in, among other things, one or more of the following actions: withdrawal of product approval, notices of violation, untitled letters, warning letters, fines and other monetary penalties, unanticipated expenditures, delays in approval or refusal to approve a product candidate; product recall or seizure; interruption of manufacturing or clinical trials; operating restrictions; injunctions; and criminal prosecution. We are required in the United States and in foreign countries to obtain approval from regulatory authorities before we can manufacture, market and sell our products.

 

 

Obtaining regulatory approval for marketing of a product candidate in one country does not assure we will be able to obtain regulatory approval in other countries. However, a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in other countries. Once approved, the FDA and other United States and non-United States regulatory authorities have substantial authority to limit the uses or indications for which a product may be marketed, restrict distribution of the product, require additional testing, change product labeling or mandate withdrawal of our products. The marketing of our approved products will be subject to extensive regulatory requirements administered by the FDA and other regulatory bodies, including: the manufacturing, testing, distribution, labeling, packaging, storage, reporting and record-keeping related to the product, advertising, promotion, and adverse event reporting requirements. In addition, incidents of adverse drug reactions, unintended side effects or misuse relating to our products could result in required post-marketing studies, additional regulatory controls or restrictions, or even lead to withdrawal of a product from the market.

 

In general, the FDA and equivalent other country authorities require labeling, advertising and promotional materials to be truthful and not misleading, and marketed only for the approved indications and in accordance with the provisions of the approved label. If the FDA or other regulatory authorities were to challenge our promotional materials or activities, they may bring enforcement action.

 

Our failure to obtain approval, significant delays in the approval process, or our failure to maintain approval in any jurisdiction will prevent us from selling a product in that jurisdiction. Any product and its manufacturer will continue to be subject to strict regulations after approval, including but not limited to, manufacturing, quality control, labeling, packaging, adverse event reporting, advertising, promotion and record-keeping requirements. Any problems with an approved product, including the later exhibition of adverse effects or any violation of regulations could result in restrictions on the product, including its withdrawal from the market, which could materially harm our business. The process of obtaining approvals in foreign countries is subject to delay and failure for many of the same reasons.

 

Regulatory authorities could also add new regulations or change existing regulations at any time, which could affect our ability to obtain or maintain approval of our products. ProscaVax™ and our investigational cellular immunotherapies are novel. As a result, regulatory agencies lack experience with them, which may lengthen the regulatory review process, increase our development costs and delay or prevent commercialization of ProscaVax™ outside of the United States and with respect to our active immunotherapy products under development. We are unable to predict when and whether any changes to regulatory policy affecting our business could occur, and such changes could have a material adverse impact on our business. If regulatory authorities determine that we have not complied with regulations in the research and development of a product candidate, a new indication for an existing product or information to support a current indication, they may not approve the product candidate or new indication or maintain approval of the current indication in its current form or at all, and we would not be able to market and sell it. If we were unable to market and sell our products or product candidates, our business and results of operations would be materially and adversely affected.

 

Failure to comply with foreign regulatory requirements governing human clinical trials and failure to obtain marketing approval for product candidates could prevent us from selling our products in foreign markets, which may adversely affect our operating results and financial condition.

 

The requirements governing the conduct of clinical trials, manufacturing, testing, product approvals, pricing and reimbursement outside the United States vary greatly from country to country. In addition, the time required to obtain approvals outside the United States may differ significantly from that required to obtain FDA approval. We may not obtain foreign regulatory approvals on the timeframe we may desire, if at all. Approval by the FDA does not assure approval by regulatory authorities in other countries, and foreign regulatory authorities could require additional testing. Failure to comply with these regulatory requirements or obtain required approvals could impair our ability to develop foreign markets for our products and may have a material adverse effect on our business and future prospects.

 

 

We use hazardous materials in our business and must comply with environmental laws and regulations, which can be expensive.

 

Our operations produce hazardous waste products, including chemicals and radioactive and biological materials. We are subject to a variety of federal, state and local laws and regulations relating to the use, handling, storage and disposal of these materials. Although we believe that our safety procedures for handling and disposing of these materials complies with the standards prescribed by state and federal laws and regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. We generally contract with third parties for the disposal of such hazardous waste products and store our low-level radioactive waste at our facilities in compliance with applicable environmental laws until the materials are no longer considered radioactive. We are also subject to regulation by the Occupational Safety and Health Administration (“OSHA”), and the Environmental Protection Agency (the “EPA”), and to regulation under the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other regulatory statutes, and may in the future be subject to other federal, state or local regulations. OSHA and/or the EPA may promulgate regulations that may affect our research and development programs. We may be required to incur further costs to comply with current or future environmental and safety laws and regulations. In addition, in the event of accidental contamination or injury from these materials, we could be held liable for any damages that result, including remediation, and any such liability could exceed our resources.

 

If we are unable to safeguard against security breaches with respect to our information systems, our business may be adversely affected.

 

In the course of our business, we gather, transmit and retain confidential information through our information systems. Although we endeavor to protect confidential information through the implementation of security technologies, processes and procedures, it is possible that an individual or group could defeat security measures and access sensitive information about our business and employees. Any misappropriation, loss or other unauthorized disclosure of confidential information gathered, stored or used by us could have a material impact on the operation of our business, including damaging our reputation with our employees, third parties and investors. We could also incur significant costs implementing additional security measures and organizational changes, implementing additional protection technologies, training employees or engaging consultants. In addition, we could incur increased litigation as a result of any potential cyber-security breach. We are not aware that we have experienced any material misappropriation, loss or other unauthorized disclosure of confidential or personally identifiable information as a result of a cyber-security breach or other act, however, a cyber-security breach or other act and/or disruption to our information technology systems could have a material adverse effect on our business, prospects, financial condition or results of operations.

 

We are exposed to potential product liability claims, and insurance against these claims may not be adequate and may not be available to us at a reasonable rate in the future.

 

Our business exposes us to potential liability risks inherent in the research, development, manufacturing and marketing of drug candidates and products. If any of our drug candidates in clinical trials or our marketed products harm people or allegedly harm people, we may be subject to costly and damaging product liability claims. Most, if not all, of the patients who participate in our clinical trials are already seriously ill when they enter a trial. We have clinical trial insurance coverage, and commercial product liability insurance coverage. However, this insurance coverage may not be adequate to cover all claims against us. There is also a risk that adequate insurance coverage will not be available in the future on commercially reasonable terms, if at all. The successful assertion of an uninsured product liability or other claim against us could cause us to incur significant expenses to pay such a claim, could adversely affect our product development or product sales and could cause a decline in our product revenues. Even a successfully defended product liability claim could cause us to incur significant expenses to defend such a claim, could adversely affect our product development and could cause a decline in our product revenues. In addition, product liability claims could result in an FDA or equivalent non-United States regulatory authority investigation of the safety or efficacy of our products, our manufacturing processes and facilities, or our marketing programs. An FDA or equivalent non-United States regulatory authority investigation could also potentially lead to a recall of our products or more serious enforcement actions, limitations on the indications, for which they may be used, or suspension or withdrawal of approval.

 

Risks in Protecting Our Intellectual Property

 

If we are unable to protect our proprietary rights or to defend against infringement claims, we may not be able to compete effectively or operate profitably.

 

We invent and develop technologies that are the basis for or incorporated in our potential products. We protect our technology through United States and foreign patent filings, trademarks and trade secrets. We have issued patents, and applications for United States and foreign patents in various stages of prosecution. We expect that we will continue to file and prosecute patent applications and that our success depends in part on our ability to establish and defend our proprietary rights in the technologies that are the subject of issued patents and patent applications.

 

The fact that we have filed a patent application or that a patent has issued, however, does not ensure that we will have meaningful protection from competition with regard to the underlying technology or product. Patents, if issued, may be challenged, invalidated, declared unenforceable or circumvented or may not cover all applications we may desire. Our pending patent applications as well as those we may file in the future may not result in issued patents. Patents may not provide us with adequate proprietary protection or advantages against competitors with, or who could develop, similar or competing technologies or who could design around our patents. Patent law relating to the scope of claims in the pharmaceutical field in which we operate is continually evolving and can be the subject of some uncertainty. The laws providing patent protection may change in a way that would limit protection.

 

 

We also rely on trade secrets and know-how that we seek to protect, in part, through confidentiality agreements. Our policy is to require our officers, employees, consultants, contractors, manufacturers, outside scientific collaborators and sponsored researchers and other advisors to execute confidentiality agreements. These agreements provide that all confidential information developed or made known to the individual during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties except in specific limited circumstances. We also require signed confidentiality agreements from companies that receive our confidential data. For employees, consultants and contractors, we require confidentiality agreements providing that all inventions conceived while rendering services to us shall be assigned to us as our exclusive property. It is possible, however, that these parties may breach those agreements, and we may not have adequate remedies for any breach. It is also possible that our trade secrets or know-how will otherwise become known to or be independently developed by competitors.

 

We are also subject to the risk of claims, whether meritorious or not, that our products or immunotherapy candidates infringe or misappropriate third-party intellectual property rights. Defending against such claims can be quite expensive even if the claims lack merit and if we are found to have infringed or misappropriated a third-party’s intellectual property, we could be required to seek a license or discontinue our products or cease using certain technologies or delay commercialization of the affected product or products, and we could be required to pay substantial damages, which could materially harm our business.

 

We may be subject to litigation with respect to the ownership and use of intellectual property that will be costly to defend or pursue and uncertain in its outcome.

 

Our business may bring us into conflict with our licensees, licensors or others with whom we have contractual or other business relationships, or with our competitors or others whose interests differ from ours. If we are unable to resolve those conflicts on terms that are satisfactory to all parties, we may become involved in litigation brought by or against us. That litigation is likely to be expensive and may require a significant amount of management’s time and attention, at the expense of other aspects of our business.

 

Litigation relating to the ownership and use of intellectual property is expensive, and our position as a relatively small company in an industry dominated by very large companies may cause us to be at a disadvantage in defending our intellectual property rights and in defending against claims that our immunotherapy candidates infringe or misappropriate third-party intellectual property rights. Even if we are able to defend our position, the cost of doing so may adversely affect our profitability. We may in the future be subject to patent litigation and may not be able to protect our intellectual property at a reasonable cost if such litigation is initiated. The outcome of litigation is always uncertain, and in some cases could include judgments against us that require us to pay damages, enjoin us from certain activities or otherwise affect our legal or contractual rights, which could have a significant adverse effect on our business.

 

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

 

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to be paid to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and/or applications. We have systems in place to remind us to pay these fees, and we employ an outside firm and rely on our outside counsel to pay these fees due to non-U.S. patent agencies. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business.

 

We may not be able to protect our intellectual property rights throughout the world.

 

Filing, prosecuting and defending patents on our product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and may also export infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

 

 

Risks Relating to an Investment in Our Common Stock

 

Market volatility may affect our stock price, and the value of an investment in our common stock may be subject to sudden decreases.

 

The trading price for our common stock has been, and we expect it to continue to be, volatile. The price at which our common stock trades depends on a number of factors, including the following, many of which are beyond our control:

 

	●	the relative success of our commercialization efforts for ProscaVax™;
	●	pre-clinical and clinical trial results and other product development activities;
	●	our historical and anticipated operating results, including fluctuations in our financial and operating results or failure to meet revenue guidance;
	●	changes in government regulations affecting product approvals, reimbursement or other aspects of our or our competitors’ businesses;
	●	announcements of technological innovations or new commercial products by us or our competitors;
	●	developments concerning our key personnel;
	●	our ability to protect our intellectual property, including in the face of changing laws;
	●	announcements regarding significant collaborations or strategic alliances;
	●	publicity regarding actual or potential performance of products under development by us or our competitors;
	●	market perception of the prospects for biotechnology companies as an industry sector; and
	●	general market and economic conditions.

 

During periods of extreme stock market price volatility, share prices of many biotechnology companies have often fluctuated in a manner not necessarily related to their individual operating performance. Furthermore, historically our common stock has experienced greater price volatility than the stock market as a whole.

 

We do not intend to pay cash dividends on our common stock in the foreseeable future.

 

We have never declared or paid cash dividends on our capital stock. We are not currently profitable. To the extent, we become profitable, we intend to retain any future earnings to fund the development and growth of our business and do not currently anticipate paying any cash dividends in the foreseeable future. Accordingly, our stockholders will not realize a return on their investment unless and until they sell shares after the trading price of our shares appreciates from the price at which the shareholder purchased.

 

As an “emerging growth company” under the JOBS Act, we are permitted to rely on exemptions from certain disclosure requirements

 

We qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:

 

	●	have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
	●	comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the consolidated financial statements (i.e., an auditor discussion and analysis);
	●	submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay” and “say-on-frequency”; and
	●	disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.

 

 

In addition, Section 102 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our consolidated financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

 

We will remain an “emerging growth company” until (i) the last day of the fiscal year of the Company during which it had total annual gross revenues of $1,070,000,000 or more; (ii) the last day of the fiscal year of the Company following the fifth anniversary of the date of the first sale of common equity securities of the Company pursuant to an effective registration statement under the Securities Act of 1933; (iii) the date on which the Company has, during the previous three year period, issued more than $1,000,000,000 in non-convertible debt; or (iv) the date on which the Company is deemed to be a large accelerated filer, as defined in Rule 12b-2.

 

Until such time, however, we cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

 

Trading on the OTC Markets is volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares.

 

Our common stock is quoted on the OTC Pink tier of the OTC Markets. Trading in stock quoted on the OTC Markets is often thin and characterized by wide fluctuations in trading prices, due to many factors, some of which may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Markets is not a stock exchange, and trading of securities on the OTC Markets is often more sporadic than the trading of securities listed on a quotation system like NASDAQ or a stock exchange like the New York Stock Exchange. These factors may result in investors having difficulty reselling any shares of our common stock.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

ITEM 2. PROPERTIES

 

Our principal executive offices at 11441 Industriplex Blvd, Suite 190, Baton Rouge, LA 70809 is leased from a third party. The lease is for a period of 60 months commencing in September 2015 and expiring in August 2020. Pursuant to the lease agreement, the lease requires the Company to pay a monthly base rent of $3,200 plus a pro rata share of operating expenses.

 

We believe our facilities are adequate for our current and future needs.

 

ITEM 3. LEGAL PROCEEDINGS

 

We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder holding more than 5% of our shares, is an adverse party or has a material interest adverse to our interest.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

Our common stock is quoted on the OTC Pink, operated by the OTC Markets Group. Our symbol is “OBMP.”

 

 

The over-the-counter market quotations reflect inter-dealer prices without retail mark-up, mark-down or commission, and may not represent actual transactions.

 

On March 17, 2020, the closing price of our common stock on the OTC Pink was $0.0875 per share.

 

Holders of Common Stock

 

As of March 17, 2020, there were approximately 182 record holders of our common stock. The number of record holders does not include beneficial owners of common stock whose shares are held in the names of banks, brokers, nominees or other fiduciaries.

 

Dividends

 

We have not paid any cash dividends on our common stock and have no intention of paying any dividends on the shares of our common stock. Our current policy is to retain earnings, if any, for use in our operations and in the development of our business. Our future dividend policy will be determined from time to time by our board of directors.

 

Recent Sales of Unregistered Securities

 

Except for provided below, all unregistered sales of our securities during the quarter ended December 31, 2019, were previously disclosed in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.

 

	1.	During the three months ended December 31, 2019, we issued 47,119 shares of our common stock to a lender, upon the conversion of principal note balance of $8,945.
	2.	During the three months ended December 31, 2019, we issued 221,046 shares of our common stock to a second lender, upon the conversion of principal note balance of $15,080 and accrued interest of $606.
	3.	During the three months ended December 31, 2019, we issued 92,000 shares of our common stock to a second lender, upon the conversion of principal note balance of $10,140.
	4.	On November 15, 2019, the Company entered into two securities purchase agreements for the sale of the Company’s convertible notes and warrants. Pursuant to the purchase agreements, the Company issued to two investors each (i) a convertible note, convertible at any time at a conversion price equal to $0.20 per share, with a principal amount of $55,500 with 10% OID and (ii) five-year warrants (the “November 2019 Warrants I”) to purchase an aggregate of 277,500 shares of the Company’s common stock at an exercise price of $0.20 per share (subject to adjustments under certain conditions as defined in the November 2019 Warrants I). The Company received $100,000 in aggregate net proceeds from the sales, net of $11,000 original issue discount (see Note 6 and Note 9 - Warrants in the accompanying consolidated financial statements for additional information).
	5.	On December 23, 2019, the Company entered into two securities purchase agreements for the sale of the Company’s convertible notes and warrants. Pursuant to the purchase agreements, the Company issued to two investors each (i) a convertible note, convertible at any time at a conversion price equal to $0.20 per share, with a principal amount of $55,500 with 10% OID and (ii) five-year warrants (the “November 2019 Warrants I”) to purchase an aggregate of 277,500 shares of the Company’s common stock at an exercise price of $0.20 per share (subject to adjustments under certain conditions as defined in the November 2019 Warrants I). The Company received $100,000 in aggregate net proceeds from the sales, net of $11,000 original issue discount (see Note 6 and Note 9 - Warrants in the accompanying consolidated financial statements for additional information).

 

The shares of common stock, notes and warrants referenced herein were issued in reliance upon the exemption from securities registration afforded by the provisions of Section 4(a)(2) of the Securities Act of 1933, as amended, (“Securities Act”).

 

Securities Authorized for Issuance under Equity Compensation Plans

 

Effective February 18, 2011, our board of directors adopted and approved the 2011 stock option plan. The purpose of the 2011 stock option plan is to enhance the long-term stockholder value of our Company by offering opportunities to directors, key employees, officers, independent contractors and consultants of our Company to acquire and maintain stock ownership in our Company in order to give these persons the opportunity to participate in our Company’s growth and success, and to encourage them to remain in the service of our Company. A total of 57 options to acquire shares of our common stock were authorized under the 2011 stock option plan and during the 12 month period after the first anniversary of the adoption of the 2011 stock option plan, by our board of directors and during each 12 month period thereafter, our board of directors is authorized to increase the amount of options authorized under this plan by up to 14 shares. No options were granted under the 2011 stock option plan as of December 31, 2019.

 

The following table summarizes certain information regarding our equity compensation plan as of December 31, 2019.

 

Plan category		Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)				Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders			—			N/A			—
Equity compensation plans not approved by security holders			—			N/A			57
Total			—			N/A			57

 

 

Repurchases of Equity Securities by our Company and Affiliated Purchasers

 

None.

 

ITEM 6. SELECTED FINANCIAL DATA

 

Not applicable.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Overview

 

We are a clinical-stage biopharmaceutical company engaged in the development of novel cancer immunotherapy products, with a proprietary vaccine technology that is designed to stimulate the immune system to attack its own cancer while not attacking the patient’s healthy cells. The Company has proprietary rights to an investigational immunotherapy platform with an initial focus on prostate and breast cancers but that may be used to fight any solid tumor. The Company is also developing targeted therapies. Our mission is to improve overall patient condition through innovative bio-immunotherapy with proven treatment protocols, to lower deaths associated with cancer and to reduce the cost of cancer treatment. We believe our technology is safe, and utilizes clinically proven research methods of treatment to provide optimal likelihood of patient recovery.

 

Financial Highlights

 

During 2019, we utilized $1,171,131 to fund our operations, compared to $1,679,406 during 2018. During 2019, we received net cash of $1,192,419 from financing activities. As a result, our net cash position increased by $21,288 during 2019.

 

Operating expenses for 2019 were $1,768,569, compared to $1,777,973 in 2018. The decrease in operating expenses is attributable to a decrease in professional fees of $28,395 and in research and development expense of $37,842 offset by increases in compensation expense of $41,713 and general and administrative expenses of $15,120.

 

For the year ended December 31, 2019 we had net loss of $9,402,244, or $19.00 per share, as compared to a net income of $6,468,325, or $22.50 per share in the year ended December 31, 2018. The net income in 2018 was primarily due the gain related to the valuation for the initial fair value and changes in fair value of derivative liabilities of $8,229,168 in 2018.

 

Results of Operations

 

The following table summarizes the results of operations for the years ending December 31, 2019 and 2018 and is based primarily on the comparative audited financial statements, footnotes and related information for the periods identified and should be read in conjunction with the financial statements and the notes to those statements that are included elsewhere in this annual report.

 

		Year Ended December 31,
		2019				2018
Loss from operations		$	(1,768,569	)		$	(1,777,973	)
Other (expense) income, net			(7,633,675	)			8,246,298
(Loss) income before provision for income taxes			(9,402,244	)			6,468,325
Provision for income taxes			—				—
Net (loss) income			(9,402,244	)			6,468,325
Other comprehensive gain (loss):
Foreign currency translation adjustment			—				(25,184	)
Comprehensive (loss) gain		$	(9,402,244	)		$	6,443,141

 

Operating revenue, costs of revenues, and gross margin

 

We did not generate any revenues from continuing operations for the years ended December 31, 2019 and 2018.

 

 

Operating expenses

 

For the year ended December 31, 2019, operating expenses amounted to $1,768,569 as compared to $1,777,973 for the year ended December 31, 2018, a decrease of $9,404, or 1%. For the years ended December 31, 2019 and 2018, operating expenses consisted of the following:

 

		Year Ended December 31,
		2019				2018
Professional fees		$	566,216			$	594,611
Compensation expense			846,240				804,527
Research and development expense			166,720				204,562
General and administrative expenses			189,393				174,273
Total		$	1,768,569			$	1,777,973

 

	●	Professional fees:   For the year ended December 31, 2019, professional fees decreased by $28,395 or 5%, as compared to the year ended December 31, 2018. The decrease was primarily attributable to a decrease in investor relations fees and filing fees of $75,886, a decrease in consulting fees of $30,538, and a decrease in accounting and audit fees of $24,045 offset by an increase in legal fees of $102,074.
	●	Compensation expense:   For the year ended December 31, 2019, compensation expense increased by $41,713 or 5%, as compared to the year ended December 31, 2018. The increase was attributable to an increase in administrative compensation of $177,933 which was a result of hiring a new CEO in December 2018 offset by a decrease in stock-based compensation of $136,220.
	●	Research and development expense:   For the year ended December 31, 2019, research and development expense decreased by $37,842 or 18%, as compared to the year ended December 31, 2018 related to a decrease in research activities related to the ProscaVax™ clinical trials during 2019.
	●	General and administrative expenses:   For the year ended December 31, 2019, general and administrative expenses increased by $15,120 or 9%, as compared to the year ended December 31, 2018. The increase was primarily attributed to an increase in insurance expense which was a result of hiring a new CEO in December 2018 and other general and administrative expenses.

 

Loss from operations

 

For the year ended December 31, 2019, operating expenses from operations amounted to $1,768,569 as compared to $1,777,973 for the year ended December 31, 2018, a decrease of $9,404, or 1%. The decrease was primarily a result of the decrease in operating expenses discussed above.

 

Other income (expenses)

 

For the year ended December 31, 2019 we had total other (expense) of $(7,633,675) and total other income of $8,246,298 for the year ended December 31, 2018, a change of $15,879,973 or 193%. This change was primarily due to the recording of a loss from the fair value of derivative liabilities of $(5,760,902) in the 2019 period as compared to a gain from the fair value of derivative liabilities of $8,229,168 in the 2018, a decrease of $13,990,070 or 170%. Additionally, during 2019, we recorded a (loss) on debt extinguishment of $(77,375) as compared to a gain of $2,114,335 for 2018, a decrease of $2,191,710 or 104%. The total other income (expense) was also affected by a decrease in interest expense of $335,440 related to interest-bearing debt and decrease in foreign currency translation of $33,633.

 

Net income (loss)

 

For the year ended December 31, 2019, net (loss) from amounted to $(9,402,244), or $(19.00) per share (basic and diluted) compared to net income of $6,468,325, or $20.66 and $9.09 per share, basic and diluted, respectively, for the year ended December 31, 2018, a change of $15,870,569, or 245%. The change was a result of the changes in operating expenses and other expenses as discussed above.

 

 

Foreign currency translation gain (loss)

 

The functional currency of our former subsidiaries operating in Mexico is the Mexican Peso (“Peso”). The financial statements of our subsidiaries were translated to U.S. dollars using period end rates of exchange for assets and liabilities, and average rates of exchange (for the period) for revenues, costs, and expenses. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations. As a result of unrealized foreign currency translations gain (loss), which are a non-cash adjustment, we reported unrealized foreign currency translation gain (loss) of $0 and $(25,184) for the year ended December 31, 2019 and 2018, respectively. This non-cash (loss) had the effect of decreasing our reported comprehensive income in 2018.

 

Comprehensive (loss) income

 

As a result of our unrealized foreign currency translation gain (loss), we had comprehensive (loss) of $(9,402,244) for year ended December 31, 2019, compared to comprehensive income of $6,443,141 for the year ended December 31, 2018.

 

Liquidity and Capital Resources

 

Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. We had a working capital deficit of $15,969,504 and $21,489 of cash as of December 31, 2019 and working capital deficit of $7,557,621 and $201 of cash as of December 31, 2018.

 

										Year Ended December 31, 2019
		December 31, 2019				December 31, 2018				Change				Percentage Change
Working capital deficit:
Total current assets		$	62,153			$	215,882			$	(153,729	)			71	%
Total current liabilities			(16,031,657	)			(7,773,503	)			(8,258,154	)			106	%
Working capital deficit:		$	(15,969,504	)		$	(7,557,621	)		$	(8,411,883	)			111	%

 

The increase in working capital deficit was primarily attributable to decrease in current assets of $153,729 and increase in current liabilities of $8,258,154, including an increase in derivative liabilities of $5,956,020.

 

Cash Flows

 

A summary of cash flow activities is summarized as follows:

 

		Year Ended December 31,
		2019				2018
Cash used in operating activities		$	(1,171,131	)		$	(1,679,406	)
Cash used in investing activities			—				—
Cash provided by financing activities			1,192,419				1,678,176
Net increase (decrease) in cash		$	21,288			$	(1,230	)

 

Net Cash Used in Operating Activities:

 

Net cash flow used in operating activities was $1,171,131 for the year ended December 31, 2019 as compared to $1,679,406 for the year ended December 31, 2018, a decrease of $508,275.

 

	●	Net cash flow used in operating activities for the year ended December 31, 2019 primarily reflected our net loss of $9,402,244 adjusted for the add-back on non-cash items such as derivative expense of $5,760,902, stock-based compensation expense of $140,697, amortization of debt discount of $1,434,147 and loss on debt extinguishment of $77,375, non-cash interest including default interest of $(179,989) and changes in operating asset and liabilities consisting primarily of a decrease in prepaid expenses of $175,017, an increase in accounts payable of $69,746 and an increase in accrued liabilities of $750,879.
	●	Net cash flow used in operating activities for the year ended December 31, 2018 primarily reflected our net income of $6,468,325 adjusted for the add-back on non-cash items such as derivative income of $8,229,168, stock-based compensation expense of $329,418, amortization of debt discount of $1,465,057, other non-cash default interest expense of $94,286 and gain on debt extinguishment of $2,360,146, gain on foreign currency transactions of $25,184, and changes in operating asset and liabilities consisting of an increase in accounts payable of $172,069, and an increase in accrued liabilities of $615,043, offset by an increase in prepaid and other assets of $202,995 and a decrease in liabilities of discontinued operations of $8,449.

 

 

Cash Provided by Financing Activities:

 

Net cash provided by financing activities was $1,192,419 for the year ended December 31, 2019 as compared to $1,678,176 for the year ended December 31, 2018, an increase of $485,757.

 

	●	Net cash provided by financing activities for the year ended December 31, 2019 consisted of $1,135,700 of net proceeds from convertible debt, net of debt issuance costs and proceeds from related party advances of $57,219 offset by redemption of Series B Preferred of $500.
	●	Net cash provided by financing activities for the year ended December 31, 2018 consisted of $6,000 net proceeds from the sale of common stock, net proceeds from convertible debt of $2,034,143, and proceeds from related party advances of $53,882, offset by the payment of convertible debt of $415,849.

 

Cash Requirements

 

Our management does not believe that our current capital resources will be adequate to continue operating our company and maintaining our business strategy for more than 12 months from the date of this report. Accordingly, we will have to raise additional capital in the near future to meet our working capital requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to scale down or perhaps even cease the operation of our business.

 

Going Concern

 

The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in our accompanying consolidated financial statements, the Company had net income (loss) of $(9,402,244) and $6,468,325 for the years ended December 31, 2019 and 2018, respectively, however the net income in 2018 resulted primarily from the change in fair value of derivative liabilities. Net loss from operations was $1,768,569 and $1,777,973 for the years ended December 31, 2019 and 2018, respectively. Net cash used in operations was $1,171,131 and $1,679,406 for the years ended December 31, 2019 and 2018, respectively. Additionally, the Company had an accumulated deficit of $26,589,908 and $17,187,664, at December 31, 2019 and 2018, respectively, had a stockholders’ deficit of $15,937,452 at December 31, 2019, had a working capital deficit of $15,969,504 at December 31, 2019. The Company had no revenues from continuing operations for the years ended December 31, 2019 and 2018, and we defaulted on our debt. Management believes that these matters raise substantial doubt about the Company’s ability to continue as a going concern for twelve months from the issuance date of this report.

 

Management cannot provide assurance that we will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital. Management believes that our capital resources are not currently adequate to continue operating and maintaining its business strategy for a period of twelve months from the issuance date of this report. The Company will seek to raise capital through additional debt and/or equity financings to fund its operations in the future.

 

Although the Company has historically raised capital from sales of equity and from the issuance of promissory notes, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations. These consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Current and Future Financings

 

Loans Payable

 

From June 2017 to September 2017, we entered into loan agreements with several third parties (the “Loans”). Pursuant to the loan agreements, we borrowed an aggregate principal amount of $538,875. The Loans bear interest at an annual rate of 33.3%, are unsecured and are currently in default. As of December 31, 2019, the loan principal balance and accrued interest payable amounted to $538,875 and $430,223, respectively with an aggregate outstanding balance of $969,098.

 

November 2016 Financing

 

On November 23, 2016, the Company entered into an Amended and Restated Securities Purchase Agreements with three institutional investors for the sale of the Company’s convertible notes and warrants.

 

 

As of December 31, 2019, there no November 2016 Notes outstanding and 30,247 warrants outstanding under the November 2016 Warrants (see Note 6 and Note 9 - Warrants in the accompanying consolidated financial statements for additional information).

 

June 2017 Financing

 

On June 2, 2017, the Company entered into the Second Securities Purchase Agreement with the Purchasers for the sale of the Company’s June 2017 Notes and June 2017 Warrants.

 

As of December 31, 2019, the June 2017 Notes had outstanding principal and accrued interest of $1,495 and $0, respectively and are currently bearing interest at the default interest rate of 24% per annum.

 

As of December 31, 2019, there were 40,331 warrants outstanding under the June 2018 Warrants (see Note 6 and Note 9 - Warrants in the accompanying consolidated financial statements for additional information).

 

July 2017 Financing

 

On July 26, 2017, the Company entered into the Third Securities Purchase Agreement with the Purchasers for the sale of the Company’s July 2017 Notes and July 2017 Warrants.

 

As of December 31, 2019, the July 2017 Notes is in default and had outstanding principal and accrued interest of $28,655 and $32,372, respectively and are currently bearing interest at the default interest rate of 24% per annum.

 

As of December 31, 2019, there were 70,662 warrants outstanding under the July 2017 Warrants (see Note 6 and Note 9 - Warrants in the accompanying consolidated financial statements for additional information).

 

January 2018 Financing

 

On January 29, 2018, the Company entered into the Fourth Securities Purchase Agreement with the Purchasers for the sale of the Company’s January 2018 Notes and January 2018 Warrants.

 

As of December 31, 2019, the January 2018 Notes had outstanding principal and accrued interest of $213,277 and $67,185, respectively and are currently bearing interest at the default interest rate of 18% per annum.

 

As of December 31, 2019, there were 4,357,298 warrants outstanding under the January 2018 Warrants (see Note 6 and Note 9 - Warrants in the accompanying consolidated financial statements for additional information).

 

March 2018 Financing

 

On March 13, 2018, the Company entered into the Fifth Securities Purchase Agreement with the Purchasers for the sale of the Company’s March 2018 Notes and March 2018 Warrants.

 

As of December 31, 2019, the March 2018 Notes had outstanding principal and accrued interest of $152,778 and $46,463, respectively and are currently bearing interest at the default interest rate of 18% per annum.

 

As of December 31, 2019, there were 6,535,948 warrants outstanding under the March 2018 Warrants (see Note 6 and Note 9 - Warrants in the accompanying consolidated financial statements for additional information).

 

July 2018 Financing

 

On July 25, 2018, the Company entered into Sixth Securities Purchase Agreement with an institutional investor for the sale of the July 2018 Note.

 

As of December 31, 2019, the July 2018 Note had outstanding principal and accrued interest of $150,000 and $26,342, respectively and is currently bearing interest at the default interest rate of 18% per annum (see Note 6 in the accompanying consolidated financial statements for additional information).

 

September 2018 Financing

 

On September 24, 2018, the Company entered into the Seventh Purchase Agreement with the Seventh Round Purchasers for the sale of the Company’s September 2018 Notes and Warrants.

 

 

As of December 31, 2019, the September 2018 Notes had outstanding principal and accrued interest of $1,303,038 and $149,283, respectively and are currently bearing interest at the default interest rate of 18% per annum.

 

As of December 31, 2019, there were 40,032,680 warrants outstanding under the September 2018 Warrants (see Note 6 and Note 9 - Warrants in the accompanying consolidated financial statements for additional information).

 

November 2018 Financing

 

On November 13, 2018, the Company entered into the Eighth Purchase Agreement with the Eighth Round Purchaser for the sale of the Company’s November 2018 Note and November 2018 Warrant.

 

As of December 31, 2019, the November 2018 Note had outstanding principal and accrued interest of $127,778 and $17,287, respectively, and is currently bearing interest at the default interest rate of 18% per annum.

 

As of December 31, 2019, there were 3,758,170 warrants outstanding under the November 2018 Warrants (see Note 6 and Note 9 - Warrants in the accompanying consolidated financial statements for additional information).

 

January 2019 Financing

 

On January 18, 2019, the Company entered into the Ninth and Tenth Purchase Agreements with the Ninth and Tenth Round Purchasers for the sale of the Company’s January 2019 Notes.

 

As of December 31, 2019, the January 2019 Notes had an aggregate outstanding principal and accrued interest of $158,045 and $18,702, respectively, and is currently bearing interest at the default interest rate of 18% per annum (see Note 6 in the accompanying consolidated financial statements for additional information).

 

March 2019 Financing

 

On March 25, 2019, the Company entered into the Eleventh Purchase Agreement with the Eleventh Round Purchaser for the sale of the Company’s March 2019 Note and March 2019 Warrant.

 

As of December 31, 2019, the March 2019 Note had outstanding principal and accrued interest of $55,556 and $6,512, respectively, and is currently bearing interest at the default interest rate of 18% per annum.

 

As of December 31, 2019, there were 1,633,987 warrants outstanding under the March 2019 Warrants (see Note 6 and Note 9 - Warrants in the accompanying consolidated financial statements for additional information).

 

April 2019 Financings

 

On April 1, 2019, the Company entered into the Twelfth Purchase Agreement with the Twelfth Round Purchaser for the sale of the Company’s April 2019 Note I and April 2019 Warrant I.

 

As of December 31, 2019, the April 2019 Note I had outstanding principal and accrued interest of $27,778 and $3,225, respectively, and are currently bearing interest at the default interest rate of 18% per annum.

 

As of December 31, 2019, there were 816,994 warrants outstanding under the April 2019 Warrants I (see Note 6 and Note 9 - Warrants in the accompanying consolidated financial statements for additional information).

 

On April 29, 2019, the Company entered into the Thirteenth Purchase Agreement with the Thirteenth Round Purchasers for the sale of the Company’s April 2019 Notes II and April 2019 Warrants II.

 

As of December 31, 2019, the April 2019 Notes II had an aggregate outstanding principal and accrued interest of $205,279 and $23,076, respectively, and are currently bearing interest at the default interest rate of 18% per annum.

 

 

As of December 31, 2019, there were 6,037,582 warrants outstanding under the April 2019 Warrants II (see Note 6 and Note 9 - Warrants in the accompanying consolidated financial statements for additional information).

 

May 2019 Financing

 

On May 29, 2019, the Company entered into the Fourteenth Purchase Agreement with the Fourteenth Round Purchaser for the sale of the Company’s May 2019 Notes and May 2019 Warrants.

 

As of December 31, 2019, the May 2019 Notes had an aggregate outstanding principal and accrued interest of $10,000 and $905, respectively, and are currently bearing interest at the default interest rate of 18% per annum.

 

As of December 31, 2019, there were 294,118 warrants outstanding under the May 2019 Warrants (see Note 6 and Note 9 - Warrants in the accompanying consolidated financial statements for additional information).

 

June 2019 Financings

 

On June 3, 2019, the Company entered into the Fifteenth Purchase Agreement with the Fifteenth Round Purchasers for the sale of the Company’s June 2019 Note I and June 2019 Warrants I.

 

As of December 31, 2019, the June 2019 Notes I had an aggregate outstanding principal and accrued interest of $129,167 and $11,600, respectively, and are currently bearing interest at the default interest rate of 18% per annum.

 

As of December 31, 2019, there were 3,799,020 warrants outstanding under the June 2019 Warrants I (see Note 6 and Note 9 - Warrants in the accompanying consolidated financial statements for additional information).

 

On June 26, 2019, the Company entered into the Sixteenth Purchase Agreement with the Sixteenth Round Purchasers for the sale of the Company’s June 2019 Note II and June 2019 Warrants II.

 

As of December 31, 2019, the June 2019 Note II had an aggregate outstanding principal and accrued interest of $55,556 and $4,815, respectively, and are currently bearing interest at the default interest rate of 18% per annum.

 

As of December 31, 2019, there were 1,633,987 warrants outstanding under the June 2019 Warrants II (see Note 6 and Note 9 - Warrants in the accompanying consolidated financial statements for additional information).

 

July 2019 Financings

 

On July 2, 2019, the Company entered into the Seventeenth Purchase Agreement with the Seventeenth Round Purchasers for the sale of the Company’s July 2019 Note I and July 2019 Warrants I.

 

As of December 31, 2019, the July 2019 Note I had outstanding principal and accrued interest of $55,556 and $4,769, respectively, and are currently bearing interest at the default interest rate of 18% per annum.

 

As of December 31, 2019, there were 1,633,987 warrants outstanding under the July 2019 Warrants I (see Note 6 and Note 9 - Warrants in the accompanying consolidated financial statements for additional information).

 

On July 8, 2019, the Company entered into the Eighteenth Purchase Agreement with the Eighteenth Round Purchasers for the sale of the Company’s July 2019 Note II and July 2019 Warrants II.

 

As of December 31, 2019, the July 2019 Note II had outstanding principal and accrued interest of $55,556 and $4,723, respectively, and are currently bearing interest at the default interest rate of 18% per annum.

 

As of December 31, 2019, there were 1,633,987 warrants outstanding under the July 2019 Warrants II (see Note 6 and Note 9 - Warrants in the accompanying consolidated financial statements for additional information).

 

 

August 2019 Financings

 

On August 19, 2019, the Company entered into the Nineteenth Purchase Agreement with the Nineteenth Round Purchasers for the sale of the Company’s August 2019 Note I and August 2019 Warrant I. The August 2019 Note I shall mature on March 30, 2020.

 

As of December 31, 2019, the August 2019 Note I had outstanding principal and accrued interest of $27,778 and $510, respectively, and is currently bearing interest at the default interest rate of 18% per annum.

 

As of December 31, 2019, there were 2,778 warrants outstanding under the August 2019 Warrant I (see Note 6 and Note 9 - Warrants in the accompanying consolidated financial statements for additional information).

 

On August 28, 2019, the Company entered into the Twentieth Purchase Agreement with the Twentieth Round Purchasers for the sale of the Company’s August 2019 Note II. The August 2019 Note II matures on August 27, 2020.

 

As of December 31, 2019, the August 2019 Note II had outstanding principal and accrued interest of $29,700 and $509, respectively, and is currently bearing interest at the default interest rate of 24% per annum (see Note 6 in the accompanying consolidated financial statements for additional information).

 

September 2019 Financing

 

On September 27, 2019, the Company entered into the Twenty-first Purchase Agreement with the Twenty-first Round Purchasers for the sale of the Company’s September 2019 Note and September 2019 Warrants. The September 2019 Note matures on May 27, 2020.

 

As of December 31, 2019, the September 2019 Note had outstanding principal and accrued interest of $166,667 and $2,100, respectively.

 

As of December 31, 2019, there were 16,667 warrants outstanding under the September 2019 Warrants (see Note 6 and Note 9 - Warrants in the accompanying consolidated financial statements for additional information).

 

November 2019 Financing

 

On November 15, 2019, the Company entered into the Twenty- second Purchase Agreement with the Twenty- second Round Purchasers for the sale of the Company’s November 2019 Note I and November 2019 Warrants I. The November 2019 Note I matures on August 30, 2020.

 

As of December 31, 2019, the November 2019 Note I had outstanding principal and accrued interest of $55,500 and $350, respectively, and is currently bearing interest at the default interest rate of 18% per annum.

 

As of December 31, 2019, there were 277,500 warrants outstanding under the November 2019 Warrants I (see Note 6 and Note 9 - Warrants in the accompanying consolidated financial statements for additional information).

 

On November 15, 2019, the Company entered into the Twenty- third Purchase Agreement with the Twenty-third Round Purchasers for the sale of the Company’s November 2019 Note II and November 2019 Warrants II. The November 2019 Note II matures on August 30, 2020.

 

As of December 31, 2019, the November 2019 Note II had outstanding principal and accrued interest of $55,500 and $350, respectively, and is currently bearing interest at the default interest rate of 18% per annum.  

 

As of December 31, 2019, there were 277,500 warrants outstanding under the November 2019 Warrants II (see Note 6 and Note 9 - Warrants in the accompanying consolidated financial statements for additional information).

 

December 2019 Financing

 

On December 23, 2019, the Company entered into the Twenty- fourth Purchase Agreement with the Twenty-fourth Round Purchasers for the sale of the Company’s December 2019 Note I and December 2019 Warrants I. The December 2019 Note I matures on September 30, 2020.

 

As of December 31, 2019, the December 2019 Note I had outstanding principal and accrued interest of $55,500 and $61, respectively, and is currently bearing interest at the default interest rate of 18% per annum.

 

As of December 31, 2019, there were 277,500 warrants outstanding under the December 2019 Warrants I (see Note 6 and Note 9 - Warrants in the accompanying consolidated financial statements for additional information).

 

 

On December 23, 2019, the Company entered into the Twenty- fifth Purchase Agreement with the Twenty-fifth Round Purchasers for the sale of the Company’s December 2019 Note II and December 2019 Warrants II. The December 2019 Note II matures on September 30, 2020.

 

As of December 31, 2019, the December 2019 Note II had outstanding principal and accrued interest of $55,500 and $61, respectively, and is currently bearing interest at the default interest rate of 18% per annum.

 

As of December 31, 2019, there were 277,500 warrants outstanding under the December 2019 Warrants II (see Note 6 and Note 9 - Warrants in the accompanying consolidated financial statements for additional information).

 

To secure the Company’s obligations under the June 2017, July 2017, January 2018, March 2018, September 2018 Notes and November 2018 Notes, the Company entered into Security Agreements, Pledge Agreements and Subsidiary Guaranty’s with Calvary Fund I LP, as agent, pursuant to which the Company granted a lien on all assets of the Company (the “Collateral”) excluding permitted indebtedness which included a first lien held by Regions Bank in connection with the $100,000 revolving promissory note entered into with Regions Bank in October 2014, for the benefit of the Note Purchasers. Upon an Event of Default (as defined in the related Notes), the Note Purchasers may, among other things, collect or take possession of the Collateral, proceed with the foreclosure of the security interest in the Collateral or sell, lease or dispose of the Collateral.

 

Additional Purchaser Rights and Company Obligations

 

The Securities Purchase Agreements include additional purchaser rights and Company obligations including obligations on the Company to reimburse the Purchasers for legal fees and expenses, satisfy the current public information requirements under SEC Rule 144(c), obligations on the Company with respect to the use of proceeds from the sale of securities and Purchaser rights to participate in future Company financings. Reference should be made to the full text of the Securities Purchase Agreement.

 

Common Stock for debt conversion

 

During the year ended December 31, 2019, the Company issued 508,999 shares of its common stock upon the conversion of principal note balances of $356,339, accrued interest of $44,308 and default interest of $36,134. These shares of common stock had an aggregate fair value $871,512 and the difference between the aggregate fair value and the aggregate converted amount of $436,281 resulted in a loss on debt extinguishment of $434,731.

 

During the year ended December 31, 2018, the Company issued 78,175 shares of its common stock upon the conversion of principal note balances of $387,292, interest of $40,320, and default interest of $55,890.

 

Sales of Common Stock and Warrants Pursuant to Subscription Agreements

 

During the year ended December 31, 2018, the Company had 800 shares of its common stock issuable to an investor for cash proceeds of $6,000, or $7.50 per share, pursuant to unit subscription agreement.

 

Future Financings

 

We will require additional financing to fund our planned operations. We currently do not have committed sources of additional financing and may not be able to obtain additional financing particularly, if the volatile conditions of the stock and financial markets, and more particularly the market for early development stage company stocks persist.

 

There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to further delay or further scale down some or all of our activities or perhaps even cease the operations of the business.

 

Since inception we have funded our operations primarily through equity and debt financings and we expect that we will continue to fund our operations through the equity and debt financing, either alone or through strategic alliances. If we are able to raise additional financing by issuing equity securities, our existing stockholders’ ownership will be diluted. Obtaining commercial or other loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

 

There is no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on his, her, or its investment in our common stock. Further, we may continue to be unprofitable.

 

Critical Accounting Policies

 

We have identified the following policies as critical to our business and results of operations. Our reported results are impacted by the application of the following accounting policies, certain of which require management to make subjective or complex judgments. These judgments involve making estimates about the effect of matters that are inherently uncertain and may significantly impact quarterly or annual results of operations. For all of these policies, management cautions that future events rarely develop exactly as expected, and the best estimates routinely require adjustment. Specific risks associated with these critical accounting policies are described in the following paragraphs.

 

 

Use of estimates

 

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates during the year ended December 31, 2019 and 2018 include the valuation of liabilities of discontinued operations, useful life of property and equipment, valuation of operating lease ROU assets and liabilities, assumptions used in assessing impairment of long-term assets, estimates of current and deferred income taxes and deferred tax valuation allowances, the fair value of non-cash equity transactions and the valuation of derivative liabilities.

 

Fair value of financial instruments and fair value measurements

 

FASB ASC 820 - Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to the Company on December 31, 2019. Accordingly, the estimates presented in these financial statements are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments. FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:

 

	Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
	Level 2—Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
	Level 3—Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

 

ASC 825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.

 

Derivative liabilities

 

The Company has certain financial instruments that are embedded derivatives associated with capital raises and certain warrants. The Company evaluates all its financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 815-10 – Derivative and Hedging – Contract in Entity’s Own Equity. This accounting treatment requires that the carrying amount of any derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded as a liability, as is the case with the Company, the change in the fair value during the period is recorded as either other income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment or exercise date and then the related fair value amount is reclassified to other income or expense as part of gain or loss on debt extinguishment.

 

Revenue recognition

 

In May 2014, FASB issued an update Accounting Standards Update, ASU 2014-09, establishing ASC 606 - Revenue from Contracts with Customers. ASU 2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard, which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. The Company adopted this standard on January 1, 2018 using the modified retrospective approach, which requires applying the new standard to all existing contracts not yet completed as of the effective date and recording a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Based on an evaluation of the impact ASU 2014-09 will have on the Company’s sources of revenue, the Company has concluded that ASU 2014-09 did not have any impact on the process for, timing of, and presentation and disclosure of revenue recognition from customers and there was no cumulative effect adjustment.

 

 

Stock-based compensation

 

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

 

Through March 31, 2018, pursuant to ASC 505-50 - Equity-Based Payments to Non-Employees, all share-based payments to non-employees, including grants of stock options, were recognized in the consolidated financial statements as compensation expense over the service period of the consulting arrangement or until performance conditions are expected to be met. Using a Black Scholes valuation model, the Company periodically reassessed the fair value of non-employee options until service conditions are met, which generally aligns with the vesting period of the options, and the Company adjusts the expense recognized in the consolidated financial statements accordingly. In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC 606. The Company early adopted ASU No. 2018-07 in the second quarter of 2018, and the adoption did not have any impact on its consolidated financial statements.

 

Leases

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the updated guidance requires that lessors separate lease and non-lease components in a contract in accordance with the new revenue guidance in ASC 606. The updated guidance is effective for interim and annual periods beginning after December 15, 2018.

 

On January 1, 2019, the Company adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases and; (ii) initial direct costs for any existing leases. For contracts entered into on or after the effective date, at the inception of a contract the Company assessed whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether it has the right to direct the use of the asset. The Company will allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a term of 12 months or less.

 

Operating lease ROU assets represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company use an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the consolidated statements of operations.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

See Index to Financial Statements and Financial Statement Schedules appearing on pages F-1 to F-34 of this annual report on Form 10-K.

 

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Disclosure controls and procedures

 

We maintain “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated our company’s disclosure controls and procedures as of the end of the period covered by this annual report on Form 10-K. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of December 31, 2019, our disclosure controls and procedures were not effective. The ineffectiveness of our disclosure controls and procedures was due to material weaknesses, which we identified, in our report on internal control over financial reporting.

 

Internal control over financial reporting

 

Management’s annual report on internal control over financial reporting

 

Our management, including our principal executive officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our internal control over financial reporting as of December 31, 2019. Our management’s evaluation of our internal control over financial reporting was based on the framework in Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that as of December 31, 2019, our internal control over financial reporting was not effective.

 

The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses which we identified in our internal control over financial reporting:

 

	(1)	the lack of multiples levels of management review on complex accounting and financial reporting issues, and business transactions,
	(2)	a lack of adequate segregation of duties and necessary corporate accounting resources in our financial reporting process and accounting function as a result of our limited financial resources to support hiring of personnel and implementation of accounting systems, and
	(3)	a lack of operational controls and lack of controls over assets by the acquired subsidiaries.

 

We expect to be materially dependent upon third parties to provide us with accounting consulting services related to accounting services for the foreseeable future. We believe this will be sufficient to remediate the material weaknesses related to our accounting discussed above. Until such time as we have a chief financial officer with the requisite expertise in U.S. GAAP, there are no assurances that the material weaknesses and significant deficiencies in our disclosure controls and procedures will not result in errors in our consolidated financial statements which could lead to a restatement of those financial statements.

 

A material weakness is a deficiency or a combination of control deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

 

Limitations on Effectiveness of Controls

 

Our principal executive officer and principal financial officer do not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additional controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

 

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to SEC rules that permit us to provide only management’s report on internal control over financial reporting in this annual report on Form 10-K.

 

Changes in internal control over financial reporting

 

There was no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934) during the year ended December 31, 2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Board of Directors and Executive Officers

 

The following table sets forth the names, positions and ages of our directors and executive officers as of the date of this report.

 

Name		Age		Position
Andrew Kucharchuk		39		Chief Executive Officer, Chief Financial Officer and President
Jonathan F. Head, Ph. D.		70		Chairman of the Board of Directors and Chief Scientific Officer
Daniel S. Hoverman		44		Director
Charles L. Rice, Jr.		55		Director
Robert N. Holcomb		51		Director

 

Biographical information concerning the directors and executive officers listed above is set forth below. The information presented includes information each individual has given us about all positions they hold and their principal occupation and business experience for the past five years. In addition to the information presented below regarding each director’s specific experience, qualifications, attributes and skills that led our board to conclude that he should serve as a director, we also believe that all of our directors have a reputation for integrity, honesty and adherence to high ethical standards. Each has demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment of service to our company and our board of directors.

 

Andrew Kucharchuk. Mr. Kucharchuk, age 39, has served as our President and Chief Financial Officer since February 2016 and as our Chief Executive Officer since November 2019. He served as our Chief Financial Officer from 2009 to September 2015. Mr. Kucharchuk is a graduate of Louisiana State University and Tulane University’s Freeman School of Business, where he earned an MBA with a Finance Concentration. Mr. Kucharchuk’s role as an executive officer of our company gives him unique insights into our day-to-day operations, a practical understanding of the issues and opportunities that face us and our strategic planning, commercial growth, and strategic transactions, giving him the appropriate and valuable qualifications to serve as an executive officer.

 

Jonathan F. Head, Ph. D. Dr. Head, age 70, serves as the Chairman of the Board of Directors and our Chief Scientific Officer effective December 26, 2018. He served as our President and Chief Scientific Officer from 2005 until September 2015 and served as our Chief Executive Officer and a member of our board of directors from September 2015 until December 2018. He has also been President and Director of Research at the Mastology Research Institute of the Elliott-Elliott-Head Breast Cancer Research and Treatment Center since 1988. Dr. Head is an Adjunct Associate Professor of Biochemistry at Tulane University School of Medicine, an Adjunct Professor of Physical and Biological Sciences at Delta State University and an Adjunct Associate Professor at Louisiana State University School of Veterinary Medicine. Previously, he has held positions in the Division of Cell Biology of Naylor Dana Institute for Disease Prevention of the American Health Foundation in New York, the Department of Immunology at Cornell University Medical School in New York, and the Department of Pediatrics at Mt. Sinai Medical School in New York. He was also Director/Department Head of Tumor Cell Biology at the Center for Clinical Sciences, International Clinical Laboratories in Nashville, Tennessee. Dr. Head’s scientific background and his leadership role at the Elliott-Elliott-Head Breast Cancer Research and Treatment Center provide him with expertise and qualifications to serve as a member of our board.

 

 

Daniel S. Hoverman. Mr. Hoverman, age 44, has served as a member of our board since December 2015. Mr. Hoverman served as a Managing Director at Regions Securities, LLC, an affiliate of Regions Bank, since November 2016. At Regions, Mr. Hoverman is responsible for advising companies on sale, financing and other strategic corporate transactions. Previously, Mr. Hoverman was a Director and senior member of Houlihan Lokey, Inc.’s Mergers & Acquisitions Group. Before joining Houlihan in 2010, Mr. Hoverman was a Director with Credit Suisse in Hong Kong in the Office of the General Counsel, and a Director with UBS in New York in the Equity Capital Markets Group. Mr. Hoverman started his career with Kirkland & Ellis in New York, where he was a corporate attorney. Mr. Hoverman is a CFA charter holder, and holds a Juris Doctor and Masters in Business Administration from Columbia University and a Bachelor of Arts from Yale University.

 

Charles L. Rice, Jr. Mr. Rice, age 55, has served as a member of our board of directors since November 2015. He has been president and former chief executive officer of Entergy New Orleans, Inc., an $800 million a year electric and gas utility, since 2010. After his first legal private practice position in Louisiana with Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P., Mr. Rice joined Entergy in the legal department in 2000, serving as senior counsel in the Entergy Services, Inc. litigation group and then as manager of labor relations litigation support in human resources. Mr. Rice was recruited into New Orleans city government in 2002 as the city attorney and later took the critical role of chief administrative officer for the City of New Orleans, where he managed 6,000 employees and the city’s $600 million budget. In 2005, the law firm of Barrasso, Usdin, Kupperman, Freeman & Sarver, LLC. recruited him back to private practice, where he was named partner. Returning to Entergy in 2009, Rice served as director of utility strategy where he was responsible for coordinating regulatory, legislative, and communications efforts to develop and execute strategies that advanced commercial objectives for the company’s regulated service areas. He then served as director of regulatory affairs for Entergy New Orleans. Mr. Rice holds a bachelor’s degree in business administration from Howard University, a juris doctorate from Loyola University’s School of Law and master’s degree in business administration from Tulane University. After graduating from Howard University, he was commissioned as a second lieutenant in the United States Army and served as a military intelligence officer with the 101st Airborne Division (Air Assault) at Fort Campbell, Ky. While in the Army, he earned the Airborne Badge, Air Assault badge and was awarded the Army Commendation and the Army Achievement medals. He is a member of the Alabama and Louisiana State Bar Associations, the American Bar Association, the New Orleans Bar Association, and the National Bar Association. Mr. Rice’s business, regulatory and legal experience give him the skills and appropriate qualifications to serve as a member of our board.

 

Robert N. Holcomb. Mr. Holcomb, age 54, has served as a member of our board of directors since March 2018. He has served as the president and owner of Holcomb CPA Firm, P.A. in Rolling Fork, MS since 2005. He also has been serving as the president and executive director of the MS Breast Foundation since July 2003. Mr. Holcomb earned his Bachelor of Business Administration degree from Delta State University in 1992. He is also Certified Public Accountant.

 

There are no family relationships between any of the executive officers and directors. Each director is elected at our annual meeting of shareholders and holds office until the next annual meeting of shareholders, or until his successor is elected and qualified.

 

Family Relationships

 

No family relationships exist between any of our current or former directors or executive officers.

 

 

Involvement in Certain Legal Proceedings

 

There are no material proceedings to which any director or executive officer or any associate of any such director or officer is a party adverse to our company or has a material interest adverse to our company.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who own more than 10% of our common stock, to file reports regarding ownership of, and transactions in, our securities with the Securities and Exchange Commission and to provide us with copies of those filings.

 

Code of Ethics

 

We have not adopted a code of ethics because our board of directors believes that our small size does not merit the expense of preparing, adopting and administering a code of ethics. Our board of directors intends to adopt a code of ethics when circumstances warrant.

 

Corporate Governance

 

Term of Office

 

Each director of our company is to serve for a term of one year ending on the date of subsequent annual meeting of stockholders following the annual meeting at which such director was elected. Notwithstanding the foregoing, each director is to serve until his successor is elected and qualified or until his death, resignation or removal. Our board of directors is to elect our officers and each officer is to serve until his successor is elected and qualified or until his death, resignation or removal.

 

Committees of the Board

 

Our board of directors held two formal meetings during the year ended December 31, 2019. All other proceedings of our board of directors were conducted by resolutions consented to in writing by all the directors and filed with the minutes of the proceedings of the directors. Such resolutions consented to in writing by the directors entitled to vote on that resolution at a meeting of the directors are, according to the corporate laws of the State of Nevada and our By-laws, as valid and effective as if they had been passed at a meeting of our directors duly called and held. During 2019, each incumbent director attended 75% or more of the meetings of our board of directors.

 

We currently do not have nominating or compensation committees or committees performing similar functions nor do we have a written nominating or compensation committee charter. Our board of directors does not believe that it is necessary to have such committees because it believes that the functions of such committees can be adequately performed by our board of directors.

 

We do not have any defined policy or procedure requirements for shareholders to submit recommendations or nominations for directors. We do not currently have any specific or minimum criteria for the election of nominees to our board of directors and we do not have any specific process or procedure for evaluating such nominees. Our board of directors assesses all candidates, whether submitted by management or shareholders, and makes recommendations for election or appointment.

 

A shareholder who wishes to communicate with our board of directors may do so by directing a written request to the address appearing on the first page of this annual report.

 

Audit Committee and Audit Committee Financial Expert

 

We do not have a standing audit committee at the present time. Our board of directors has determined that we do not have a board member that qualifies as an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K.

 

We believe that our board of directors is capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. The board of directors of our Company does not believe that it is necessary to have an audit committee because we believe that the functions of an audit committee can be adequately performed by the board of directors. In addition, we believe that retaining an independent director who would qualify as an “audit committee financial expert” would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development.

 

 

ITEM 11. EXECUTIVE COMPENSATION

 

Summary Compensation

 

The following table sets forth information regarding compensation earned in or with respect to our fiscal year 2019 and 2018 by:

 

● each person who served as our CEO in 2019; and

 

● each person who served as our CFO in 2019; and

 

● each person who served as our President in 2019.

 

SUMMARY COMPENSATION TABLE

FOR OUR NAMED EXECUTIVE OFFICERS

 

Name and Principal Position		Fiscal Year				Salary ($)				Bonus ($)				Stock Awards ($)				Option Awards ($)				Non- Equity Incentive Plan Compensation ($)				Nonqualified Deferred Compensation Earnings ($)				All Other Compensation ($)				Total ($)
Brian Barnett, M.D.			2019				213,542	(1)			—				—				—				—				—				—				213,542
Former Chief Executive Officer (1)			2018				—				—				—				—				—				—				—				—
Andrew Kucharchuk,			2019				200,000	(3)			—				—				—				—				—				500	(4)			200,500
Chief Executive Officer, Chief Financial Officer and President (2)			2018				200,000	(3)			20,000	(5)			—				—				—				—				500	(4)			220,500
Jonathan F. Head, Ph. D., Chief Scientific Officer, Former Chief Executive Officer (6)			2018				275,000	(6)			—				—				—				—				—				500	(6)			275,500

 

(1)	On December 26, 2018, Dr. Barnett was appointed to serve as our Chief Executive Officer with $250,000 annual salary pursuant to his employment agreement dated December 26, 2018. No salary was paid in 2018 and $134,708 of Dr. Barnett’s 2019 salary was accrued as of December 31, 2019. Dr. Barnett resigned as the Company’s Chief Executive Officer effective November 8, 2019.
(2)	Mr. Kucharchuk was appointed as the new Chief Executive Officer upon Dr. Barnett’s resignation on November 8, 2019.
(3)	Represents the $200,000 annual salary pursuant to Mr. Kucharchuk’s employment agreement for 2019 and 2018. At December 31, 2019, $56,065 of Mr. Kucharchuk’s 2019 salary was accrued.
(4)	Represents Mr. Kucharchuk’s health, automobile and other allowances.
(5)	Represents the bonus received by Mr. Kucharchuk’s pursuant to his employment agreement. At December 31, 2018, the $20,000 bonus was accrued and was paid in full in January 2019.
(6)	Represents the $200,000 annual salary pursuant to Dr. Head’s employment agreement for 2018 and $500 automobile allowance. Effective December 26, 2018, the Company replaced Dr. Jonathan Head and appointed Dr. Brian Barnett as the new Chief Executive Officer.

 

Compensation of Management

 

Mr. Kucharchuk were appointed as executive officers effective September 2, 2015. Effective December 26, 2018, the Company replaced Dr. Head and appointed Dr. Barnett as the new Chief Executive Officer. Dr. Head will continue to serve the Company as the Chairman of the Board of Directors and now as its Chief Scientific Officer effective December 26, 2018.

 

Effective November 8, 2019, our Chief Executive Officer, Dr. Brian Barnett, resigned from his position with the Company. Andrew Kucharchuk, our Chief Financial Officer, was named Chief Executive Officer effective that same date.

 

A description of their employment agreements follows:

 

Employment Agreement with Brian Barnett, M.D.

 

On December 26, 2018, Dr. Barnett entered into an employment agreement with us (“Barnett Employment Agreement”) to serve as the Company’s Chief Executive Officer effective, the term of which runs for three years (from December 26, 2018 through December 26, 2021) and renews automatically for one year periods unless a written notice of termination is provided not less than 90 days and no more than 180 days prior to the automatic renewal date. The Barnett Employment Agreement provides that Dr. Barnett’s salary for calendar year 2019 shall be $250,000 and for each calendar year thereafter during the term of the Barnett Employment Agreement shall be an amount determined by the Board of Directors, which in no event shall be less than the annual salary that was payable by the Company to Dr. Barnett for the immediately preceding calendar year.

 

 

Dr. Barnett is also eligible to receive a performance-based bonus of up to $150,000 upon completion of specific metrics established by the Company’s Board of Directors and is entitled to participate in all medical and other benefits that the Company has established for its employees. Pursuant to the employment agreement, the Company will also grant options to purchase a number of shares of the Company’s common stock equal to $100,000 divided by the volume weighted average price of the Company’s common stock for the ten (10) business days prior to the effective date of the employment agreement. The option grant is subject to continued employment, and will vest ratably over the first three anniversary dates of the grant date. These options were granted by the Board of Directors in April 2019 and was forfeited upon his resignation on November 8, 2019.

 

Additionally, upon the closing of a transaction during calendar year 2019 which results in the sale of common stock of the Company on terms acceptable to the Board that provides net proceeds to the Company of no less than $4,000,000 (a “Qualifying Transaction”), Dr. Barnett shall be granted options to purchase a number of shares of the Company’s common stock equal to $50,000 divided by the transaction price of the Company’s common stock in the Qualifying Transaction. The option grant is subject to continued employment, and will vest ratably over the first three anniversary dates of the date of the closing of the Qualifying Transaction.

 

The Barnett Employment Agreement provides that if Dr. Barnett is terminated for cause, the Company shall be under no further obligation to him, except to pay all accrued but unpaid base salary and accrued vacation to the date of termination. If Dr. Barnett is terminated without cause, he will be entitled to severance pay in the amount of twelve (12) weeks of Base Salary in addition to accrued but unpaid base salary and accrued vacation. If Dr. Barnett is terminated for death or disability, he shall be entitled to all accrued but unpaid base salary. Dr. Barnett resigned as the Company’s Chief Executive Officer effective November 8, 2019.

 

Employment Agreement with Andrew Kucharchuk

 

On February 2, 2016, Mr. Kucharchuk entered into an Employment Agreement with us (the “Kucharchuk Employment Agreement”), to serve as President and Chief Financial Officer, the term of which runs for three years (from February 2, 2016 through February 1, 2019) and renews automatically for one year periods unless a written notice of termination is provided not less than 120 days prior to the automatic renewal date. The Kucharchuk Employment Agreement provides that Mr. Kucharchuk’s salary for calendar year 2016 shall be $200,000 and for calendar year 2017 and for each calendar year thereafter during the term of the Kucharchuk Employment Agreement shall be an amount determined by the Board of Directors, which in no event shall be less than the annual salary that was payable by the Company to Mr. Kucharchuk for the immediately preceding calendar year.

 

Mr. Kucharchuk’s employment agreement was amended on March 10, 2017 to extend the term to March 9, 2020 and to provide for 100% vesting of any unvested portion of any outstanding equity, or equity-based award granted to them by us upon termination of his employment agreement without cause, as a result of a breach of the agreement by us or upon his death or disability. In addition, the Board of Directors awarded Mr. Kucharchuk an option to purchase 2,667 shares of our Common Stock at an exercise price of $0.25 per share, the date of the grant. One-third of the stock options vest on each anniversary date of the award and are exercisable at any time after vesting until 10 years after the grant date. The stock options vest so long as the optionee remains an employee of our company or a subsidiary of our on the vesting dates (except as otherwise provided for in the employment agreement between us and the optionee as described above).

 

	i.	He shall be eligible for an annual target bonus payment in an amount equal to ten percent (10%) of his base salary (“Bonus”). The Bonus is determined based on the achievement of certain performance objectives of the Company as established by the Board of Directors. The Bonus may be greater or less than the target Bonus, based on the level of achievement of the applicable performance objectives;
	ii.	He shall be entitled to receive all benefits provided by the Company to senior executives, including paid vacation time, medical/health insurance, cell phone, business expense reimbursement, use of a company car or car allowance, and automobile insurance;
	iii.	He shall be eligible to participate in any executive stock award/equity incentive plans the Company’s Board of Directors may adopt;

 

 

	iv.	His employment: (1) shall be terminated automatically upon the death or Disability (as defined in the Kucharchuk Employment Agreement); (2) may be terminated for Cause (as defined in the Kucharchuk Employment Agreement) at any time by the Company; (3) may be terminated at any time by the Company without Cause with 30 days’ advance notice; (4) may be terminated at any time by Mr. Kucharchuk with 30 days’ advance notice to the Company, and shall be terminated automatically if he does not accept assumption of the Kucharchuk Employment Agreement by, or an offer of employment from, a purchaser of all or substantially all of the assets of the Company; or (5) may be terminated at any time by Mr. Kucharchuk if the Company materially breaches the Employment Agreement and fails to cure such breach within 30 days of written notice of such breach from Mr. Kucharchuk, provided that Mr. Kucharchuk has given notice of such breach within 90 days after he has knowledge thereof and the Company did not have Cause to terminate Mr. Kucharchuk at the time such breach occurred.
	v.	In the event of the death or Disability during the term of the Kucharchuk Employment Agreement, Mr. Kucharchuk shall not be entitled to any further compensation or other payments or benefits under the Kucharchuk Employment Agreement except for the following: (1) he shall be entitled to any unpaid salary, bonus, or benefits accrued and earned by him up to and including the date of such death or Disability; and (2) the Company shall continue to pay to him (or his estate) his then effective per annum rate of salary and provide to him (or to his family members covered under his family medical coverage) the same family medical coverage as provided to him on the date of such death or Disability for a period equal to the lesser of (i) twelve (12) months following the date of such death or Disability or (ii) the balance of the term that would have remained under the Kucharchuk Employment Agreement at such date had his death or disability not occurred;
	vi.	If Mr. Kucharchuk’s employment is terminated by the Company without Cause or by Mr. Kucharchuk if the Company materially breaches the Kucharchuk Employment Agreement and fails to cure such breach, the Company shall continue to pay to Mr. Kucharchuk the per annum rate of salary then in effect and provide him and his family with the benefits then in effect for the balance of the term that would have remained under the Kucharchuk Employment Agreement had such termination not occurred; and
	vii.	If Mr. Kucharchuk’s employment is terminated by the Company with Cause or is terminated by Mr. Kucharchuk with 30 days’ advance notice or he does not accept assumption of the Kucharchuk Employment Agreement, he shall be entitled to no further compensation or other payments or benefits under the Kucharchuk Employment Agreement, except as to that portion of any unpaid salary and benefits accrued and earned by him up to and including the date of termination.

 

The Kucharchuk Employment Agreement also contains various restrictive covenants, including covenants relating to non-competition, non-solicitation, and non-disclosure (confidentiality).

 

Outstanding Equity Awards at 2019 Fiscal Year-End for Named Executive Officers

 

The following table sets forth certain information concerning the outstanding equity awards as of December 31, 2019, for each named executive officer.

 

		Option Awards																		Stock Awards
Name		Number of Securities Underlying Unexercised Options (#) Exercisable				Number of Securities Underlying Unexercised Options (#) Unexercisable				Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options				Option Exercise Price ($)				Option Expiration Date		Number of Shares or Units of Stock that Have Not Vested				Market Value of Shares or Units of Stock that Have Not Vested				Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested				Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested
Andrew			2,667				—				—				187.5			3/9/2027			—				—				—				—
Kucharchuk			4,000				—				—				10.1			5/8/2028			—				—				—				—

 

 

Compensation of Directors

 

The following table sets forth certain information regarding the compensation paid to our directors during the fiscal year ended December 31, 2019:

 

Name		Fees earned or cash paid (1)				Stock Awards				Option Awards (2)				All other compensation				Total
Jonathan F. Head, Ph. D.		$	—			$	—			$	—			$	—			$	—
Daniel S. Hoverman		$	—			$	—			$	29,400			$	—			$	29,400
Charles L. Rice, Jr.		$	—			$	—			$	29,400			$	—			$	29,400
Robert N. Holcomb		$	—			$	—			$	29,400			$	—			$	29,400

 

	(1)	As of December 31, 2019, there are no other cash compensation arrangements in place for members of the Board of Directors acting as such.
	(2)	On April 24, 2019, 4,000 options were granted to each of the three non-employee board members with vesting date of April 24, 2020, expiration date of April 24, 2030 and grant date fair value of $29,400.

 

Long-Term Incentive Plans, Retirement or Similar Benefit Plans

 

There are currently no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers, except that we may reimburse our executive employees for up to 70% of their health insurance premiums under their individual policies. We may provide employee benefit plans to our employees in the future.

 

Our directors, executive officers and employees may receive stock options at the discretion of our board of directors.

 

Resignation, Retirement, Other Termination, or Change in Control Arrangements

 

We do not have arrangements in respect of remuneration received or that may be received by our executive officers to compensate such officers in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth certain information regarding beneficial ownership of our common stock, Series A preferred stock and Series B Preferred Stock as of March 17, 2020, by (i) each person known by us to be the beneficial owner of more than 5% of our outstanding common stock, (ii) each director and each of our Named Executive Officers and (iii) all executive officers and directors as a group.

 

The number of shares of common stock beneficially owned by each person is determined under the rules of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which such person has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within 60 days after the date hereof, through the exercise of any stock option, warrant or other right. Unless otherwise indicated, each person has sole investment and voting power (or shares such power with his or her spouse) with respect to the shares set forth in the following table. The inclusion herein of any shares deemed beneficially owned does not constitute an admission of beneficial ownership of those shares.

 

Name and Address of Beneficial Owner (1)		Common Stock Beneficial Ownership				Percent of Class (2)				Series A Preferred Beneficial Ownership(3)				Percent of Class				Outstanding Series B Preferred Beneficial Ownership(4)				Percent of Class
Named Executive Officers and Directors:
Jonathan F. Head, Ph. D.(5)			29,235				3.3	%			667				50.0	%			3,856				100	%
Andrew A. Kucharchuk(6)			13,333				1.5	%			—				—				—				—
Daniel S. Hoverman(7)			4,547				*				—				—				—				—
Charles L. Rice, Jr.(8)			4,547				*				—				—				—				—
Robert N. Holcomb(9)			5,757				*
All executive officers and directors as a group (five persons)			57,388				6.3	%			666				50.0	%			3,856				100	%
Other 5% Stockholders:
Robert L. Elliott, Jr. M.D.			22,569				2.6	%			666				50.0	%			—				—	%
Manuel Cosme Odabachian (10)			40,773				5.0	%			—				—				—				—	%
Carlos F. Alaman Volnie (11)			40,772				5.0	%			—				—				—				—	%

 

 

	*	Less than 1%.
	(1)	Unless otherwise indicated, the business address of each person listed is in care of OncBioMune Pharmaceuticals, Inc., 11441 Industriplex Blvd, Suite 190, Baton Rouge LA 70809.
	(2)	The number and percentage of shares beneficially owned are determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership includes any shares over which the individual or entity has voting power or investment power and any shares of common stock that the individual has the right to acquire within 60 days of March 17, 2020, through the exercise of any stock option or other right. As of March 17, 2020, 881,118 shares of the Company’s common stock were outstanding
	(3)	Holders of our Series A preferred stock are entitled to 500 votes per share.
	(4)	Holders of our Series B preferred stock are entitled to 100 votes per share.
	(5)	Includes 6,667 shares issuable upon exercise of currently exercisable options.
	(6)	Includes 6,667 shares issuable upon exercise of currently exercisable options.
	(7)	Includes 4,467 shares issuable upon exercise of options exercisable within 60 days of March  17, 2020.
	(8)	Includes 4,467 shares issuable upon exercise of options exercisable within 60 days of March 17, 2020.
	(9)	Includes 4,000 issuable upon exercise of options exercisable within 60 days of March 17, 2020 and 38 shares held by the wife of Mr. Holcomb.
	(10)	Shares are owned by Banco Actinver, S.A., in its capacity as Trustee of the Irrevocable Management Trust Agreement Trust No. 2868 and reflects shares beneficially owned by Mr. Cosme whose address is Monte Pelvoux 130, Floor 3, Mexico City, Mexico 11000.
	(11)	Shares are owned by Banco Actinver, S.A., in its capacity as Trustee of the Irrevocable Management Trust Agreement Trust No. 2868 and reflects shares beneficially owned by Mr. Cosme whose address is Monte Pelvoux 130, Floor 3, Mexico City, Mexico 11000.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Transactions with Related Persons

 

Except as disclosed below, since January 1, 2017, there have been no transactions, or currently proposed transactions, in which we were or are to be a participant and the amount involved exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years, and in which any of the following persons had or will have a direct or indirect material interest:

 

	(i)	Any director or executive officer of our company;
	(ii)	Any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to our outstanding shares of common stock;
	(iii)	Any member of the immediate family (including spouse, parents, children, siblings and in-laws) of any of the foregoing persons, and any person (other than a tenant or employee) sharing the household of any of the foregoing persons.

 

 

From time to time, the Company receives advances from and repays such advances to the Company’s former chief executive officer for working capital purposes and for payments of outstanding indebtedness of the Company. For the years ended December 31, 2019 and 2018, due to related party activity consisted of the following:

 

		Total
Balance due to related parties at December 31, 2017		$	(261,584	)
Working capital advances received			(264,185	)
Repayments made			210,303
Balance due to related parties at December 31, 2018			(315,466	)
Working capital advances received			(57,219	)
Repayments made			—
Balance due to related parties at December 31, 2019		$	(372,685	)

 

Director Independence

 

Because the Company’s Common Stock is not currently listed on a national securities exchange, the Company has used the definition of “independence” of The NASDAQ Stock Market to make this determination. NASDAQ Listing Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the company or any other individual having a relationship which, in the opinion of the company’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered independent if:

 

	●	the director is, or at any time during the past three years was, an employee of the company;
	●	the director or a family member of the director accepted any compensation from the company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for board or board committee service);
	●	a family member of the director is, or at any time during the past three years was, an executive officer of the company;
	●	the director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to which the company made, or from which the company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions);
	●	the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officers of the Company served on the compensation committee of such other entity; or
	●	the director or a family member of the director is a current partner of the company’s outside auditor, or at any time during the past three years was a partner or employee of the company’s outside auditor, and who worked on the company’s audit.

 

Based on this review, Messrs. Hoverman, Rice and Holcomb are independent directors pursuant to the requirements of The NASDAQ Stock Market.

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

The following table sets forth the fees billed to our company for the years ended December 31, 2019 and 2018 for professional services rendered by our independent registered public accounting firm Salberg:

 

Fees		2019				2018
Audit Fees		$	67,500			$	66,500
Audit—Related Fees			—				9,500
Tax Fees			—				—
Other Fees			—				—
Total Fees		$	67,500			$	76,000

 

Audit Fees

 

Audit fees were for professional services rendered for the audits of our annual financial statements and for review of our quarterly financial statements during the 2019 and 2018 fiscal years.

 

 

Audit-related Fees

 

This category consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees”.

 

Tax Fees

 

As our independent registered public accountants did not provide any services to us for tax compliance, tax advice and tax planning during the fiscal years ended December 31, 2019 and 2018, no tax fees were billed or paid during those fiscal years.

 

All Other Fees

 

Our independent registered public accountants did not provide any products and services not disclosed in the table above during the 2019 and 2018 fiscal years. As a result, there were no other fees billed or paid during those fiscal years.

 

Pre-Approval Policies and Procedures

 

Our entire board of directors, which acts as our audit committee, pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and approved by our board of directors before the respective services were rendered.

 

Our board of directors has considered the nature and amount of fees billed by our independent registered public accounting firm and believe that the provision of services for activities unrelated to the audit is compatible with maintaining their respective independence.

 

PART IV

 

ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES

 

(a)	1.	Financial Statements
		The financial statements and Report of Independent Registered Public Accounting Firm are listed in the “Index to Financial Statements and Schedules” on page F-1 and included on pages F-2 through F-34.
	2.	Financial Statement Schedules
		All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission (the “Commission”) are either not required under the related instructions, are not applicable (and therefore have been omitted), or the required disclosures are contained in the financial statements included herein.
	3.	Exhibits (including those incorporated by reference).

 

Exhibit				Incorporated by Reference						Filed or Furnished
Number		Exhibit Description		Form		Exhibit		Filing Date		Herewith
3.1		Amended and Restated Articles of Incorporation, as amended								X
3.3		Amended and Restated Bylaws		8-K		3.1		11/01/2013
4.1		Description of Capital Stock								X
10.1		2011 Stock Option Plan		8-K		10.1		02/22/2011

 

 

10.2+		Employment Agreement dated February 2, 2016 between OncBioMune Pharmaceuticals, Inc. and Andrew Kucharchuk		8-K		10.2		02/05/2016
10.3		Consulting Agreement dated May 13, 2016 between OncBioMune Pharmaceuticals, Inc. and SABR Capital Management, LLC		8-K		10.3		05/16/2016
10.4		Form of Senior Convertible Note issued November 18, 2016		10-Q		10.3		11/21/2016
10.5		Form of Common Stock Purchase Warrant		10-Q		10.4		11/21/2016
10.6		Form of Security Agreement dated November 18, 2016 between OncBioMune Pharmaceuticals, Inc. and OncBioMune, Inc.		10-Q		10.5		11/21/2016
10.7		Form of Pledge Agreement dated November 18, 2016 between OncBioMune Pharmaceuticals, Inc. and Cavalry Fund I LP		10-Q		10.6		11/21/2016
10.8		Form of Subsidiary Guaranty dated November 18, 2016 between OncBioMune Pharmaceuticals, Inc., OncBioMune, Inc., and the parties who later join such agreement		10-Q		10.7		11/21/2016
10.9		Amended and Restated Securities Purchase Agreement dated November 23, 2016 between OncBioMune Pharmaceuticals, Inc. and the purchasers identified on the signature pages thereto		8-K		10.1		11/28/2016
10.10		Form of Non-Qualified Stock Option Agreement for Directors of OncBioMune Pharmaceuticals, Inc.		8-K		10.1		04/21/2017
10.11		Forbearance Agreement dated May 23, 2017 by and among OncBioMune Pharmaceuticals, Inc., Cavalry Fund I LP, Lincoln Park Capital Fund, LLC and Puritan Partners LLC		8-K		10.7		06/06/2017
10.12		Form of Securities Purchase Agreement dated January 29, 2018 between OncBioMune Pharmaceuticals, Inc. and the purchasers identified on the signature pages thereto		10-K		10.45		05/31/2018
10.13		Form of Senior Convertible Note issued January 29, 2018		10-K		10.46		05/31/2018
10.14		Form of Common Stock Purchase Warrant issued January 26, 2018		10-K		10.47		05/31/2018
10.15		Security Agreement dated January 29, 2018 between OncBioMune Pharmaceuticals, Inc. and OncBioMune, Inc.		10-K		10.48		05/31/2018
10.16		Pledge Agreement dated January 29, 2018 between OncBioMune Pharmaceuticals, Inc. and Cavalry Fund I LP		10-K		10.49		05/31/2018
10.17		Subsidiary Guaranty dated January 29, 2018 between OncBioMune Pharmaceuticals, Inc. and OncBioMune, Inc.		10-K		10.50		05/31/2018
10.18		Securities Purchase Agreement dated March 13, 2018 between OncBioMune Pharmaceuticals, Inc. and the purchasers identified on the signature pages thereto		10-K		10.51		05/31/2018
10.19		Form of Senior Convertible Note issued March 13, 2018		10-K		10.52		05/31/2018
10.20		Form of Common Stock Purchase Warrant issued March 13, 2018		10-K		10.53		05/31/2018
10.21		Security Agreement dated March 13, 2018 between OncBioMune Pharmaceuticals, Inc. and OncBioMune, Inc.		10-K		10.54		05/31/2018
10.22		Pledge Agreement dated March 13, 2018 between OncBioMune Pharmaceuticals, Inc. and Cavalry Fund I LP		10-K		10.55		05/31/2018
10.23		Subsidiary Guaranty dated March 13, 2018 between OncBioMune Pharmaceuticals, Inc. and OncBioMune, Inc.		10-K		10.56		05/31/2018
10.24		Form of Securities Purchase Agreement		8-K		10.1		07/31/2018
10.25		Form of Convertible Redeemable Note		8-K		10.2		07/31/2018
10.26		Securities Purchase Agreement dated September 24, 2018 between OncBioMune Pharmaceuticals, Inc. and the purchasers identified on the signature pages thereto		10-Q		10.3		11/14/2018
10.27		Subsidiary Guaranty dated September 24, 2018 between OncBioMune Pharmaceuticals, Inc. and OncBioMune, Inc.		10-Q		10.4		11/14/2018
10.28		Pledge Agreement dated September 24, 2018 between OncBioMune Pharmaceuticals, Inc. and Cavalry Fund I LP		10-Q		10.5		11/14/2018
10.29		Escrow Agreement dated September 24, 2018 by and among OncBioMune Pharmaceuticals, Inc., Nason, Yeager, Gerson, White & Lioce, P.A., and the parties who later execute such agreement		10-Q		10.6		11/14/2018

 

 

10.30		Security Agreement dated September 24, 2018 between OncBioMune Pharmaceuticals, Inc. and OncBioMune, Inc.		10-Q		10.7		11/14/2018
10.31		Form of Senior Convertible Note issued September 24, 2018		10-Q		10.8		11/14/2018
10.32		Form of Common Stock Purchase Warrant issued September 24, 2018		10-Q		10.9		11/14/2018
10.33		Securities Purchase Agreement dated November 13, 2018 between OncBioMune Pharmaceuticals, Inc. and Cavalry Fund I LP		10-Q		10.10		11/14/2018
10.34		Senior Convertible Note issued November 13, 2018 to Cavalry Fund I LP		10-Q		10.11		11/14/2018
10.35		Common Stock Purchase Warrant issued November 13, 2018 to Cavalry Fund I LP		10-Q		10.12		11/14/2018
10.36		Convertible Redeemable Note issued January 18, 2019 to LG Capital Funding, LLC		8-K		4.1		01/29/2019
10.37		Securities Purchase Agreement dated January 18, 2019 between OncBioMune Pharmaceuticals, Inc. and LG Capital Funding, LLC		8-K		10.1		01/29/2019
10.38		Convertible Redeemable Note issued January 18, 2019 to Cerberus Finance Group Ltd		8-K		4.1		02/04/2019
10.39		Securities Purchase Agreement dated January 18, 2019 between OncBioMune Pharmaceuticals, Inc. and Cerberus Finance Group Ltd		8-K		10.1		02/04/2019
10.40		Form of Senior Convertible Note		8-K		4.1		07/18/2019
10.41		Form of Securities Purchase Agreement between OncBioMune Pharmaceuticals, Inc.		8-K		4.2		07/18/2019
10.42		Form of Common Stock Purchase Warrant		8-K		10.1		07/18/2019
21.1		Subsidiaries of OncBioMune Pharmaceuticals, Inc.								x
31.1		Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002								x
32.1		Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002								x
101.INS		XBRL INSTANCE DOCUMENT								x
101.SCH		XBRL TAXONOMY EXTENSION SCHEMA
101.CAL		XBRL TAXONOMY EXTENSION CALCULATION LINKBASE								x
101.DEF		XBRL TAXONOMY EXTENSION DEFINITION LINKBASE								x
101.LAB		XBRL TAXONOMY EXTENSION LABEL LINKBASE								x
101.PRE		XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE								x

+ Management contract or compensatory plan or arrangement.

 

ITEM 16. FORM 10-K SUMMARY

 

Not Applicable.

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	OncBioMune Pharmaceuticals, Inc.
Dated: March 25, 2020	By:	/s/ Andrew Kucharchuk
		Andrew Kucharchuk Chief Executive Officer, Chief Financial Officer and President (Principal Executive Officer, Principal Financial and Accounting Officer)

 

POWER OF ATTORNEY

 

Each person whose signature appears below, hereby appoints Jonathan F. Head, Ph. D. and Andrew Kucharchuk as attorneys-in-fact with full power of substitution, severally, to execute in the name and on behalf of the registrant and each such person, individually and in each capacity stated below, one or more amendments to the annual report on Form 10-K, which amendments may make such changes in the report as the attorney-in-fact acting deems appropriate and to file any such amendment to the annual report on Form 10-K with the Securities and Exchange Commission. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature		Title		Date
/s/ Andrew Kucharchuk		Chief Executive Officer, Chief Financial Officer and President		March 25, 2020
Andrew Kucharchuk		(Principal Executive Officer, Principal Financial and Accounting Officer)
/s/ Jonathan F. Head, Ph. D.		Chairman of the Board and Chief Scientific Officer		March 25, 2020
Jonathan F. Head, Ph. D.
/s/ Daniel S. Hoverman		Director		March 25, 2020
Daniel S. Hoverman
/s/ Charles L. Rice, Jr.		Director		March 25, 2020
Charles L. Rice, Jr.
/s/ Robert N. Holcomb		Director		March 25, 2020
Robert N. Holcomb

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019 and 2018

 

CONTENTS

 

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2019 and 2018	F-3
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2019 and 2018	F-4
Consolidated Statements of Changes in Stockholders’ Deficit for the Years Ended December 31, 2019 and 2018	F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019 and 2018	F-6
Notes to Consolidated Financial Statements	F-7 to F-43

 

 

 

Report of Independent Registered Public Accounting Firm

 

To the Stockholders and the Board of Directors of:

OncBiomune Pharmaceuticals, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of OncBiomune Pharmaceuticals Inc. and Subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows, for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2019 and 2018, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has a net loss and cash used in operations of $9,402,244 and $1,171,131, respectively, in 2019, has a loss from operations of $1,768,569 in 2019 and has a working capital deficit, stockholders’ deficit and accumulated deficit of $15,969,504, $15,937,452 and $26,589,908, respectively, at December 31, 2019. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s Plan in regards to these matters is also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Salberg & Company, P.A.
SALBERG & COMPANY, P.A.
We have served as the Company’s auditor since 2017.
Boca Raton, Florida
March 25, 2020

 

2295 NW Corporate Blvd., Suite 240 ● Boca Raton, FL 33431

Phone: (561) 995-8270 ● Toll Free: (866) CPA-8500 ● Fax: (561) 995-1920

www.salbergco.com ● info@salbergco.com

Member National Association of Certified Valuation Analysts ● Registered with the PCAOB

Member CPAConnect with Affiliated Offices Worldwide ● Member Center for Public Company Audit Firms

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

 

		December 31,
		2019				2018
ASSETS
CURRENT ASSETS:
Cash		$	21,489			$	201
Prepaid expenses and other current assets			40,664				215,681
Total Current Assets			62,153				215,882
OTHER ASSETS:
Property and equipment, net			1,966				4,304
Right-of-use asset, net			23,686				-
Security deposit			6,400				6,400
Total Assets		$	94,205			$	226,586
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Convertible debt, net		$	2,915,297			$	1,434,252
Notes payable			538,875				538,875
Accounts payable			620,042				550,296
Accrued liabilities			1,554,473				884,035
Lease payable - current			23,686				-
Derivative liabilities			9,320,052				3,364,032
Due to related parties			372,685				315,466
Liabilities of discontinued operations			686,547				686,547
Total Current Liabilities			16,031,657				7,773,503
Total Liabilities			16,031,657				7,773,503
Commitments and contingencies (Note 9)
STOCKHOLDERS’ DEFICIT:
Preferred stock: $0.0001 par value; 26,667 authorized;
Series A Preferred stock: $0.0001 par value; 1,333 shares authorized; 1,333 issued and outstanding at December 31, 2019 and 2018			-				-
Series B Preferred stock: $0.0001 par value; 10,523 shares authorized; 3,856 and 10,523 issued and outstanding at December 31, 2019 and 2018, respectively			-				1
Common stock: $0.0001 par value, 6,666,667 shares authorized; 835,215 and 330,216 issued and outstanding at December 31, 2019 and 2018, respectively			84				33
Common stock issuable: 22,828 commons stock issuable as of December 31, 2019 and 2018			2				2
Additional paid-in capital			10,652,370				9,640,711
Accumulated deficit			(26,589,908	)			(17,187,664	)
Total Stockholders’ Deficit			(15,937,452	)			(7,546,917	)
Total Liabilities and Stockholders’ Deficit		$	94,205			$	226,586

 

See accompanying notes to the consolidated financial statements.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

 

		For the Year Ended
		December 31,
		2019				2018
REVENUES		$	-			$	-
OPERATING EXPENSES:
Professional fees			566,216				594,611
Compensation expense			846,240				804,527
Research and development expense			166,720				204,562
General and administrative expenses			189,393				174,273
Total Operating Expenses			1,768,569				1,777,973
LOSS FROM OPERATIONS			(1,768,569	)			(1,777,973	)
OTHER INCOME (EXPENSE):
Interest expense			(1,795,398	)			(2,130,838	)
Derivative (expense) income			(5,760,902	)			8,229,168
(Loss) gain on debt extinguishment			(77,375	)			2,114,335
Gain (loss) on foreign currency transactions			-				33,633
Total Other Income (Expense)			(7,633,675	)			8,246,298
NET INCOME (LOSS)		$	(9,402,244	)		$	6,468,325
COMPREHENSIVE INCOME (LOSS):
Net income (loss)		$	(9,402,244	)		$	6,468,325
Other comprehensive gain (loss):
Unrealized foreign currency translation gain (loss)			-				(25,184	)
Comprehensive income (loss)		$	(9,402,244	)		$	6,443,141
NET INCOME (LOSS) PER COMMON SHARE:
Basic		$	(19.00	)		$	20.66
Diluted		$	(19.00	)		$	9.09
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic			494,843				311,811
Diluted			494,843				708,704

 

See accompanying notes to the consolidated financial statements.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018

 

		Series A Preferred Stock								Series B Preferred Stock								Common Stock								Common Stock Issuable								Additional				Accumulated				Accumulated other				Total
		# of Shares				Amount				# of Shares				Amount				# of Shares				Amount				# of Shares				Amount				Paid-in Capital				Accumulated Deficit				comprehensive gain				Stockholders’ (Deficit)
Balance at December 31, 2017			1,333			$	-				10,523			$	1				205,088			$	21				22,028			$	2			$	8,821,803			$	(23,655,989	)		$	25,184			$	(14,808,978	)
Common stock issued for services			-				-				-				-				3,333				-				-				-				52,500				-				-				52,500
Accretion of stock options			-				-				-				-				-				-				-				-				276,918				-				-				276,918
Common stock issuable for cash and subscription receivable pursuant to subscription agreements			-				-				-				-				-				-				800				-				6,000				-				-				6,000
Common stock issued upon conversion of convertible debt and interest and settlement expense			-				-				-				-				78,175				8				-				-				483,494				-				-				483,502
Common stock issued upon cashless warrant exercise			-				-				-				-				43,620				4				-				-				(4	)			-				-				-
Net income			-				-				-				-				-				-				-				-				-				6,468,325				-				6,468,325
Foreign currency translation adjustment			-				-				-				-				-				-				-				-				-				-				(25,184	)			(25,184	)
Balance at December 31, 2018			1,333			$	-				10,523			$	1				330,216			$	33				22,828			$	2			$	9,640,711			$	(17,187,664	)		$	-			$	(7,546,917	)
Redemption of Series B Preferred			-				-				(6,667	)			(1	)			-				-				-				-				(499	)			-				-				(500	)
Accretion of stock options			-				-				-				-				-				-				-				-				140,697				-				-				140,697
Common stock issued, at fair value, upon conversion of convertible debt and interest			-				-				-				-				508,999				51				-				-				871,461				-				-				871,512
Net loss			-				-				-				-				-				-				-				-				-				(9,402,244	)			-				(9,402,244	)
Balance at December 31, 2019			1,333			$	-				3,856			$	-				839,215			$	84				22,828			$	2			$	10,652,370			$	(26,589,908	)		$	-			$	(15,937,452	)

 

See accompanying notes to the consolidated financial statements.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		For The Years Ended
		December 31
		2019				2018
CASH FLOWS USED IN OPERATING ACTIVITIES
Net income (loss)		$	(9,402,244	)		$	6,468,325
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation			2,338				2,338
Stock-based compensation			140,697				329,418
Amortization of debt discount			1,434,148				1,465,057
Derivative expense (income)			5,760,902				(8,229,168	)
Loss (gain) on debt extinguishment			77,375				(2,360,146	)
Non-cash default interest on debt			(179,989	)			94,286
Gain on foreign currency transactions			-				(25,184	)
Change in operating assets and liabilities:
Prepaid expenses and other current assets			175,017				(202,995	)
Accounts payable			69,746				172,069
Liabilities of discontinued operations			-				(8,449	)
Accrued liabilities and other liabilities			750,879				615,043
NET CASH USED IN OPERATING ACTIVITIES			(1,171,131	)			(1,679,406	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from related party advances, net			57,219				53,882
Proceeds from convertible debt, net of cost			1,135,700				2,034,143
Repayment of convertible debt			-				(415,849	)
Redemption of Series B Preferred			(500	)			-
Proceeds from sale of common stock and subscription receivable			-				6,000
NET CASH PROVIDED BY FINANCING ACTIVITIES			1,192,419				1,678,176
NET INCREASE (DECREASE) IN CASH			21,288				(1,230	)
CASH, beginning of the period			201				1,431
CASH, end of the period		$	21,489			$	201
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest		$	6,023			$	243,885
Income taxes		$	-			$	-
Non-cash investing and financing activities:
Issuance of common stock for convertible debt and interest		$	436,781			$	427,612
Increase in debt discount and derivative liabilities		$	552,473			$	2,039,143
Debt issue cost		$	260,340			$	-
Non-cash amortization of right-of-use asset		$	35,530			$	-

 

See accompanying notes to the consolidated financial statements.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS

 

Organization

 

OncBioMune Pharmaceuticals, Inc. (the “Company”) is a clinical-stage biopharmaceutical company engaged in the development of novel cancer immunotherapy products, with a proprietary vaccine technology that is designed to stimulate the immune system to attack its own cancer while not attacking the patient’s healthy cells. The Company has proprietary rights to an immunotherapy platform with an initial focus on prostate and breast cancers but that may be used to fight any solid tumor. The Company is also developing targeted therapies. Our mission is to improve overall patient condition through innovative bio-immunotherapy with proven treatment protocols, to lower deaths associated with cancer and to reduce the cost of cancer treatment. We believe our technology is safe, and utilizes clinically proven research methods of treatment to provide optimal likelihood of patient recovery.

 

On March 10, 2017 (the “Closing Date”), the Company completed the acquisition of 100% of the issued and outstanding capital stock of Vitel Laboratorios, S.A. de C.V., a Mexican variable stock corporation (“Vitel”) from its shareholders Manuel Cosme Odabachian and Carlos Fernando Alaman Volnie (collectively, the “Vitel Stockholders”) pursuant to the terms and conditions of a Contribution Agreement to the Property of Trust F/2868 entered into among the Company and the Vitel Stockholders on the Closing Date (the “Contribution Agreement”). The Company acquired Vitel for the purpose of commercializing the Company’s ProscaVax™ vaccine technology and cancer technologies in Mexico, Central and Latin America and to utilize Vitel’s distribution network and customer and industry relationships.

 

On December 29, 2017, the Board of Directors of the Company determined to sell or otherwise dispose of its interest in Vitel and OncBioMune México due to disputes with the original Vitel Stockholders and resulting loss of operational control of the assets and operations of Vitel and OncBioMune Mexico. Accordingly, Vitel and OncBioMune México were treated as a discontinued operation through December 31, 2017 and were deconsolidated effective January 1, 2018 (see Note 3). The Company expects to terminate the Contribution Agreement and Trust Agreement during 2020.

 

On April 3, 2019, the Company filed an amendment to its Articles of Incorporation to increase its authorized common stock from 500,000,000 shares to 1,500,000,000 shares (see Note 9). The Company’s 1,520,000,000 authorized shares consisted of 1,500,000,000 shares of common stock, par value $0.0001 per share, and 20,000,000 shares of preferred stock, par value $0.0001 per share.

 

On August 6, 2019, the Company filed an amendment to its Articles of Incorporation to increase its authorized common stock from 1,500,000,000 shares to 5,000,000,000 shares (see Note 9). The Company’s 5,020,000,000 authorized shares consist of 5,000,000,000 shares of common stock at $0.0001 per share par value, and 20,000,000 shares of preferred stock at $0.0001 per share par value.

 

On August 28, 2019, the Company filed an amendment to its Articles of Incorporation to implement a reverse stock split of the Company’s issued and outstanding shares of common and preferred stock at a ratio of 1-for-750 (the “Reverse Stock Split”), which became effective on September 12, 2019. In addition, the Company amended the articles to reduce the Company’s authorized shares to; (i) 6,666,667 shares of common stock and; (ii) 26,667 shares of preferred stock, including 1,333 shares of Series A Preferred and 10,523 shares of Series B Preferred. The Reverse Stock Split did not have any effect on the stated par value of the common and preferred stock. All share and per share amounts in the accompanying historical consolidated financial statements have been retroactively adjusted to reflect the Reverse Stock Split (see Note 9).

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation and principals of consolidation

 

The Company’s consolidated financial statements include the financial statements of OncBioMune Pharmaceuticals, Inc. and its wholly-owned subsidiaries, OncBioMune, Inc. for all periods presented. Vitel and Oncbiomune México, S.A. De C.V. (from March 10, 2017 to December 31, 2017) were treated as a discontinued operation through December 31, 2017 and were deconsolidated effective January 1, 2018 (see Note 3). All significant intercompany accounts and transactions have been eliminated in consolidation.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

Going concern

 

The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in our accompanying consolidated financial statements, the Company had net income (loss) of $(9,402,244) and $6,468,325 for the years ended December 31, 2019 and 2018, respectively, however the net income in 2018 resulted primarily from the change in fair value of derivative liabilities. The net loss from operations were $1,768,569 and $1,777,973 for the years ended December 31, 2019 and 2018, respectively. The net cash used in operations were $1,171,131 and $1,679,406 for the years ended December 31, 2019 and 2018, respectively. Additionally, the Company had an accumulated deficit of $26,589,908 and $17,187,664, at December 31, 2019 and 2018, respectively, had a stockholders’ deficit of $15,937,452 at December 31, 2019, had a working capital deficit of $15,969,504 at December 31, 2019. The Company had no revenues from continuing operations for the years ended December 31, 2019 and 2018, and we defaulted on our debt. Management believes that these matters raise substantial doubt about the Company’s ability to continue as a going concern for twelve months from the issuance date of this report.

 

Management cannot provide assurance that we will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital. Management believes that our capital resources are not currently adequate to continue operating and maintaining its business strategy for a period of twelve months from the issuance date of this report. The Company will seek to raise capital through additional debt and/or equity financings to fund its operations in the future and is seeking potential candidates for a merger or acquisition.

 

Although the Company has historically raised capital from sales of equity and from the issuance of promissory notes, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations. These consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Use of estimates

 

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates during the years ended December 31, 2019 and 2018 include the valuation of liabilities of discontinued operations, useful life of property and equipment, valuation of operating lease right-of-use (“ROU”) assets and liabilities, assumptions used in assessing impairment of long-term assets, estimates of current and deferred income taxes and deferred tax valuation allowances, the fair value of non-cash equity transactions and the valuation of derivative liabilities.

 

Concentrations

 

Generally, the Company relies on one vendor as a single source of raw materials to produce certain components of its cancer treatment products. Any production shortfall that impairs the supply of the antigen in ProscaVax™ to the Company could have a material adverse effect on the Company’s business, financial condition and results of operations. If the Company is unable to obtain a sufficient quantity of antigen, there could be a substantial delay in successfully developing a second source supplier.

 

Fair value of financial instruments and fair value measurements

 

FASB ASC 820 - Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to the Company on December 31, 2019. Accordingly, the estimates presented in these financial statements are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments. FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

 

The three levels of the fair value hierarchy are as follows:

 

	Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
	Level 2—Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
	Level 3—Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

The carrying amounts reported in the consolidated balance sheets for cash, due from and to related parties, prepaid expenses, accounts payable and accrued liabilities approximate their fair market value based on the short-term maturity of these instruments.

 

Assets or liabilities measured at fair value or a recurring basis included embedded conversion options in convertible debt and included warrants (see Note 6 and Note 9) and were as follows at December 31, 2019 and 2018:

 

At December 31, 2019

At December 31, 2018

Description

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

Derivative liabilities

—

—

9,320,052

—

—

3,364,032

 

A roll forward of the level 3 valuation financial instruments is as follows:

 

		For the Year Ended December 31,
		2019				2018
Balance at beginning of year		$	3,364,032			$	11,966,760
Initial valuation of derivative liabilities included in debt discount			552,473				2,039,143
Initial valuation of derivative liabilities included in derivative income (expense)			22,546				1,811,617
Reclassification of derivative liabilities to gain (loss) on debt extinguishment upon conversion of debt			(357,355	)			(422,835	)
Reclassification of derivative liabilities to gain (loss) on debt extinguishment upon cashless exercise of warrants			—				(666,756	)
Reclassification of derivative liabilities to gain (loss) on debt extinguishment for debt settlement			—				(1,323,111	)
Change in fair value included in derivative income (expense)			5,738,356				(10,040,786	)
Balance at end of year		$	9,320,052			$	3,364,032

 

ASC 825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.

 

Cash and cash equivalents

 

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less at the purchase date and money market accounts to be cash equivalents. At December 31, 2019 and 2018, the Company did not have any cash equivalents.

 

The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. There were no balances in excess of FDIC insured levels as of December 31, 2019 and 2018. The Company has not experienced any losses in such accounts through December 31, 2019.

 

Property and equipment

 

Property are stated at cost and are depreciated using the straight-line method over their estimated useful lives, which range from three to five years. Leasehold improvements are depreciated over the shorter of the useful life or lease term including scheduled renewal terms. Maintenance and repairs are charged to expense as incurred. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of these assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

Impairment of long-lived assets

 

In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. For the years ended December 31, 2019 and 2018, the Company did not record any impairment loss.

 

Derivative liabilities

 

The Company has certain financial instruments that are embedded derivatives associated with capital raises and certain warrants. The Company evaluates all its financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 815-10 – Derivative and Hedging – Contract in Entity’s Own Equity. This accounting treatment requires that the carrying amount of any derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded as a liability, as is the case with the Company, the change in the fair value during the period is recorded as either other income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment or exercise date and then the related fair value amount is reclassified to other income or expense as part of gain or loss on debt extinguishment.

 

In July 2017, FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features. These amendments simplify the accounting for certain financial instruments with down-round features. The amendments require companies to disregard the down-round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. The guidance was adopted as of January 1, 2019 and the Company elected to record the effect of this adoption retrospectively to outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the consolidated balance sheet as of the beginning of 2019, the period which the amendment is effective. The Company adopted ASU No. 2017-11 in the first quarter of 2019, and the adoption did not have any impact on its consolidated financial statement and there was no cumulative effect adjustment.

 

Revenue recognition

 

In May 2014, FASB issued an update Accounting Standards Update, ASU 2014-09, establishing ASC 606 - Revenue from Contracts with Customers. ASU 2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard, which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. The Company adopted this standard on January 1, 2018 using the modified retrospective approach, which requires applying the new standard to all existing contracts not yet completed as of the effective date and recording a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Based on an evaluation of the impact ASU 2014-09 will have on the Company’s sources of revenue, the Company has concluded that ASU 2014-09 did not have any impact on the process for, timing of, and presentation and disclosure of revenue recognition from customers and there was no cumulative effect adjustment. The Company does not have revenues from continuing operations for the years ended December 31, 2019 and 2018.

 

Stock-based compensation

 

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

 

Through March 31, 2018, pursuant to ASC 505-50 - Equity-Based Payments to Non-Employees, all share-based payments to non-employees, including grants of stock options, were recognized in the consolidated financial statements as compensation expense over the service period of the consulting arrangement or until performance conditions are expected to be met. Using a Black Scholes valuation model, the Company periodically reassessed the fair value of non-employee options until service conditions are met, which generally aligns with the vesting period of the options, and the Company adjusts the expense recognized in the consolidated financial statements accordingly. In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC 606. The Company early adopted ASU No. 2018-07 in the second quarter of 2018, and the adoption did not have any impact on its consolidated financial statements.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

Income taxes

 

The Company accounts for income tax using the liability method prescribed by ASC 740 - Income Taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.

 

The Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”. Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. As of December 31, 2019, and 2018, the Company had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements. The Company recognizes interest and penalties related to uncertain income tax positions in other expense. However, no such interest and penalties were recorded as of December 31, 2019.

 

Research and development

 

Research and development costs incurred in the development of the Company’s products are expensed as incurred. For the years ended December 31, 2019 and 2018, research and development costs were $166,720 and $204,562, respectively, and are included in operating expenses on the accompanying consolidated statements of operations.

 

Basic and diluted loss per share

 

Pursuant to ASC 260-10-45, basic loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the periods presented. Diluted loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. Potentially dilutive common shares consist of common stock issuable for stock options and warrants (using the treasury stock method), convertible notes and common stock issuable. These common stock equivalents may be dilutive in the future. The following potentially dilutive equity securities outstanding as of December 31, 2019 and 2018 were not included in the computation of dilutive loss per common share because the effect would have been anti-dilutive:

 

		December 31,
		2019				2018
Stock warrants			73.443.404				190,913
Convertible debt			59,751,203				—
Stock options			41,600				29,600
Series A preferred stock			1,333				—
Series B preferred stock			3,856				—
			133,241,396				220,513

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

The following table presents a reconciliation of basic and diluted net loss per share:

 

		Years Ended December 31,
		2019				2018
Income (loss) per common share — basic:
Net income (loss)		$	(9,402,244	)		$	6,468,325
Weighted average common shares outstanding — basic			494,843				311,811
Net income (loss) per common share — basic:		$	(19.00	)		$	20.66
Income (loss) per common share — diluted:
Income (loss) from continuing operations		$	(9,402,244	)		$	6,468,325
Add: interest on debt			1,795,398				2,130,838
Less: derivative income and debt settlement income			5,838,277				(10,343,503	)
Less: gain on foreign currency transactions			—				(33,633	)
Numerator for loss from continuing operations per common share — diluted			(1,768,569	)			(1,777,973	)
Weighted average common shares outstanding — basic			494,843				311,811
Effect of dilutive securities:
Preferred shares			—				11,857
Warrants			—				61,293
Convertible notes payable			—				323,743
Weighted average common shares outstanding – diluted			494,843				708,704
Net loss per common share — diluted:		$	(19.00	)		$	9.09

 

Related parties

 

Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.

 

Leases

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the updated guidance requires that lessors separate lease and non-lease components in a contract in accordance with the new revenue guidance in ASC 606. The updated guidance is effective for interim and annual periods beginning after December 15, 2018.

 

On January 1, 2019, the Company adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases and; (ii) initial direct costs for any existing leases. For contracts entered into on or after the effective date, at the inception of a contract the Company assessed whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether it has the right to direct the use of the asset. The Company will allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. The Company has elected not to recognize right-of-use (“ROU”) assets and lease liabilities for short-term leases that have a term of 12 months or less.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

Operating lease ROU assets represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company use an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the consolidated statements of operations.

 

Recent accounting pronouncements

 

In August 2018, the FASB issued ASU 2018-13—Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement, to modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company does not believe this will have any material impact on the Company’s consolidated financial statements.

 

Removals. The following disclosure requirements were removed from Topic 820:

 

	1.	The amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy
	2.	The policy for timing of transfers between levels
	3.	The valuation processes for Level 3 fair value measurements
	4.	For nonpublic entities, the changes in unrealized gains and losses for the period included in earnings for recurring Level 3 fair value measurements held at the end of the reporting period.

 

Modifications. The following disclosure requirements were modified in Topic 820:

 

	1.	In lieu of a roll forward for Level 3 fair value measurements, a nonpublic entity is required to disclose transfers into and out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities.
	2.	For investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly.
	3.	The amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date.

 

Additions. The following disclosure requirements were added to Topic 820; however, the disclosures are not required for nonpublic entities:

 

	1.	The changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period.
	2.	The range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements.

 

In addition, the amendments eliminate at a minimum from the phrase an entity shall disclose at a minimum to promote the appropriate exercise of discretion by entities when considering fair value measurement disclosures and to clarify that materiality is an appropriate consideration of entities and their auditors when evaluating disclosure requirements. The Company is evaluating the impact of the revised guidance and believes that it will not have a significant impact on its consolidated financial statements.

 

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying unaudited consolidated financial statements.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

NOTE 3 – ACQUISITION, DISCONTINUATION OF OPERATIONS AND DECONSOLIDATION OF VITEL AND ONCBIOMUNE MEXICO

 

Acquisition of Vitel

 

In connection with a business acquisition in 2017, the Company issued 81,544 unregistered shares of its common stock and 6,667 shares of Series B preferred stock which primarily gives the holder voting rights. The acquired company was deconsolidated on January 1, 2018 (see below).

 

On February 20, 2019, pursuant to the Certificate of Designation, the Company exercised its right to redeem all of the 6,667 shares of the Series B Preferred outstanding held by to Banco Actinver, S.A., in its capacity as Trustee of a Trust Agreement for the benefit of Mr. Cosme and Mr. Alaman equal to the stated value. The total redemption price equaled $500 which was equal to $0.075 per share of Series B Preferred (see Note 9 “Series B Preferred Shares”).

 

Discontinuation of Operations and Deconsolidation of Vitel

 

On December 29, 2017, the Board of Directors of the Company determined to sell or otherwise dispose of its interest in Vitel and OncBioMune Mexico due to disputes with the original Vitel Stockholders and resulting loss of operational control of the assets and operations of Vitel and OncBioMune Mexico. Accordingly, Vitel and OncBioMune Mexico are now treated as a discontinued operation for all periods presented in accordance with ASC 205-20. At December 31, 2018 and after deconsolidation, the Company has recorded the liabilities of these subsidiaries that existed at December 31, 2017 as a contingent liability and therefore reflected liabilities of discontinued operation of $686,547 on the accompanying consolidated balance sheet, which consist of accounts payable balances incurred through December 31, 2017.

 

Pursuant to ASC Topic 205-20, Presentation of Financial Statements - Discontinued Operations, the business of the OncBioMune Mexico and Vitel are now considered discontinued operations because of management’s decision of December 29, 2017.

 

The assets and liabilities classified as discontinued operations in the Company’s consolidated financial statements as of and for the fiscal years ended December 31, 2019 and 2018 is set forth below.

 

		December 31,
		2019				2018
Assets:
Current assets:
Cash		$	—			$	—
Total current assets			—				—
Total assets		$	—			$	—
Liabilities:
Current liabilities:
Accounts payable		$	686,547			$	692,592
Due to related parties			—				432
Payroll liabilities			—				1,972
Total current liabilities			686,547				694,996
Total liabilities		$	686,547			$	694,996

 

NOTE 4 — PROPERTY AND EQUIPMENT

 

At December 31, 2019 and 2018, property and equipment consisted of the following:

 

		Useful Life		2019				2018
Leasehold improvements		5 Years		$	10,976			$	10,976
Furniture and equipment		5 Years			13,715				13,715
					24,691				24,691
Less: accumulated depreciation					(22,725	)			(20,387	)
Property and equipment, net				$	1,966			$	4,304

 

For the years ended December 31, 2019 and 2018, depreciation and amortization expense amounted to $2,338 and $2,338, respectively.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

NOTE 5 – OPERATING LEASE RIGHT-OF-USE (“ROU”) ASSETS AND OPERATING LEASE LIABILITIES

 

In September 2015, the Company entered into a lease agreement for its corporate facility in Baton Rouge, Louisiana. The lease is for a period of 60 months commencing in September 2015 and expiring in August 2020. Pursuant to the lease agreement, the lease requires the Company to initially pay a monthly base rent of $3,067 plus a pro rata share of operating expenses beginning September 2015 and shall increase, beginning September 2018, to a monthly base rent of $3,200 plus a pro rata share of operating expenses.

 

In adopting ASC Topic 842, Leases (Topic 842), the Company has elected the ‘package of practical expedients’, which permit it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs (see Note 2). In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 month or less. On January 1, 2019, upon adoption of ASC Topic 842, the Company recorded right-of-use assets and lease liabilities of $59,216.

 

For the year ended December 31, 2019, lease costs amounted to $49,137 which included base lease costs of $38,400 and common area and other expenses of $10,737, all of which were expensed during the period and included in general and administrative expenses on the accompanying consolidated statements of operations.

 

The significant assumption used to determine the present value of the lease liability was a discount rate of 10% which was based on the Company’s estimated incremental borrowing rate.

 

Right-of-use asset (“ROU”) is summarized below:

 

		December 31, 2019
Operating office lease		$	59,216
Less accumulated reduction			(35,530	)
Balance of ROU asset as of December 31, 2019		$	23,686

 

Operating lease liability related to the ROU asset is summarized below:

 

		December 31, 2019
Operating office lease		$	59,216
Total lease liabilities			59,216
Reduction of lease liability			(35,530	)
Total as of December 31, 2019			23,686

 

Future base lease payments under the non-cancelable operating lease at December 31, 2019 are as follows:

 

Period ending		Amount
August 31, 2020			25,600
Total minimum non-cancelable operating lease payments			25,600
Less: discount to fair value			(1,914	)
Total lease liability at December 31, 2019		$	23,686

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

NOTE 6 – CONVERTIBLE DEBT

 

November 2016 Financing

 

On November 23, 2016, the Company entered into Amended and Restated Securities Purchase Agreements (the “Amended and Restated Securities Purchase Agreements”) with three institutional investors (the “Purchasers”) for the sale of the Company’s convertible notes and warrants. Pursuant to the Amended and Restated Securities Purchase Agreements, the Company issued upon closing to the Purchasers for an aggregate subscription amount of $350,000, (i) 14.29% Original Issue Discount 10% Senior Secured Convertible Notes (the “November 2016 Notes”) and (ii) warrants (the “Warrants”) to purchase aggregate of 3,111 shares of the Company’s common stock at an initial exercise price of $131.25 (subject to adjustments under certain conditions as defined in the Warrants) (see below for reduction of warrant exercise price) which are exercisable for a period of five years from November 23, 2016. The aggregate principal amount of the November 2016 Notes was $350,000 and the Company received $300,000 after giving effect to the original issue discount of $50,000. The November 2016 Notes bore interest at a rate equal to 10% per annum (which interest rate increased to 24% per annum upon the occurrence of an Event of Default (as defined in the November 2016 Notes)), had a maturity date of July 23, 2017 and were convertible (principal, and interest) at any time after the issuance date into shares of the Company’s common stock at an initial conversion price equal to $112.50 per share (subject to adjustment as provided in the Note) (see below for reduction for reduction of conversion price), provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the November 2016 Notes were convertible and the November 2016 Warrants shall be exercisable at 60% of the lowest closing price during the prior twenty trading days of the common stock as reported on the OTCQB or other principal trading market (the “Default Conversion Price”). Due to non-payment of the November 2016 Notes, an event of default occurred and accordingly, the November 2016 Notes and Warrants are convertible and exercisable based on the default terms.

 

On May 23, 2017, in connection with the November 2016 Notes, the Company entered into forbearance agreements (the “Forbearance Agreements”) with the Purchases whereby the Purchasers waived any event of default, as defined in the November 2016 Notes. The Company failed to make a payment on May 23, 2017 to each of the Holders as required pursuant to the November 2016 Notes which resulted in an event of default under such Notes. As of result of the event of default, the aggregate amount owing under the November 2016 Notes as of May 23, 2017 was increased to $509,135 with such amount including a mandatory default amount of $141,299 and accrued interest of $17,836 resulting in debt settlement expense of $141,299 which was recorded in May 2017. The Forbearance Agreements also provide for the Holders to forbear their right to demand an immediate cash payment of the principal amount due plus accrued interest as a result of the Company’s failure to satisfy its payment obligations to the Holder on May 23, 2017 so long as the Company complies with its other obligations under the November 2016 Notes and the other transaction documents. The Forbearance Agreements did not waive the default interest rate of 24%. In consideration therefore, and as currently set forth in the November 2016 Notes, the Holders shall be entitled to convert such notes from time to time at their discretion in accordance with the terms of the November 2016 Notes and the November 2016 Notes shall not be subject to repayment unless agreed to by the Holder of such Note. In connection with the Forbearance Agreements, in May 2017, the Company increased the principal balance of the November 2016 Notes by $159,135, reduced accrued interest payable by $17,836, and recorded debt settlement expense of $141,299. In 2017, the Company also increased the principal amount of these notes by $42,327 and charged this to interest expense for other default charges and other expenses.

 

In 2017, the Purchasers converted $369,423 and $32,878 of outstanding principal and interest, respectively, of the November 2016 Notes into 11,150 shares of common stock.

 

In 2018, the Purchasers fully converted the remaining outstanding principal and interest of $139,712 and $21,869, respectively, of the November 2016 Notes into 17,372 shares of the Company’s common stock. The November 2016 Notes had no outstanding balance as of December 31, 2018.

 

The November 2016 Notes and related Warrants includes; (i) down-round provision under which the conversion price and exercise price could be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception; and (ii) default conversion and exercise price provisions where, the November 2016 Notes shall be convertible and the November 2016 Warrants shall be exercisable at 60% of the lowest closing price during the prior twenty trading days of the common stock as reported on the OTCQB or other principal trading market (the “Default Conversion Price”). Subsequent to the date of these November 2016 Notes, the Company sold stock at a share price of $56.25 per share then $37.50 per share and then $7.50 per share. Accordingly, pursuant to these ratchet provisions, the conversion price on the November 2016 Notes were lowered to $37.50 per share then to $22.50 per share and then to $4.50 per share and the exercise price of the November 2016 Warrants was lowered to $4.50. Additionally, the total number of November 2016 Warrants were increased on a full ratchet basis from 3,111 warrants to 42,346 warrants, an increase of 39,235 warrants (see Note 9). In September 2017, the Company issued 12,729 shares of its common stock upon the cashless exercise of 12,099 of these warrants (see Note 9). As of December 31, 2019, there were 30,247 warrants outstanding under the November 2016 Warrants.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

June 2017 Financing

 

On June 2, 2017, the Company entered into a Securities Purchase Agreement (the “Second Securities Purchase Agreement”) with the Purchasers for the sale of the Company’s convertible notes and warrants. Pursuant to the terms provided for in the Second Securities Purchase Agreement, the Company issued the Purchasers for an aggregate subscription amount of $233,345: (i) 14.29% Original Issue Discount 10% Senior Secured Convertible Notes (the “June 2017 Notes”); and (ii) warrants (the “June 2017 Warrants”) to purchase an aggregate of 2,074 shares of the Company’s common stock at an initial exercise price of $131.25 (subject to adjustments under certain conditions as defined in the June 2017 Warrants) and exercisable for five years after the issuance date.

 

The aggregate principal amount of the June 2017 Notes was $233,345 and the Company received $190,000 after giving effect to the original issue discount of $33,345 and $10,000 of offering costs. The June 2017 Notes bear interest at a rate equal to 10% per annum (which interest rate is increased to 24% per annum upon the occurrence of an Event of Default (as defined in the June 2017 Notes)), have a maturity date of February 2, 2018 and are convertible (principal and interest) at any time after the issuance date, into shares of the Company’s common stock at an initial conversion price equal to $112.50 per share (subject to adjustment as provided in the June 2017 Notes), provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the June 2017 Notes shall be convertible and the June 2017 Warrants shall be exercisable at 60% of the lowest closing price during the prior twenty trading days of the common stock as reported on the OTCQB or other principal trading market (the “Default Conversion Price”). The June 2017 Notes are currently in default. The June 2017 Notes provide for two amortization payments on the six-month, seven-month and eight-month anniversary of the issue date with each amortization payment being one third of the total outstanding principal and interest. If the six-month amortization payment is made in cash then the payment is an amount equal to 120% of the applicable amortization payment and if the seven-month or the eight-month amortization payments are made in cash then the payment is an amount equal to 125% of the applicable amortization payment. The June 2017 Notes may be prepaid at any time until the 180th day following the Original Issue Date at an amount equal to (i) 115% of outstanding principal balance of the Note and accrued and unpaid interest during the period from the Original Issue Date through the three months following the Original Issue Date, and (ii) 120% of outstanding principal balance of the June 2017 Notes and accrued and unpaid interest during months four through six following the Original Issue Date. In order to prepay the June 2017 Notes, the Company shall provide 20 Trading Days prior written notice to the Holder, during which time the Holder may convert the June 2017 Notes in whole or in part at the Conversion Price. During the nine months ended June 30, 2018, the Company also increased the principal amount of these notes by $2,268 for other default charges and other expenses. In 2018, the Purchasers converted $118,786 and $7,036 outstanding principal and interest, respectively, of the June 2017 Notes into 19,819 shares of the Company’s common stock. In addition, pursuant a securities purchase agreement dated September 24, 2018, the Company purchased back from one Purchaser, a June 2017 Note with $37,814 and $4,534 of outstanding principal and interest, respectively, (see-Puritan Settlement Agreement below). During the year ended December 31, 2019, the Purchasers converted $77,782, $13,593 and $36,134 outstanding principal, interest and default interest, respectively, of the June 2017 Notes into 32,180 shares of the Company’s common stock. As of December 31, 2019, the June 2017 Notes had outstanding principal and accrued interest of $1,495 and $0, respectively.

 

The June 2017 Notes and related June 2017 Warrants includes; (i) down-round provision under which the conversion price and exercise price could be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception; and (ii) default conversion and exercise price provisions where, the June 2017 Notes shall be convertible and the June 2017 Warrants shall be exercisable at Default Conversion Price as defined above. Subsequent to the date of these June 2017 Notes, the Company sold stock at a share price of $37.50 per share and then $7.50 per share. Accordingly, pursuant to these ratchet provisions, the conversion price of the notes were lowered to $4.50 per shares and the exercise price of the June 2017 Warrants were lowered to $4.50 per share and the total number of June 2017 Warrants were increased on a full ratchet basis from 2,074 warrants to 60,497 warrants, an increase of 58,423 warrants (see Note 9). In 2018, the Company issued 11,332 shares of its common stock upon the cashless exercise of 12,099 of the June 2017 Warrants and 8,066 of these warrants were purchased back from the lender (see-Puritan Settlement Agreement below). As of December 31, 2019, there were 40,331 warrants outstanding under the June 2017 Warrants.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

July 2017 Financing

 

On July 26, 2017, the Company entered into a Securities Purchase Agreement (the “Third Securities Purchase Agreement”) with the Purchasers for the sale of the Company’s convertible notes and warrants. Pursuant to the terms provided for in the Third Securities Purchase Agreement, the Company issued to the Purchasers for an aggregate subscription amount of $300,000: (i) 10% Original Issue Discount 5% Senior Secured Convertible Notes in the aggregate principal amount of $333,883 (the “July 2017 Notes”); and (ii) warrants (the “July 2017 Warrants”) to purchase an aggregate of 6,359 shares of the Company’s common stock at an exercise price of $75.00 per share (subject to adjustments under certain conditions as defined in the Warrants). The July 2017 Notes were issued on July 26, 2017. The July 2017 Notes bear interest at a rate equal to 5% per annum (which interest rate is increased to 24% per annum upon the occurrence of an Event of Default (as defined in the July 2017 Notes)), have a maturity date of March 25, 2018 and are convertible (principal, and interest) at any time after the issuance date into shares of the Company’s common stock at a conversion price equal to $52.50 per share (subject to adjustment as provided in the July 2017 Notes), provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the July 2017 Notes shall be convertible and the July 2017 Warrants shall be exercisable at 60% of the lowest closing price during the prior twenty trading days of the common stock as reported on the OTCQB or other principal trading market (the “Default Conversion Price”). The July 2017 Notes are currently in default. The July 2017 Notes provide for three amortization payments on the six-month, seven-month and eight-month anniversary of the issue date with each amortization payment being one third of the total outstanding principal and interest. If the six-month amortization payment is made in cash then the payment is an amount equal to 110% of the applicable amortization payment and if the seven-month or the eight-month amortization payments are made in cash then the payment is an amount equal to 115% of the applicable amortization payment. The July 2017 Notes may be prepaid at any time until the 210th day following the Original Issue Date at an amount equal to (i) 115% of outstanding principal balance of the Note and accrued and unpaid interest during the period from the Original Issue Date through the three months following the Original Issue Date, and (ii) 120% of outstanding principal balance of the July 2017 Notes and accrued and unpaid interest during months four through seven following the Original Issue Date. In order to prepay the July 2017 Notes, the Company shall provide 20 Trading Days prior written notice to the Purchaser, during which time the Purchaser may convert the July 2017 Notes in whole or in part at the Conversion Price. During the year ended December 31, 2018, the Purchasers converted $111,295, $11,414 and $47,028 of outstanding principal, accrued interest and default interest, respectively, of the July 2017 Notes into 31,053 shares of common stock. In addition, pursuant to a securities purchase agreement dated September 24, 2018, the Company purchased back, from one Purchaser, a July 2017 Note with $155,812 and $38,395 of outstanding principal and interest, respectively (see-Puritan Settlement Agreement below).

 

On June 5, 2018, the original purchaser of the July 2017 Notes entered into an Assignment Agreement (“First Note Assignment”) with the assignee (“First Assignee”) for the sale of a portion of the July 2017 Notes (“First Assigned Note”) with outstanding principal of $111,295 and accrued interest of $29,180. In connection with the First Note Assignment, a default interest in the amount of $53,733 was charged, which was included in the sale price and updated principal of the First Assigned Note totaling $194,208.

 

On October 16, 2018, the First Assignee, in turn entered into an Assignment Agreement (“Second Note Assignment”) with another assignee (“Second Assignee”) for the sale of the First Assigned Note with outstanding principal of $194,208 and accrued interest of $3,204. In connection with the Second Note Assignment, a prepayment premium of $49,353 was charged which was included in the sale price and updated principal of $246,765. In 2018, the Purchasers converted $17,500 of the outstanding principal of the new Note (“Second Assigned Note”), into 4,818 shares of common stock.

During the quarter ended September 30, 2019, the default interest charged on June 2018 of $53,733 and prepayment premium charged on October 2018 of $49,535, an aggregate penalty of $103,268, was contested by the Company and the penalties related to these note assignments were removed from the outstanding principal balance of the Second Assigned Note. In addition, certain amounts of the accrued liabilities had been previously included in the principal balance of $32,384 was reversed and a new accrued interest based in the agreed upon principal balance was accrued which totaled $30,612. During the year ended December 31, 2019, the Purchaser converted $65,140 of outstanding principal, of the Second Assigned Note, into 106,622 shares of common stock. As of December 31, 2019, the Second Assigned Note (July 2017 Notes) had an outstanding principal balance of $28,655 and accrued interest of $32,372.

 

The July 2017 Notes and related Warrants includes; (i) down-round provision under which the conversion price and exercise price could be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception; and (ii) default conversion and exercise price provisions where, the July 2017 Notes shall be convertible and the July 2017 Warrants shall be exercisable at the Default Conversion Price as define above. Subsequent to the date of these July 2017 Notes, the Company sold stock at a share price of $37.50 per share and then at $7.50 per share. Accordingly, pursuant to these ratchet provisions, the conversion price of the July 2017 Notes was lowered to $4.50 per share and the exercise price of the July 2017 Warrants was lowered to $4.50 per share and the total number of July 2017 Warrants was increased on a full ratchet basis from 6,359 warrants to 105,994 warrants, an increase of 99,635 warrants (see Note 9). In 2018, the Company issued 32,289 shares of its common stock upon the cashless exercise of 35,332 of these warrants. As of December 31, 2019, there were 70,662 warrants outstanding under the July 2017 Warrants.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

January 2018 Financing

 

On January 29, 2018, the Company entered into a Securities Purchase Agreement (the “Fourth Securities Purchase Agreement”) with the Purchasers for the sale of the Company’s convertible notes and warrants. Pursuant to the terms provided for in the Fourth Securities Purchase Agreement, the Company issued to the Purchasers for an aggregate subscription amount of $333,333: (i) 10% Original Issue Discount 5% Senior Secured Convertible Notes in the aggregate principal amount of $333,333 (the “January 2018 Notes”); and (ii) 5 year warrants (the “January 2018 Warrants”) to purchase an aggregate of 11,111 shares of the Company’s common stock at an exercise price of $30.00 per share (subject to adjustments under certain conditions as defined in the Warrants). The closing under the Fourth Securities Purchase Agreement occurred on January 29, 2018. The aggregate principal amount of the January 2018 Notes is $333,333 and the Company received $295,000 after giving effect to the original issue discount of $33,333 and offering costs of $5,000. These January 2018 Notes bear interest at a rate equal to 5% per annum (which interest rate is increased to 18% per annum upon the occurrence of an Event of Default (as defined in the January 2018 Notes)), have a maturity date of September 29, 2018 and are convertible (principal, and interest) at any time after the issuance date into shares of the Company’s common stock at a conversion price equal to $22.50 per share (subject to adjustment as provided in the January 2018 Notes), provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the January 2018 Notes shall be convertible and the January 2018 Warrants shall be exercisable at 60% of the lowest closing price during the prior twenty trading days of the common stock as reported on the OTCQB or other principal trading market (the “Default Conversion Price”). The January 2018 Notes are currently in default. The January 2018 Notes provide for three amortization payments on the six-month, seven-month and eight-month anniversary of the original issue date with each amortization payment being one third of the total outstanding principal and interest. If the six-month amortization payment is made in cash, then the payment is an amount equal to 110% of the applicable amortization payment and if the seven-month or the eight-month amortization payments are made in cash then the payment is an amount equal to 115% of the applicable amortization payment. The January 2018 Notes may be prepaid at any time until the 180th day following the Original Issue Date at an amount equal to (i) 115% of outstanding principal balance of the Note and accrued and unpaid interest during the period from the Original Issue Date through the five months following the Original Issue Date, and (ii) 120% of outstanding principal balance of the January 2018 Notes and accrued and unpaid interest during the six month following the Original Issue Date. In order to prepay the January 2018 Notes, the Company shall provide 20 Trading Days prior written notice to the Purchaser, during which time the Purchaser may convert the January 2018 Notes in whole or in part at the Conversion Price. Pursuant to a securities purchase agreement dated September 24, 2018, the Company purchased back, from one Purchaser, a January 2018 Note with $111,111 and $98,031 outstanding principal and interest, respectively (see-Puritan Settlement Agreement below). During year ended December 31, 2019, the Purchasers converted $8,945 of outstanding principal into 47,119 shares of the Company’s common stock. As of December 31, 2019, the January 2018 Notes had outstanding principal and accrued interest of $213,277 and $67,185, respectively.

 

The January 2018 Notes and related Warrants includes; (i) down-round provision under which the conversion price and exercise price could be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception; and (ii) default conversion and exercise price provisions where, the January 2018 Notes shall be convertible and the January 2018 Warrants shall be exercisable at the Default Conversion Price as defined above. The total number of January 2018 Warrants were increased on a full ratchet basis from 11,111 warrants to 4,367,376, an aggregate increase of 4,356,265 warrants (see Note 9). Pursuant to a securities purchase agreement dated September 24, 2018, the Company purchased back, from one Purchaser, warrants to purchase 10,078 (post anti-dilution) of the Company’s common stock (see-Puritan Settlement Agreement below). As of December 31, 2019, there were 4,357,298 warrants outstanding under the January 2018 Warrants.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

March 2018 Financing

 

On March 13, 2018, the Company entered into a Securities Purchase Agreement (the “Fifth Securities Purchase Agreement”) securities with the Purchasers for the sale of the Company’s convertible notes and warrants. Pursuant to the terms provided for in the Fifth Purchase Agreement, the Company issued for an aggregate subscription amount of $333,333: (i) 10% Original Issue Discount 5% Senior Secured Convertible Notes in the aggregate principal amount of $333,333 (the “March 2018 Notes”) and (ii) warrants (the “March 2018 Warrants”) to purchase an aggregate of 16,667 shares of the Company’s common stock at an exercise price of $30.00 per share. The aggregate principal amount of the March 2018 Notes is $333,333 and as of the date the Company received $61,000 after giving effect to the original issue discount of $33,333 and offering costs of $10,000 which are treated as a debt discount, the payment of legal and accounting fees of $29,000 not related to March 2018 Notes and the funding of an escrow account held by an escrow agent of $200,000. The March 2018 Notes bear interest at a rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the March 2018 Notes)), have a maturity date of November 13, 2018 and the principal and interest are convertible at any time at a conversion price equal to $15.00 per share (subject to adjustment as provided in the March 2018 Notes); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the March 2018 Notes shall be convertible and the March 2018 Warrants shall be exercisable at 60% of the lowest closing price during the prior twenty trading days of the common stock as reported on the OTCQB or other principal trading market (the “Default Conversion Price”). The March 2018 Notes are currently in default. The March 2018 Notes provide for amortization payments on each of the six-month anniversary of the issue date, seven-month anniversary of the issue date and on the maturity date with each amortization payment being one third of the total outstanding principal and all interest accrued as of the payment date. If the six-month amortization payment is made in cash then the Company shall pay the holder 110% of the applicable amortization payment and if the seven-month or the maturity date amortization payments are made in cash then the Company shall pay the holder 115% of the applicable amortization payment. The holder may elect at its option to receive the amortization payments in common stock subject to certain equity conditions. The March 2018 Notes may be prepaid at any time until the 180th day following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the Note and accrued and unpaid interest through the five month anniversary of the issue date, and (ii) 120% of outstanding principal balance of the Notes and accrued and unpaid interest from the fifth month anniversary of the issue date through the six month anniversary of the issue date. In order to prepay the March 2018 Notes, the Company shall provide 20 trading days prior written notice to the holders, during which time a holder may convert its March 2018 Notes in whole or in part at the conversion price. Pursuant to a securities purchase agreement dated September 24, 2018, the Company purchased back, from one Purchaser, a convertible note with $111,111 and $97,383 outstanding principal and accrued interest, respectively (see-Puritan Settlement Agreement below). During the year ended December 31, 2019, the Purchasers converted $69,444 and $612 outstanding principal and accrued interest, respectively, of the March 2017 Notes into 21,779 shares of the Company’s common stock. As December 31, 2019, the March 2018 Notes had outstanding principal and accrued interest of $152,778 and $46,463, respectively.

 

The March 2018 Notes and related March 2018 Warrants includes; (i) down-round provision under which the conversion price and exercise price could be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception; and (ii) default conversion and exercise price provisions where, the March 2018 Notes shall be convertible and shall be exercisable at the Default Conversion Price as defined above. Pursuant to a securities purchase agreement dated September 24, 2018, the Company purchased back, from one Purchaser, warrants to purchase 15,117 (post anti-dilution) of the Company’s common stock (see-Puritan Settlement Agreement below). The total number of March 2018 Warrants was increased, during the year ended December 31, 2019, on a full ratchet basis from 16,667 warrants to 6,551,066, an aggregate increase of 6,534,399 warrants. As of December 31, 2019, there were 6,535,948 warrants outstanding under the March 2018 Warrants (see Note 9).

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

July 2018 Financing

 

On July 25, 2018, the Company entered into a securities purchase agreement (the “Sixth Securities Purchase Agreement”) with an institutional investor for the sale of a convertible note in the aggregate principal amount of $150,000 (the “July 2018 Note”). The July 2018 Note bears interest at 8% per year and matures on July 24, 2019. The July 2018 Note is convertible into common stock at a 25% discount to the average of the closing prices of the common stock for the prior five trading days including the date upon which a notice of conversion is received by the Company or its transfer agent. The holder will not have the right to convert any portion of its note if the holder, together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of common stock outstanding immediately after giving effect to its conversion. The July 2018 Note may be prepaid at the Company’s option at a 105% premium between 30 days and 180 days after issuance, and at a 110% premium between 180 days after issuance and the maturity date. Upon certain events defined in the note as “sale events”, the holder may demand repayment of the note for 125% of the principal plus accrued but unpaid interest. The note also includes certain penalties upon the occurrence of an event of default, including an increase in the principal and reduction in the conversion rate, as further described in the July 2018 Note. The Company agreed to use its best efforts to file a proxy statement and take all necessary corporate actions in order to obtain shareholder approval to increase its authorized shares of common stock or effect a reverse split to allow for reserving sufficient shares of common stock to allow for full conversion of the July 2018 Note. As of December 31, 2019, the July 2018 Note is in default, and accruing interest at 24% and had outstanding principal and accrued interest of $150,000 and $26,342, respectively.

 

September 2018 Financing

 

On September 24, 2018, the Company entered into a securities purchase agreement (the “Seventh Purchase Agreement” and together with the Amended and Restated Purchase Agreements and the Second, Third, Fourth, Fifth and Sixth Purchase Agreement, the “Securities Purchase Agreements”) with four accredited investors (the “Seventh Round Purchasers” and together with the Purchasers, the “Note Purchasers”) for the sale of the Company’s convertible notes and warrants. Pursuant to the Seventh Purchase Agreement, the Company issued to the Seventh Round Purchasers for an aggregate subscription amount of $1,361,111; (i) 10% Original Issue Discount 5% Senior Convertible Notes in the aggregate principal amount of $1,361,111 (the “September 2018 Notes”) and (ii) 5 year warrants (the “September 2018 Warrants”) to purchase an aggregate of 68,056 shares of the Company’s common stock at an exercise price of $30.00 per share (subject to adjustments under certain conditions as defined in the September 2018 Warrants). The Company received $1,181,643 in aggregate net proceeds from the sale, net of $136,111 original issue discount and $43,357 in legal fees. The September 2018 Notes bear interest at a rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the September 2018 Notes)), had a maturity date of May 24, 2019 and the principal and interest are convertible at any time at a conversion price equal to $15.00 per share (subject to adjustment as provided in the September 2018 Notes); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the September 2018 Notes shall be convertible and the September 2018 Warrants shall be exercisable at 60% of the lowest closing price during the prior twenty trading days (the “Default Conversion Price”). The September 2018 Notes are currently in default. The September 2018 Notes provide for amortization payments on each of the six-month anniversary of the issue date, seven-month anniversary of the issue date and on the maturity date with each amortization payment being one third of the total outstanding principal and all interest accrued as of the payment date. If the six-month amortization payment is made in cash then the Company shall pay the holder 110% of the applicable amortization payment and if the seven-month or the maturity date amortization payments are made in cash then the Company shall pay the holder 115% of the applicable amortization payment. The holder may elect at its option to receive the amortization payments in common stock subject to certain equity conditions. The Notes may be prepaid at any time until the 180th day following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the note and accrued and unpaid interest through the five month anniversary of the issue date, and (ii) 120% of outstanding principal balance of the notes and accrued and unpaid interest during month six following the original issuance date of the notes. In order to prepay the notes, the Company shall provide 20 trading days prior written notice to the holders, during which time a holder may convert its note in whole or in part at the conversion price. During the year ended December 31, 2019, the Purchasers converted $58,073 and $28,234 outstanding principal and accrued interest, respectively, of the September 2018 Notes into 39,934 shares of the Company’s common stock. As of December 31, 2019, the September 2018 Notes had outstanding principal and accrued interest of $1,303,038 and $149,283, respectively.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

The initial exercise price of the September 2018 Warrants is $30.00 per share, subject to adjustment as described below, and are exercisable for five years after the issuance date. The September 2018 Warrants are exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants. Accordingly, pursuant to the default provisions, the September 2018 Notes shall be convertible and the September 2018 Warrants shall be exercisable at the Default Conversion Price as defined above. The total number of September 2018 Warrants was increased, during the year ended December 31, 2019, on a full ratchet basis from 68,056 warrants to 40,032,680, an aggregate increase of 39,964,624 warrants (see Note 9). As of December 31, 2019, there were 40,032,680 warrants outstanding under the September 2018 Warrants.

 

November 2018 Financing

 

On November 13, 2018, the Company entered into a securities purchase agreement (the “Eighth Purchase Agreement”) with an institutional accredited investor (the “Eighth Round Purchaser”) for the sale of the Company’s convertible notes and warrants. Pursuant to the Eighth Purchase Agreement, the Company issued to the Eighth Round Purchasers for an aggregate subscription amount of $127,778: (i) 10% Original Issue Discount 5% Senior Convertible Note in the aggregate principal amount of $127,778 (the “November 2018 Note”) and (ii) 5 year warrants (the “November 2018 Warrants”) to purchase an aggregate of 6,389 shares of the Company’s common stock at an exercise price of $30.00 per share (subject to adjustments under certain conditions as defined in the November 2018 Warrants). The Company received $112,500 in aggregate net proceeds from the sale, net of $12,778 Original Issue Discount and $2,500 of legal fees. The November 2018 Note bears interest at a rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the November 2018 Note)), has a maturity date of July 13, 2019 and the principal and interest are convertible at any time at a conversion price equal to $15.00 per share (subject to adjustment as provided in the November 2018 Note); provided, however, that if an Event of Default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the November 2018 Note shall be convertible and the November 2018 Warrants shall be exercisable at 60% of the lowest closing price during the prior twenty trading days (the “Default Conversion Price”). The November 2018 Note provides for amortization payments on each of the six-month anniversary of the issue date, seven-month anniversary of the issue date and on the maturity date with each amortization payment being one third of the total outstanding principal and all interest accrued as of the payment date. If the six-month amortization payment is made in cash then the Company shall pay the holder 110% of the applicable amortization payment and if the seven-month or the maturity date amortization payments are made in cash then the Company shall pay the holder 115% of the applicable amortization payment. The holder may elect at its option to receive the amortization payments in common stock subject to certain equity conditions. The Note may be prepaid at any time until the 180th day following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the Note and accrued and unpaid interest through the five month anniversary of the issue date, and (ii) 120% of outstanding principal balance of the Note and accrued and unpaid interest during month six following the original issuance date of the notes. In order to prepay the notes, the Company shall provide 20 trading days prior written notice to the holders, during which time a holder may convert its note in whole or in part at the conversion price. As of December 31, 2019, the November 2018 Note is in default and had outstanding principal and accrued interest of $127,778 and $17,287, respectively.

 

The initial exercise price of the November 2018 Warrants was $30.00 per share, subject to adjustment as described below, and are exercisable for five years after the issuance date. The November 2018 Warrants are exercisable for cash at any time and is exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrant in the two years after the issue date of the Warrants (“Dilutive Issuances”). Accordingly, pursuant to the default provisions, the November 2018 Warrant shall be exercisable at the Default Conversion Price as defined above. The total number of November 2018 Warrants was increased on a full ratchet basis from 6,389 warrants to 3,758,170, an aggregate increase of 3,751,781 warrants. As of December 31, 2019, there were 3,758,170 warrants outstanding under the November 2018 Warrants (see Note 9).

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

January 2019 Financing

 

On January 18, 2019, the Company entered into a securities purchase agreement (the “Ninth Securities Purchase Agreement”) with an institutional investor for the sale of a convertible note in the aggregate principal amount of $146,875 (the “January 2019 Note I”). The closing occurred on January 22, 2019, with the Company receiving net proceeds of $125,000, net of 12,500 OID and $9,375 of legal fees. The January 2019 Note I had an interest rate of 5% per annum and matures on January 18, 2020. During the first six months the January 2019 Note I may be converted, all or a portion, of the outstanding principal into shares of the Company’s common stock at a fixed conversion price of $15.00 per share. Starting on the six-month anniversary, the conversion price shall be equal to 60% of the lowest trading price of the common stock during the 20 prior trading days (including the day upon which a notice of conversion is received). The January 2019 Note I may not be converted to the extent that such conversion would result in beneficial ownership by the purchaser and its affiliates to exceed more than 9.9% of the Company’s issued and outstanding common stock. If the Company prepays the January 2019 Note I within 150 days of its issuance, the Company must pay the principal at a cash redemption premium of 115%, in addition to accrued interest; if such prepayment is made from the151st day to the 180th day after issuance, then such redemption premium is 120%, in addition to accrued interest. After the 180th day following the issuance of the January 2019 Note I, there shall be no further right of prepayment. During the year ended December 31, 2019, the Purchaser converted $61,955 and $1,852 of outstanding principal and accrued interest, respectively, into 256,262 shares of the Company’s common stock. As of December 31, 2019, the January 2019 Note I was in default and had outstanding principal and accrued interest of $84,920 and $8,257, respectively.

 

On January 18, 2019, the Company entered into a securities purchase agreement (the “Tenth Securities Purchase Agreement”) with an institutional investor for the sale of a convertible note in the aggregate principal amount of $88,125 (the “January 2019 Note II”). The closing occurred on January 29, 2019, with the Company receiving net proceeds of $75,000, net of $7,500 OID and $5,625 of legal fees. The January 2019 Note II had an interest rate of 5% per annum and matures on January 18, 2020. During the first six months the January 2019 Note II is in effect, the purchaser may convert all or a portion of the outstanding principal of the January 2019 Note II into shares of the Company’s common stock at a fixed conversion price of $15.00 per share. Starting on the six-month anniversary, the conversion price shall be equal to 60% of the lowest trading price of the common stock during the 20 prior trading days (including the day upon which a notice of conversion is received). The purchaser may not convert the January 2019 Note II to the extent that such conversion would result in beneficial ownership by the purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. If the Company prepays the January 2019 Note II within 150 days of its issuance, the Company must pay the principal at a cash redemption premium of 115%, in addition to accrued interest; if such prepayment is made from the151st day to the 180th day after issuance, then such redemption premium is 120%, in addition to accrued interest. After the 180th day following the issuance of the January 2019 Note II, there shall be no further right of prepayment. During the year ended December 31, 2019, the Purchasers converted $15,000 and $16 outstanding principal and accrued interest, respectively, into 3,708 shares of the Company’s common stock. As of December 31, 2019, the January 2019 Note II was in default and had outstanding principal and accrued interest of $73,125 and $10,445, respectively.

 

March 2019 Financing

 

On March 25, 2019, the Company entered into a securities purchase agreement (the “Eleventh Purchase Agreement”) for the sale of the Company’s convertible notes and warrants. Pursuant to the Eleventh Purchase Agreement, the Company issued to the Eleventh Round Purchaser for an aggregate subscription amount of $50,000: (i) 10% Original Issue Discount and 5% Senior Convertible Notes in the aggregate principal amount of $55,556 (the “March 2019 Note”) and (ii) 5 year warrants (the “March 2019 Warrants”) to purchase an aggregate of 2,778 shares of the Company’s common stock at an exercise price of $30.00 per share (subject to adjustments under certain conditions as defined in the March 2019 Warrants). The Company received $50,000 in net proceeds from the sale, net of $5,556 OID. The March 2019 Note bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the March 2019 Note)), shall mature on November 25, 2019 and the principal and interest are convertible at any time at a conversion price equal to $15.00 per share (subject to adjustment as provided in the March 2019 Note); provided, however, that if an Event of Default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the March 2019 Note shall be convertible and the March 2019 Warrants shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the March 2019 Note to the extent that such conversion would result in beneficial ownership by the purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The March 2019 Note may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the March 2019 Note and accrued and unpaid interest during the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance of the March 2019 Note and accrued and unpaid interest during month six following the original issue date. In order to prepay the March 2019 Note, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser may convert the March 2019 Note in whole or in part at the conversion price. As of December 31, 2019, the March 2019 Note was in default (under provision Section 7(a)(i) of the note) and had outstanding principal and accrued interest of $55,556 and $6,512, respectively.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

The initial exercise price of the March 2019 Warrants was $30.00 per share, subject to adjustment as described below, and are exercisable for five years after the issuance date. The March 2019 Warrants are exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”). Accordingly, pursuant to the default provisions, the March 2019 Warrants shall be convertible shall be exercisable at the Default Conversion Price as defined above. The total number of March 2019 Warrants was increased, during the year ended December 31, 2019, on a full ratchet basis from 2,778 warrants to 1,633,987, an aggregate increase of 1,631,209 warrants. As of December 31, 2019, there were 1,633,987 warrants outstanding under the March 2019 Warrants (see Note 9).

 

April 2019 Financings

 

On April 1, 2019, the Company entered into a securities purchase agreement (the “Twelfth Purchase Agreement”) for the sale of the Company’s convertible notes and warrants. Pursuant to the Twelfth Purchase Agreement, the Company issued to the Twelfth Round Purchaser a Note (“April 2019 Note I”) for a principal amount of $27,778 with 10% OID and 5 year warrants (the “April 2019 Warrants I”) to purchase an aggregate of 1,389 shares of the Company’s common stock at an exercise price of $30.00 per share (subject to adjustments under certain conditions as defined in the April 2019 Warrants I). The Company received net proceeds of $25,000, net of $2,778 OID. The April 2019 Note I bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the April 2019 Note I)), shall mature on December 2, 2019 and the principal and interest are convertible at any time at a conversion price equal to $15.00 per share (subject to adjustment as provided in the April 2019 Note I); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the April 2019 Note I shall be convertible and the April 2019 Warrants I shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the April 2019 Note I to the extent that such conversion would result in beneficial ownership by the purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The April 2019 Note I may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the April 2019 Note I and accrued and unpaid interest during the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance of the April 2019 Note I and accrued and unpaid interest during month six following the original issue date. In order to prepay the April 2019 Note I, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser may convert the April 2019 Note I in whole or in part at the conversion price. As of December 31, 2019, the April 2019 Note I was in default (under provision Section 7(a)(i) of the note) and had outstanding principal and accrued interest of $27,778 and $3,225, respectively.

 

The initial exercise price of the April 2019 Warrants I was $30.00 per share, subject to adjustment as described below, and are exercisable for five years after the issuance date. The April 2019 Warrants I are exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the April 2019 Warrants I shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”). The total number of April 2019 Warrants I was increased on a full ratchet basis, during the year ended December 31, 2019, from 1,389 warrants to 816,994, an aggregate increase of 815,605 warrants. As of December 31, 2019, there were 816,994 warrants outstanding under the April 2019 Warrants I (see Note 9).

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

On April 29, 2019, the Company entered into a securities purchase agreement (the “Thirteenth Purchase Agreements”) for the sale of the Company’s convertible notes and warrants. Pursuant to the Thirteenth Purchase Agreements, the Company issued to the Thirteenth Round Purchasers a note (the “April 2019 Notes II”) for an aggregate principal amount of $205,279 with 10% Original Issue Discount and five-year warrants (the “April 2019 Warrants II”) to purchase an aggregate of 10,264 shares of the Company’s common stock at an exercise price of $30.00 per share (subject to adjustments under certain conditions as defined in the April 2019 Warrants II). The Company received $185,450 in aggregate net proceeds from the sale, net of $19,829 OID. The April 2019 Notes II bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the April 2019 Notes II)), shall mature on December 29, 2019 and the principal and interest are convertible at any time at a conversion price equal to $15.00 per share (subject to adjustment as provided in the April 2019 Notes II); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the April 2019 Notes II shall be convertible and the April 2019 Warrants II shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the April 2019 Notes II to the extent that such conversion would result in beneficial ownership by a purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The April 2019 Notes II may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the April 2019 Notes II and accrued and unpaid interest during the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance of the April 2019 Notes II and accrued and unpaid interest during month six following the original issue date. In order to prepay the April 2019 Notes II, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser may convert the April 2019 Notes II in whole or in part at the conversion price. As of December 31, 2019, the April 2019 Notes II were in default and had outstanding principal and accrued interest of $205,279 and $23,076, respectively.

 

The initial exercise price of the April 2019 Warrants II is $30.00 per share, subject to adjustment as described below, and are exercisable for five years after the issuance date. The April 2019 Warrants II are exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the April 2019 Warrants II shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”). The total number of April 2019 Warrants II was increased on a full ratchet basis, during the year ended December 31, 2019, from 10,264 warrants to 6,037,582, an aggregate increase of 6,027,318 warrants. As of December 31, 2019, there were 6,037,582 warrants outstanding under the April 2019 Warrants II (see Note 9).

 

May 2019 Financing

 

On May 29, 2019, the Company entered into a securities purchase agreement (the “Fourteenth Purchase Agreement”) for the sale of the Company’s convertible notes and warrants. Pursuant to the Fourteenth Purchase Agreement, the Company issued to the Fourteenth Round Purchasers a note (the “May 2019 Notes”) for an aggregate principal of $10,000 with 10% OID and five-year warrants (the “May 2019 Warrants”) to purchase an aggregate of 500 shares of the Company’s common stock at an exercise price of $30.00 per share (subject to adjustments under certain conditions as defined in the May 2019 Warrants). The Company received $9,000 in aggregate net proceeds from the sale, net of $1,000 OID. The May 2019 Notes bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the May 2019 Notes)), shall mature on January 29, 2020 and the principal and interest are convertible at any time at a conversion price equal to $15.00 per share (subject to adjustment as provided in the May 2019 Notes); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the May 2019 Notes shall be convertible and the May 2019 Warrants shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the May 2019 Notes to the extent that such conversion would result in beneficial ownership by a purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The May 2019 Notes may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the May 2019 Notes and accrued and unpaid interest during the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance of the May 2019 Notes and accrued and unpaid interest during month six following the original issue date. In order to prepay the May 2019 Notes, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser may convert the May 2019 Notes in whole or in part at the conversion price. As of December 31, 2019, the May 2019 Notes were in default and had outstanding principal and accrued interest of $10,000 and $905, respectively.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

The initial exercise price of the May 2019 Warrants is $30.00 per share, subject to adjustment as described below, and are exercisable for five years after the issuance date. The May 2019 Warrants are exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the May 2019 Warrants shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”). The total number of May 2019 Warrants was increased on a full ratchet basis, during the year ended December 31, 2019, from 500 warrants to 294,118, an aggregate increase of 293,618 warrants. As of December 31, 2019, there were 294,118 warrants outstanding under the May 2019 Warrants (see Note 9).

 

June 2019 Financing

 

On June 3, 2019, the Company entered into a securities purchase agreement (the “Fifteenth Purchase Agreement”) for the sale of the Company’s convertible notes and warrants. Pursuant to the Fifteenth Purchase Agreement, the Company issued to the Fifteenth Round Purchasers a note (the “June 2019 Note I”) with an aggregate principal of $129,167 with 10% OID and five- year warrants (the “June 2019 Warrants I”) to purchase an aggregate of 6,458 shares of the Company’s common stock at an exercise price of $30.00 per share (subject to adjustments under certain conditions as defined in the June 2019 Warrants I). The Company received $116,250 in aggregate net proceeds from the sale, net of $12,917 OID. The June 2019 Note I bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the June 2019 Note I)), shall mature on February 3, 2020 and the principal and interest are convertible at any time at a conversion price equal to $15.00 per share (subject to adjustment as provided in the June 2019 Note I); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the June 2019 Note I shall be convertible and the June 2019 Warrants I shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the June 2019 Note I to the extent that such conversion would result in beneficial ownership by a purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The June 2019 Note I may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance and accrued and unpaid interest during the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance and accrued and unpaid interest during month six following the original issue date. In order to prepay the June 2019 Note I, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser may convert the June 2019 Note I in whole or in part at the conversion price. As of December 31, 2019, the June 2019 Note I was in default and had outstanding principal and accrued interest of $129,167 and $11,600, respectively.

 

The initial exercise price of the June 2019 Warrants I is $30.00 per share, subject to adjustment as described below, and are exercisable for five years after the issuance date. The June 2019 Warrants I are exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the June 2019 Warrants I shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”). The total number of June 2019 Warrants I was increased, during the year ended December 31, 2019, on a full ratchet basis from 6,458 warrants to 3,799,020, an aggregate increase of 3,792,562 warrants. As of December 31, 2019, there were 3,799,020 warrants outstanding under the June 2019 Warrants I (see Note 9).

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

On June 26, 2019, the Company entered into a securities purchase agreement (the “Sixteenth Purchase Agreement”) for the sale of the Company’s convertible note and warrants. Pursuant to the Sixteenth Purchase Agreement, the Company issued to the Sixteenth Round Purchaser a note (the “June 2019 Note II”) with a principal amount of $55,556 with 10% OID and five- year warrants (the “June 2019 Warrants II”) to purchase an aggregate of 5,556 shares of the Company’s common stock at an exercise price of $15.00 per share (subject to adjustments under certain conditions as defined in the June 2019 Warrants II). The Company received $50,000 in aggregate net proceeds from the sale, net of $5,556 original issue discount. The June 2019 Note II bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the June 2019 Note II)), shall mature on February 26, 2020 and the principal and interest are convertible at any time at a conversion price equal to $7.50 per share (subject to adjustment as provided in the June 2019 Note II); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the June 2019 Note II shall be convertible and the June 2019 Warrants II shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the June 2019 Note II to the extent that such conversion would result in beneficial ownership by a purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The June 2019 Note II may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the June 2019 Note I and accrued and unpaid interest during the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance of the June 2019 Note II and accrued and unpaid interest during month six following the original issue date. In order to prepay the June 2019 Note II, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser may convert the June 2019 Note II in whole or in part at the conversion price. As of December 31, 2019, the June 2019 Note II was in default and had outstanding principal and accrued interest of $55,556 and $4,815, respectively.

 

The initial exercise price of the June 2019 Warrants II is $15.00 per share, subject to adjustment as described below, and are exercisable for five years after the issuance date. The June 2019 Warrants II are exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the June 2019 Warrants II shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”). The total number of June 2019 Warrants II was increased, during the year ended December 31, 2019, on a full ratchet basis from 5,556 warrants to 1,633,987, an aggregate increase of 1,628,431 warrants. As of December 31, 2019, there were 1,633,987 warrants outstanding under the June 2019 Warrants II (see Note 9).

 

July 2019 Financing

 

On July 2, 2019, the Company closed a securities purchase agreement (the “Seventeenth Purchase Agreement”), dated June 26, 2019, for the sale of the Company’s convertible notes and warrants. Pursuant to the Seventeenth Purchase Agreement, the Company issued to the Seventeenth Round Purchaser a note (the “July 2019 Note I”) for a principal amount of $55,556 with 10% OID and five- year warrants (the “July 2019 Warrants I”) to purchase an aggregate of 5,556 shares of the Company’s common stock at an exercise price of $15.00 per share (subject to adjustments under certain conditions as defined in the July 2019 Warrants I). The Company received $50,000 in aggregate net proceeds from the sale, net of $5,556 original issue discount. The July 2019 Note I bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the July 2019 Note I)), shall mature on February 26, 2020 and the principal and interest are convertible at any time at a conversion price equal to $7.50 per share (subject to adjustment as provided in the July 2019 Note I); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the July 2019 Note I shall be convertible and the July 2019 Warrants I shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the July 2019 Note I to the extent that such conversion would result in beneficial ownership by the purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The July 2019 Note I may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the July 2019 Note I and accrued and unpaid interest during the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance of the July 2019 Note I and accrued and unpaid interest during month six following the original issue date. In order to prepay the July 2019 Note I, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser may convert the July 2019 Note I in whole or in part at the conversion price. As of December 31, 2019, the July 2019 Note I was in default and had outstanding principal and accrued interest of $55,556 and $4,769, respectively.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

The initial exercise price of the July 2019 Warrants I is $15.00 per share, subject to adjustment as described below, and are exercisable for five years after the issuance date. The July 2019 Warrants I are exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the July 2019 Warrants I shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”). The total number of July 2019 Warrants I was increased, during the year ended December 31, 2019, on a full ratchet basis from 5,556 warrants to 1,633,987, an aggregate increase of 1,628,431 warrants. As of December 31, 2019, there were 1,633,987 warrants outstanding under the July 2019 Warrants I (see Note 9).

 

On July 8, 2019, the Company closed a securities purchase agreement (the “Eighteenth Purchase Agreement”), dated June 26, 2019, for the sale of the Company’s convertible notes and warrants. Pursuant to the Eighteenth Purchase Agreement, the Company issued to the Eighteenth Round Purchaser a note (the “July 2019 Note II”) for principal amount of $55,556 with 10% OID and five-year warrants (the “July 2019 Warrants II”) to purchase an aggregate of 5,556 shares of the Company’s common stock at an exercise price of $15.00 per share (subject to adjustments under certain conditions as defined in the July 2019 Warrants II). The Company received $50,000 in aggregate net proceeds from the sale, net of $5,556 original issue discount. The July 2019 Note II bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the July 2019 Note II)), shall mature on February 26, 2020 and the principal and interest are convertible at any time at a conversion price equal to $7.50 per share (subject to adjustment as provided in the July 2019 Note II); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the July 2019 Note II shall be convertible and the July 2019 Warrants II shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the July 2019 Note II to the extent that such conversion would result in beneficial ownership by the purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The July 2019 Note II may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the July 2019 Note I and accrued and unpaid interest during the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance of the July 2019 Note II and accrued and unpaid interest during month six following the original issue date. In order to prepay the July 2019 Note II, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser may convert the July 2019 Note II in whole or in part at the conversion price. As of December 31, 2019, the July 2019 Note II was in default and had outstanding principal and accrued interest of $55,556 and $4,723, respectively.

 

The initial exercise price of the July 2019 Warrants II is $15.00 per share, subject to adjustment as described below and are exercisable for five years after the issuance date. The July 2019 Warrants II are exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the July 2019 Warrants II shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”). The total number of July 2019 Warrants II was increased, during the year ended December 31, 2019, on a full ratchet basis from 5,556 warrants to 1,633,987, an aggregate increase of 1,628,431 warrants. As of December 31, 2019, there were 1,633,987 warrants outstanding under the July 2019 Warrants II (see Note 9).

 

August 2019 Financing

 

On August 19, 2019, the Company closed a securities purchase agreement (the “Nineteenth Purchase Agreement”), dated July 30, 2019, for the sale of the Company’s convertible notes and warrants. Pursuant to the Nineteenth Purchase Agreement, the Company issued to the Nineteenth Round Purchaser a note (the “August 2019 Note I”) for principal amount of $27,778 with 10% OID and five-year warrants (the “August 2019 Warrants I”) to purchase an aggregate of 2,778 shares of the Company’s common stock at an exercise price of $15.00 per share (subject to adjustments under certain conditions as defined in the August 2019 Warrants I). The Company received $25,000 in aggregate net proceeds from the sale, net of $2,778 original issue discount. The August 2019 Note I bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the August 2019 Note I)), shall mature on March 30, 2020 and the principal and interest are convertible at any time at a conversion price equal to $7.50 per share (subject to adjustment as provided in the August 2019 Note I); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the August 2019 Note I shall be convertible and the August 2019 Warrants I shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the August 2019 Note I to the extent that such conversion would result in beneficial ownership by the purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The August 2019 Note I may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the August 2019 Note I and accrued and unpaid interest during the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance of the August 2019 Note I and accrued and unpaid interest during month six following the original issue date. In order to prepay the August 2019 Note I, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser may convert the August 2019 Note I in whole or in part at the conversion price. As of December 31, 2019, the August 2019 Note I was in default and had outstanding principal and accrued interest of $27,778 and $510, respectively.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

The initial exercise price of the August 2019 Warrants I was $15.00 per share, subject to adjustment as described below, and are exercisable for five years after the issuance date. The August 2019 Warrants I are exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the August 2019 Warrants I shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants in the two years after the issue date of the Warrants. As of December 31, 2019, there were 2,778 warrants outstanding under the August 2019 Warrants I (see Note 9).

 

On August 28, 2019, the Company entered into a securities purchase agreement (the “Twentieth Securities Purchase Agreement”) with an institutional investor for the sale of a convertible note in the aggregate principal amount of $29,700 (the “August 2019 Notes II”). The Company received net proceeds of $25,000, net of OID and legal fees of $4,700. The August 2019 Note II has an interest rate of 5% per annum and matures on August 27, 2020. During the first six months the August 2019 Note II may be converted, all or a portion, of the outstanding principal into shares of the Company’s common stock at a fixed conversion price of $7.50 per share. Starting on the six-month anniversary, the conversion price shall be equal to 60% of the lowest closing bid price of the common stock during the 20 prior trading days (including the day upon which a notice of conversion is received). The August 2019 Note II may not be converted to the extent that such conversion would result in beneficial ownership by the purchaser and its affiliates to exceed more than 9.9% of the Company’s issued and outstanding common stock. The August 2019 Note II can be prepaid during the first 180 days for a redemption price equal to 140% of the sum of the outstanding principal and accrued interest and shall forfeit the right of prepayment after the 180th day following the issuance date. As of December 31, 2019, the August 2019 Note II was in default and had outstanding principal and accrued interest of $29,700 and $509, respectively.

 

September 2019 Financing

 

On September 27, 2019, the Company closed a securities purchase agreement dated September 25, 2019 (the “Twenty-first Purchase Agreement”), for the sale of the Company’s convertible notes and warrants. Pursuant to the Twenty-first Purchase Agreement, the Company issued to the Twenty-first Round Purchaser a note (the “September 2019 Note”) for principal amount of $166,667 with 10% OID and five-year warrants (the “September 2019 Warrants”) to purchase an aggregate of 16,667 shares of the Company’s common stock at an exercise price of $15.00 per share (subject to adjustments under certain conditions as defined in the September 2019 Warrants). The Company received $150,000 in net proceeds, net of $16,667 OID. The September 2019 Note bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the September 2019 Note)), shall mature on May 27, 2020 and the principal and interest are convertible at any time at a conversion price equal to $7.50 per share (subject to adjustment as provided in the September 2019 Note); provided, however, that if an Event of Default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the September 2019 Note shall be convertible and the September 2019 Warrants shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the September 2019 Note to the extent that such conversion would result in beneficial ownership by the purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The September 2019 Note may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance and accrued and unpaid interest during the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance and accrued and unpaid interest during month six following the original issue date. The Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser may convert the September 2019 Note in whole or in part at the conversion price. As of December 31, 2019, the September 2019 Note was in default and had outstanding principal and accrued interest of $166,667 and $2,100, respectively.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

The initial exercise price of the September 2019 Warrants is $15.00 per share, subject to adjustment as described below, and is exercisable for five years after the issuance date. The September 2019 Warrants is exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. The exercise price of the Warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants in the two years after the issue date of the Warrants. In an Event of Default, pursuant to the default provision, the September 2019 Warrants shall be exercisable at the Default Conversion Price as defined above. As of December 31, 2019, there were 16,667 warrants outstanding under the September 2019 Warrants (see Note 9).

 

November 2019 Financing

 

On November 15, 2019, the Company entered into a securities purchase agreement (the “Twenty-second Purchase Agreement”) for the sale of the Company’s convertible note and warrants. Pursuant to the Twenty-second Purchase Agreement, the Company issued to the Twenty-second Round Purchaser a note (the “November 2019 Note I”) with a principal amount of $55,500 with 10% OID and five- year warrants (the “November 2019 Warrants I”) to purchase an aggregate of 277,500 shares of the Company’s common stock at an exercise price of $0.20 per share (subject to adjustments under certain conditions as defined in the November 2019 Warrants I). The Company received $50,000 in aggregate net proceeds from the sale, net of $5,500 original issue discount. The November 2019 Note I bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the November 2019 Note I)), shall mature on August 30, 2020 and the principal and interest are convertible at any time at a conversion price equal to $0.20 per share (subject to adjustment as provided in the November 2019 Note I); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the November 2019 Note I shall be convertible and the November 2019 Warrants I shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the November 2019 Note I to the extent that such conversion would result in beneficial ownership by a purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The November 2019 Note I may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the November 2019 Note I and accrued and unpaid interest during the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance of the November 2019 Note I and accrued and unpaid interest during month six following the original issue date. In order to prepay the November 2019 Note I, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser may convert the November 2019 Note I in whole or in part at the conversion price. As of December 31, 2019, the November 2019 Note I was in default and had outstanding principal and accrued interest of $55,500 and $350, respectively.

 

The initial exercise price of the November 2019 Warrants I is $0.20 per share, subject to adjustment as described below, and are exercisable for five years after the issuance date. The November 2019 Warrants I are exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the November 2019 Warrants I shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”). As of December 31, 2019, there were 277,500 warrants outstanding under the November 2019 Warrants I (see Note 9).

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

On November 15, 2019, the Company entered into a securities purchase agreement (the “Twenty-third Purchase Agreement”) for the sale of the Company’s convertible note and warrants. Pursuant to the Twenty- third Purchase Agreement, the Company issued to the Twenty- third Round Purchaser a note (the “November 2019 Note II”) with a principal amount of $55,500 with 10% OID and five- year warrants (the “November 2019 Warrants II”) to purchase an aggregate of 277,500 shares of the Company’s common stock at an exercise price of $0.20 per share (subject to adjustments under certain conditions as defined in the November 2019 Warrants II). The Company received $50,000 in aggregate net proceeds from the sale, net of $5,500 original issue discount. The November 2019 Note II bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the November 2019 Note II)), shall mature on August 30, 2020 and the principal and interest are convertible at any time at a conversion price equal to $0.20 per share (subject to adjustment as provided in the November 2019 Note II); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the November 2019 Note II shall be convertible and the November 2019 Warrants II shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the November 2019 Note II to the extent that such conversion would result in beneficial ownership by a purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The November 2019 Note II may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the November 2019 Note II and accrued and unpaid interest during the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance of the November 2019 Note II and accrued and unpaid interest during month six following the original issue date. In order to prepay the November 2019 Note II, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser may convert the November 2019 Note II in whole or in part at the conversion price. As of December 31, 2019, the November 2019 Note II was in default and had outstanding principal and accrued interest of $55,500 and $350, respectively.

 

The initial exercise price of the November 2019 Warrants II is $0.20 per share, subject to adjustment as described below, and are exercisable for five years after the issuance date. The November 2019 Warrants I are exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the November 2019 Warrants II shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”). As of December 31, 2019, there were 277,500 warrants outstanding under the November 2019 Warrants II (see Note 9).

 

December 2019 Financing

 

On December 23, 2019, the Company entered into a securities purchase agreement (the “Twenty-fourth Purchase Agreement”) for the sale of the Company’s convertible note and warrants. Pursuant to the Twenty- fourth Purchase Agreement, the Company issued to the Twenty- fourth Round Purchaser a note (the “December 2019 Note I”) with a principal amount of $55,500 with 10% OID and five- year warrants (the “December 2019 Warrants I”) to purchase an aggregate of 277,500 shares of the Company’s common stock at an exercise price of $0.20 per share (subject to adjustments under certain conditions as defined in the December 2019 Warrants I). The Company received $50,000 in aggregate net proceeds from the sale, net of $5,500 original issue discount. The December 2019 Note I bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the December 2019 Note I)), shall mature on September 30, 2020 and the principal and interest are convertible at any time at a conversion price equal to $0.20 per share (subject to adjustment as provided in the December 2019 Note I); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the December 2019 Note I shall be convertible and the December 2019 Warrants I shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the December 2019 Note I to the extent that such conversion would result in beneficial ownership by a purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The December 2019 Note I may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the December 2019 Note I and accrued and unpaid interest during the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance of the December 2019 Note I and accrued and unpaid interest during month six following the original issue date. In order to prepay the December 2019 Note I, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser may convert the December 2019 Note I in whole or in part at the conversion price. As of December 31, 2019, the December 2019 Note I was in default and had outstanding principal and accrued interest of $55,500 and $61, respectively.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

The initial exercise price of the December 2019 Warrants I is $0.20 per share, subject to adjustment as described below, and are exercisable for five years after the issuance date. The December 2019 Warrants I are exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the December 2019 Warrants I shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”). As of December 31, 2019, there were 277,500 warrants outstanding under the December 2019 Warrants I (see Note 9).

 

On December 23, 2019, the Company entered into a securities purchase agreement (the “Twenty-fifth Purchase Agreement”) for the sale of the Company’s convertible note and warrants. Pursuant to the Twenty- fifth Purchase Agreement, the Company issued to the Twenty- fifth Round Purchaser a note (the “December 2019 Note II”) with a principal amount of $55,500 with 10% OID and five- year warrants (the “December 2019 Warrants II”) to purchase an aggregate of 277,500 shares of the Company’s common stock at an exercise price of $0.20 per share (subject to adjustments under certain conditions as defined in the December 2019 Warrants II). The Company received $50,000 in aggregate net proceeds from the sale, net of $5,500 original issue discount. The December 2019 Note II bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the December 2019 Note II)), shall mature on September 30, 2020 and the principal and interest are convertible at any time at a conversion price equal to $0.20 per share (subject to adjustment as provided in the December 2019 Note II); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the December 2019 Note II shall be convertible and the December 2019 Warrants II shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the December 2019 Note II to the extent that such conversion would result in beneficial ownership by a purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The December 2019 Note II may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the December 2019 Note II and accrued and unpaid interest during the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance of the December 2019 Note II and accrued and unpaid interest during month six following the original issue date. In order to prepay the December 2019 Note II, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser may convert the December 2019 Note II in whole or in part at the conversion price. As of December 31, 2019, the December 2019 Note II was in default and had outstanding principal and accrued interest of $55,500 and $61, respectively.

 

The initial exercise price of the December 2019 Warrants II is $0.20 per share, subject to adjustment as described below, and are exercisable for five years after the issuance date. The December 2019 Warrants I are exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the December 2019 Warrants II shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”). As of December 31, 2019, there were 277,500 warrants outstanding under the December 2019 Warrants II (see Note 9).

 

The June 2017, July 2017, January 2018, March 2018, July 2018, September 2018, November 2018, January 2019, March 2019, April 2019, May 2019, June 2019, July 2019, August 2019, September 2019 Notes, November 2019 Notes and December 2019 Notes (collectively, the “Notes”) contain certain covenants such as default provisions, restrictions on the incurrence of indebtedness, creation of liens, payment of restricted payments, redemptions, payment of cash dividends and the transfer of assets. The Notes also contains certain adjustment provisions that apply in connection with any stock split, stock dividend, stock combination, recapitalization or similar transactions. The conversion price is also subject to adjustment if the Company issues or sells shares of its common stock for a consideration per share less than the conversion price then in effect, or issue options, warrants or other securities convertible or exchange for shares of its common stock at a conversion or exercise price less than the conversion price of these Notes then in effect. If either of these events should occur, the conversion price is reduced to the lowest price at which these securities were issued or are exercisable. The Company granted the Note Purchasers certain rights of first refusal on future offerings by the Company for as long as the Note Purchasers hold the Notes. In addition, subject to limited exceptions, the Note Purchasers will not have the right to convert any portion of the Notes if the Note Purchaser, together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to its conversion. The Note Purchaser may increase or decrease this ownership limitation to any percentage not exceeding 9.99% upon 61 days prior written notice to the Company.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

The November 2016, June 2017, July 2017, January 2018, March 2018, September 2018, November 2018 and March 2019, April 2019, May 2019, June 2019, July 2019, August 2019, September 2019, November 2019 and December 2019 Warrants (collectively, the “Warrants”) are exercisable for shares of the Company’s common stock upon the payment in cash of the exercise price and they are also exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the Warrants. The exercise price of the Warrants are subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. The exercise price of the Warrants are also subject to full ratchet price adjustment if the Company sells or grants any option to purchase, sells or re-prices any common stock or common stock equivalents, as defined, at an exercise price lower than the then-current exercise price of the Warrants with the exception for certain exempted issuances and subject to certain limitations on the reduction of the exercise price as provided in the Warrants in the two years after the issue date of the Warrants. In the event of a fundamental transaction, as described in these warrants and generally including any reorganization, recapitalization or reclassification of the common stock, the sale, transfer or other disposition of all or substantially all of the Company’s properties or assets, the Company’s consolidation or merger with or into another person, the acquisition of more than 50% of the outstanding common stock, or any person or group becoming the beneficial owner of 50% of the voting power represented by the outstanding common stock, the holders of the Warrants will be entitled to receive upon exercise of the Warrants the kind and amount of securities, cash or other property that the holders would have received had they exercised the Warrants immediately prior to such fundamental transaction; provided that upon the occurrence of certain fundamental transactions, the holder can require the Company to purchase the Warrants for cash at a price equal to the higher of the Black Scholes Value of the unexercised portion of the Warrants or difference between the cash per share paid in the fundamental transaction and the exercise price per share. The holders of the Warrants will not have the right to exercise any portion of the Warrants if the holder (together with its affiliates) would beneficially own in excess of 9.99% of the number of shares of common stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Warrants.

 

To secure the Company’s obligations under each of the June 2017, July 2017, January 2018, March 2018, September 2018 and November 2018 Notes, the Company entered into Security Agreements, Pledge Agreements and Subsidiary Guaranty’s with Calvary Fund I LP, as agent, pursuant to which the Company granted a lien on all assets of the Company (the “Collateral”) excluding permitted indebtedness which included a first lien held by Regions Bank in connection with the $100,000 revolving promissory note entered into with Regions Bank in October 2014, for the benefit of the Note Purchasers. Upon an Event of Default (as defined in the related Notes), the Note Purchasers may, among other things, collect or take possession of the Collateral, proceed with the foreclosure of the security interest in the Collateral or sell, lease or dispose of the Collateral.

 

During the year ended December 31, 2019, the Company issued 508,999 shares of its common stock upon the conversion of principal note balances of $356,339, accrued interest of $44,308 and default interest of $36,134. These shares of common stock had an aggregate fair value $871,512 and the difference between the aggregate fair value and the aggregate converted amount of $436,281 resulted in a loss on debt extinguishment of $434,731.

 

Puritan Settlement Agreement

 

On September 24, 2018, the Company and Puritan Partners LLC (“Puritan”) entered into a securities purchase agreement (the “Puritan Purchase Agreement”), pursuant to which the Company purchased (using proceeds from the September 2018 Notes) back from Puritan, June 2017, July 2017, January 2018, March 2018 and July 2018 Notes having an aggregate outstanding principal and accrued but unpaid interest amount of $654,191 and June 2017, January 2018 and March 2018 Puritan Warrants to purchase up to 33,262 shares of common stock as well as the securities and certain rights associated thereunder for an aggregate purchase price of $900,000, which was paid on September 26, 2018. In connection with the purchase and extinguishment of the above-mentioned notes and warrants, the Company paid $245,809 for additional penalties and interest which is reflected in loss on debt extinguishment. Additionally, the Company revalued the derivative liabilities associated with these notes and warrants and recorded a gain on debt extinguishment of $1,323,111, during the nine months ended September 30, 2018.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

Derivative Liabilities Pursuant to Notes and Warrants

 

In connection with the issuance of the Notes and Warrants, the Company determined that the terms of the Notes and Warrants contain terms that included a down-round provision under which the conversion price and exercise price could be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception and included various other terms such as default provisions that caused derivative treatment. Accordingly, under the provisions of ASC 815-40 –Derivatives and Hedging – Contracts in an Entity’s Own Stock, the embedded conversion option contained in the convertible instruments and the Warrants were accounted for as derivative liabilities at the date of issuance and shall be adjusted to fair value through earnings at each reporting date. The fair value of the embedded conversion option derivatives and warrant derivatives were determined using the Binomial valuation model. At the end of each period, on the date that debt was converted into common shares, and on the date of a cashless exercise of warrants, the Company revalued the embedded conversion option and warrants derivative liabilities.

 

In July 2017, FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features. These amendments simplify the accounting for certain financial instruments with down-round features. The amendments require companies to disregard the down-round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. The guidance was adopted as of January 1, 2019 and the Company elected to record the effect of this adoption retrospectively to outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the consolidated balance sheet as of the beginning of 2019, the period which the amendment is effective. The Company adopted ASU No. 2017-11 in the first quarter of 2019, and the adoption did not have any impact on its consolidated financial statements and there were no cumulative effect adjustments as there were other notes and warrants provisions that caused derivative treatment.

 

In connection with the issuance of the January 2019 and March 2019, April 2019, May 2019, June 2019, July 2019, August 2019, September 2019, November 2019 and December 2019 Notes and related Warrants, during year ended December 31, 2019, on the initial measurement date, the fair values of the embedded conversion option derivative and warrants derivative of $575,019 was recorded as derivative liabilities and was allocated as a debt discount of $552,473 with the remaining $22,546 being recorded as derivative expense.

 

At the end of the period, the Company revalued the embedded conversion option and warrant derivative liabilities. In connection with these revaluations and the initial derivative expense, the Company recorded derivative (expense) income of $(5,760,902) and $8,229,168 for the years ended December 31, 2019 and 2018, respectively.

 

During the years ended December 31, 2019 and 2018, the fair value of the derivative liabilities was estimated using the Binomial valuation model with the following assumptions:

 

			2019				2018
Dividend rate			—	%			—	%
Term (in years)			0.01 to 5.00 years				0.01 to 5.00 years
Volatility			188.9 to 253.7	%			188.9 to 197.1	%
Risk—free interest rate			1.59 to 2.96	%			2.07 to 2.96	%

 

At December 31, 2019 and December 31, 2018, the convertible debt consisted of the following:

 

		December 31,
		2019				2018
Principal amount		$	3,175,655			$	2,436,394
Less: unamortized debt discount			(260,358	)			(1,002,142	)
Convertible note payable, net		$	2,915,297			$	1,434,252

 

For the years ended December 31, 2019 and 2018, amortization of debt discounts related to this Convertible Note and the Notes amounted to $1,434,148 and $1,465,057, respectively, which has been included in interest expense on the accompanying consolidated statements of operations.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

Termination of October 20, 2015 Agreements

 

On March 13, 2018, the Company and Lincoln Park Capital Fund, LLC (“Lincoln Park”) entered into a termination agreement (the “Termination Agreement”) pursuant to which the parties terminated (i) the purchase agreement between them dated October 20, 2015 (the “Equity Line Agreement”) that provided the Company the right to sell to Lincoln Park, at its sole discretion, up to $10,100,000 of the Company’s common stock and (ii) the related registration rights agreement pursuant to which the Company had agreed to file a registration statement with the Securities and Exchange Commission covering the shares issuable under the Equity Line Agreement and related share issuances.

 

NOTE 7 – NOTES PAYABLE

 

From June 2017 to September 2017, the Company entered into loan agreements with several third parties (the “Loans”). Pursuant to the loan agreements, the Company borrowed an aggregate principal amount of $538,875. The Loans bear interest at an annual rate of 33.3%, are unsecured and are in default. As of December 31, 2019, and 2018, loan principal due to these third parties amounted to $538,875 for both periods. At December 31, 2019 and 2018, interest payable related to these Loans amounted to $430,223 and $250,777, respectively.

 

NOTE 8 – RELATED PARTY TRANSACTIONS

 

Due to related parties

 

From time to time, the Company receives advances from and repays such advances to the Company’s former chief executive officer for working capital purposes and to repay indebtedness. For the years ended December 31, 2019 and 2017, due to related party activity consisted of the following:

 

		Total
Balance due to related parties at December 31, 2017		$	(261,584	)
Working capital advances received			(264,185	)
Repayments made			210,303
Balance due to related parties at December 31, 2018		$	(315,466	)
Working capital advances received			(57,219	)
Repayments made			—
Balance due to related parties at December 31, 2019		$	(372,685	)

 

NOTE 9 – STOCKHOLDERS’ EQUITY (DEFICIT)

 

On April 3, 2019, the Company filed an amendment to its Articles of Incorporation to increase its authorized common stock from 500,000,000 shares to 1,500,000,000 shares (see Note 1). The Company’s 1,520,000,000 authorized shares consisted of 1,500,000,000 shares of common stock at $0.0001 per share par value, and 20,000,000 shares of preferred stock at $0.0001 per share par value.

 

On August 6, 2019, the Company filed an amendment to its Articles of Incorporation to increase its authorized common stock from 1,500,000,000 shares to 5,000,000,000 shares (see Note 1). The Company’s 5,020,000,000 authorized shares consist of 5,000,000,000 shares of common stock at $0.0001 per share par value, and 20,000,000 shares of preferred stock at $0.0001 per share par value.

 

On August 28, 2019, the Company filed an amendment to its Articles of Incorporation to implement a reverse stock split of the Company’s issued and outstanding shares of common and preferred stock at a ratio of 1-for-750 (the “Reverse Stock Split”), which became effective on September 12, 2019. In addition, the Company amended the articles to reduce the Company’s authorized shares to; (i) 6,666,667 shares of common stock and; (ii) 26,667 shares of preferred stock, including 1,333 shares of Series A Preferred and 10,523 shares of Series B Preferred. The Reverse Stock Split did not have any effect on the stated par value of the common and preferred stock. All share and per share amounts in the accompanying historical consolidated financial statements have been retroactively adjusted to reflect the Reverse Stock Split (see Note 1).

 

Series A Preferred Stock

 

On August 20, 2015, the Company filed the Certificate of Designation with the Nevada Secretary of State, designating 1,333 shares of the authorized 26,667 Preferred Stock as Series A Preferred Stock. Each holder of Series A Preferred Stock is entitled to 500 votes for each share of Series A Preferred Stock held as of the applicable date on any matter that is submitted to a vote or for the consent of the stockholders of the Company.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

The holders of Series A Preferred Stock shall have no special voting rights and their consent is not required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for the taking of any corporate action. As of December 31, 2019, of these shares, 667 are held by a former Chief Executive Officer and a current member of our Board of Directors and 666 shares are held by a former member of our Board of Directors.

 

Series B Preferred Stock

 

On March 7, 2017, the Company filed a certificate of designation, preferences and rights of Series B preferred stock (the “Certificate of Designation”) with the Secretary of State of the State of Nevada to designate 10,523 shares of its previously authorized preferred stock as Series B preferred stock, par value $0.0001 per share and a stated value of $0.0001 per share. The Certificate of Designation and its filing was approved by the Company’s board of directors without shareholder approval as provided for in the Company’s articles of incorporation and under Nevada law. The holders of shares of Series B preferred stock are entitled to dividends or distributions share for share with the holders of the Common Stock, if, as and when declared from time to time by the Board of Directors. The holders of shares of Series B preferred stock have the following voting rights:

 

	●	Each share of Series B preferred stock entitles the holder to 100 votes on all matters submitted to a vote of the Company’s stockholders.
	●	Except as otherwise provided in the Certificate of Designation, the holders of Series B preferred stock, the holders of Company common stock and the holders of shares of any other Company capital stock having general voting rights and shall vote together as one class on all matters submitted to a vote of the Company’s stockholders; and
	●	Commencing at any time after the date of issuance of any shares of the Series B Preferred Stock (the “Issuance Date”) and upon the earliest of the occurrence of (i) a holder of the Series B Preferred Stock owning, directly or indirectly as a beneficiary or otherwise, shares of Common Stock which are less than 5.0% of the total outstanding shares of Common Stock, (ii) the date a holder of the Series B Preferred Stock is no longer an employee of the Company or any of its subsidiaries or (iii) five years after the Issuance Date, the Company shall have the right to redeem all of the then outstanding Series B Preferred Stock held by such holder at a price equal to the Stated Value (the “Redemption Price”). The Series B Preferred Stock which is redeemed as provided for in the Certificate of Designations shall be returned to the Company (and, if not so returned, shall automatically be deemed canceled). The Redemption Price shall be mailed to such holder at the holder’s address of record, and the Series B Preferred Stock owned by such holder shall be canceled.

 

In the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up of the Corporation, the holders of the Series B Preferred Stock shall be entitled to receive, share for share with the holders of shares of Common Stock and Series A Preferred Stock, all the assets of the Corporation of whatever kind available for distribution to stockholders, after the rights of the holders of the Series A Preferred Stock have been satisfied.

 

In March 2017, the Company issued 3,856 shares of Series B Preferred to Jonathan F. Head, Ph. D, the Company’s Chief Executive Officer and a member of the Board of Directors of the Company as provided for in the Contribution Agreement and was recorded as compensation expense. In addition, in March 2017 the Company issued 6,667 shares of Series B Preferred to Banco Actinver for the benefit of the Vitel Stockholders as partial consideration in the exchange for 100% of the issued and outstanding capital stock of Vitel. (see Note 3).

 

On February 20, 2019, pursuant to the Certificate of Designation, the Company exercised its right to redeem 6,667 shares of the Series B Preferred outstanding held by to Banco Actinver, S.A., in its capacity as Trustee of the Trust Agreement for the benefit of Mr. Cosme and Mr. Alaman equal to the stated value. The total redemption price equaled $500 or $0.075 per share of Series B Preferred.

 

As of December 31, 2019, and 2018, there were 3,856 and 10,523 shares of Series B Preferred issued and outstanding, respectively.

 

Common Stock

 

Common stock issuable for cash

 

●

During the year ended December 31, 2018, the Company had 800 shares of its common stock issuable to an investor for cash proceeds of $6,000, or $7.50 per share, pursuant to a unit subscription agreement.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

Shares issued for services

 

●

During the year ended December 31, 2018, the Company issued 3,333 shares of its common stock with a grant date value of $52,500 or $15.75 per share as reported on the OTC Pink on the grant date, in exchange for legal services, pursuant to an agreement.

 

 

Shares issued for debt conversion

 

	●	During the year ended December 31, 2018, the Company issued 78,175 shares of its common stock upon the conversion of principal note balances of $387,292, interest of $40,320, and default interest of $55,890.
	●	During the year ended December 31, 2019, the Company issued 508,999 shares of its common stock upon the conversion of principal note balances of $356,339, accrued interest of $44,308 and default interest of $36,134. These shares of common stock had an aggregate fair value $871,512 and the difference between the aggregate fair value and the aggregate converted amount of $436,281 resulted in a loss on debt extinguishment of $434,731.

 

Shares issued for cashless exercise of warrants

 

●

During the year ended December 31, 2018, the Company issued 43,620 shares of its common stock upon the cashless exercise of 47,431 of its warrants (see Note 6).

 

Warrants

 

Warrants issued pursuant to equity subscription agreements

 

In 2016, in connection with the sale of common stock, the Company issued an aggregate of 1,295 five-year warrants to purchase common shares for an exercise price of $225 per common share to investors pursuant to unit subscription agreements. As of December 31, 2019, and 2018, 1,292 of these warrants were issued and outstanding for both periods.

 

In 2017, in connection with the sale of common stock, the Company issued an aggregate of 6,169 five-year warrants to purchase common shares for an exercise price of $225 per common share to investors pursuant to unit subscription agreements. As of December 31, 2019, and 2018, 6,169 of these warrants were issued and outstanding for both periods.

 

Warrants issued pursuant to Securities Purchase Agreements

 

The warrants detailed below, issued pursuant to the Securities Purchase Agreements (see Note 6), have initial exercise price between $0.20 and $131 (subject to adjustments under certain conditions as defined in the agreements) and includes a down-round provision under which the exercise price could be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception. It also includes a default provision pursuant to which, these Warrants shall be exercisable at the Default Conversion Price as defined in the related Notes (see Note 6).

 

As of December 31, 2019, there were not enough authorized shares to allow the issuance of common stock if all the warrants need to be exercised.

 

Outstanding warrants as of December 31, 2019, all of which have been accounted for as derivative liabilities, are summarized as follows:

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

		Original warrants issued				Cumulative Anti-dilution adjustment				Expired, Cancelled or Forfeited				Warrants purchased back - Puritan Settlement Agreement (post anti- dilution)				Total warrants exercised (Cashless exercise)				Outstanding warrants as of December 31, 2019				Exercise price at December 31, 2019
Warrants related to the 2016 subscription agreements			1,295				—				(3	)			—				—				1,292			$	225.00
Warrants related to the 2017 subscription agreements			6,169				—				—				—				—				6,169			$	225.00
November 2016 Warrants			3,111				39,235				—				—				(12,099	)			30,247			$	4.50
June 2017 Warrants			2,074				58,423				—				(8,067	)			(12,099	)			40,331			$	4.50
July 2017 Warrants			6,359				99,635				—				—				(35,332	)			70,662			$	4.50
January 2018 Warrants			11,111				4,356,265				—				(10,078	)			—				4,357,298			$	0.05
March 2018 Warrants			16,667				6,534,399				—				(15,117	)			—				6,535,949			$	0.05
September 2018 Warrants			68,056				39,964,625				—				—				—				40,032,681			$	0.05
November 2018 Warrants			6,389				3,751,781				—				—				—				3,758,170			$	0.05
March 2019 Warrants			2,778				1,631,209				—				—				—				1,633,987			$	0.05
April 2019 Warrants I			1,389				815,605				—				—				—				816,994			$	0.05
April 2019 Warrants II			10,264				6,027,318				—				—				—				6,037,582			$	0.05
May 2019 Warrants			500				293,618				—				—				—				294,118			$	0.05
June 2019 Warrants I			6,458				3,792,562				—				—				—				3,799,020			$	0.05
June 2019 Warrants II			5,556				1,628,431				—				—				—				1,633,987			$	0.05
July 2019 Warrants I			5,556				1,628,431				—				—				—				1,633,987			$	0.05
July 2019 Warrants II			5,556				1,628,431				—				—				—				1,633,987			$	0.05
August 2019 Warrants			2,778				—				—				—				—				2,778			$	15.00
September 2019 Warrants			16,667				—				—				—				—				16,667			$	15.00
November 2019 Warrants I			277,500				—				—				—				—				277,500			$	0.20
November 2019 Warrants II			275,000				—				—				—				—				275,000			$	0.20
December 2019 Warrants I			277,500				—				—				—				—				277,500			$	0.20
December 2019 Warrants II			277,500				—				—				—				—				277,500			$	0.20
			1,286,233				72,249,968				(3	)			(33,262	)			(59,530	)			73,443,406

 

During the years ended December 31, 2019 and 2018, the Company issued nil and 43,620 shares of its common stock, respectively, upon the cashless exercise of nil and 47,431 of its warrants, respectively.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

Warrants activities for the year ended December 31, 2019 are summarized as follows:

 

		Number of Warrants				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term (Years)				Aggregate Intrinsic Value
Balance Outstanding December 31, 2017			204,203			$	15.00				4.41			$	5,754,600
Issued in connection with financings			102,222			$	30.00				4.07				—
Adjustment in connection with default provision			113,886			$	3.75				2.09				—
Reduction in warrants related to settlement of debt			(33,262	)		$	9.75				—				—
Exercised			(47,430	)		$	4.50				—				—
Balance Outstanding at December 31, 2018			339,619			$	15.75				3.47				—
Issued in connection with financings			1,165,002				0.44				4.90				—
Increase in warrants related to default adjustment			71,938,788				0.05				3.85				—
Expired			(3	)			225.00				—				—
Exercised			—				—				—				—
Balance Outstanding at December 31, 2019			73,443,406			$	0.09				3.83			$	—
Exercisable at December 31, 2019			73,443,406			$	0.09				3.83			$	—

 

Stock options

 

Effective February 18, 2011, our board of directors adopted and approved the 2011 stock option plan. The purpose of the 2011 stock option plan is to enhance the long-term stockholder value of our Company by offering opportunities to directors, key employees, officers, independent contractors and consultants of our Company to acquire and maintain stock ownership in our Company in order to give these persons the opportunity to participate in our Company’s growth and success, and to encourage them to remain in the service of our Company. A total of 57 options to acquire shares of our common stock were authorized under the 2011 stock option plan and during the 12 month period after the first anniversary of the adoption of the 2011 stock option plan, by our board of directors and during each 12 month period thereafter, our board of directors is authorized to increase the amount of options authorized under this plan by up to 14 shares. No options were granted under the 2011 stock option plan as of December 31, 2019.

 

Stock-option issued during the year ended December 31, 2018

 

On May 8, 2018, the Company granted an aggregate of 23,334 stock options to purchase 23,334 shares of the Company’s common stock at $10.13 per share as follows: 20,000 options were granted to officers and directors of the Company, 667 options were granted to an employee, and 2,667 option to the Company’s scientific advisory board. These options vest in one year from the grant date and expire on May 8, 2028. The fair value of these option grants was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: dividend yield of 0%; expected volatility of 243%; risk-free interest rate of 2.81%; and, an estimated term based on the simplified method of 5.5 years. In connection with these options, the Company valued these options at a fair value of approximately $233,000 and will record stock-based compensation expense over the vesting term.

 

Stock-option issued during the year ended December 31, 2019

 

On April 24, 2019 the board of directors of the Company granted an aggregate of 23,130 stock options, outside of the plan, to purchase shares of the Company’s common stock to Dr. Barnett and three non-employee members of the Board, Daniel S. Hoverman, Charles L. Rice and Neal Holcomb.

 

Pursuant to Dr. Barnett’s employment agreement dated December 26, 2018, Dr. Barnett was granted 11,130 stock options with exercise price of $9.00 per share, vest dates of; (i) 3,710 on January 9, 2020; (ii) 3,710 on January 9, 2021; and (iii) 3,710 on January 9, 2022 and expire on April 24, 2030. The stock options vest so long as the optionee remains an employee of the Company on the vesting date (except as otherwise provided for in the employment agreement between the Company and the optionee). The fair value of this option grant was estimated on the date of grant using the Black-Scholes option-pricing model and the Company valued these options at a grant date fair value of $81,803 which will be expensed over the vesting period as stock-based compensation.

 

On November 8, 2019, Dr. Barnett resigned as the Company’s Chief Executive Officer (see Note 12) which resulted in forfeiture of 11,130 of unvested stock options granted to him on December 26, 2018 (discussed above). The Company reversed $24,995 of stock-based compensation and $56,808 of the remaining deferred compensation which makes up the grant date fair value of $81,803 initially recorded as deferred compensation in April 2019.

 

The three non-employee members of the Board were each granted 4,000 stock options for a total of 12,000 stock options with exercise price of $7.50 per share, vest date of April 24, 2020 and expires on April 24, 2030. The stock options vest so long as the optionee remains a member of the Board on the vesting date. The fair value of this option grant was estimated on the date of grant using the Black-Scholes option-pricing model and the Company valued these options at a grant date fair value of $88,200 which will be expensed over the vesting period as stock-based compensation

 

During the years ended December 31, 2019 and 2018, the Company recorded stock-based compensation expense of $140,697 and $276,918 related to stock options, respectively.

 

The Company uses the Black-Scholes pricing model to determine the fair value of its stock options which requires the Company to make several key judgments including:

 

	●	the value of the Company’s common stock;
	●	the expected life of issued stock options;
	●	the expected volatility of the Company’s stock price;
	●	the expected dividend yield to be realized over the life of the stock option; and
	●	the risk-free interest rate over the expected life of the stock options.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

The Company’s computation of the expected life of issued stock options was based on the simplified method as the Company does not have adequate exercise experience to determine the expected term. The interest rate was based on the U.S. Treasury yield curve in effect at the time of grant. The computation of volatility was based on the historical volatility of the Company’s common stock.

 

At December 31, 2019, there were 41,600 options issued and outstanding out of which 29,600 options were vested and exercisable.

 

As of December 31, 2019, there was $35,280 of unvested stock-based compensation expense to be recognized through April 24, 2020.

 

The aggregate intrinsic value at December 31, 2019 was $0 which was calculated based on the difference between the quoted share price on December 31, 2019 and the exercise price of the underlying options.

 

Stock option activities for the year ended December 31, 2019 are summarized as follows:

 

		Number of Option				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term (Years)				Aggregate Intrinsic Value
Balance Outstanding at December 31, 2018			29,600			$	45.00				8.37				—
Granted			23,130			$	9.00				10.32				—
Expired			—			$	—				—				—
Forfeited			(11,130	)		$	9.00				—				—
Balance Outstanding at December 31, 2019			41,600			$	36,69				9.34			$	—
Exercisable at December 31, 2019			29,600			$	47.91				8.37			$	—

 

NOTE 10 – INCOME TAXES

 

The Company maintains deferred tax assets and liabilities that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The deferred tax assets at December 31, 2019 and 2018 consist of net operating loss carryforwards. The net deferred tax asset has been fully offset by a valuation allowance because of the uncertainty of the attainment of future taxable income.

 

The items accounting for the difference between income taxes at the effective statutory rate and the provision for income taxes for the years ended December 31, 2019 and 2018 were as follows:

 

		Years Ended December 31,
		2019				2018
Income tax deduction (benefit) at U.S. statutory rate of 21%		$	(1,974,471	)		$	1,358,348
Income tax deduction (benefit) – state			(752,180	)			517,466
Non-deductible (income) expenses			2,254,568				(2,523,247	)
Change in valuation allowance			472,083				647,433
Total provision for income tax		$	—			$	—

 

The Company’s approximate net deferred tax asset as of December 31, 2019 and 2018 was as follows:

 

		Years Ended December 31,
		2019				2018
Net operating loss carryforward		$	2,605,720			$	2,133,637
Total deferred tax asset			2,605,720				2,133,637
Less: valuation allowance			(2,605,720	)			(2,133,637	)
Net deferred tax asset		$	—			$	—

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

The gross operating loss carryforward was approximately $8,985,240 at December 31, 2019. The Company provided a valuation allowance equal to the net deferred income tax asset as of December 31, 2019 because it was not known whether future taxable income will be sufficient to utilize the loss carryforward. The increase in the valuation allowance was $472,083 in 2019. The potential tax benefit arising from the net operating loss carryforward of $1,486,204 from the period prior to Act’s effective date will expire in 2038. The potential tax benefit arising from the net operating loss carryforward of $1,119,516 from the period following to the Act’s effective date can be carried forward indefinitely within the annual usage limitations.

 

Additionally, the future utilization of the net operating loss carryforward to offset future taxable income is subject to an annual limitation as a result of ownership or business changes that occurred in 2019 and may occur in the future. The Company has not conducted a study to determine the limitations on the utilization of these net operating loss carryforwards. If necessary, the deferred tax assets will be reduced by any carryforward that may not be utilized or expires prior to utilization as a result of such limitations, with a corresponding reduction of the valuation allowance.

 

The Company does not have any uncertain tax positions or events leading to uncertainty in a tax position. The Company’s 2019, 2018 and 2017 Corporate Income Tax Returns are subject to Internal Revenue Service examination.

 

NOTE 11 – COMMITMENTS AND CONTINGENCIES

 

Lease

 

Effective September 1, 2015, the Company leases its facilities under a non-cancelable operating lease which expires on August 31, 2020. The Company has the right to renew certain facility leases for an additional five years. Rent expense is $3,200 base rent per month plus operating expense and other fees (see Note 5).

 

NOTE 12 – EMPLOYMENT AGREEMENTS

 

On February 2, 2016, the Company entered into an employment agreement with Jonathan F. Head, Ph.D. (“Dr. Head”) to serve as the Company’s Chief Executive Officer, the term of which runs for three years (from February 2, 2016 through February 1, 2019) and renews automatically for one year periods unless a written notice of termination is provided not less than 120 days prior to the automatic renewal date. The employment agreement with Dr. Head provides that Dr. Head’s salary for calendar year 2016 shall be $275,000 and for calendar year 2017 and for each calendar year thereafter during the term of the employment agreement with Dr. Head shall be an amount determined by the Board of Directors, which in no event shall be less than the annual salary that was payable by the Company to Dr. Head for the immediately preceding calendar year.

 

On February 2, 2016, the Company entered into an employment agreement with Andrew Kucharchuk (“Mr. Kucharchuk) to serve as the Company’s President and Chief Financial Officer, the term of which runs for three years (from February 2, 2016 through February 1, 2019) and renews automatically for one year periods unless a written notice of termination is provided not less than 120 days prior to the automatic renewal date. The employment agreement with Mr. Kucharchuk provides that Mr. Kucharchuk’s salary for calendar year 2016 shall be $200,000 and for calendar year 2017 and for each calendar year thereafter during the term of the employment agreement with Mr. Kucharchuk shall be an amount determined by the Board of Directors, which in no event shall be less than the annual salary that was payable by the Company to Mr. Kucharchuk for the immediately preceding calendar year.

 

The above executives shall be eligible for an annual target bonus payment in an amount equal to ten percent of his base salary (“Bonus”). The Bonus is determined based on the achievement of certain performance objectives of the Company as established by the Board of Directors. The Bonus may be greater or less than the target Bonus, based on the level of achievement of the applicable performance objectives.

 

Effective December 26, 2018, the Company replaced Dr. Jonathan Head and appointed Dr. Brian Barnett as the new Chief Executive Officer. Dr. Head will continue to serve the Company as the Chairman of the Board of Directors and now as its Chief Scientific Officer effective December 26, 2018. Dr. Head is still negotiating the terms of his new employment agreement for his new position as the Chief Scientific Officer, with the Company, as of the date of this report.

 

On December 26, 2018, Dr. Barnett entered into an employment agreement with us (“Barnett Employment Agreement”) to serve as the Company’s Chief Executive Officer for a term of three years (from December 26, 2018 through December 26, 2021) that renews automatically for one-year periods unless a written notice of termination is provided not less than 180 days prior to the automatic renewal date. The Barnett Employment Agreement provides that Dr. Barnett’s salary for calendar year 2019 shall be $250,000 and for each calendar year thereafter during the term of the Barnett Employment Agreement shall be an amount determined by the Board of Directors, which in no event shall be less than the annual salary that was payable by the Company to Dr. Barnett for the immediately preceding calendar year.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

Dr. Barnett is also eligible to receive a performance-based bonus of up to $150,000 upon completion of specific metrics established by the Company’s Board of Directors and is entitled to participate in all medical and other benefits that the Company has established for its employees. Pursuant to the employment agreement, the Company will also grant options to purchase a number of shares of the Company’s common stock equal to $100,000 divided by the volume weighted average price of the Company’s common stock for the ten (10) business days prior to the effective date of the employment agreement. The option grant is subject to continued employment, and will vest ratably over the first three anniversary dates of the grant date. On April 24, 2019, Dr. Barnett was granted 11,130 stock options with exercise price of $9.00 per share, vest dates of; (i) 3,710 on January 9, 2020; (ii) 3,710 on January 9, 2021; and (iii) 3,710 on January 9, 2022 and expire on April 24, 2030. The stock options vest so long as the optionee remains an employee of the Company on the vesting date (except as otherwise provided for in the employment agreement between the Company and the optionee) (see Note 9).

 

Additionally, upon the closing of a transaction during calendar year 2019 which results in the sale of common stock of the Company on terms acceptable to the Board that provides net proceeds to the Company of no less than $4,000,000 (a “Qualifying Transaction”), Dr. Barnett shall be granted options to purchase a number of shares of the Company’s common stock equal to $50,000 divided by the transaction price of the Company’s common stock in the Qualifying Transaction. The option grant is subject to continued employment, and will vest ratably over the first three anniversary dates of the date of the closing of the Qualifying Transaction.

 

On November 8, 2019, Dr. Barnett resigned as the Company’s Chief Executive Officer (see Note 9) which resulted in forfeiture of 11,130 of unvested stock options granted to him on December 26, 2018 (discussed above). The Company reversed $24,995 of stock-based compensation and $56,808 of the remaining deferred compensation which makes up the grant date fair value of $81,803 initially recorded as deferred compensation in April 2019.

 

NOTE 13 - SUBSEQUENT EVENTS

 

On January 27, 2020, the Company entered into a securities purchase agreement (the “Twenty-sixth Purchase Agreement”) for the sale of the Company’s convertible note and warrants. Pursuant to the Twenty- sixth Purchase Agreement, the Company issued to the Twenty- sixth Round Purchaser a note (the “January 2020 Note I”) with a principal amount of $55,000 with 10% OID and five-year warrants (the “January 2020 Warrants I”) to purchase an aggregate of 275,000 shares of the Company’s common stock at an exercise price of $0.20 per share (subject to adjustments under certain conditions as defined in the January 2020 Warrants I). The Company received $50,000 in aggregate net proceeds from the sale, net of $5,000 original issue discount. The January 2020 Note I bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the January 2020 Note I)), shall mature on October 30, 2020 and the principal and interest are convertible at any time at a conversion price equal to $0.20 per share (subject to adjustment as provided in the January 2020 Note I); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the January 2020 Note I shall be convertible and the January 2020 Warrants I shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the January 2020 Note I to the extent that such conversion would result in beneficial ownership by a purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The January 2020 Note I may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the January 2020 Note I and accrued and unpaid interest during the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance of the January 2020 Note I and accrued and unpaid interest during month six following the original issue date. In order to prepay the January 2020 Note I, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser may convert the January 2020 Note I in whole or in part at the conversion price.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 and 2018

 

The initial exercise price of the January 2020 Warrants I is $0.20 per share, subject to adjustment as described below, and are exercisable for five years after the issuance date. The January 2020 Warrants I is exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the January 2020 Warrants I shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”).

 

On January 29, 2020, the Company entered into a securities purchase agreement (the “Twenty-seventh Purchase Agreement”) for the sale of the Company’s convertible note and warrants. Pursuant to the Twenty-seventh Purchase Agreement, the Company issued to the Twenty- seventh Round Purchaser a note (the “January 2020 Note II”) with a principal amount of $55,000 with 10% OID and five-year warrants (the “January 2020 Warrants II”) to purchase an aggregate of 277,500 shares of the Company’s common stock at an exercise price of $0.20 per share (subject to adjustments under certain conditions as defined in the January 2020 Warrants II). The Company received $50,000 in aggregate net proceeds from the sale, net of $5,000 original issue discount. The January 2020 Note II bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the January 2020 Note II)), shall mature on October 30, 2020 and the principal and interest are convertible at any time at a conversion price equal to $0.20 per share (subject to adjustment as provided in the January 2020 Note II); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the January 2020 Note II shall be convertible and the January 2020 Warrants II shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the January 2020 Note II to the extent that such conversion would result in beneficial ownership by a purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The January 2020 Note II may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the January 2020 Note II and accrued and unpaid interest during the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance of the January 2020 Note II and accrued and unpaid interest during month six following the original issue date. In order to prepay the January 2020 Note II, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser may convert the January 2020 Note II in whole or in part at the conversion price.

 

The initial exercise price of the January 2020 Warrants II is $0.20 per share, subject to adjustment as described below, and are exercisable for five years after the issuance date. The January 2020 Warrants II is exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the Warrants is subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the January 2020 Warrants II shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”).

 

On March 18, 2020, the Company entered into a securities purchase agreement (the “Twenty-Eight Purchase Agreement”) for the sale of the Company’s convertible note and warrants. Pursuant to the Twenty- Eight Purchase Agreement, the Company issued to the Twenty-Eight Round Purchaser a note (the “March 2020 Note I”) with a principal amount of $41,667 with 10% OID and five-year warrants (the “March 2020 Warrants I”) to purchase an aggregate of 208,333 shares of the Company’s common stock at an exercise price of $0.20 per share (subject to adjustments under certain conditions as defined in the March 2020 Warrants I). The Company received $37,500 in aggregate net proceeds from the sale, net of $4,167 original issue discount. The March 2020 Note I bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the March 2020 Note I)), shall mature on November 18, 2020 and the principal and interest are convertible at any time at a conversion price equal to $0.20 per share (subject to adjustment as provided in the March 2020 Note I); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the March 2020 Note I shall be convertible and the March 2020 Warrants I shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the March 2020 Note I to the extent that such conversion would result in beneficial ownership by a purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The March 2020 Note I may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the March 2020 Note I and accrued and unpaid interest during the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance of the March 2020 Note I and accrued and unpaid interest during month six following the original issue date. In order to prepay the March 2020 Note I, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser may convert the March 2020 Note I in whole or in part at the conversion price.

 

The initial exercise price of the March 2020 Warrants I is $0.20 per share, subject to adjustment as described below, and are exercisable for five years after the issuance date. The March 2020 Warrants I is exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the Warrants is subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the March 2020 Warrants I shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”).

 

On March 18, 2020, the Company entered into a securities purchase agreement (the “Twenty-Ninth Purchase Agreement”) for the sale of the Company’s convertible note and warrants. Pursuant to the Twenty- Ninth Purchase Agreement, the Company issued to the Twenty-Ninth Round Purchaser a note (the “March 2020 Note II”) with a principal amount of $41,667 with 10% OID and five-year warrants (the “March 2020 Warrants II”) to purchase an aggregate of 208,333 shares of the Company’s common stock at an exercise price of $0.20 per share (subject to adjustments under certain conditions as defined in the March 2020 Warrants II). The Company received $37,500 in aggregate net proceeds from the sale, net of $4,167 original issue discount. The March 2020 Note II bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the March 2020 Note II)), shall mature on November 18, 2020 and the principal and interest are convertible at any time at a conversion price equal to $0.20 per share (subject to adjustment as provided in the March 2020 Note II); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the March 2020 Note II shall be convertible and the March 2020 Warrants II shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the March 2020 Note II to the extent that such conversion would result in beneficial ownership by a purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The March 2020 Note II may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the March 2020 Note II and accrued and unpaid interest during the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance of the March 2020 Note II and accrued and unpaid interest during month six following the original issue date. In order to prepay the March 2020 Note II, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser may convert the March 2020 Note II in whole or in part at the conversion price.

 

The initial exercise price of the March 2020 Warrants II is $0.20 per share, subject to adjustment as described below, and are exercisable for five years after the issuance date. The March 2020 Warrants II is exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the Warrants is subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the March 2020 Warrants II shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”).

 

Subsequent to the year ended December 31, 2019, the lender converted $2,030 of principal and $107 of accrued interest into 41,903 shares of common stock.